-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/E3HqOmHRn4ViE4Plcc6Nd4B4Cmg6R9e6CXE8zkAqwepA8b8XDNEhhlHxNoKYPU G8gSmK/uAazcCAHPDPi9wA== 0000930413-99-000783.txt : 19990702 0000930413-99-000783.hdr.sgml : 19990702 ACCESSION NUMBER: 0000930413-99-000783 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIFUNDS FIXED INCOME TRUST CENTRAL INDEX KEY: 0000795808 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 811-05033 FILM NUMBER: 99657762 BUSINESS ADDRESS: STREET 1: 21 MILK STREET STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174231679 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FIXED INCOME FUNDS/ DATE OF NAME CHANGE: 19931117 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FIXED INCOME FUNCS/DE DATE OF NAME CHANGE: 19931115 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK U S GOVERNMENT INCOME FUND DATE OF NAME CHANGE: 19920703 N-30B-2 1 SEMI-ANNUAL REPORT Semi-Annual Report o April 30, 1999 Intermediate Income Portfolio B O N D S Investment products: Not FDIC Insured o No Bank Guarantee o May Lose Value TABLE OF CONTENTS Letter to Our Shareholders 1 - -------------------------------------------------------------------------------- Portfolio Environment and Outlook 2 - -------------------------------------------------------------------------------- Fund Facts 3 - -------------------------------------------------------------------------------- Portfolio Highlights 3 - -------------------------------------------------------------------------------- Fund Performance 4 - -------------------------------------------------------------------------------- CITIFUNDS INTERMEDIATE INCOME PORTFOLIO Statement of Assets and Liabilities 5 - -------------------------------------------------------------------------------- Statement of Operations 6 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 7 - -------------------------------------------------------------------------------- Financial Highlights 8 - -------------------------------------------------------------------------------- Notes to Financial Statements 10 - -------------------------------------------------------------------------------- U.S. FIXED INCOME PORTFOLIO Portfolio of Investments 14 - -------------------------------------------------------------------------------- Statement of Assets and Liabilities 17 - -------------------------------------------------------------------------------- Statement of Operations 18 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 19 - -------------------------------------------------------------------------------- Financial Highlights 20 - -------------------------------------------------------------------------------- Notes to Financial Statements 21 - -------------------------------------------------------------------------------- LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: This semi-annual report covers the period from November 1, 1998 through April 30, 1999, for CitiFunds Intermediate Income Portfolio. Inside, the CitiFunds' investment manager, Citibank, N.A., discusses the market conditions it faced, the strategies it employed as well as its outlook for the future. The reporting period saw a continuation of the strong economic conditions that have dominated the U.S. for more than seven years. Lower short-term interest rates adopted by the Federal Reserve Board in the fall of 1998 appear to have helped U.S. businesses withstand the effects of economic weakness in Japan, Asia and Latin America. Consumer spending remained high, unemployment was low and inflationary pressures continued to be virtually absent. These economic conditions produced mixed results for fixed income securities over the past six months. U.S. Treasury securities, which rallied strongly last summer when the stock market and other bond markets declined sharply, gave back some of their gains. Other types of bonds did relatively better, however, as investors shifted assets back into bond market sectors they had previously avoided, including corporate bonds, mortgage-backed securities, asset-backed securities and foreign bonds. Accordingly, many investment grade fixed income funds, including CitiFunds Intermediate Income Portfolio, repositioned their portfolios during the reporting period to adjust to rapidly changing market conditions. Thank you for your continued confidence and participation. Sincerely, /s/Philip W. Coolidge - -------------------------------- Philip W. Coolidge President May 20, 1999 PORTFOLIO ENVIRONMENT AND OUTLOOK Much has changed in the U.S. bond market since November 1998. When the reporting period began, the Federal Reserve Board ("Fed") had already lowered short-term interest rates twice in an effort to assure investors worldwide that they would provide the necessary liquidity to help stabilize the financial markets until the second interest rate cut in mid-October. Many bond market investors appeared to be unimpressed. Investors continued to favor U.S. Treasury securities over the higher risk/higher return sectors of the bond market, causing the differences in yields between those types of bonds and U.S. Treasury securities to remain at historically wide levels. In November, the Fed reduced short-term interest rates a third time in 1998 seeking assurance that the global financial markets were functioning normally. During the reporting period, central banks worldwide followed the Fed's lead, as they attempted to curb the spread of the currency and credit crisis that began in Asia in 1997 and spread to Russia and parts of Latin America in 1998. Finally convinced that the Fed and its foreign counterparts understood the extent of the world's financial problems, investors gradually shifted assets back to higher risk/higher return securities. As a result, the differences in yields between U.S. Treasury securities and other types of bonds began to narrow. During the reporting period, the Portfolio's allocations in U.S. Treasury issues, asset-backed securities and corporate bonds remained virtually the same. With respect to its mortgage obligation holdings, the U.S. Fixed Income Portfolio had 47% invested in these securities as of April 30, 1999 versus 27% invested in mortgage-obligations as of October 31, 1998. Similarly, we adjusted the Portfolio's average duration, a measure of sensitivity to changing interest rates. Throughout the final months of 1998 and the beginning of 1999, the Portfolio's average duration remained on the long side, enabling us to maintain higher yields for as long as possible while interest rates fell. At the end of February 1999, however, we reduced the Portfolio's average duration in anticipation of stable to modestly rising interest rates. This change in duration was intended to help us take advantage of higher yields, as they became available. Looking forward, we expect the U.S. economy to remain relatively strong and overseas economies to improve. As of April 30, 1999, yields on higher risk/higher return securities remained at wider than average levels relative to U.S. Treasury securities. In our opinion, corporate bonds, mortgage-backed securities and asset-backed securities are likely to continue to benefit from strong investor demand. With U.S. interest rates expected to remain within a relatively narrow range, we intend to adjust the Portfolio's average duration tactically, shortening it modestly when interest rates appear to be rising and extending it when interest rates seem likely to fall. In our view, these strategies should help CitiFunds Intermediate Income Portfolio meet the challenges of delivering a high level of income despite constantly changing bond market conditions. 2 FUND FACTS FUND OBJECTIVE To generate a high level of current income and preserve the value of its shareholders' investments. INVESTMENT MANAGER DIVIDENDS Citibank, N.A. Paid monthly COMMENCEMENT OF OPERATIONS CAPITAL GAINS June 25, 1993 Distributed semi-annually, if any NET ASSETS AS OF 4/30/99 BENCHMARKS Class A shares o Lipper Intermediate Investment $76.5 million Grade Funds Average Class B shares o Lehman Aggregate Bond Index* $3.0 million * The Lehman Aggregate Bond Index is an unmanaged index of U.S. Government and Corporate bonds representing a broad measure of the performance of taxable bonds in the U.S. market, with maturities of at least one year. PORTFOLIO HIGHLIGHTS PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 1999 (Unaudited) [Pie Chart] Preffered Stock 1% *Short Term (18%) Asset Backed Securities 4% Mortgage Obligations 47% Corporate Bonds 33% U.S. Treasury Issues 33% *Includes cash and other net assets 3 FUND PERFORMANCE TOTAL RETURNS
SINCE SIX ONE FIVE 6/25/93 ALL PERIODS ENDING APRIL 30, 1999 (Unaudited) MONTHS** YEAR YEARS* INCEPTION* ============================================================================================ CitiFunds Intermediate Income Portfolio (Class A) without sales charge (0.58)% 4.78% 6.79% 5.53% Lipper Intermediate Investment Grade Funds Average 0.57% 5.12% 7.15% 5.38%+ Lehman Aggregate Bond Index 0.68% 6.27% 8.03% 6.65%+ CitiFunds Intermediate Income Portfolio (Class A) with a maximum sales charge of 4.50% (5.05)% 0.06% 5.81% 4.71% CitiFunds Intermediate Income Portfolio (Class B) without deferred sales charge -- -- -- (1.08)%#** Lipper Intermediate Investment Grade Funds Average -- -- -- (0.22)%++* Lehman Aggregate Bond Index -- -- -- (0.18)%++** CitiFunds Intermediate Income Portfolio (Class B) with a maximum deferred sales charge of 4.50% -- -- -- (5.53)%#**
* Average Annual Total Return ** Not Annualized + From 6/30/93 ++ From 12/31/98 # From 1/4/99 30-Day SEC Yield Class A 4.78% 30-Day SEC Yield Class B 4.32% Income Dividends Per Share Class A $0.234 Income Dividends Per Share Class B $0.113 Growth of a $10,000 Investment A $10,000 investment in the Fund made on inception date would have grown to $13,086 with sales charge (as of 4/30/99). The graph shows how this compares to its benchmarks over the same period. Date Lipper Intermediate Lehman Aggregate CitiFunds Intermediate Inv. Grade Avg. Bond Index Income Fund 6/25/93 10000 6/30/93 10000 10000 9579 7/31/93 10042 10057 9620 8/31/93 10228 10233 9860 9/30/93 10268 10261 9937 10/31/93 10301 10299 9947 11/30/93 10209 10211 9785 12/31/93 10257 10266 9835 1/31/94 10387 10405 9975 2/28/94 10202 10224 9755 3/31/94 9980 9971 9519 4/30/94 9890 9891 9424 5/31/94 9875 9890 9398 6/30/94 9856 9869 9368 7/31/94 10004 10065 9527 8/31/94 10024 10077 9553 9/30/94 9911 9929 9393 10/31/94 9896 9920 9357 11/30/94 9867 9898 9321 12/31/94 9914 9967 9395 1/31/95 10072 10164 9570 2/28/95 10281 10406 9788 3/31/95 10345 10469 9857 4/30/95 10478 10616 9969 5/31/95 10848 11027 10438 6/30/95 10916 11107 10497 7/31/95 10887 11083 10448 8/31/95 11009 11217 10542 9/30/95 11106 11326 10657 10/31/95 11244 11473 10695 11/30/95 11401 11645 10801 12/31/95 11546 11808 10941 1/31/96 11622 11886 10991 2/29/96 11423 11679 10772 3/31/96 11345 11597 10687 4/30/96 11276 11532 10613 5/31/96 11256 11509 10564 6/30/96 11384 11664 10739 7/31/96 11410 11695 10756 8/31/96 11401 11675 10725 9/30/96 11587 11878 10928 10/31/96 11821 12142 11167 11/30/96 12016 12350 11360 12/31/96 11910 12235 11239 1/31/97 11805 12273 11292 2/28/97 11829 12303 11320 3/31/97 11705 12167 11181 4/30/97 11857 12349 11354 5/31/97 11959 12467 11444 6/30/97 12092 12615 11570 7/31/97 12403 12956 11858 8/31/97 12294 12846 11743 9/30/97 12465 13034 11910 10/31/97 12522 13223 12117 11/30/97 12557 13284 12111 12/31/97 12670 13418 12236 1/31/98 12833 13590 12433 2/28/98 12815 13580 12402 3/31/98 12861 13626 12448 4/30/98 12916 13697 12490 5/31/98 13031 13827 12622 6/30/98 13125 13944 12729 7/31/98 13147 13974 12733 8/31/98 13307 14201 12972 9/30/98 13601 14534 13250 10/31/98 13502 14457 13162 11/30/98 13564 14539 13180 12/31/98 13609 14583 13223 1/31/99 13696 14686 13299 2/28/99 13441 14429 12975 3/31/99 13538 14509 13064 4/30/99 13579 14555 13086 Citifunds Intermediate Income Portfolio (Class A) Lipper Intermediate Investment Grade Funds Average Lehman Aggregate Bond Index The graph includes the initial maximum sales charge on the Fund (no comparable charge exists for the other indices) and assumes all dividends and distributions from the Fund are reinvested at Net Asset Value. Notes: All Fund performance numbers represent past performance, and are no guarantee of future results. The Fund's share price and investment return will fluctuate, so that the value of an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns include change in share price and reinvestment of dividends and distributions, if any. Total return figures "with sales charge" are provided in accordance with SEC guidelines for comparative purposes for prospective investors. Total returns reflect certain voluntary fee waivers which may be terminated. If the waivers were not in place, total returns would be lower. The maximum sales charge of 4.50% went into effect on January 4, 1999. Investors may not invest directly in an index. 4 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1999 (Unaudited) ================================================================================ ASSETS: Investment in U.S. Fixed Income Portfolio at value (Note 1A) $80,601,814 Receivable for shares of beneficial interest sold 98,292 Receivable from Sub-Administrator 25,462 - -------------------------------------------------------------------------------- Total assets 80,725,568 - -------------------------------------------------------------------------------- LIABILITIES: Payable for shares of beneficial interest repurchased 1,115,989 Accrued expenses and other liabilities 72,924 Dividends payable 54,107 - -------------------------------------------------------------------------------- Total liabilities 1,243,020 - -------------------------------------------------------------------------------- NET ASSETS $79,482,548 ================================================================================ NET ASSETS CONSIST OF: Paid-in capital $82,561,340 Accumulated net realized loss from investment transactions and futures contracts (2,334,429) Unrealized depreciation of investments and futures contracts (643,667) Accumulated net investment loss (100,696) - -------------------------------------------------------------------------------- Total $79,482,548 ================================================================================ COMPUTATION OF CLASS A SHARES: Net Asset Value per share ($76,531,930/7,880,763 shares outstanding) $ 9.71 Offering price per share ($9.71 / 0.955) $10.17* ================================================================================ CLASS B SHARES: Net Asset Value per share and offering price ($2,950,618/303,211 shares outstanding) $9.73** ================================================================================ * Based upon single purchases of less than $25,000. ** Redemption price per share is equal to net asset value less any applicable deferred contingent sales charges. See notes to financial statements 5 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1999 (Unaudited) ================================================================================ INVESTMENT INCOME (Note 1B): Interest Income from U.S. Fixed Income Portfolio $2,415,733 Allocated Expenses from U.S. Fixed Income Portfolio (168,906) - -------------------------------------------------------------------------------- $2,246,827 - -------------------------------------------------------------------------------- EXPENSES: Management fees (Note 2) 148,451 Service fees Class A (Note 3) 104,739 Service fees Class B (Note 3) 3,892 Audit fees 27,229 Shareholder reports 26,532 Transfer agent fees 21,481 Custody and fund accounting fees 10,456 Legal fees 9,336 Trustees fees 7,244 Other 29,982 - -------------------------------------------------------------------------------- Total expenses 389,342 Less expenses assumed by the Sub-Administrator (Note 6) (25,462) Less aggregate amounts waived by the Manager (Note 2) (148,451) - -------------------------------------------------------------------------------- Net expenses 215,429 - -------------------------------------------------------------------------------- Net investment income 2,031,398 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM U.S. FIXED INCOME PORTFOLIO: Net realized loss from investment transactions (133,260) Net realized gain on futures transactions 43,007 Unrealized depreciation of investments and future contracts (2,327,053) - -------------------------------------------------------------------------------- Net realized and unrealized loss from U.S. Fixed Income Portfolio (2,417,306) - -------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (385,908) ================================================================================ See notes to financial statements 6 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
TEN MONTHS SIX MONTHS ENDED YEAR ENDED ENDED OCTOBER 31, ENDED APRIL 30, 1999 1998 DECEMBER 31, (Unaudited) (Note 1F) 1997 ================================================================================================= INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,031,398 $ 2,071,831 $ 2,329,594 Net realized gain (loss) (90,253) 743,318 272,468 Unrealized appreciation (depreciation) (2,327,053) 662,088 649,983 - ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (385,908) 3,477,237 3,252,045 - ------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (Class A) (2,112,510) (2,112,415) (2,338,323) Net investment income (Class B) (19,584) -- -- - ------------------------------------------------------------------------------------------------- Decrease in net assets from distribution to shareholder (2,132,094) (2,112,415) (2,338,323) - ------------------------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): CLASS A Net proceeds from sale of shares 24,632,413 45,904,926 595,327 Net asset value of shares issued to shareholders from reinvestment of distributions 2,060,933 2,110,978 2,335,328 Cost of shares repurchased (24,462,536) (9,293,925) (11,061,426) - ------------------------------------------------------------------------------------------------- Total Class A 2,230,810 38,721,979 (8,130,771) - ------------------------------------------------------------------------------------------------- CLASS B* Net proceeds from sale of shares 2,983,623 -- -- Net asset value of shares issued to shareholders from reinvestment of distributions 15,370 -- -- Cost of shares repurchased (17,617) -- -- - ------------------------------------------------------------------------------------------------- Total Class B 2,981,376 -- -- - ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest 5,212,186 38,721,979 (8,130,771) - ------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 2,694,184 40,086,801 (7,217,049) - ------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 76,788,364 36,701,563 43,918,612 - ------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income (loss) of ($110,696), $0 and $26,955, respectively) $ 79,482,548 $ 76,788,364 $ 36,701,563 =================================================================================================
* January 4, 1999 (Commencement of Operations) to April 30, 1999. See notes to financial statements 7 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CLASS A --------------------------------------------------------- TEN SIX MONTHS MONTHS ENDED ENDED APRIL 30, OCTOBER 31, YEAR ENDED DECEMBER 31, 1999 1998 ------------------------------- (Unaudited) (Note 1F) 1997 1996 1995 1994 ================================================================================ Net Asset Value, beginning of period $10.00 $9.72 $9.48 $9.77 $8.91 $9.88 - -------------------------------------------------------------------------------- Income From Operations: Net investment income 0.219 0.447 0.575 0.54 0.57 0.521 Net realized and unrealized gain (loss) on investments (0.275) 0.272 0.239 (0.29) 0.86 (0.959) - -------------------------------------------------------------------------------- Total from operations (0.056) 0.719 0.814 0.25 1.43 (0.438) - -------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.234) (0.439) (0.574) (0.54) (0.57) (0.516) Net realized gain on investments -- -- -- -- -- (0.016) - -------------------------------------------------------------------------------- Total distributions (0.234) (0.439) (0.574) (0.54) (0.57) (0.532) - -------------------------------------------------------------------------------- Net Asset Value, end of period $9.71 $10.00 $9.72 $9.48 $9.77 $8.91 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $76,532 $76,788 $36,702 $43,919 $49,618 $47,582 Ratio of expenses to average net assets(A) 0.90%* 0.91%* 0.92% 0.90% 0.90% 0.90% Ratio of expenses to average net assets after fees paid indirectly(A) 0.90%* 0.90%* 0.90% 0.90% 0.90% 0.90% Ratio of net investment income to average net assets 4.79%* 5.30%* 5.92% 5.72% 5.97% 5.52% Portfolio turnover(B) -- 120% 146% 495% 396% 291% Total return (0.58)%** 7.57%** 8.87% 2.73% 16.45% (4.48)% Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated, the net investment income per share and the ratios would have been as follows: Net investment income per share $0.198 $0.412 $0.522 $0.50 $0.52 $0.475 RATIOS: Expenses to average net assets(A) 1.37%* 1.33%* 1.47% 1.39% 1.42% 1.39% Net investment income to average net assets 4.32%* 4.88%* 5.37% 5.23% 5.45% 5.03% ================================================================================ * Annualized ** Not Annualized (A) The expense ratios for the year ended December 31, 1995 and the periods thereafter have been adjusted to reflect a change in reporting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the effect of any expense offset arrangements with its service providers. The expense ratios for each of the periods ended before December 31, 1995 have not been adjusted to reflect this change. (B) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in securities. The portfolio turnover rate for the period since the Fund transferred all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. See notes to financial statements 8 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CLASS B --------------- JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1999 (Unaudited) ================================================================================ Net Asset Value, beginning of period $10.00 - -------------------------------------------------------------------------------- Income From Operations: Net investment income 0.127 Net realized and unrealized gain (loss) on investments (0.284) - -------------------------------------------------------------------------------- Total from operations (0.157) Less Distributions From: Net investment income (0.113) - -------------------------------------------------------------------------------- Net Asset Value, end of period $9.73 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $2,951 Ratio of expenses to average net assets 1.40% Ratio of expenses to average net assets after fees paid indirectly 1.40% Ratio of net investment income to average net assets 4.65% Total return (1.08)%** Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated, the net investment income per share and the ratios would have been as follows: Net investment income per share $0.105 RATIOS: Expenses to average net assets 1.87%* Net investment income to average net assets 4.18%* ================================================================================ * Annualized ** Not Annualized See notes to financial statements 9 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Significant Accounting Policies CitiFunds Intermediate Income Portfolio (the "Fund") is a separate diversified series of CitiFunds Fixed Income Trust (the "Trust") which is organized as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. Effective November 1, 1998, the Fund invests all of its investable assets in U.S. Fixed Income Portfolio (the "Portfolio") a management investment company for which Citibank, N.A. ("Citibank") serves as Investment Manager. The value of such investment reflects the Fund's proportionate interest (at April 30, 1999) in the net assets of the Portfolio. The Investment Manager of the Fund is Citibank, N.A. ("Citibank"). CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and Distributor. The Fund offers Class A and Class B shares. The Fund commenced its public offering of Class B shares on January 4, 1999. Class A shares have a front-end, or initial, sales charge effective January 4, 1999. This sales charge may be reduced or eliminated in certain circumstances. Class B shares have no front-end sales charge, pay higher ongoing distribution fee than Class A, but are subject to a deferred sales charge if sold within five years of purchase. Class B shares automatically convert into Class A shares after eight years. Expenses of the Fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including Rule 12b-1 service and distribution fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 plan. Shares of each class would receive their own pro-rata share of the net assets of the Fund, if the Fund were liquidated. Class A shares have lower expense ratios than Class B. The financial statements of the portfolio, including the portfolio of investments are contained elsewhere in this report and should be read in conjunction with the Funds' financial statements. The preparation of financial statements in accordance with generally accepted principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The significant accounting policies consistently followed by the Fund are in conformity with generally accepted accounting principles and are as follows: A. Investment Valuation Valuation of securities by the Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. Investment Income The Fund earns income, net of Portfolio expenses, daily based on its investment in the portfolio. C. Federal Taxes The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of its taxable income, including any net realized gain on 10 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued) investment transactions. Accordingly, no provision for federal income or excise tax is necessary. At October 31, 1998, the Fund, for federal income tax purposes, had a capital loss carryover of $2,218,509 of which $1,142,935 will expire on October 31, 2002 and $1,075,574 which will expire on October 31, 2004. Such capital loss carryover will reduce the Fund's taxable income arising from future net realized gain on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. D. Expenses The Fund bears all costs of its operations other than expenses specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with respect to any two or more funds or series are allocated in proportion to the average net assets of each fund, except when allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. E. Distributions The Fund distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains. F. Change in Fiscal Year End During fiscal year 1998, the Fund changed its fiscal year end from December 31 to October 31. G. Other All the net investment income, realized and unrealized gain and loss of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and the other investors in the Portfolio at the time of such determination. Investment transactions are accounted for on the trade date basis. Realized gains and losses are determined on the identified cost basis. 2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's business affairs, and has a Management Agreement with the Fund. Citibank also provides certain administrative services to the Fund. These administrative services include providing general office facilities and supervising the overall administration of the Fund. CFBDS acts as Sub-Administrator and performs such duties and receives such compensation from Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers Group, Inc., which was completed on October 8, 1998. 11 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued) The management fees paid to Citibank, are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.35% of the Funds' average daily net assets. The management fee amounted to $148,451 all of which was voluntarily waived for the six months ended April 30, 1999. 3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class B shares, which have been adopted in accordance with Rule 12b-1 under the 1940 Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual rate not to exceed 0.25% of the average daily net assets represented by Class A shares of the Fund. The Service fees for Class A shares amounted to $104,739 for the six months ended April 30, 1999. Under the Class B Service Plan, the Fund may pay a combined monthly distribution and service fee at an annual rate not to exceed 0.75% of the average daily net assets represented by Class B shares of the Fund. The Service fees for Class B shares amounted to $3,892 for the period ended April 30, 1999. These fees may be used to make payments to the Distributor for distribution services and to others as compensation for the sale of shares of the applicable class of the Fund, for advertising, marketing or other promotional activity, and for preparation, printing and distribution of prospectuses, statements of additional information and reports for recipients other than regulators and existing shareholders. The Fund may also make payments to the Distributor and others for providing personal service or the maintenance of shareholder accounts. 4. INVESTMENT TRANSACTIONS On November 1, 1998 the Fund transferred all of its investable assets of $76,788,364 to the Portfolio in exchange for an interest in the Portfolio, including $1,683,386 of unrealized appreciation. Increases and decreases in the Fund's investment in the Portfolio for the six months ended April 30, 1999 aggregated $19,932,006 and $15,314,777, respectively. 12 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued) 5. Shares of Beneficial Interest The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares of beneficial interest were as follows: SIX MONTHS TEN MONTHS ENDED ENDED YEAR ENDED APRIL 30, 1999 OCTOBER 31, 1998 DECEMBER 31, (Unaudited) (Note 1F) 1997 ================================================================================ CLASS A Shares sold 2,478,904 4,626,775 62,642 Shares issued to shareholders from reinvestment of distributions 208,805 214,180 244,817 Shares repurchased (2,483,314) (940,430) (1,162,555) - -------------------------------------------------------------------------------- Class A Net increase (decrease) 204,395 3,900,525 (855,096) ================================================================================ CLASS B* Shares sold 303,444 Shares issued to shareholders from reinvestment of distributions 1,567 Shares repurchased (1,800) - -------------------------------------------------------------------------------- Class B Net increase 303,211 ================================================================================ * January 4, 1999 (Commencement of Operations) to April 30, 1999. 6. ASSUMPTION OF EXPENSES CFBDs has voluntarily agreed to pay a portion of the unwaived expenses of the Fund for the six months ended April 30, 1999 which amounted to $25,462. 13 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS April 30, 1999 (Unaudited) PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ------------------------------------------------------ FIXED INCOME -- 118.3% - ------------------------------------------------------ ASSET BACKED SECURITIES -- 4.3% - ------------------------------------------------------ Aames Mortgage Trust 6.59% due 6/15/24 $ 375 $ 379,324 Contimortgage Home Equity Loan 6.13% due 3/15/13 500 499,685 Green Tree Financial Corp. 6.71% due 8/15/29 550 539,863 8.05% due 10/15/27 1,500 1,555,305 IMC Home Equity Loan 6.16% due 5/20/14 1,000 1,003,110 ---------- 3,977,287 ---------- DOMESTIC CORPORATIONS -- 31.5% - ------------------------------------------------------ Aircraft Financial Trust 8.00% due 5/15/24 1,300 1,281,719 Allstate Corp. 6.75% due 5/15/18 1,030 1,022,017 American Financial Group Inc. 7.125% due 4/15/09 910 882,554 Associates Corp. of N. A 6.95% due 11/01/18 1,000 1,004,460 BB&T Corp. 6.375% due 6/30/05 1,330 1,328,311 Bank One Corp. 5.625% due 2/17/04 1,000 979,530 Century Enterprises Inc. 6.30% due 1/15/08 750 741,900 Conoco Inc. 5.90% due 4/15/04 910 902,147 Conseco Inc. 6.40% due 6/15/01 350 345,992 Dayton Hudson Corp. 6.65% due 8/01/28 1,105 1,065,485 Equitable Life Assurance 6.95% due 12/01/05 1,000 1,024,230 Ford Motor Co. 6.625% due 10/01/28 1,165 1,118,295 General Motors Acceptance Corp. 6.15% due 4/05/07 940 931,756 Household Financial Corp. 6.50% due 11/15/08 $ 1,130 $ 1,124,113 Knight Ridder Inc. 6.875% due 3/15/29 700 684,358 Lehman Brothers Holdings, Inc. 6.375% due 3/15/01 775 778,340 6.40% due 8/30/00 930 935,943 MCI Communications Corp. 6.50% due 4/15/10 1,395 1,403,230 Mattel Inc. 6.00% due 7/15/03 700 695,456 May Department Stores Co. 5.95% due 11/01/08 650 637,377 Merita Bank PLC 6.50% due 4/01/09 935 921,966 Morgan Stanley Dean Witter & Co. 5.625% due 1/20/04 1,000 985,300 National Rural Utilities 6.20% due 2/01/08 1,235 1,236,136 Nordstrom Inc. 5.625% due 1/15/09 765 722,933 Norfolk Southern Corp. 7.35% due 5/15/07 705 750,754 Peco Energy 6.05% due 3/01/09 1,000 991,250 Petroleum Geological Services 6.625% due 3/30/08 565 553,175 Popular, Inc. 6.20% due 4/30/01 650 648,330 Raytheon Co. 6.30% due 3/15/05 910 918,081 Sears Credit Account Master Trust 5.25% due 10/16/08 820 797,188 TPSA Financial 7.75% due 12/10/08 765 778,289 Union Carbide Corp. 6.70% due 4/01/09 930 922,743 ---------- 29,113,358 ---------- 14 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS April 30, 1999 (Unaudited) PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ------------------------------------------------------ MORTGAGE OBLIGATIONS -- 47.1% - ------------------------------------------------------ COLLATERALIZED MORTGAGE OBLIGATIONS -- 12.6% - ------------------------------------------------------ Asset Securitization Corp. Series 95 7.10% due 8/13/29 $ 255 $ 265,701 7.384% due 8/13/29 1,000 1,054,540 Asset Securitization Corp. Series 97 6.85% due 2/14/41 225 230,796 Commercial Mortgage Corp. 5.80% due 3/15/06 265 259,968 Commercial Mortgage Passthrough 1999 7.239% due 10/15/08 1,300 1,274,806 CRIMI Mae Commercial Mortgage Trust 7.00% due 11/02/11 500 393,594 GE Capital Mortgage Services, Inc. 5.905% due 10/25/13 2,000 1,994,860 GMAC Commercial Mortgage Inc. 6.42% due 8/15/08 550 549,389 6.83% due 12/15/03 457 463,693 J.P. Morgan Commercial Mortgage Financial Corp. 6.373% due 1/15/30 234 235,406 Merrill Lynch Mortgage Co. 6.95% due 6/18/29 459 469,626 Morgan Stanley Capital Investment Inc. 6.44% due 11/15/02 475 479,451 Nomura Asset Securitization Corp. 8.15% due 3/04/20 1,000 1,078,990 Norwest Asset Securitization Corp. 6.75% due 11/25/27 2,000 2,006,960 Residential Asset Securitization Trust 7.00% due 2/25/08 180 181,309 Structured Asset Securities Corp. 6.79% due 6/12/04 695 713,408 ---------- 11,652,497 ---------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ------------------------------------------------------- MORTGAGE BACKED SECURITIES/ PASSTHROUGHS -- 20.2% - ------------------------------------------------------- Federal Home Loan Mortgage Corp. 6.25% due 6/15/24 $ 535 $ 531,680 6.75% due 8/15/04 1,500 1,512,648 8.50% due 4/01/01 10 9,933 ---------- 2,054,261 Federal National Mortgage Association 5.49% due 8/18/00 5,000 5,014,850 6.50% due 12/01/29 TBA* 6,635 6,628,133 6.50% due 8/25/22 1,500 1,478,512 7.412% due 8/17/21 2,341 2,453,722 7.50% due 10/01/25 750 771,110 7.50% due 5/01/26 169 173,806 7.50% due 6/01/26 31 31,952 8.00% due 6/01/02 8 8,085 ---------- 16,560,170 ---------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 14.3% - ------------------------------------------------------ 6.50% due 12/15/29 TBA* 500 495,545 6.50% due 12/31/29 TBA* 2,000 1,981,875 7.00% due 12/31/29 TBA* 6,600 6,676,296 7.00% due 2/15/24 1,033 1,049,625 7.25% due 10/16/22 869 873,623 7.50% due 12/31/29 TBA* 2,000 2,056,260 8.00% due 12/15/07 42 43,715 ---------- 13,176,939 TOTAL MORTGAGE OBLIGATIONS 43,443,867 ---------- YANKEE BONDS -- 2.1% - ------------------------------------------------------ Corporacion Andina De Fomento 7.75% due 3/01/04 1,000 1,000,624 Korea Development Bank 7.125% due 4/22/04 910 897,505 ---------- 1,898,129 ---------- 15 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (Continued) April 30, 1999 (Unaudited) PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ------------------------------------------------------ UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 33.3% - ------------------------------------------------------ UNITED STATES TREASURY BONDS -- 7.2% 6.625% due 2/15/27 $1,150 $ 1,264,816 6.125% due 11/15/27 2,650 2,743,174 3.625% due 4/15/28 610 584,851 5.25% due 11/15/28 2,200 2,035,682 ---------- 6,628,523 ---------- UNITED STATES TREASURY NOTES -- 23.9% - ------------------------------------------------------ 6.00% due 6/30/99 50 50,117 5.625% due 4/30/00 215 216,378 5.50% due 12/31/00 1,650 1,660,824 6.625% due 6/30/01 2,665 2,745,776 6.50% due 5/31/02 1,000 1,036,250 5.75% due 11/30/02 5,005 5,091,036 4.25% due 11/15/03 2,000 1,920,940 7.875% due 11/15/04 460 515,485 6.50% due 5/15/05 580 614,075 6.875% due 5/15/06 2,735 2,970,456 6.625% due 5/15/07 3,720 4,008,300 3.875% due 1/15/09 1,275 1,273,406 ---------- 22,103,043 ---------- UNITED STATES AGENCY OBLIGATIONS -- 0.8% - ------------------------------------------------------ Tennessee Valley Authority 5.88% due 4/01/36 750 761,062 ---------- OTHER GOVERNMENT OBLIGATIONS -- 1.4% - ------------------------------------------------------ Manitoba Province 5.50% due 10/01/08 1,300 1,253,772 ---------- TOTAL UNITED STATES GOVERNMENT & OTHER GOVERNMENT OBLIGATIONS 30,746,400 ---------- TOTAL FIXED INCOME (Identified Cost $110,173,821) 109,179,041 ----------- PREFERRED STOCK -- 0.6% - ------------------------------------------------------ Comed Financing I (Identified Cost $590,291) 23 592,097 ----------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ------------------------------------------------------ SHORT-TERM OBLIGATIONS AT AMORTIZED COST -- 0.3% - ------------------------------------------------------ United States Treasury Bills 4.19% due 6/24/99 $ 60 $ 59,623 4.23% due 6/24/99 30 29,809 4.38% due 6/24/99 12 11,921 4.495% due 6/24/99 170 168,854 -------- TOTAL SHORT-TERM OBLIGATIONS 270,207 -------- TOTAL INVESTMENTS (Identified Cost $111,034,319) 119.2% 110,041,345 ----- ----------- OTHER ASSETS, LESS LIABILITIES (19.2) (17,723,292) ----- ----------- NET ASSETS 100.0% $92,318,053 ===== =========== FUTURES CONTRACTS - ---------------------------------------------------- Futures contracts which were open at April 30, 1999 are as follows : AGGREGATE FACE NUMBER VALUE UNREALIZED DESCRIPTION/ OF OF EXPIRATION GAIN/ POSITION CONTRACTS CONTRACTS DATE (LOSS) - -------------------------------------------------------------------------------- U.S. Treasury 30 Year June, Bond (sell) (75) ($7,500,000) 1999 $32,250 U.S. Treasury Two Year June, Note (buy) 40 4,500,000 1999 (7,025) U.S. Treasury Ten Year June, Note (sell) (20) (2,000,000) 1999 19,850 ------- $45,075 ------- * TBA's are mortgage-backed securities traded under delayed delivery commitments; settling after April 30, 1999. Although the unit price for the trade has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2% from the principal amount. Income on TBA's is not earned until the settlement date. See notes to financial statements 16 U.S. FIXED INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES APRIl 30, 1999 (Unaudited) ================================================================================ ASSETS: Investments at value (Note 1A) (Identified Cost, $111,034,319) $110,041,345 Cash 62,026 Interest receivable 1,299,191 Receivable for daily variation on futures contracts 175,319 - -------------------------------------------------------------------------------- Total assets 111,577,881 - -------------------------------------------------------------------------------- LIABILITIES: Payable for investments repurchased 19,215,027 Payable to affiliates--Management Fee (Note 2) 6,870 Accrued expenses and other liabilities 37,931 - -------------------------------------------------------------------------------- Total liabilities 19,259,828 - -------------------------------------------------------------------------------- NET ASSETS $92,318,053 ================================================================================ REPRESENTED BY: Paid-in capital for beneficial interests $92,318,053 ================================================================================ See notes to financial statements 17 U.S. FIXED INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1999 (Unaudited) ================================================================================ Investment Income (Note 1B): Interest Income $2,614,844 Dividend Income 24,433 - -------------------------------------------------------------------------------- $2,639,277 - -------------------------------------------------------------------------------- EXPENSES: Management fees (Note 2) 161,358 Custody and fund accounting fees 39,045 Audit fees 21,235 Legal fees 13,000 Trustees fees 2,931 Other 2,137 - -------------------------------------------------------------------------------- Total expenses 239,706 Less aggregate amounts waived by the Manager (Note 2) (55,282) - -------------------------------------------------------------------------------- Net expenses 184,424 - -------------------------------------------------------------------------------- Net investment income 2,454,853 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Unrealized depreciation of investments (947,905) Less unrealized appreciation from contributed assets (Note 1) 1,683,386 - -------------------------------------------------------------------------------- Unrealized depreciation of investments (2,631,291) - -------------------------------------------------------------------------------- Net realized gain from futures transactions 49,413 Net realized loss from investment transactions (156,037) - -------------------------------------------------------------------------------- Net realized loss from investment and futures transactions (106,624) - -------------------------------------------------------------------------------- Net realized and unrealized loss on investments (2,737,915) - -------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (283,062) ================================================================================ See notes to financial statements 18 U.S. FIXED INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1999 (Unaudited) ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,454,853 Net realized loss from investment transactions (106,624) Unrealized depreciation of investments (2,631,291) - -------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (283,062) - -------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: Proceeds from contributions (Note 1) 110,812,931 Value of withdrawals (18,211,816) - -------------------------------------------------------------------------------- Net increase in net assets from capital transactions 92,601,115 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 92,318,053 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - -------------------------------------------------------------------------------- End of period $92,318,053 ================================================================================ See notes to financial statements 19 U.S. FIXED INCOME PORTFOLIO FINANCIAL HIGHLIGHTS FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1999 (Unaudited) ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $ 92,318 Ratio of expenses to average net assets 0.40%* Ratio of net investment income to average net assets 5.28%* Portfolio turnover 80% Note: If agents of the Portfolio had not voluntarily waived a portion of their fees during the periods indicated, the ratios would have been as follows: RATIOS: Expenses to average net assets 0.52%* Net investment income to average net assets 5.16%* ================================================================================ *Annualized See notes to financial statements 20 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES U.S. Fixed Income Portfolio (the "Portfolio"), a separate series of The Premium Portfolios (the "Portfolio Trust"), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Portfolio commenced operations on November 1, 1998. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. The Investment Manager of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Administrator. On November 1, 1998, CitiFunds Intermediate Income Portfolio transferred all of its investable assets in the amount of $76,788,364 including $1,683,386 of unrealized appreciation to the Portfolio in exchange for an interest in the Portfolio. The total investable assets along with current period contributions are included in the "Proceeds from Contributions" on the Statement of Changes in Net Assets. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The significant accounting policies consistently followed by the Portfolio are as follows: A. Investment Security Valuations Debt securities (other than short-term obligations maturing in sixty days or less) are valued on the basis of valuations furnished by pricing services, which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices since such valuations are believed to reflect more accurately the fair value of the securities. Short-term obligations (maturity in sixty days or less) are valued at amortized cost; which approximates market value. Securities, if any, for which there are no such valuations or quotations are valued at fair value as determined in good faith by or under guidelines established by the Trustees. B. Income Interest income consists of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for U.S. federal income tax purposes. Gain and loss from principal paydowns are recorded as ordinary income. C. U.S. Federal Income Taxes The Portfolio is considered a partnership under the U.S. Internal Revenue Code. Accordingly, no provision for federal income taxes is necessary. 21 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued) D. Expenses The Portfolio bears all costs of its operations other than expenses specifically assumed by Citibank and SFG. Expenses incurred by the Portfolio Trust with respect to any two or more portfolios or series are allocated in proportion to the average net assets of each portfolio, except when allocations of direct expenses to each portfolio can otherwise be made fairly. Expenses directly attributable to a portfolio are charged to that portfolio. E. Repurchase Agreements It is the policy of the Portfolio to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreements. Additionally, procedures have been established by the Portfolio to monitor, on a daily basis, the market value of the repurchase agreement's underlying investments to ensure the existence of a proper level of collateral. F. TBA Purchase Commitments The Portfolio enters into "TBA" (to be amounted) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The Portfolio holds, and maintains until the settlement date, cash or higher-grade debt obligations in an amount sufficient to meet the purchase price. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is addition to the risk of decline in the value of the Portfolio's other assets. Unsettled TBApurchase commitments are valued at the current market value of the underlying securities, generally according to the procedures described under Note 1A. Although the Portfolio will generally enter into TBApurchase commitments with the intention of acquiring securities for its portfolio, the Portfolio may dispose of a commitment prior to settlement if the Portfolio's Adviser deems it appropriate to do so. G. Futures Contracts The Portfolio may engage in futures transactions. The Portfolio may use futures contracts in order to protect the Portfolio from fluctuations in interest rates without actually buying or selling debt securities, or to manage the effective maturity or duration of fixed income securities in the Portfolio's portfolio in an effort to reduce potential losses or enhance potential gains. Buying futures contracts tends to increase the Portfolio's exposure to the underlying instrument. Selling futures contracts tends to either decrease the Portfolio's exposure to the underlying instrument, or to hedge other fund investments. 22 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued) Upon entering into a futures contract, the Portfolio is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin". Subsequent payments ("variation margin") are made or received by the Portfolio each day, depending on the daily fluctuation of the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Portfolio recognizes a realized gain or loss when the contract is closed. Futures contracts are valued at the settlement price established by the board of trade or exchange on which they are traded. There are several risks in connection with the use of futures contracts as a hedging device. The change in the value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in the value of the hedged instruments. In addition, there is the risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Futures contracts involve, to varying degrees, risk of loss in excess of the futures variation margin reflected in the Statement of Assets and Liabilities. H. Other Investment transactions are accounted for on the date the investments are purchased or sold. Realized gains and losses are determined on the identified cost basis. 2. MANAGEMENT FEES Citibank is responsible for overall management of the Portfolio's business affairs, and has a Management Agreement with the Portfolio. Citibank also provides certain administrative services to the Portfolio. These administrative services include providing general office facilities and supervising the overall administration of the Portfolio. CFBDS acts as Sub-Administrator and performs such duties and receives such compensation from Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers Group, Inc. which was completed on October 8, 1998. The management fees paid to Citibank amounted to $161,358, of which $55,282 was voluntarily waived for the period November 1, 1998 (commencement of operations) to April 30, 1999. The management fees are computed at the annual rate of 0.35% of the Portfolio's average daily net assets. The Trust pays no compensation directly to any Trustee or any other officer who is affiliated with the Sub-Administrator, all of whom receive remuneration for their services to the Trust from the Sub-Administrator or its affiliates. 3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other than short-term obligations, aggregated $138,338,843 and $91,518,321, respectively, for the period November 1, 1998 (Commencement of Operations) to April 30, 1999. 23 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued) 4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at April 30, 1999, as computed on a federal income tax basis, are as follows: Aggregate cost $111,034,319 ================================================================================ Gross unrealized appreciation $ 376,448 Gross unrealized depreciation (1,369,422) - -------------------------------------------------------------------------------- Net unrealized depreciation $ (992,974) ================================================================================ 5. LINE OF CREDIT The Portfolio, along with various other portfolios in the CitiFunds family, entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $75 million for temporary or emergency purposes. Interest on the borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the period November 1, 1998 (Commencement of Operations) to April 30, 1999, the commitment fee allocated to the Portfolio was $120. Since the line of credit was established, there have been no borrowings. 24 TRUSTEES AND OFFICERS C. Oscar Morong, Jr., CHAIRMAN Philip W. Coolidge*, PRESIDENT Riley C. Gilley Diana R. Harrington Susan B. Kerley Heath B. McLendon** Walter E. Robb, III E. Kirby Warren William S. Woods, Jr. SECRETARY Linda T. Gibson* TREASURER John R. Elder* *AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR **AFFILIATED PERSON OF INVESTMENT MANAGER INVESTMENT MANAGER Citibank, N.A. 153 East 53rd Street, New York, NY 10043 DISTRIBUTOR CFBDS, Inc. 21 Milk Street, 5th Floor Boston, MA 02109 (617) 423-1679 TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110 AUDITORS PricewaterhouseCoopers LLP 160 Federal Street, Boston, MA 02110 LEGAL COUNSEL Bingham Dana LLP 150 Federal Street, Boston, MA 02110 THE CITIFUNDS FAMILY LARGE CAP STOCKS o CitiFunds Growth & Income Portfolio o CitiFunds Large Cap Growth Portfolio SMALL CAP STOCKS o CitiFunds Small Cap Growth Portfolio o CitiFunds Small Cap Value Portfolio INTERNATIONAL STOCKS o CitiFunds International Growth & Income Portfolio o CitiFunds International Growth Portfolio GROWTH WITH INCOME o CitiFunds Balanced Portfolio BONDS o CitiFunds Short-Term U.S. Government Income Portfolio o CitiFunds Intermediate Income Portfolio o CitiFunds National Tax Free Income Portfolio o CitiFunds New York Tax Free Income Portfolio o CitiFunds California Tax Free Income Portfolio MONEY MARKETS o CitiFunds Cash Reserves o CitiFunds U.S. Treasury Reserves o CitiFunds Tax Free Reserves o CitiFunds New York Tax Free Reserves o CitiFunds California Tax Free Reserves o CitiFunds Connecticut Tax Free Reserves This report is prepared for the information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. For more information contact your Service Agent or call 1-800-625-4554 CitiFunds are made available by CFBDS, Inc. as distributor. c 1999 Citicorp [Logo] Printed on recycled paper CFS/INI/499 -----END PRIVACY-ENHANCED MESSAGE-----