-----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, BV3sBA7Ij+ktNrjFjwMI1/FSLbqVkIHn3ARk7/JLlmOflg5BeiaeeNRuEIl+qNc5 3GGnzyhcE2/PrVOP0E+Jkg== 0000930413-99-001517.txt : 19991229 0000930413-99-001517.hdr.sgml : 19991229 ACCESSION NUMBER: 0000930413-99-001517 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991228 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-30D SEC ACT: SEC FILE NUMBER: 811-05033 FILM NUMBER: 99781660 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-30D 1 ANNUAL REPORT ANNUAL REPORT o OCTOBER 31, 1999 CITIFUNDS(SM) - -------------------- 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 4 ................................................................................ Portfolio Highlights 4 ................................................................................ Fund Performance 5 ................................................................................ CITIFUNDS INTERMEDIATE INCOME PORTFOLIO Statement of Assets and Liabilities 6 ................................................................................ Statement of Operations 7 ................................................................................ Statement of Changes in Net Assets 8 ................................................................................ Financial Highlights 9 ................................................................................ Notes to Financial Statements 11 ................................................................................ Independent Auditors' Report 15 ................................................................................ U.S. FIXED INCOME PORTFOLIO Portfolio of Investments 16 ................................................................................ Statement of Assets and Liabilities 19 ................................................................................ Statement of Operations 19 ................................................................................ Statement of Changes in Net Assets 20 ................................................................................ Financial Highlights 20 ................................................................................ Notes to Financial Statements 21 ................................................................................ Independent Auditors' Report 25 ................................................................................ LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: Fixed-income securities had a difficult time during the 12-month reporting period ended October 31, 1999 largely due to strong economic growth in both the United States and overseas, which led to resurgent inflation fears and higher U.S. interest rates. Because bond prices generally decline when interest rates rise, there was a negative impact on the value of many fixed-income investments which negatively impacted the Fund during its fiscal year. Throughout the reporting period, the CitiFunds' investment adviser, Citibank, N.A., continued to manage CitiFunds Intermediate Income Portfolio with the goal of achieving its investment objectives of providing as high a level of current income and preserving the value of its Shareholders' investment. This report reviews the Fund's investment activities and performance during the reporting period and provides a summary of the adviser's perspective on and outlook for the U.S. bond market. On behalf of the Board of Trustees, I want to thank you for your continued confidence and participation. Sincerely, /s/ Philip W. Coolidge - ---------------------- Philip W. Coolidge President November 15, 1999 1 PORTFOLIO ENVIRONMENT AND OUTLOOK AFTER SEVERAL YEARS OF DECLINING YIELDS AND HIGHER PRICES, U.S. BOND MARKET PRICES GENERALLY DECLINED OVER THE PAST year. While the economic and market conditions that fueled the bond market's previous rise have remained largely intact-- including positive economic growth characterized by low inflation--many investors have become concerned that inflationary pressures might resurface. In fact, in an attempt to forestall a potential reacceleration of inflation, the Federal Reserve Board (the "Fed") raised interest rates twice during the summer of 1999. These economic conditions stand in stark contrast to the bond market conditions that prevailed when the Portfolio's reporting period began. In November 1998, the Fed completed a series of interest rate cuts that were intended to stimulate global economic growth, which was threatened by the spread of an international currency and credit crisis, and to help insulate the U.S. economy from the adverse effects of a global economic slowdown. The Fed's strategy was apparently effective, because many overseas economies began to recover in 1999, and the U.S. economy continued to grow. THE BOND MARKET EXPERIENCED HEIGHTENED LEVELS OF VOLATILITY, PARTICULARLY DURING THE THIRD QUARTER OF 1999, IN REACTION TO INCREASING INFLATIONARY PRESSURES. In the opinion of management, this higher volatility reflected investor confusion over the direction and magnitude of changes in monetary policy and their effects on interest rates and bond yields. While a dramatic increase in the inflation rate did not materialize during the reporting period, investors were increasingly concerned by extremely low levels of unemployment, robust consumer spending and a weakening U.S. dollar relative to other major currencies. The higher yielding sectors of the bond market such as corporate bonds were the most volatile. The yield differences between U.S. Treasury securities and higher yielding bonds widened sharply, approaching the levels they were at during the liquidity crisis that hit the fixed-income markets after the near-failure of major hedge funds during the summer of 1998. To some degree, higher yields were also related to supply-and-demand factors as investors expected a surge of new issuance in advance of year-end Y2K concerns. In this environment, CitiFunds Intermediate Income Portfolio focused on capturing the higher yield potential provided by corporate and asset-backed securities. The Fund's management took advantage of the market's volatility to increase the portfolio's income stream whenever attractive opportunities arose. As a result, at the end of the reporting period, the Fund's holdings reflected an emphasis on corporate, mortgage-backed and asset-backed securities, and relatively light positions in lower yielding U.S. Treasury and government agency bonds. 2 As part of management's investment strategy, the portfolio's average duration (Duration is a measure of a bond's sensitivity to changing interest rates.) was maintained at around five years, considered to be in the neutral range. In management's view, this duration creates the ability to lock in higher yields for a reasonable period while providing enough flexibility to upgrade the portfolio's credit quality as opportunities arise. Throughout the reporting period, the managers were careful to maintain the portfolio's investment grade credit quality. As of October 31, 1999, the portfolio's average credit rating was AA+, and approximately 75% of the portfolio's holdings were AAA-rated by nationally recognized securities rating organizations. GOING FORWARD, THE FUND'S MANAGEMENT TEAM EXPECTS HIGHER MARKET VOLATILITY TO CONTINUE THROUGH THE END OF 1999. Management also believes that investor uncertainty regarding inflation and interest rates may be compounded by Y2K-related concerns as the year ends. And while no guarantees can be made, over the longer term, management remains convinced that many high-quality, higher yielding bonds represent bargains at current prices consistent with recessionary conditions, even though there is no recession in sight. 3 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 10/31/99 BENCHMARKS Class A shares o Lipper Intermediate Investment $52.0 million Grade Funds Average* Class B shares o Lehman Aggregate Bond Index** $2.3 million * The Lipper Intermediate Investment Grade Funds Average reflects the performance (excluding sales charges) of mutual funds with similar objectives. **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 OCTOBER 31, 1999 (Table Below Represents Pie Chart in its Printed Form) Preferred Stock 1% *Short-Term (15%) Asset-Backed Securities 28% Mortgage Obligations 32% Corporate Bonds 33% U.S. Treasury Issues 32% *Includes cash and net other assets 4 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FUND PERFORMANCE TOTAL RETURNS
SINCE ONE FIVE 6/25/93 ALL PERIODS ENDING OCTOBER 31, 1999 YEAR YEARS* INCEPTION* ==================================================================================== CitiFunds Intermediate Income Portfolio (Class A) without sales charge (1.61)% 6.72% 4.91% Lipper Intermediate Investment Grade Funds Average (0.07)% 6.94% 4.95%+ Lehman Aggregate Bond Index 0.53% 7.94% 6.11%+ CitiFunds Intermediate Income Portfolio (Class A) with a maximum sales charge of 4.50% (6.04)% 5.74% 4.15% CitiFunds Intermediate Income Portfolio (Class B) without deferred sales charge -- -- (2.35)%#** Lipper Intermediate Investment Grade Funds Average -- -- (0.97)%++** Lehman Aggregate Bond Index -- -- (0.33)%++** CitiFunds Intermediate Income Portfolio (Class B) with a maximum deferred sales charge of 4.50% -- -- (6.75)%#**
* Average Annual Total Return ** Not Annualized + From 6/30/93 ++ From 12/31/98 # From 1/4/99 30-DAY SEC YIELD CLASS A 5.53% 30-DAY SEC YIELD CLASS B 5.05% Growth of a $10,000 Investment A $10,000 investment in the Fund made on inception date would have grown to $12,950 with sales charge (as of 10/31/99). The graph shows how this compares to its benchmarks over the same period. (Table below represents chart in its printed Form) 6/30/93 9579 10000 10000 7/31/93 9620 10042 10057 8/31/93 9860 10228 10233 9/30/93 9937 10268 10261 10/31/93 9947 10301 10299 11/30/93 9785 10209 10211 12/31/93 9835 10257 10266 1/31/94 9975 10387 10405 2/28/94 9755 10202 10224 3/31/94 9519 9980 9971 4/30/94 9424 9890 9891 5/31/94 9398 9875 9890 6/30/94 9368 9856 9869 7/31/94 9527 10004 10065 8/31/94 9553 10024 10077 9/30/94 9393 9911 9929 10/31/94 9357 9896 9920 11/30/94 9321 9867 9898 12/31/94 9395 9914 9967 1/31/95 9570 10072 10164 2/28/95 9788 10281 10406 3/31/95 9857 10345 10469 4/30/95 9969 10478 10616 5/31/95 10438 10848 11027 6/30/95 10497 10916 11107 7/31/95 10448 10887 11083 8/31/95 10542 11009 11217 9/30/95 10657 11106 11326 10/31/95 10695 11244 11473 11/30/95 10801 11401 11645 12/31/95 10941 11546 11808 1/31/96 10991 11622 11886 2/29/96 10772 11423 11679 3/31/96 10687 11345 11597 4/30/96 10613 11276 11532 5/31/96 10584 11256 11509 6/30/96 10739 11384 11664 7/31/96 10756 11410 11695 8/31/96 10725 11401 11675 9/30/96 10928 11587 11878 10/31/96 11167 11821 12142 6/30/93 9579 10000 10000 7/31/93 9620 10042 10057 8/31/93 9860 10228 10233 9/30/93 9937 10268 10261 10/31/93 9947 10301 10299 11/30/93 9785 10209 10211 12/31/93 9835 10257 10266 1/31/94 9975 10387 10405 2/28/94 9755 10202 10224 3/31/94 9519 9980 9971 4/30/94 9424 9890 9891 5/31/94 9398 9875 9890 6/30/94 9368 9856 9869 7/31/94 9527 10004 10065 8/31/94 9553 10024 10077 9/30/94 9393 9911 9929 10/31/94 9357 9896 11/30/96 11360 12016 12350 12/31/96 11239 11910 12235 1/31/97 11292 11805 12273 2/28/97 11320 11829 12303 3/31/97 11181 11705 12167 4/30/97 11354 11857 12349 5/31/97 11444 11959 12467 6/30/97 11570 12092 12615 7/31/97 11858 12403 12956 8/31/97 11743 12294 12846 9/30/97 11910 12465 13034 10/31/97 12117 12522 13223 11/30/97 12111 12557 13284 12/31/97 12236 12670 13418 1/31/98 12433 12833 13590 2/28/98 12402 12815 13580 3/31/98 12448 12861 13626 4/30/98 12490 12916 13697 5/31/98 12622 13031 13827 6/30/98 12729 13125 13944 7/31/98 12733 13147 13974 8/31/98 12972 13307 14201 9/30/98 13250 13601 14534 10/31/98 13162 13502 14457 11/30/98 13180 13564 14539 12/31/98 13223 13609 14583 1/31/99 13299 13696 14686 2/28/99 12975 13441 14429 3/31/99 13064 13538 14509 4/30/99 13086 13579 14588 5/31/99 12961 13438 14460 6/30/99 12890 13388 14414 7/31/99 12803 13450 14352 8/31/99 12771 13428 14345 9/30/99 12945 13562 14511 10/31/99 12950 13580 14565 CitiFund Intermediate Income Portfolio (Class A) Lipper Intermediate Investment Grade Fund 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 at any time. 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. 5 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999 ============================================================================== ASSETS: Investment in U.S. Fixed Income Portfolio at value (Note 1A) $54,492,054 Receivable from Sub-Administrator 58,333 Receivable for shares of beneficial interest sold 16,614 - ------------------------------------------------------------------------------ Total assets 54,567,001 - ------------------------------------------------------------------------------ LIABILITIES: Payable for shares of beneficial interest repurchased 80,251 Dividends payable 54,085 Accrued expenses and other liabilities 61,714 - ------------------------------------------------------------------------------ Total liabilities 196,050 - ------------------------------------------------------------------------------ NET ASSETS $54,370,951 ============================================================================== NET ASSETS CONSIST OF: Paid-in capital $59,984,227 Accumulated net realized loss (3,519,659) Unrealized depreciation (2,271,598) Undistributed net investment income 177,981 - ------------------------------------------------------------------------------ Total $54,370,951 ============================================================================== COMPUTATION OF CLASS A SHARES: Net Asset Value per share ($52,024,571/5,546,900 shares outstanding) $9.38 Offering price per share ($9.38 O 0.955) $9.82* ============================================================================== CLASS B SHARES: Net Asset Value per share and offering price ($2,346,380/249,624 shares outstanding) $9.40** ============================================================================== * Based upon single purchases of less than $25,000. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges. See notes to financial statements 6 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999 ================================================================================ INVESTMENT INCOME (NOTE 1B): Interest Income from U.S. Fixed Income Portfolio $ 4,525,382 Dividend Income from U.S. Fixed Income Portfolio 56,490 Allocated Expenses from U.S. Fixed Income Portfolio (300,301) - -------------------------------------------------------------------------------- $ 4,281,571 EXPENSES: Management fees (Note 2) 262,820 Service fees Class A (Note 3) 182,930 Service fees Class B (Note 3) 14,398 Transfer agent fees 52,199 Shareholder reports 46,984 Audit fees 38,759 Legal fees 36,484 Custody and fund accounting fees 30,902 Trustees fees 12,095 Other 28,689 - -------------------------------------------------------------------------------- Total expenses 706,260 Less expenses assumed by the Sub-Administrator (Note 6) (58,333) Less aggregate amounts waived by the Manager (Note 2) (262,820) - -------------------------------------------------------------------------------- Net expenses 385,107 - -------------------------------------------------------------------------------- Net investment income 3,896,464 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM U.S. FIXED INCOME PORTFOLIO: Net realized loss from investment transactions (1,413,241) Net realized gain on futures transactions 137,758 Unrealized depreciation of investments and futures contracts (3,954,983) - -------------------------------------------------------------------------------- Net realized and unrealized loss from U.S. Fixed Income Portfolio (5,230,466) - -------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,334,002) ================================================================================ See notes to financial statements 7 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
TEN MONTHS ENDED YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, 1998 DECEMBER 31, 1999 (NOTE 1F) 1997 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 3,896,464 $ 2,071,831 $ 2,329,594 Net realized gain (loss) (1,275,483) 743,318 272,468 Unrealized appreciation (depreciation) (3,954,983) 662,088 649,983 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (1,334,002) 3,477,237 3,252,045 - -------------------------------------------------------------------------------- Distributions to Shareholders from: Net investment income (Class A) (3,638,279) (2,112,415) (2,338,323) Net Investment Income (Class B) (80,204) -- -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions to shareholders (3,718,483) (2,112,415) (2,338,323) - -------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 5): CLASS A Net proceeds from sale of shares 26,451,535 45,904,926 595,327 Net asset value of shares issued to shareholders from reinvestment of distributions 3,587,003 2,110,978 2,335,328 Cost of shares repurchased (49,885,122) (9,293,925) (11,061,426) - -------------------------------------------------------------------------------- Total Class A (19,846,584) 38,721,979 (8,130,771) - -------------------------------------------------------------------------------- CLASS B* Net proceeds from sale of shares 3,269,414 -- -- Net asset value of shares issued to shareholders from reinvestment of distributions 62,923 -- -- Cost of shares repurchased (850,681) -- -- - -------------------------------------------------------------------------------- Total Class B 2,481,656 -- -- - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest (17,364,928) 38,721,979 (8,130,771) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (22,417,413) 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 of $177,981, $0 and $26,955, respectively) $ 54,370,951 $ 76,788,364 $ 36,701,563 ================================================================================ * January 4, 1999 (Commencement of Operations) to October 31, 1999.
See notes to financial statements 8 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
CLASS A ---------------------------------------------------------- TEN MONTHS YEAR ENDED ENDED OCTOBER 31, YEAR ENDED DECEMBER 31, OCTOBER 31, 1998 -------------------------------- 1999 (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 0.508+ 0.447 0.575 0.54 0.57 0.521 Net Realized and Unrealized Gain (Loss) on Investments (0.666) 0.272 0.239 (0.29) 0.86 (0.959) - -------------------------------------------------------------------------------- Total from operations (0.158) 0.719 0.814 0.25 1.43 (0.438) - -------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.462) (0.439) (0.574) (0.54) (0.57) (0.516) Net realized gain on investments -- -- -- -- -- (0.016) - -------------------------------------------------------------------------------- Total distributions (0.462) (0.439) (0.574) (0.54) (0.57) (0.532) - -------------------------------------------------------------------------------- Net Asset Value, end of period $ 9.38 $10.00 $9.72 $9.48 $9.77 $8.91 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $52,025 $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 5.20% 5.30%* 5.92% 5.72% 5.97% 5.52% Portfolio turnover(B) -- 120% 146% 495% 396% 291% Total return (1.61)% 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 $0.467+ $0.412 $0.522 $0.50 $0.52 $0.475 RATIOS: Expenses to average net assets(A) 1.32% 1.33%* 1.47% 1.39% 1.42% 1.39% Net investment income to average net assets 4.78% 4.88%* 5.37% 5.23% 5.45% 5.03% ================================================================================
* Annualized ** Not Annualized + The per share amounts were computed using monthly average of shares during the period. (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 9 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CLASS B ------------------ JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1999 ================================================================================ Net Asset Value, beginning of period $9.95 - -------------------------------------------------------------------------------- Income From Operations: Net investment income 0.384 Net realized and unrealized gain (loss) on investments (0.617) - -------------------------------------------------------------------------------- Total from operations (0..233) Less Distributions From: Net investment income (0.317) - -------------------------------------------------------------------------------- Net Asset Value, end of period $9.40 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $2,346 Ratio of expenses to average net assets 1.40%* Ratio of net investment income to average net assets 4.70%* Total return (2.35)%** 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 $0.343+ RATIOS: Expenses to average net assets 1.82%* Net investment income to average net assets 4.28%* ================================================================================ * Annualized ** Not Annualized + The per share amounts were computed using monthly average of shares during the period. See notes to financial statements 10 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS 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 (approximately 18.7% at October 31, 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 fees than Class A, and 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 shares. For the period ended October 31, 1999, CFBDS, acting as the distributor, received $32,584 from sales of Class A and $11 in deferred sales charges from redemptions of Class B shares. 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 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 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. 11 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) 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 investment transactions. Accordingly, no provision for federal income or excise tax is necessary. At October 31, 1999, the Fund, for federal income tax purposes, had a capital loss carryover of $3,181,151 of which $1,142,935 will expire on October 31, 2002, $1,075,574 which will expire on October 31, 2004 and $962,642 which will expire on October 31, 2007. 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 Distributions to shareholders are recorded on ex-dividend date. The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from generally accepted accounting principles. These differences are attributable to permanent book and tax accounting differences. Reclassifications are made to the Fund's capital accounts to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. 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. 12 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) 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 are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.35% of the Fund's average daily net assets. The management fee amounted to $262,820 all of which was voluntarily waived for the year ended October 31, 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 $182,930 for the year ended October 31, 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 $14,398 for the period from January 4, 1999 (Commencement of Operations) through October 31, 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 year ended October 31, 1999 aggregated $22,743,775 and $43,457,889, respectively. 13 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (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: TEN MONTHS YEAR ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, 1998 DECEMBER 31, 1999 (NOTE 1F) 1997 ================================================================================ CLASS A Shares sold 2,671,683 4,626,775 62,642 Shares issued to shareholders from reinvestment of distributions 370,289 214,180 244,817 Shares repurchased (5,171,440) (940,430) (1,162,555) - -------------------------------------------------------------------------------- Class A Net increase (decrease) (2,129,468) 3,900,525 (855,096) ================================================================================ CLASS B* Shares sold 333,168 -- -- Shares issued to shareholders from reinvestment of distributions 6,600 -- -- Shares repurchased (90,144) -- -- - -------------------------------------------------------------------------------- Class B Net increase 249,624 -- -- ================================================================================ * January 4, 1999 (Commencement of Operations) to October 31, 1999. 6. ASSUMPTION OF EXPENSES CFBDs has voluntarily agreed to pay a portion of the unwaived expenses of the Fund for the year ended October 31, 1999 which amounted to $58,333. 14 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS FIXED INCOME TRUST (THE "TRUST"): CITIFUNDS INTERMEDIATE INCOME PORTFOLIO In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of CitiFunds Intermediate Income Portfolio (the "Fund"), a series of CitiFunds Fixed Income Trust, at October 31, 1999, the results of its operations for the year ended October 31, 1999, the changes in its net assets and the financial highlights for the period ended October 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at October 31, 1999 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. The financial statements of the Fund for periods prior to November 1, 1998 were audited by other independent auditors whose report dated December 14, 1998 expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP Boston, Massachusetts December 14, 1999 15 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS October 31, 1999 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - --------------------------------------------------------------------- FIXED INCOME -- 113.3% - --------------------------------------------------------------------- ASSET BACKED SECURITIES -- 27.6% - --------------------------------------------------------------------- Aames Mortgage Trust 6.59% due 6/15/24 $3,389 $ 3,376,054 Aircraft Financial Trust 8.00% due 5/15/24 5,000 4,653,350 Amresco Residential Securities 6.245% due 4/25/22 3,000 2,978,430 Asset Securitization Corp., Series 95 7.10% due 8/13/29 1,879 1,871,715 7.384% due 8/13/29 3,500 3,491,495 Asset Securitization Corp., Series 97 6.50% due 2/14/41 2,530 2,510,910 6.85% due 2/14/41 2,425 2,334,184 Commercial Mortgage Corp. 5.80% due 3/15/06 2,076 1,990,617 Contimortgage Home Equity Loan 6.13% due 3/15/13 4,000 3,968,720 CRIMI Mae Commercial MortgageTrust 7.00% due 11/02/11 2,000 1,442,188 First Union, Lehman Brothers 6.479% due 3/18/04 1,390 1,379,226 GE Capital Mortgage Services, Inc. 5.905% due 10/25/13 2,000 1,972,900 GMAC Commercial Mortgage Inc. 6.42% due 8/15/08 4,110 3,909,884 6.83% due 12/15/03 3,747 3,757,931 Green Tree Financial Corp. 6.71% due 8/15/29 3,850 3,645,180 8.05% due 10/15/27 5,000 5,101,550 8.41% due 12/01/30 3,000 2,789,610 IMC Home Equity Loan Trust 6.16% due 5/20/14 2,894 2,881,362 6.34% due 8/20/29 3,600 3,458,628 JP Morgan Commercial Mortgage Financial Corp. 6.373% due 1/15/30 2,074 2,032,250 Merrill Lynch Mortgage Co. 6.95% due 6/18/29 1,725 1,729,169 Morgan Stanley Capital Investment Inc. 6.44% due 11/15/02 3,630 3,613,411 6.55% due 12/15/07 1,500 1,444,440 Nissan Auto Receivables Grantor 6.15% due 2/15/03 1,249 1,243,418 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - --------------------------------------------------------------------- Nomura Asset Securitization Corp. 8.15% due 3/04/20 $3,000 $ 3,106,950 Norwest Asset Securitization Corp. 6.75% due 11/25/27 2,000 1,964,560 Norwest Asset Securitization Corp. 6.75% due 2/25/13 2,008 1,995,782 PNC Mortgage Securities Corp. 6.392% due 9/25/13 1 1,091 Structured Asset Securities Corp. 6.79% due 6/12/04 5,921 5,891,973 ----------- 80,536,978 ----------- FOREIGN CORPORATIONS -- 1.8% - --------------------------------------------------------------------- Quebec Providence CDA 7.50% due 9/15/29 1,935 1,944,288 YPF Sociedad Anonima 7.25% due 3/15/03 3,455 3,346,886 ----------- 5,291,174 ----------- DOMESTIC CORPORATIONS -- 26.7% - --------------------------------------------------------------------- Ahold Financial U.S.A., Inc. 6.875% due 5/01/29 3,335 2,924,295 American Financial Group Inc. 7.125% due 4/15/09 3,115 2,837,017 Associates Corporation of North America 6.95% due 11/01/18 3,215 3,052,932 BB&T Corp. 6.375% due 6/30/05 3,270 3,097,246 Bank One Corp. 5.625% due 2/17/04 3,770 3,588,776 Century Telephone Enterprises Inc. 6.30% due 1/15/08 3,515 3,268,106 Conseco Inc. 6.40% due 6/15/01 2,910 2,850,258 Dayton Hudson Corp. 6.65% due 8/01/28 3,360 2,983,478 Dynegy Inc. 7.45% due 7/15/06 2,895 2,875,259 Equitable Life Assurance 6.95% due 12/01/05 3,275 3,235,700 Ford Motor Co. 6.625% due 10/01/28 2,190 1,948,158 Ford Motor Co. 7.375% due 10/28/09 3,190 3,215,711 Great Lakes Chemical Corp. 7.00% due 7/15/09 3,175 3,081,274 Household Financial Corp. 6.50% due 11/15/08 3,020 2,848,796 16 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS October 31, 1999 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ---------------------------------------------------------------------- DOMESTIC CORPORATIONS (CONT'D) - ---------------------------------------------------------------------- Knight Ridder Inc. 6.875% due 3/15/29 $3,285 $ 2,975,395 Lehman Brothers Holdings, Inc. 7.00% due 5/15/03 3,200 3,184,419 Lehman Brothers Holdings, Inc. 7.875% due 11/01/09 3,230 3,253,934 MCI Communications Corp. 6.50% due 4/15/10 3,300 3,128,103 Mattel Inc. 6.00% due 7/15/03 3,010 2,873,987 Merita Bank plc 6.50% due 4/01/09 3,615 3,335,307 Morgan Stanley Dean Witter & Co. 5.625% due 1/20/04 2,900 2,757,900 National Rural Utilities 6.20% due 2/01/08 3,125 2,949,969 Osprey Trust Inc. 8.31% due 1/15/03 2,915 2,923,308 Petroleum Geological Services 6.625% due 3/30/08 2,760 2,590,950 Popular North America, Inc. 6.875% due 6/15/01 2,415 2,410,619 TPSA Financial 7.75% due 12/10/08 2,050 1,889,227 Wal-Mart Stores Inc. 6.875% due 8/10/09 1,700 1,702,941 ----------- 77,783,065 ----------- MORTGAGE OBLIGATIONS -- 31.5% - ---------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.0% - ---------------------------------------------------------------------- CMC SECURITIZATION CORP., SERIES 97 7.00% DUE 10/25/27 731 730,861 CWMBS Inc., Series 98 6.50% due 7/25/13 2,173 2,066,080 CWMBS Inc., Series 97 6.75% due 10/25/27 164 163,788 Chase Mortgage Financial Trust 6.50% due 9/25/13 2,008 1,906,781 Federal Home Loan Mortgage Corp. 6.25% due 6/15/24 3,440 3,313,690 6.75% due 8/15/04 1,500 1,485,000 Federal National Mortgage Association 7.412% due 8/17/21 2,941 2,957,834 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ---------------------------------------------------------------------- Government National Mortgage Association 7.25% due 10/16/22 $1,446 $ 1,451,526 Residential Asset Securitization Trust 7.00% due 2/25/08 452 451,603 ----------- 14,527,163 ----------- MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 17.1% - ---------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 6.00% TBA 1,000 932,500 6.00% due 8/01/00 2,037 2,030,208 6.50% due 2/01/11 68 66,950 6.50% due 4/01/11 235 231,858 6.50% due 7/01/11 288 282,430 6.50% due 8/01/11 63 61,814 6.50% due 9/15/22 761 742,150 8.50% due 4/01/01 6 6,087 ----------- 4,353,997 ----------- Federal National Mortgage Association 5.50% TBA 10,000 9,009,375 6.50% TBA 9,130 8,747,636 6.50% TBA 4,500 4,412,790 6.50% due 5/01/11 323 317,863 6.50% due 7/01/11 316 310,275 6.50% due 8/25/22 1,500 1,446,824 6.50% due 4/01/29 3,926 3,761,878 6.50% due 5/01/29 4,420 4,234,949 7.00% due 6/01/03 170 170,050 7.00% due 7/01/03 275 276,375 7.50% due 10/01/25 795 798,210 7.50% due 11/01/25 1,544 1,550,095 7.50% due 5/01/26 166 166,412 7.50% due 6/01/26 27 27,083 7.50% TBA 9,700 9,718,188 8.00% due 6/01/02 6 5,552 8.00% due 5/01/26 336 342,696 8.00% due 6/01/26 166 169,560 8.00% due 7/01/26 87 88,839 ----------- 45,554,650 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 9.4% - ---------------------------------------------------------------------- 6.50% TBA 2,925 2,793,375 6.50% TBA 4,000 3,803,750 7.00% TBA 17,350 17,008,422 7.00% due 2/15/24 3,688 3,638,081 8.00% due 12/15/07 39 38,988 ----------- 27,282,616 TOTAL MORTGAGE OBLIGATIONS 91,718,426 ----------- 17 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ---------------------------------------------------------------------- YANKEE BONDS -- 4.4% - ---------------------------------------------------------------------- Corporacion Andina De Fomento 7.75% due 3/01/04 $3,180 $ 3,134,175 DaimlerChrysler of North America 7.20% due 9/01/09 3,025 3,024,032 Imperial Tob Overseas 7.125% due 4/01/09 3,275 2,992,859 Korea Development Bank 7.125% due 4/22/04 2,930 2,838,300 TPSA Financial 7.75% due 12/10/08 900 846,426 ----------- 12,835,792 ----------- UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 21.3% - ---------------------------------------------------------------------- UNITED STATES TREASURY BONDS -- 7.0% - ---------------------------------------------------------------------- 8.125% due 8/15/19 4,500 5,300,145 3.625% due 4/15/28 4,029 3,692,760 3.875% DUE 4/15/29 5,082 4,865,967 6.125% due 8/15/29 6,600 6,571,092 ----------- 20,429,964 ----------- UNITED STATES TREASURY NOTES -- 12.6% - ---------------------------------------------------------------------- 5.625% due 4/30/00 215 215,234 5.50% due 12/31/00 110 109,777 6.50% due 5/31/01 1,150 1,162,213 6.00% due 8/15/04 10,935 10,960,588 6.00% due 8/15/09 3,760 3,754,698 6.875% due 5/15/06 8,000 8,302,480 6.625% due 5/15/07 6,720 6,895,325 3.875% due 1/15/09 5,550 5,445,938 ----------- 36,846,253 ----------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ---------------------------------------------------------------------- UNITED STATES AGENCY OBLIGATIONS -- 1.7% - ---------------------------------------------------------------------- Federal National Mortgage Association 5.49% due 8/18/00 $5,000 $ 4,979,700 ----------- TOTAL UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS 62,255,917 ----------- TOTAL FIXED INCOME (Identified Cost $341,086,190) 330,421,352 ----------- PREFERRED STOCK -- 1.1% - ---------------------------------------------------------------------- Comed Financing I (Identified Cost $3,531,870) 138 3,345,967 ----------- SHORT-TERM OBLIGATIONS -- 2.1% - ---------------------------------------------------------------------- First Union National Bank 5.30% Due 11/01/99 proceeds at maturity $5,380,375 (collateralized by $5,470,000 Federal Home Loan Mortgage 6.16% due 3/29/01, valued at $5,470,864) 5,378 5,378,000 ----------- United States Treasury Bills 4.50% due 12/23/99 115 114,253 4.57% due 12/23/99 85 84,439 4.66% due 12/23/99 432 429,092 ----------- 627,784 ----------- TOTAL SHORT-TERM OBLIGATIONS (Identified Cost $6,005,784) 6,005,784 ----------- TOTAL INVESTMENTS (Identified Cost $350,623,844) 116.5% 339,773,103 OTHER ASSETS, LESS LIABILITIES (16.5) (48,237,505) ----------- NET ASSETS 100.0% $291,535,598 ===== ============ FUTURES CONTRACTS - ---------------------------------------------------------------------- Futures contracts which were open at October 31, 1999 are as follows :
AGGREGATE DESCRIPTION/ NUMBER OF FACE VALUE OF EXPIRATION UNREALIZED POSITION CONTRACTS CONTRACTS DATE GAIN/(LOSS) - -------------------------------------------------------------------------------------------- U.S. Long Bond (Sell) (50) $ (5,000,000) December 20, 1999 $(10,922) U.S. Two Year Note (Buy) 140 14,000,000 December 29, 1999 (9,275) U.S. Five Year Note (Buy) 120 12,000,000 December 31, 1999 98,475 U.S. Ten Year Note (Sell) (275) (27,500,000) December 20, 1999 36,023 -------- $114,301 --------
See notes to financial statements 18 U.S. FIXED INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999 ================================================================================ ASSETS: Investments at value (Note 1A) (Identified Cost, $350,623,844) $339,773,103 Cash 1,941 Interest receivable 3,271,699 Receivable for investments sold 25,952,320 Receivable for daily variation on futures contracts 85,156 - -------------------------------------------------------------------------------- Total assets 369,084,219 - -------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 77,034,746 Payable for daily variations on futures contracts 280,469 Payable to affiliates--Management Fee (Note 2) 108,565 Accrued expenses and other liabilities 124,841 - -------------------------------------------------------------------------------- Total liabilities 77,548,621 - -------------------------------------------------------------------------------- Net Assets $291,535,598 ================================================================================ REPRESENTED BY: Paid-in capital for beneficial interests $291,535,598 ================================================================================ U.S. FIXED INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1999 ================================================================================ INVESTMENT INCOME (Note 1B): Interest Income $12,059,138 Dividend Income 170,690 - -------------------------------------------------------------------------------- $12,229,828 EXPENSES: Management fees (Note 2) 664,250 Custody and fund accounting fees 15,640 Audit fees 38,473 Legal fees 35,303 Trustees fees 5,320 Other 3,979 - -------------------------------------------------------------------------------- Total expenses 762,965 - -------------------------------------------------------------------------------- Net investment income 11,466,863 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Unrealized depreciation of investments and futures contracts (10,736,440) Less unrealized depreciation from contributed assets (Note 1) (3,295,843) - -------------------------------------------------------------------------------- Unrealized depreciation of investments (7,440,597) - -------------------------------------------------------------------------------- Net realized gain from futures transactions 389,144 Net realized loss from investment transactions (6,199,658) - -------------------------------------------------------------------------------- Net realized loss from investment and futures transactions 5,810,514) - -------------------------------------------------------------------------------- Net realized and unrealized loss on investments (13,251,111) - -------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,784,248) - -------------------------------------------------------------------------------- See notes to financial statements 19 U.S. FIXED INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1999 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $11,466,863 Net realized loss from investment and futures transactions (5,810,514) UNREALIZED DEPRECIATION OF INVESTMENTS (7,440,597) - -------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (1,784,248) - -------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: Proceeds from contributions (Note 1) 452,433,828 Value of withdrawals (159,113,982) - -------------------------------------------------------------------------------- Net increase in net assets from capital transactions 293,319,846 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 291,535,598 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - -------------------------------------------------------------------------------- End of period $291,535,598 ================================================================================ See notes to financial statements U.S. FIXED INCOME PORTFOLIO Financial Highlights For the Period November 1, 1998 (Commencement of Operations) to October 31, 1999 ================================================================================ Ratios/Supplemental Data: Net assets, end of period (000's omitted) $291,536 Ratio of expenses to average net assets 0.40% Ratio of net investment income to average net assets 6.04 % Portfolio turnover 253% ================================================================================ See notes to financial statements 20 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS 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. Also, on May 3, 1999, the Intermediate Income Portfolio transferred all of its investable assets in the amount of $153,278,329 including $1,000,795 of unrealized depreciation to the Portfolio in exchange for an interest in the Portfolio. Additionally, on August 1, 1999, the Balanced Portfolio transferred a portion of its investable assets in the amount of $113,810,272 including $3,978,434 of unrealized depreciation 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. 21 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) 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. 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 announced) 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 high-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 in 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 (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 $664,250 for the period November 1, 1998 (commencement of operations) to October 31, 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 $514,561,468 and $514,252,682, respectively, for the period November 1, 1998 (Commencement of Operations) to October 31, 1999. 23 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS 4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at October 31, 1999, as computed on a federal income tax basis, are as follows: Aggregate cost $350,829,042 ================================================================================ Gross unrealized appreciation $ 299,826 Gross unrealized depreciation (11,355,765) - -------------------------------------------------------------------------------- Net unrealized depreciation $(11,055,939) ================================================================================ 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 October 31, 1999, the commitment fee allocated to the Portfolio was $599. Since the line of credit was established, there have been no borrowings. 24 U.S. FIXED INCOME PORTFOLIO INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"), WITH RESPECT TO ITS SERIES, U.S. FIXED INCOME PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of U.S. Fixed Income Portfolio (the "Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, and the related statements of operations and of changes in net assets and the financial highlights for the period November 1, 1998 (Commencement of Operations) through October 31, 1999. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at October 31, 1999 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Portfolio as at October 31, 1999, the results of its operations and the changes in its net assets and the financial highlights for the period November 1, 1998 (Commencement of Operations) through October 31, 1999 in accordance with U.S. generally accepted accounting principles. PricewaterhouseCoopers LLP Chartered Acccountants Toronto, Ontario December 14, 1999 25 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK 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 Value Portfolio o CitiFunds Small Cap Growth 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 California Tax Free Income Portfolio o CitiFunds New York Tax Free Income Portfolio MONEY MARKETS o CitiFunds Cash Reserves o CitiFunds U.S. Treasury Reserves o CitiFunds Tax Free Reserves o CitiFunds California Tax Free Reserves o CitiFunds Connecticut Tax Free Reserves o CitiFunds New York Tax Free Reserves This report is prepared for the information of shareholders of CitiFunds Intermediate Income Portfolio. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus of CitiFunds Intermediate Income Portfolio. For more information about any of the CitiFunds listed above, ask for a prospectus (except for CitiFunds Intermediate Income Portfolio, which preceded or accompanies this report) containing more complete information, including all sales charges (if any), fees and expenses. Please read the prospectus carefully before you invest or send money. Although each money market fund seeks to maintain the value of your investment at $1.00 per share, it is possible to lose money by investing in the funds. Mutual fund shares are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other government agency, CitiFunds are made available by CFBDS, Inc. as distributor. For more information contact your Service Agent or call 1-800-625-4554 (C) 1999 Citicorp (Recycle Logo) Printed on recycled paper CFA/INI/1099 -----END PRIVACY-ENHANCED MESSAGE-----