-----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, UcyVzKYqMjChQmtlKUydHfmgMpQORTItgW9/V+mtyUaPy1LGl/I/igompaDtubNk wguo/1lurT8QATtfvmHywA== 0000950156-98-000512.txt : 19980821 0000950156-98-000512.hdr.sgml : 19980821 ACCESSION NUMBER: 0000950156-98-000512 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980820 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDMARK FIXED INCOME FUNDS /MA/ 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: 98695249 BUSINESS ADDRESS: STREET 1: 6ST JAMES AVE 9TH FL CITY: BOSTON STATE: MA ZIP: 02116 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 LANDMARK FIXED INCOME TRUST - 6/30/98 Semi-Annual Report o June 30, 1998 [logo] Intermediate Income Portfolio [graphic omitted] BONDS - -------------------------------------------------------------------------------- INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE - -------------------------------------------------------------------------------- TABLE OF CONTENTS CITIFUNDS INTERMEDIATE INCOME PORTFOLIO Letter to Our Shareholders 1 .............................................................................. Portfolio Environment and Outlook 2 .............................................................................. Fund Facts 4 .............................................................................. Portfolio Highlights 4 .............................................................................. Fund Performance 5 .............................................................................. Portfolio of Investments 6 .............................................................................. Statement of Assets and Liabilities 9 .............................................................................. Statement of Operations 10 .............................................................................. Statement of Changes in Net Assets 11 .............................................................................. Financial Highlights 12 .............................................................................. Notes to Financial Statements 13 .............................................................................. LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: This semi-annual report covers the period from January 1, 1998, through June 30, 1998, for the CitiFunds(SM) Intermediate Income Portfolio. Inside, the CitiFunds' investment manager, Citibank, N.A., discusses the market conditions it faced, the strategies it employed and its outlook for the future. Overall, the past six months were quite positive for the U.S. bond market. Moderate economic growth, low inflation and an unchanged U.S. monetary policy helped most sectors of the bond market produce attractive total rates of return for the six-month period. We are pleased to report that CitiFunds Intermediate Income Portfolio participated in this market sector's gains. Among the highlights of the reporting period, your fund has changed its name to CitiFunds(SM) Intermediate Income Portfolio. In addition, as you have probably heard, Citicorp recently announced its intention to merge with The Travelers Group. The completion of the merger is subject to the satisfaction of certain conditions. As necessary, we will provide you with information that specifically affects the fund. On behalf of the Board of Trustees, we want to thank you for your continued participation and confidence in the CitiFunds family of funds. /s/ Philip Coolidge Philip W. Coolidge President July 16, 1998 PORTFOLIO ENVIRONMENT AND OUTLOOK DESPITE STRONGER-THAN-EXPECTED ECONOMIC GROWTH, inflation remained low during the first six months of 1998. Even reports of record-high employment levels and robust consumer consumption failed to ignite inflationary pressures. In addition, fears that economic growth was too strong were tempered by widespread expectations that the financial crisis in Asia would soon constrain growth. The potentially moderating effects of the Asian crisis apparently convinced the Federal Reserve Board not to raise short-term interest rates in an attempt to forestall an acceleration of inflation. This combination of economic influences created excellent conditions for the U.S. bond market. In addition, the bond market benefitted from the federal government's progress toward a balanced budget. Many analysts expect a budget surplus in fiscal year 1998, which could further reduce the government's need to finance its operations by issuing U.S. Treasury securities. Even as the supply of U.S. Treasury securities is shrinking, investor demand is growing. This is especially true of overseas investors, who have shown a preference for the quality and relative stability of U.S. dollar-based investments in the aftermath of Asia's problems. The U.S. bond market responded to these positive influences by narrowing the differences in yields between short-term fixed-income securities and long-term bonds. Short-term yields generally remained stable because they are based on the federal funds rate, which is set by the Federal Reserve Board and remained unchanged over the past six months. Yields on intermediate-term and long-term bonds, which are determined by the marketplace, declined modestly. As a result, because bond prices rise when their yields decline, intermediate- and long-term U.S. Treasury and agency securities generally provided total returns slightly higher than their coupons. THE PORTFOLIO SOUGHT TO MAINTAIN HIGH YIELDS COMMENSURATE WITH ITS RISK PROFILE in this environment. Accordingly, we maintained a relatively long average duration, which is a measure of the portfolio's sensitivity to changes in interest rates. By holding the average duration near the long end of its range, we were able to maintain higher, existing yields for as much time as possible. We also allocated the portfolio's assets among the various market sectors in an attempt to maximize exposure to those fixed-income securities providing the best relative values. This strategy led us to invest a portion of the portfolio in asset-backed securities, which are secured by high-quality debt obligations such as automobile loans, home equity loans and commercial mortgages. We invested about 24% in mortgage-backed securities from U.S. government agencies such as the Government National Mortgage Association, known as Ginnie Mae. Another 23% or so of the portfolio was composed of investment-grade corporate bonds, where we found attractive opportunities in the debt of domestically-oriented companies such as banks, finance companies and utilities. The remainder of the portfolio was invested in U.S. Treasury securities, where we emphasized bonds with long maturities. The portfolio's average credit quality remained high over the past six months. As of June 30, 1998, approximately 80% of the portfolio's investments were rated AAA by Standard & Poor's or Aaa by Moody's, the highest ratings available. We remain optimistic about the bond market's prospects over the second half of 1998, primarily because slower economic growth and its benign implications for inflation are generally good for the bond market. In our view, U.S. consumers' propensity to spend freely and drive economic growth higher should be more than offset by the effects on trade flows of recessionary conditions in Asia. At the same time, we believe that consumer consumption will decline from its rapid pace early in the year. Finally, competition from foreign manufacturers and domestic productivity improvements should prevent U.S. companies from raising prices, helping to keep the inflation rate low. Although we may see an increase in market volatility over the short-term as the tug-of-war between U.S. consumer consumption and Asian influences becomes resolved, we ultimately expect that a slow-down in economic growth will allow long-term yields to move modestly lower. If our outlook is correct, we expect these conditions to support prices in the various bond market sectors in which CitiFunds Intermediate Income Portfolio invests. Of course, we will continue to monitor the economy and bond market, making every effort to generate a high level of current income and to preserve the value of our shareholders' investment. 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 6/30/98 BENCHMARKS $46 million o Lipper Intermediate Investment Grade Funds Average o Lehman Aggregate Bond Index PORTFOLIO HIGHLIGHTS PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 1998 (Unaudited) U.S. Treasury Issues 35% Mortgage Obligations 24% Corporate Bonds 23% Asset-Backed Securities 10% *Short-Term 8% *Includes cash and net other assets. FUND PERFORMANCE Total Returns SINCE ALL PERIODS ENDING JUNE 30, 1998 SIX ONE FIVE 6/25/93 (Unaudited) MONTHS** YEAR YEAR* (INCEPTION)* - -------------------------------------------------------------------------------- CitiFunds Intermediate Income Portfolio 4.03% 10.02% 5.85% 5.90% Lipper Intermediate Investment Grade Funds Average 3.61% 9.42% 6.12% 5.59%(+) Lehman Aggregate Bond Index 3.93% 10.54% 6.88% 6.87%(+) * Average Annual Total Return ** Not Annualized (+) From 6/30/93 30-Day SEC Yield 5.09% Income Dividends Per Share $0.267 GROWTH OF A $10,000 INVESTMENT A $10,000 investment in the Fund made on inception date would have grown to $13,329 (as of 6/30/98). The graph shows how this compares to its benchmark over the same period. LIPPER LEHMAN CITIFUNDS INTERMEDIATE AGGREGATE INTERMEDIATE INV. GRADE BOND DATE INCOME FUND AVG. INDEX ---- ------------ ------------ ---------- 6/25/93 $10,000 6/30/93 $10,030 $10,000 $10,000 7/31/93 $10,073 $10,042 $10,057 8/31/93 $10,325 $10,228 $10,233 9/30/93 $10,406 $10,268 $10,261 10/31/93 $10,416 $10,301 $10,299 11/30/93 $10,246 $10,209 $10,211 12/31/93 $10,299 $10,257 $10,266 1/31/94 $10,445 $10,387 $10,405 2/28/94 $10,215 $10,202 $10,224 3/31/94 $ 9,968 $ 9,980 $ 9,971 4/30/94 $ 9,868 $ 9,890 $ 9,891 5/31/94 $ 9,841 $ 9,875 $ 9,890 6/30/94 $ 9,810 $ 9,856 $ 9,869 7/31/94 $ 9,976 $10,004 $10,065 8/31/94 $10,003 $10,024 $10,077 9/30/94 $ 9,836 $ 9,911 $ 9,929 10/31/94 $ 9,798 $ 9,896 $ 9,920 11/30/94 $ 9,760 $ 9,867 $ 9,898 12/31/94 $ 9,838 $ 9,914 $ 9,967 1/31/95 $10,021 $10,072 $10,164 2/28/95 $10,249 $10,281 $10,406 3/31/95 $10,322 $10,345 $10,469 4/30/95 $10,439 $10,478 $10,616 5/31/95 $10,930 $10,848 $11,027 6/30/95 $10,992 $10,916 $11,107 7/31/95 $10,941 $10,887 $11,083 8/31/95 $11,039 $11,009 $11,217 9/30/95 $11,159 $11,106 $11,326 10/31/95 $11,199 $11,244 $11,473 11/30/95 $11,310 $11,401 $11,645 12/31/95 $11,456 $11,546 $11,808 1/31/96 $11,509 $11,622 $11,886 2/29/96 $11,279 $11,423 $11,679 3/31/96 $11,190 $11,345 $11,597 4/30/96 $11,113 $11,276 $11,532 5/31/96 $11,083 $11,256 $11,509 6/30/96 $11,245 $11,384 $11,664 7/31/96 $11,263 $11,410 $11,695 8/31/96 $11,230 $11,401 $11,675 9/30/96 $11,443 $11,587 $11,878 10/31/96 $11,693 $11,821 $12,142 11/30/96 $11,895 $12,016 $12,350 12/31/96 $11,769 $11,910 $12,235 1/31/97 $11,824 $11,805 $12,273 2/28/97 $11,853 $11,829 $12,303 3/31/97 $11,708 $11,705 $12,167 4/30/97 $11,889 $11,857 $12,349 5/31/97 $11,983 $11,959 $12,467 6/30/97 $12,115 $12,092 $12,615 7/31/97 $12,417 $12,403 $12,956 8/31/97 $12,296 $12,294 $12,846 9/30/97 $12,472 $12,465 $13,034 10/31/97 $12,688 $12,522 $13,223 11/30/97 $12,682 $12,557 $13,284 12/31/97 $12,813 $12,670 $13,418 1/31/98 $13,019 $12,833 $13,590 2/28/98 $12,986 $12,815 $13,580 3/31/98 $13,034 $12,861 $13,626 4/30/98 $13,078 $12,916 $13,697 5/31/98 $13,217 $13,031 $13,827 6/30/98 $13,329 $13,125 $13,944 The graph assumes all dividends and distributions 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 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. CITIFUNDS INTERMEDIATE INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 1998 (Unaudited) PRINCIPAL AMOUNT (000'S ISSUER OMITTED) VALUE - ------------------------------------------------------------------------------- FIXED INCOME -- 95.3% - ------------------------------------------------------------------------------- ASSET BACKED SECURITIES -- 9.9% - ------------------------------------------------------------------------------- Aames Mortgage Trust 6.59% due 6/15/24 $ 375 $ 379,271 Contimortgage Home Equity Loan 6.13% due 3/15/13 500 500,300 6.28% due 1/15/13 300 300,093 6.57% due 3/15/23 350 351,260 6.87% due 3/15/24 375 382,751 Green Tree Financial Corp. 8.05% due 10/15/27 1,500 1,639,680 IMC Home Equity Loan 6.16% due 5/20/14 1,000 1,000,626 ----------- 4,553,981 ----------- DOMESTIC CORPORATIONS -- 23.4% - ------------------------------------------------------------------------------- Allied Signal Inc. 6.20% due 2/01/08 505 510,035 Associates Corp. N.A. 5.96% due 5/15/37 750 777,435 Atlantic City Electric Co. 7.01% due 8/23/02 560 581,442 BB&T Corp. 6.375% due 6/30/05 485 484,379 Century Tel Enterprises Inc. 6.30% due 1/15/08 400 394,364 Computer Associates International Inc. 6.375% due 4/15/05 510 506,838 Conseco Inc. 6.40% due 6/15/01 450 449,712 Dayton Hudson Corp. 5.95% due 6/15/00 225 224,921 Donaldson Lufkin & Jenrette 6.50% due 6/01/08 245 244,980 Equitable Life Assurance 6.95% due 12/01/05 510 529,446 Ford Motor Co. 6.625% due 2/15/28 400 400,332 GTE Corp. 6.36% due 4/15/06 410 408,061 Household Finance Corp. 6.40% due 6/17/08 200 199,928 Lehman Brothers Holdings Inc. 6.00% due 2/26/01 170 169,672 6.15% due 3/15/00 170 170,396 MCI Communications Corp. 6.125% due 4/15/12 480 478,214 Merrill Lynch & Co. Inc. 6.00% due 2/12/03 145 144,437 Norfolk Southern Corp. 7.35% due 5/15/07 400 429,140 Occidental Petroleum Corp. 6.40% due 4/01/03 400 399,196 Ontario Province 7.00% due 8/04/05 450 476,438 Pacificorp Secured Mortgage Bank 6.375% due 5/15/08 160 160,932 Petroleum Geological Services 6.625% due 3/30/08 265 265,477 Philadelphia Electric Co. 6.625% due 3/01/03 270 274,169 7.125% due 9/01/02 125 128,956 Raytheon Co. 5.95% due 3/15/01 90 89,665 6.30% due 3/15/05 140 140,623 Sears Roebuck Acceptance Corp. 6.00% due 3/20/03 330 326,849 Sony Corp. 6.125% due 3/04/03 470 471,095 Suntrust Banks Inc. 6.00% due 1/15/28 350 344,460 Union Pacific Resources Group Inc. 6.50% due 5/15/05 575 570,636 ----------- 10,752,228 ----------- MORTGAGE OBLIGATIONS -- 24.0% - ------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.9% - ------------------------------------------------------------------------------- Asset Securitization Corp., Series 95, 7.384% due 8/13/29 1,000 1,069,844 Asset Securitization Corp., Series 97, 6.85% due 2/14/41 225 236,525 JP Morgan Commercial Mortgage Financial Corp. 6.37% due 1/15/30 258 260,995 Merrill Lynch Mortgage Co. 6.95% due 6/18/29 475 490,457 Morgan Stanley Capital Investment Inc. 6.44% due 11/15/02 350 355,310 Nomura Asset Securitization Corp. 8.15% due 4/04/27 1,000 1,089,060 Residential Asset Securitization Trust 7.00% due 2/25/08 336 337,765 Structured Asset Securities Corp. 6.79% due 10/15/34 709 730,850 ----------- 4,570,806 ----------- MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 9.2% - ------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 8.50% due 4/01/01 16 16,128 9.00% due 1/01/99 500 493,125 Federal National Mortgage Association 6.50% due 12/01/99 2,000 2,012,500 7.50% due 10/01/25 1,411 1,447,628 7.50% due 4/01/26 46 46,940 7.50% due 5/01/26 189 193,659 8.00% due 6/01/02 12 11,896 ----------- 4,221,876 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 4.9% - ------------------------------------------------------------------------------- 7.25% due 10/16/22 2,181 2,197,683 8.00% due 12/15/07 53 54,489 ----------- 2,252,172 ----------- Total Mortgage Obligations 11,044,854 ----------- YANKEE BONDS -- 3.1% - ------------------------------------------------------------------------------- Embotelladora Andina SA 7.00% due 10/01/07 310 295,864 Inter-American Development Bank 6.95% due 8/01/26 1,000 1,127,740 ----------- 1,423,604 ----------- UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 34.9% - ------------------------------------------------------------------------------- UNITED STATES TREASURY BONDS -- 11.0% - ------------------------------------------------------------------------------- 6.25% due 8/15/23 2,500 2,676,550 6.625% due 2/15/27 1,150 1,298,603 6.125% due 11/15/27 1,000 1,071,560 ----------- 5,046,713 ----------- UNITED STATES TREASURY NOTES -- 22.2% - ------------------------------------------------------------------------------- 6.00% due 6/30/99 5,000 5,024,200 5.625% due 4/30/00 580 581,085 6.625% due 6/30/01 2,665 2,742,871 6.50% due 5/31/02 1,000 1,033,280 5.75% due 11/30/02 495 499,099 5.875% due 2/15/04 320 325,900 ----------- 10,206,435 ----------- UNITED STATES AGENCY OBLIGATIONS -- 1.7% - ------------------------------------------------------------------------------- Tennessee Valley Authority 5.88% due 4/01/36 750 779,753 ----------- TOTAL UNITED STATES GOVERNMENT & OTHER GOVERNMENT OBLIGATIONS 16,032,901 ----------- TOTAL FIXED INCOME (Identified Cost $42,930,739) 43,807,568 ----------- PREFERRED STOCK -- 0.5% - ------------------------------------------------------------------------------- Comed Fing I (Identified Cost $255,000) 10 254,375 ----------- SHORT-TERM OBLIGATIONS -- 8.5% - ------------------------------------------------------------------------------- FCC National Bank 5.68% due 6/03/99 999,381 Salomon Brothers Repurchase Agreement 5.75% due 7/01/98 proceeds at maturity $2,844,454 (collateralized by $2,145,000 U.S. Treasury Bonds valued at $2,874,944 8.75% due 5/15/17) 2,844,000 United States Treasury Bills 4.97% due 9/10/98 19,804 5.02% due 9/10/98 9,901 5.23% due 7/23/98 19,936 ----------- TOTAL SHORT-TERM OBLIGATIONS (Identified Cost $3,893,022) 3,893,022 ----------- TOTAL INVESTMENTS (Identified Cost $47,078,761) 104.3% 47,954,965 OTHER ASSETS, LESS LIABILITIES (4.3) ----- ----------- NET ASSETS 100.0% $45,987,570 ----- ----------- See notes to financial statements FUTURES CONTRACTS - ------------------------------------------------------------------------------- Futures contracts which were open at June 30, 1998 are as follows: DESCRIPTION/ NUMBER OF EXPIRATION UNREALIZED POSITION CONTRACTS DATE GAIN/(LOSS) - ------------------------------------------------------------------------------- U.S. Treasury Note 20 September 1998 $ 5,709 --------- CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 (Unaudited) - ----------------------------------------------------------------------- ASSETS: Investments, at value (Note 1A)(Identified Cost, $47,078,761) $47,954,965 Cash 53 Receivable for investment sold 3,506,914 Receivable for shares of beneficial interest sold 255,167 Interest receivable 383,306 Variation margin receivable 2,812 - ----------------------------------------------------------------------- Total assets 52,103,217 - ----------------------------------------------------------------------- LIABILITIES: Payable for investment purchased 6,013,066 Payable for shares of beneficial interest repurchased 33,079 Payable for affiliates - Management fees (Note 2) 11,850 Accrued expenses 57,652 - ----------------------------------------------------------------------- Total liabilities 6,115,647 - ----------------------------------------------------------------------- NET ASSETS for 4,674,209 shares of beneficial interest outstanding $45,987,570 - ----------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid-in capital $47,432,222 Accumulated net realized loss from investment transactions and futures contracts (2,347,384) Unrealized appreciation of investments and futures contracts 881,913 Undistributed net investment income 20,819 - ----------------------------------------------------------------------- Total $45,987,570 - ----------------------------------------------------------------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST $9.84 - ----------------------------------------------------------------------- See notes to financial statements CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) - --------------------------------------------------------------------- INVESTMENT INCOME (Note 1B): $1,220,447 EXPENSES: Management fees (Note 2) $ 133,566 Distribution fees (Note 3) 47,702 Custody and Fund Accounting fees 22,033 Audit fees 18,100 Shareholder reports 9,430 Transfer agent fees 7,500 Trustees fees 6,584 Legal fees 4,000 Miscellaneous 3,581 - --------------------------------------------------------------------- Total expenses 252,496 Less aggregate amounts waived by the Manager (Note 2) (79,390) Less fees paid indirectly (Note 1I) (1,390) - --------------------------------------------------------------------- Net expenses 171,716 - --------------------------------------------------------------------- Net investment income 1,048,731 - --------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investment transactions 609,126 Net realized gain on futures transactions 30,984 Net change in unrealized appreciation (depreciation) of investments and future contracts (139,385) - --------------------------------------------------------------------- Net realized and unrealized gain on investments and future contracts 500,725 - --------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,549,456 - --------------------------------------------------------------------- See notes to financial statements CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED JUNE 30, YEAR ENDED 1998 DECEMBER 31, (Unaudited) 1997 ----------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $1,048,731 $2,329,594 Net realized gain from investments and futures transactions 640,110 272,468 Net change in unrealized appreciation (depreciation) of investments and future contracts (139,385) 649,983 - ------------------------------------------------------------------ Net increase in net assets resulting from operations 1,549,456 3,252,045 - ------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (1,054,867) (2,338,323) - ------------------------------------------------------------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): Net proceeds from sale of shares 12,648,317 595,327 Net asset value of shares issued to shareholders from reinvestment of distributions 1,054,206 2,335,328 Cost of shares repurchased (4,911,105) (11,061,426) - ------------------------------------------------------------------ Net increase (decrease) in net assets from transactions in shares of beneficial interest 8,791,418 (8,130,771) - ------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS 9,286,007 (7,217,049) - ------------------------------------------------------------------ NET ASSETS: Beginning of period 36,701,563 43,918,612 - ------------------------------------------------------------------ End of period (including undistributed net investment income of $20,819 and $26,955, respectively) $45,987,570 $36,701,563 - ----------------------------------------------------------------- See notes to financial statements CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
SIX MONTHS FOR THE PERIOD ENDED JUNE 25, 1993 JUNE 30, YEAR ENDED DECEMBER 31, (COMMENCEMENT OF 1998 ------------------------------------------ OPERATIONS) TO (Unaudited) 1997 1996 1995 1994 DECEMBER 31, 1993 - --------------------------------------------------------------------------------------------- Net Asset Value, beginning of period $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88 $ 10.00 - --------------------------------------------------------------------------------------------- Income From Operations: Net investment income 0.271 0.575 0.54 0.57 0.521 0.261 Net realized and unrealized gain (loss) on investments 0.116 0.239 (0.29) 0.86 (0.959) 0.037 - --------------------------------------------------------------------------------------------- Total from operations 0.387 0.814 0.25 1.43 (0.438) 0.298 - --------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.267) (0.574) (0.54) (0.57) (0.516) (0.261) In excess of net investment income -- -- -- -- -- (0.006) Net realized gain on investments -- -- -- -- (0.016) (0.151) - --------------------------------------------------------------------------------------------- Total distributions (0.267) (0.574) (0.54) (0.57) (0.532) (0.418) - --------------------------------------------------------------------------------------------- Net Asset Value, end of period $ 9.84 $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88 - --------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $ 45,988 $ 36,702 $ 43,919 $ 49,618 $ 47,582 $ 61,183 Ratio of expenses to average net assets(A) 0.91%* 0.92% 0.90% 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 5.50%* 5.92% 5.72% 5.97% 5.52% 4.95%* Portfolio turnover 78% 146% 495% 396% 291% 103% Total return 4.03%** 8.87% 2.73% 16.45% (4.48)% 2.99%** 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 $0.250 $0.522 $0.50 $0.52 $0.475 $0.236 RATIOS: Expenses to average net assets 1.32%* 1.47% 1.39% 1.42% 1.39% 1.38%* Net investment income to average net assets 5.08%* 5.37% 5.23% 5.45% 5.03% 4.47%* - --------------------------------------------------------------------------------------------- * 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 on or before December 31, 1995 have not been adjusted to reflect this change.
See notes to financial statements CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Intermediate Income Portfolio (formerly Landmark Intermediate Income Fund) (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. The Investment Manager of the Fund is Citibank, N.A. ('Citibank'). CFBDS, Inc. ('CFBDS') (formerly Landmark Funds Broker-Dealer Services, Inc.) acts as the Fund's Sub-Administrator and Distributor. 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 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 Security Valuations Debt securities (other than short-term obligations maturing in 60 days or less) are valued on the basis of valuations furnished by a pricing service, which takes 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 (maturing in 60 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 is determined on the basis of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for Federal income tax purposes. Gain and loss from principal paydowns are recorded as ordinary income. 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 December 31, 1997, the Fund, for federal income tax purposes, had a capital loss carryover of $2,977,002 of which $1,901,428 will expire on December 31, 2002 and $1,075,574 which will expire on December 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. Repurchase Agreements It is the policy of the Fund 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 custodial bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund 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. G. Futures Contracts The Fund may engage in futures transactions. The Fund may use futures contracts in order to protect the Fund 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 Fund's portfolio in an effort to reduce potential losses or enhance potential gains. Buying futures contracts tends to increase the Fund's exposure to the underlying instrument. Selling futures contracts tends to either decrease the Fund's exposure to the underlying instrument, or to hedge other fund investments. Upon entering into a futures contract, the Fund 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 Fund 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 Fund 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. Distributions to shareholders and shares issuable to shareholders electing to receive distributions in shares are recorded on the ex-dividend date. I. Fees Paid Indirectly The Fund's custodian bank calculates its fees based on the Fund's average daily net assets. The fee is reduced according to a fee arrangement, which provides for custody fees to be reduced based on a formula developed to measure the value of cash deposited with the custodian by the Fund. This amount is shown as a reduction of expense on the Statement of Operations. 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. Citcorp recently announced its intentions to merge with The Travelers Group. Completion of the merger is subject to the satisfaction of certain conditions. The management fees paid to Citibank, are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.70% of the Funds' average daily net assets. The management fee amounted to $133,566 of which $79,390 was voluntarily waived for the six months ended June 30, 1998. 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. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the Fund pays fees for distribution, sales and marketing and shareholder services at an annual rate not to exceed 0.25% of the Fund's average daily net assets. The Distribution fees amounted to $47,702 for the six months ended June 30, 1998. 4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities, other than short-term obligations, aggregated $37,238,256 and $29,787,308, respectively. 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 ENDED YEAR ENDED JUNE 30, 1998 DECEMBER 31, (Unaudited) 1997 - ------------------------------------------------------------------------- Shares sold 1,291,392 62,642 Shares issued to shareholders from reinvestment of distributions 107,789 244,817 Shares repurchased (500,815) (1,162,555) - ------------------------------------------------------------------------- Net increase (decrease) 898,366 (855,096) - ------------------------------------------------------------------------- 6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at June 30, 1998, as computed on a federal income tax basis, are as follows: Aggregate cost $47,078,761 - ------------------------------------------------------------------------- Gross unrealized appreciation $ 902,104 Gross unrealized depreciation (25,900) - ------------------------------------------------------------------------- Net unrealized appreciation $ 876,204 - ------------------------------------------------------------------------- 7. LINE OF CREDIT The Fund, along with other CitiFunds entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $60 million for temporary or emergency purposes. Interest on 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 six months ended June 30, 1998, the commitment fee allocated to the Fund was $70. Since the line of credit was established there have been no borrowings. TRUSTEES AND OFFICERS C. Oscar Morong, Jr., Chairman Philip W. Coolidge*, President Riley C. Gilley Diana R. Harrington Susan B. Kerley 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 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 Deloitte & Touche LLP 125 Summer 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 GROWTH WITH INCOME o CitiFunds Balanced Portfolio BONDS o CitiFunds Intermediate Income Portfolio o CitiFunds Short-Term U.S. Government Income Portfolio o CitiFunds New York Tax Free Income Portfolio o CitiFunds National 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)1998 Citicorp [LOGO] Printed on recycled paper CFS/INI/698 Semi-Annual Report o June 30, 1998 [LOGO] Short-Term U.S. Government Income Portfolio [Graphic Omitted] BONDS - -------------------------------------------------------------------------------- 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 ................................................................................ Fund Performance 4 ................................................................................ CITIFUNDS SHORT-TERM U.S. GOVERNMENT 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 9 ................................................................................ GOVERNMENT INCOME PORTFOLIO Portfolio of Investments 13 ................................................................................ Statement of Assets and Liabilities 14 ................................................................................ Statement of Operations 14 ................................................................................ Statement of Changes in Net Assets 15 ................................................................................ Financial Highlights 15 ................................................................................ Notes to Financial Statements 16 ................................................................................ LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: This semi-annual report covers the period from January 1, 1998, through June 30, 1998, for the CitiFunds(SM) Short-Term U.S. Government Income Portfolio. Inside, the CitiFunds' investment adviser, Citibank, N.A., discusses the market conditions it faced, the strategies it employed and its outlook for the future. Overall, the past six months were quite positive for the U.S. government securities market. Moderate economic growth, low inflation, an unchanged monetary policy and progress toward a balanced federal budget helped U.S. Treasury and agency securities produce attractive total rates of return for the six-month period. We are pleased to report that CitiFunds Short-Term U.S. Government Income Portfolio participated in this market sector's gains. Among the highlights of the reporting period, your fund has changed its name to CitiFunds(SM) Short-Term U.S. Government Income Portfolio. In addition, as you have probably heard, Citicorp recently announced its intention to merge with The Travelers Group. The completion of the merger is subject to the satisfaction of certain conditions. As necessary, we will provide you with information that specifically affects the fund. On behalf of the Board of Trustees, we want to thank you for your continued participation and confidence in the CitiFunds family of funds. /s/ Philip W. Coolidge Philip W. Coolidge President July 16, 1998 PORTFOLIO ENVIRONMENT AND OUTLOOK Despite stronger-than-expected economic growth, inflation remained low during the first six months of 1998. Even reports of record-high employment levels and robust consumer consumption failed to ignite inflationary pressures. In addition, fears that economic growth was too strong were tempered by widespread expectations that the financial crisis in Asia would soon constrain growth. The potentially moderating effects of the Asian crisis apparently convinced the Federal Reserve Board not to raise short-term interest rates in an attempt to forestall an acceleration of inflation. This combination of economic influences produced excellent market conditions for U.S. government securities. In addition, U.S. Treasury and agency securities benefited from the federal government's progress toward a balanced budget. Many analysts expect a budget surplus in the fiscal year 1998, which could further reduce the government's need to finance its operations by issuing U.S. Treasury securities. Even as the supply of U.S. Treasury securities is shrinking, investor demand is growing. This is especially true of overseas investors, who have shown a preference for the quality and relative stability of U.S. dollar-based investments in the aftermath of Asia's problems. The U.S. government securities market responded to these positive influences by narrowing the differences in yields between short-term bills and long-term notes and bonds. Short-term yields fell by 20 to 25 percentage points because of dramatically reduced issuance. Yields on intermediate-term and long-term bonds also declined, with the long-term yields falling more than intermediate-term yields. As a result, by the end of the period, there were only minor differences in yields between long-term and intermediate-term securities. In addition, because bond prices rise when their yields decline, intermediate- and long-term U.S. Treasury and agency securities generally provided total returns slightly higher than their coupons, while short-term securities provided returns consistent with their coupons. The portfolio sought to maintain high yields commensurate with its risk profile in this environment. Accordingly, we maintained a relatively long average duration, which is a measure of the portfolio's sensitivity to changes in interest rates. By holding the average duration near the long end of its range, we were able to maintain higher, existing yields for as much time as possible. We also allocated the portfolio's assets among the two primary sectors of the U.S. government securities market in an attempt to maximize exposure to securities providing the best relative values. The strategy led us to invest nearly 65% of the portfolio in U.S. Treasury securities as of June 30, 1998, which represents a modest increase over the six-month period. The majority of those assets were invested in notes with maturities of three to five years, enabling us to capture much of the yield provided by longer-dated securities at a lower level of risk. The remainder of the portfolio was invested in mortgage-backed securities from the Government National Mortgage Association, a U.S. government agency known as Ginnie Mae. Although these securities tend to provide higher nominal yields than U.S. Treasury securities, they were not subject to the same supply-and-demand influences that helped produce attractive total rates of return for U.S. Treasury securities. We remain optimistic regarding the U.S. government securities market's prospects over the second half of 1998, primarily because slower economic growth and it benign implications for inflation are generally good for the bond market. In our view, U.S. consumers' propensity to spend freely and drive economic growth higher should be more than offset by the effects on trade flows of recessionary conditions in Asia. At the same time, we believe that consumer consumption will decline from its rapid pace early in the year. Finally, competition from foreign manufacturers and domestic productivity improvements should prevent U.S. companies from raising prices, helping to keep the inflation rate low. Although we may see an increase in market volatility over the short-term as the tug-of-war between U.S. consumer consumption and Asian influences becomes resolved, we expect a slow-down in economic growth to allow long-term bond yields to move modestly lower. If our outlook is correct, we expect these conditions to support prices of U.S. Treasury and agency securities. Of course, we will continue to monitor the economy and fixed-income markets, making every effort to generate a high level of current income and preserve the value of our shareholders investment. FUND FACTS FUND OBJECTIVE To generate current income and preserve the value of its shareholders' investment. INVESTMENT ADVISER, DIVIDENDS GOVERNMENT INCOME PORTFOLIO Paid monthly, if any Citibank, N.A. CAPITAL GAINS COMMENCEMENT OF OPERATIONS Paid semi-annually, if any September 8, 1986 BENCHMARKS NET ASSETS AS OF 06/30/98 o Lipper Short U.S. Government $23.8 million Funds Average o Lehman 1-3 Year U.S. Government Index FUND PERFORMANCE TOTAL RETURNS ALL PERIODS ENDED JUNE 30, 1998 SIX ONE FIVE TEN (Unaudited) MONTHS** YEAR YEARS* YEARS* - -------------------------------------------------------------------------------- CitiFunds Short-Term U.S. Government Income Portfolio 2.73% 6.23% 4.62% 6.75% Lipper Short U.S. Government Funds Average 2.64% 5.94% 4.81% 6.43% Lehman 1-3 Year U.S. Government Index 3.00% 6.78% 5.58% 7.21% * Average Annual Total Return ** Not Annualized 30-Day SEC Yield 4.93% Income Dividends Per Share $0.240 GROWTH OF A $10,000 INVESTMENT A $10,000 investment in the Fund made ten years ago would have grown to $19,220 (as of 6/30/98). The graph shows how this compares to its benchmarks over the same period. Lipper Short U.S. Government Lehman 1-3 Year U.S. Government Income Funds U.S. Government Date Income Average Index ---- --------------- --------------- --------------- 6/30/88 $10,000 $10,000 $10,000 7/31/88 $ 9,962 $10,002 $10,005 8/31/88 $ 9,945 $10,017 $10,029 9/30/88 $10,105 $10,146 $10,146 10/31/88 $10,222 $10,254 $10,248 11/30/88 $10,138 $10,212 $10,223 12/31/88 $10,144 $10,229 $10,245 1/31/89 $10,272 $10,319 $10,327 2/28/89 $10,175 $10,314 $10,327 3/31/89 $10,210 $10,354 $10,371 4/30/89 $10,387 $10,494 $10,540 5/31/89 $10,632 $10,651 $10,689 6/30/89 $10,905 $10,845 $10,888 7/31/89 $11,115 $10,999 $11,048 8/31/89 $10,906 $10,921 $10,983 9/30/89 $10,936 $10,975 $11,047 10/31/89 $11,244 $11,152 $11,219 11/30/89 $11,344 $11,245 $11,321 12/31/89 $11,361 $11,289 $11,364 1/31/90 $11,161 $11,272 $11,376 2/28/90 $11,173 $11,324 $11,436 3/31/90 $11,158 $11,358 $11,471 4/30/90 $10,977 $11,370 $11,498 5/31/90 $11,341 $11,540 $11,675 6/30/90 $11,535 $11,657 $11,797 7/31/90 $11,701 $11,794 $11,940 8/31/90 $11,531 $11,813 $11,983 9/30/90 $11,622 $11,900 $12,077 10/31/90 $11,778 $12,021 $12,211 11/30/90 $12,045 $12,154 $12,329 12/31/90 $12,259 $12,290 $12,474 1/31/91 $12,398 $12,402 $12,592 2/28/91 $12,469 $12,472 $12,673 3/31/91 $12,517 $12,541 $12,758 4/30/91 $12,642 $12,656 $12,880 5/31/91 $12,706 $12,728 $12,957 6/30/91 $12,653 $12,755 $13,005 7/31/91 $12,846 $12,879 $13,117 8/31/91 $13,150 $13,060 $13,296 9/30/91 $13,472 $13,212 $13,437 10/31/91 $13,598 $13,347 $13,582 11/30/91 $13,670 $13,474 $13,722 12/31/91 $13,950 $13,700 $13,930 1/31/92 $13,856 $13,619 $13,911 2/29/92 $13,921 $13,584 $13,953 3/31/92 $13,898 $13,505 $13,949 4/30/92 $13,979 $13,616 $14,076 5/31/92 $14,162 $13,759 $14,206 6/30/92 $14,309 $13,902 $14,349 7/31/92 $14,493 $14,068 $14,515 8/31/92 $14,589 $14,184 $14,632 9/30/92 $14,718 $14,300 $14,769 10/31/92 $14,579 $14,189 $14,685 11/30/92 $14,562 $14,166 $14,663 12/31/92 $14,725 $14,302 $14,800 1/31/93 $14,921 $14,482 $14,955 2/28/93 $15,068 $14,620 $15,074 3/31/93 $15,121 $14,666 $15,120 4/30/93 $15,214 $14,749 $15,212 5/31/93 $15,165 $14,731 $15,175 6/30/93 $15,333 $14,868 $15,289 7/31/93 $15,325 $14,908 $15,322 8/31/93 $15,550 $15,054 $15,449 9/30/93 $15,612 $15,096 $15,498 10/31/93 $15,646 $15,122 $15,533 11/30/93 $15,570 $15,078 $15,535 12/31/93 $15,620 $15,132 $15,597 1/31/94 $15,715 $15,235 $15,694 2/28/94 $15,541 $15,109 $15,599 3/31/94 $15,358 $14,953 $15,520 4/30/94 $15,243 $14,847 $15,461 5/31/94 $15,274 $14,820 $15,482 6/30/94 $15,272 $14,819 $15,521 7/31/94 $15,432 $14,939 $15,661 8/31/94 $15,463 $14,973 $15,712 9/30/94 $15,380 $14,921 $15,677 10/31/94 $15,395 $14,930 $15,712 11/30/94 $15,311 $14,870 $15,647 12/31/94 $15,352 $14,903 $15,677 1/31/95 $15,583 $15,088 $15,891 2/28/95 $15,797 $15,303 $16,107 3/31/95 $15,879 $15,383 $16,198 4/30/95 $16,045 $15,515 $16,342 5/31/95 $16,414 $15,821 $16,621 6/30/95 $16,496 $15,900 $16,711 7/31/95 $16,478 $15,919 $16,778 8/31/95 $16,596 $16,035 $16,877 9/30/95 $16,680 $16,127 $16,960 10/31/95 $16,815 $16,270 $17,100 11/30/95 $16,986 $16,426 $17,246 12/31/95 $17,115 $16,563 $17,377 1/31/96 $17,236 $16,682 $17,524 2/29/96 $17,093 $16,605 $17,456 3/31/96 $17,021 $16,585 $17,443 4/30/96 $16,984 $16,589 $17,459 5/31/96 $16,982 $16,608 $17,499 6/30/96 $17,088 $16,720 $17,626 7/31/96 $17,143 $16,775 $17,695 8/31/96 $17,181 $16,820 $17,760 9/30/96 $17,328 $16,965 $17,922 10/31/96 $17,530 $17,143 $18,124 11/30/96 $17,659 $17,277 $18,258 12/31/96 $17,632 $17,272 $18,262 1/31/97 $17,726 $17,353 $18,350 2/28/97 $17,765 $17,398 $18,394 3/31/97 $17,711 $17,366 $18,379 4/30/97 $17,862 $17,493 $18,530 5/31/97 $17,977 $17,596 $18,660 6/30/97 $18,092 $17,690 $18,788 7/31/97 $18,303 $17,874 $18,993 8/31/97 $18,305 $17,881 $19,012 9/30/97 $18,421 $18,004 $19,157 10/31/97 $18,577 $18,130 $19,298 11/30/97 $18,599 $18,170 $19,347 12/31/97 $18,709 $18,259 $19,476 1/31/98 $18,906 $18,414 $19,663 2/28/98 $18,908 $18,427 $19,681 3/31/98 $18,968 $18,490 $19,758 4/30/98 $19,045 $18,562 $19,852 5/31/98 $19,143 $18,657 $19,958 6/30/98 $19,220 $18,739 $20,061 The graph 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 are provided in accordance with SEC guidelines for comparative purposes for prospective investors. Returns reflect certain voluntary fee waivers. If the waivers were not in place, the Fund's return would have been lower. CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Investment in Government Income Portfolio, at value (Note 1A) $23,803,642 Receivable for shares of beneficial interest sold 111,455 Receivable from the Administrator 37,616 - -------------------------------------------------------------------------------- Total assets 23,952,713 - -------------------------------------------------------------------------------- LIABILITIES: Payable for shares of beneficial interest repurchased 114,242 Payable to affiliates--Shareholder Servicing Agents' fees (Note 2B) 4,901 Accrued expenses and other liabilities 32,958 - -------------------------------------------------------------------------------- Total liabilities 152,101 - -------------------------------------------------------------------------------- NET ASSETS for 2,470,715 shares of beneficial interest outstanding $23,800,612 - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid-in capital $26,520,535 Accumulated net realized loss (2,565,197) Unrealized depreciation (157,248) Undistributed net investment income 2,522 - -------------------------------------------------------------------------------- Total $23,800,612 - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST $9.63 - -------------------------------------------------------------------------------- See notes to financial statements CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME (Note 1B): Interest Income from Government Income Portfolio $632,392 Allocated Expenses from Government Income Portfolio (37,616) - -------------------------------------------------------------------------------- $594,776 - -------------------------------------------------------------------------------- EXPENSES: Shareholder Servicing Agents' fees (Note 2B) $ 26,970 Administrative fees (Note 2A) 26,970 Shareholder reports 19,453 Distribution fees (Note 3) 16,182 Audit fees 10,200 Custody and Fund Accounting fees 9,690 Transfer agent fees 7,500 Trustees' fees 5,050 Legal fees 3,384 Miscellaneous 3,911 - -------------------------------------------------------------------------------- Total expenses 129,310 Less aggregate amount waived by Administrator and Distributor (Notes 2A and 3) (43,152) Less Expenses Assumed by the Administrator (Note 6) (37,616) - -------------------------------------------------------------------------------- Net expenses 48,542 - -------------------------------------------------------------------------------- Net investment income 546,234 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM GOVERNMENT INCOME PORTFOLIO: Net realized gain 58,099 Net change in unrealized appreciation (depreciation) (19,519) - -------------------------------------------------------------------------------- Net realized and unrealized gain from Government Income Portfolio 38,580 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $584,814 - -------------------------------------------------------------------------------- See notes to financial statements CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED YEAR ENDED JUNE 30, 1998 DECEMBER 31, (Unaudited) 1997 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income $ 546,234 $ 1,211,090 Net realized gain (loss) 58,099 (48,060) Net change in unrealized appreciation (depreciation) (19,519) 194,316 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 584,814 1,357,346 - -------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM: Net investment income (551,435) (1,224,908) - -------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): Net proceeds from sale of shares 8,919,791 919,430 Net asset value of shares issued to shareholders from reinvestment of dividends 548,061 1,216,313 Cost of shares repurchased (5,937,880) (8,775,300) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest 3,529,972 (6,639,557) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 3,563,351 (6,507,119) - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 20,237,261 26,744,380 - -------------------------------------------------------------------------------- End of period (including undistributed net investment income of $2,522 and $7,723, respectively) $23,800,612 $20,237,261 - -------------------------------------------------------------------------------- See notes to financial statements CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
FOUR MONTHS SIX MONTHS ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30, 1998 ----------------------------------------------- 1993+ AUGUST 31, (Unaudited) 1997 1996 1995 1994+ (NOTE 1F) 1993+ - ------------------------------------------------------------------------------------------------------------------------ Net Asset Value, beginning of period $ 9.61 $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01 $ 9.85 Income From Operations: Net investment income 0.237 0.504 0.516 0.543 0.466 0.183 0.448 Net realized and unrealized gain (loss) 0.023 0.064 (0.232) 0.500 (0.635) (0.138) 0.183 - ------------------------------------------------------------------------------------------------------------------------ Total from operations 0.260 0.568 0.284 1.043 (0.169) 0.045 0.631 Less Distributions From: Net investment income (0.240) (0.508) (0.514) (0.543) (0.461) (0.145) (0.464) In excess of net investment income -- -- -- -- -- -- (0.007) - ------------------------------------------------------------------------------------------------------------------------ Total distributions (0.240) (0.508) (0.514) (0.543) (0.461) (0.145) (0.471) - ------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $ 9.63 $ 9.61 $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01 - ------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $23,801 $20,237 $26,744 $35,325 $52,933 $79,306 $82,114 Ratio of expenses to average net assets 0.80%*(A) 0.80%(A) 0.80%(A) 0.80%(A) 0.80%(A) 0.80%* 0.80% Ratio of net investment income to average net assets 5.06%* 5.20% 5.31% 5.38% 4.72% 4.34%* 4.46% Portfolio turnover (B) -- -- -- -- 22% 26% 111% Total return 2.73%** 6.11% 3.02% 11.48% (1.72)% 0.45%** 6.59% Note: If Agents of the Fund for the periods indicated and Agents of Government Income Portfolio for the periods after May 1, 1994 had not voluntarily waived a portion of their fees and assumed Fund expenses, the net investment income per share and the ratios would have been as follows: Net investment income per share $0.234 $0.442 $0.460 $0.499 $0.421 $0.164 $0.400 RATIOS: Expenses to average net assets 1.60%*(A) 1.43%(A) 1.38%(A) 1.23%(A) 1.26%(A) 1.27%* 1.27% Net investment income to average net assets 4.26%* 4.57% 4.73% 4.95% 4.26% 3.88%* 3.98% - ------------------------------------------------------------------------------------------------------------------------ * Annualized ** Not Annualized (A) Includes the Fund's share of Government Income Portfolio allocated expenses for the periods subsequent to May 1, 1994. (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. + On May 1, 1994, the Fund began investing all its investable assets in Government Income Portfolio.
See notes to financial statements CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES The CitiFunds Short-Term U.S. Government Income Portfolio (formerly Landmark U.S. Government Income Fund) (the "Fund") is a separate diversified series of CitiFunds Fixed Income Trust (the "Trust"), a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified open-end, management investment company. The Fund invests all of its investable assets in Government Income Portfolio (the "Portfolio"), a management investment company for which Citibank, N.A. ("Citibank") serves as Investment Adviser. CFBDS, Inc. ("CFBDS") (formerly Landmark Funds Broker-Dealer Services, Inc.) acts as the Fund's Administrator and Distributor. Citibank also serves as Sub-Administrator and makes Fund shares available to customers as Shareholder Servicing Agent. Citibank is a wholly owned subsidiary of Citicorp. Citicorp recently announced its intention to merge with The Travelers Group. Completion of the merger is subject to the satisfaction of certain conditions. The Trust seeks to achieve the Fund's investment objective to provide shareholders with monthly dividends, as well as to protect the value of the investment of shareholders by investing all of its investable assets in the Portfolio, an open-end, diversified management investment company having the same investment objective and policies and substantially the same investment restrictions as the Fund. The value of such investment reflects the Fund's proportionate interest (35.8% at June 30, 1998) in the net assets of the Portfolio. 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 Fund's financial statements. 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 disclosure in the financial statements. Actual results could differ from those estimates. The significant accounting policies consistently followed by the Fund 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 investment transactions. Accordingly, no provision for federal income or excise tax is necessary. At December 31, 1997, the Fund, for federal income tax purposes, had a capital loss carryover of $2,618,985, of which $1,741,548 will expire on December 31, 2002, $329,508 will expire on December 31, 2003, $367,655 will expire on December 31, 2004, and $180,274 will expire on December 31, 2005. Such capital loss carryover will reduce the Fund's taxable income arising from future net realized capital 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. The Fund's share of the Portfolio's expenses are charged against and reduce the amount of the Fund's investment in the Portfolio. 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. For the year ended December 31, 1997, the fund reclassified $58,782 from accumulated net realized loss on investments to paid-in capital. F. Change in Fiscal Year End Effective September 1, 1993, the Fund changed its fiscal year end from August 31 to December 31. G. Other All the net investment income and 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 a trade date basis. 2. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services Plan which provides that the Trust, on behalf of the Fund, may obtain the services of an Administrator, one or more Shareholder Servicing Agents and other Servicing Agents and may enter into agreements providing for the payment of fees for such services. Under the Trust Administrative Services Plan, the aggregate of the fees paid to the Administrator from the Fund, the fees paid to the Shareholder Servicing Agents from the Fund under such Plan and the Basic Distribution Fee paid from the Fund to the Distributor under the Distribution Plan may not exceed 0.65% of the Fund's average daily net assets on an annualized basis for the Fund's then current fiscal year. A. Administrative Fees Under the terms of an Administrative Services Agreement, the administrative fees paid to the Administrator, as compensation for overall administrative services and general office facilities, may not exceed an annual rate of 0.25% of the Fund's average daily net assets. The Administrative fees amounted to $26,970, all of which was voluntarily waived for the six months ended June 30, 1998. Citibank acts as Sub-Administrator and performs such duties and receives such compensation from CFBDS as from time to time is agreed to by CFBDS and Citibank. The Fund pays no compensation directly to any Trustee or any officer who is affiliated with the Administrator, all of whom receive remuneration for their services to the Fund from the Administrator or its affiliates. Certain of the officers and a Trustee of the Fund are officers or directors of the Administrator or its affiliates. B. Shareholder Servicing Agents' Fees The Trust, on behalf of the Fund, has entered into shareholder servicing agreements with each Shareholder Servicing Agent pursuant to which that Shareholder Servicing Agent acts as an agent for its customers and provides other related services. For their services, each Shareholder Servicing Agent receives fees from the Fund, which may be paid periodically, which may not exceed, on an annualized basis, an amount equal to 0.25% of the average daily net assets of the Fund represented by shares owned during the period for which payment is being made by investors for whom such Shareholder Servicing Agent maintains a servicing relationship. Shareholder Servicing Agents fees amounted to $26,970, for the six months ended June 30, 1998. 3. DISTRIBUTION FEES The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the Fund compensates the Distributor at an annual rate not to exceed 0.15% of the Fund's average daily net assets. The Distribution fees amounted to $16,182, all of which was voluntarily waived for the six months ended June 30, 1998. The Distributor may also receive an additional fee from the Fund not to exceed 0.05% of the Fund's average daily net assets in anticipation of, or as reimbursement for, advertising expenses incurred by the Distributor in connection with the sale of shares of the Fund. No payment of such additional fees has been made during the period. The Distributor has voluntarily agreed to waive this fee through June 30, 1998. 4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in the Portfolio for the six months ended June 30, 1998 aggregated $6,845,896 and $3,911,418, respectively. 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 ENDED YEAR ENDED JUNE 30, 1998 DECEMBER 31, (Unaudited) 1997 - -------------------------------------------------------------------------------- Shares sold 924,937 95,978 Shares issued to shareholders from reinvestment of dividends 56,945 127,315 Shares repurchased (616,211) (917,798) - -------------------------------------------------------------------------------- Net increase (decrease) 365,671 (694,505) - -------------------------------------------------------------------------------- 6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the expenses of the Fund for the six months ended June 30, 1998, which amounted to $37,616. PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - ----------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 12.7% - ----------------------------------------------------------------------- 6.50%, 2009 $ 212 $ 214,563 6.50%, 2011 3,814 3,866,681 6.50%, 2019 1,039 1,041,780 7.00%, 2008 1,381 1,399,052 7.25%, 2022 623 627,909 8.00%, 2006 160 164,200 8.00%, 2007 175 180,868 8.00%, 2017 451 472,284 8.00%, 2021 168 175,415 8.00%, 2022 125 130,321 9.50%, 2016 2 1,892 9.50%, 2017 46 50,269 9.50%, 2018 39 42,382 9.50%, 2019 47 50,902 9.50%, 2020 41 44,449 ----------- TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 8,462,967 ----------- UNITED STATES GOVERNMENT OBLIGATIONS--81.7% Israel State U.S. Government Guaranteed Notes 5.70% due 2/15/03 5,000 4,983,450 6.00% due 2/15/99 8,000 8,017,680 ----------- 13,001,130 ----------- United States Treasury Notes, 5.75% due 09/30/99 3,000 3,007,980 5.625% due 12/31/99 10,000 10,015,600 5.375% due 6/30/00 2,000 1,996,250 6.875% due 3/31/00 7,400 7,564,206 5.375% due 2/15/01 7,500 7,474,200 6.50% due 08/31/01 5,000 5,135,950 6.125% due 12/31/01 4,000 4,072,480 5.75% due 04/30/03 2,000 2,019,680 ----------- 41,286,346 ----------- TOTAL U.S. GOVERNMENT OBLIGATIONS 54,287,476 ----------- - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS--3.8% - -------------------------------------------------------------------------------- Salomon Brothers Repurchase Agreement 5.75% due 07/01/98 proceeds at maturity $2,544,400 (collateralized by $1,846,000 U.S. Treasury Note 8.875% due 2/15/98, valued at $2,530,681) $ 2,544,000 ----------- TOTAL INVESTMENTS (Identified Cost $65,483,307) 98.2% 65,294,443 OTHER ASSETS LESS LIABILITIES 1.8 1,175,704 ----- ----------- NET ASSETS 100.0% $66,470,147 ===== =========== See notes to financial statements GOVERNMENT INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments at value (Note 1A) (Identified Cost, $65,483,307) $65,294,443 Cash 821 Interest receivable 1,194,176 - -------------------------------------------------------------------------------- Total assets 66,489,440 - -------------------------------------------------------------------------------- LIABILITIES: Payable to affiliates--Investment advisory fees (Note 2) 19,293 - -------------------------------------------------------------------------------- NET ASSETS $66,470,147 - -------------------------------------------------------------------------------- REPRESENTED BY: Paid-in capital for beneficial interests $66,470,147 - -------------------------------------------------------------------------------- GOVERNMENT INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: (Note 1B): $1,879,440 EXPENSES: Investment advisory fees (Note 2) $ 111,786 Administrative fees (Note 3) 15,969 Expense fees (Note 6) 2,000 - -------------------------------------------------------------------------------- Total expenses 129,755 - -------------------------------------------------------------------------------- Less aggregate amount waived by the Investment Adviser and Administrator (Note 2 and Note 3) (17,969) - -------------------------------------------------------------------------------- Net expenses 111,786 - -------------------------------------------------------------------------------- Net investment income 1,767,654 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investment transactions 174,037 Net change in unrealized appreciation (depreciation) of investments (69,786) - -------------------------------------------------------------------------------- Net realized and unrealized gain on investments 104,251 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,871,905 - -------------------------------------------------------------------------------- See notes to financial statements GOVERNMENT INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED YEAR ENDED JUNE 30, 1998 DECEMBER 31, (Unaudited) 1997 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income $ 1,767,654 $ 3,170,048 Net realized gain (loss) on investment transactions 174,037 (113,894) Net change in unrealized appreciation (depreciation) of investments (69,786) 507,465 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 1,871,905 3,563,619 - -------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: Proceeds from contributions 14,543,244 26,243,756 Value of withdrawals (11,242,999) (22,008,195) - -------------------------------------------------------------------------------- Net increase in net assets from capital transactions 3,300,245 4,235,561 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS: 5,172,150 7,799,180 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 61,297,997 53,498,817 - -------------------------------------------------------------------------------- End of period $66,470,147 $61,297,997 - -------------------------------------------------------------------------------- GOVERNMENT INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
FOR THE PERIOD MAY 1, 1994 SIX MONTHS (COMMENCEMENT ENDED YEAR ENDED DECEMBER 31, OF OPERATIONS) TO JUNE 30, 1998 --------------------------------- DECEMBER 31, (Unaudited) 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (000's omitted) $66,470 $61,298 $53,499 $53,145 $55,673 Ratio of expenses to average net assets 0.35%* 0.35% 0.35% 0.36% 0.43%* Ratio of net investment income to average net assets 5.53%* 5.65% 5.75% 5.80% 5.27%* Portfolio turnover 159% 126% 100% 284% 40% 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 0.40%* 0.41% 0.40% 0.40% 0.44%* Net investment income to average net assets 5.48%* 5.59% 5.70% 5.76% 5.26%* - ------------------------------------------------------------------------------------------------- * Annualized
See notes to financial statements GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Government 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 Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. The Investment Adviser of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Administrator. Citibank is a wholly owned subsidiary of Citicorp. Citicorp recently announced its intention to merge with The Travelers Group. Completion of the merger is subject to the satisfaction of certain conditions. 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 60 days or less) are valued on the basis of valuations furnished by pricing services approved by the Board of Trustees, 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 on quoted prices or exchange or over-the counter prices. Short-term obligations maturing in 60 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 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. 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 TBA purchase 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 TBA purchase 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 fluctuation 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 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 Portfolio investments. 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 Portfolio 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. No such instruments were held at June 30, 1998. 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. INVESTMENT ADVISORY FEES The investment advisory fees paid to Citibank, as compensation for overall investment management services, amounted to $111,786, of which $2,000 was voluntarily waived, for the six months ended June 30, 1998. The investment advisory fees are computed at the annual rate of 0.35% of the Portfolio's average daily net assets. 3. ADMINISTRATIVE FEES Under the terms of an Administrative Services Agreement, the administrative fees paid to the Administrator, as compensation for overall administrative services and general office facilities, are computed at the annual rate of 0.05% of the Portfolio's average daily net assets. The Administrative fees amounted to $15,969 all of which was voluntarily waived, for the six months ended June 30, 1998. Citibank acts as Sub-Administrator and performs such duties and receives such compensation from SFG as from time to time is agreed to by SFG and Citibank. The Portfolio pays no compensation directly to any Trustee or any officer who is affiliated with the Administrator, all of whom receive remuneration for their services to the Portfolio from the Administrator or its affiliates. Certain of the officers and a Trustee of the Portfolio are officers or directors of the Administrator or its affiliates. 4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of U.S. Government securities, other than short-term obligations, aggregated $98,054,776 and $93,642,714, respectively, for the six months ended June 30, 1998. 5. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at June 30, 1998, as computed on a federal income tax basis, are as follows: Aggregate cost $65,483,307 - -------------------------------------------------------------------------------- Gross unrealized appreciation $ 111,840 Gross unrealized depreciation (300,704) - -------------------------------------------------------------------------------- Net unrealized depreciation $ (188,864) - -------------------------------------------------------------------------------- 6. EXPENSE FEES SFG has entered into an expense agreement with the Portfolio. SFG has agreed to pay all of the ordinary operating expenses (excluding interest, taxes, brokerage commissions, litigation costs or other extraordinary costs or expenses) of the Portfolio, other than fees paid under the Advisory Agreement and Administrative Services Agreement. The Agreement may be terminated by either party upon not less than 30 days nor more than 60 days written notice. The Portfolio has agreed to pay SFG an expense fee on an annual basis, accrued daily and paid monthly; provided, however, that such fee shall not exceed the amount such that immediately after any such payment the aggregate ordinary expenses of the Portfolio less expenses waived by the Administrator would, on an annual basis, exceed an agreed upon rate, currently 0.35% of the Portfolio's average daily net assets. 7. LINE OF CREDIT The Portfolio, along with other CitiFunds, entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $60 million for temporary or emergency purposes. Interest on 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 six months ended June 30, 1998, the commitment fee allocated to the Portfolio was $108. Since the line of credit was established, there have been no borrowings. TRUSTEES AND OFFICERS C. Oscar Morong, Jr., Chairman Philip W. Coolidge*, President Riley C. Gilley Diana R. Harrington Susan B. Kerley E. Kirby Warren William S. Woods, Jr. SECRETARY Linda T. Gibson* TREASURER John R. Elder* *Affiliated Person of Administrator and Distributor INVESTMENT ADVISER (OF GOVERNMENT INCOME PORTFOLIO) Citibank, N.A. 153 East 53rd Street, New York, NY 10043 ADMINISTRATOR AND 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 GROWTH WITH INCOME o CitiFunds Balanced Portfolio BONDS o CitiFunds Intermediate Income Portfolio o CitiFunds Short-Term U.S. Government Income Portfolio o CitiFunds New York Tax Free Income Portfolio o CitiFunds National 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)1998 Citicorp [LOGO] Printed on recycled paper CFS/USG/698 -----END PRIVACY-ENHANCED MESSAGE-----