<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1997
File Nos. 2-87509
811-3893
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE
AMENDMENT NO. 20
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
LANDMARK TAX FREE RESERVES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on January 2, 1998,
pursuant to paragraph (b) of Rule 485.
Tax Free Reserves Portfolio has executed this Registration Statement.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
LANDMARK TAX FREE RESERVES
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<CAPTION>
N-1A
ITEM NO. N-1A ITEM LOCATION
- -------- --------- --------
PART A PROSPECTUS
- ------ ----------
<C> <S> <C>
Item 1. Cover Page............................................. Cover Page
Item 2. Synopsis............................................... Expense Summary
Item 3. Condensed Financial Information........................ Condensed Financial Information
Item 4. General Description of Registrant...................... Investment Information; General
Information; Appendix
Item 5. Management of the Fund................................. Management; Expenses
Item 5A. Management's Discussion of Fund Performance............ Not Applicable
Item 6. Capital Stock and Other Securities..................... General Information; Voting and Other
Rights; Purchases; Exchanges;
Redemptions; Net Income and
Distributions; Tax Matters
Item 7. Purchase of Securities Being Offered................... Purchases; Exchanges; Redemptions
Item 8. Redemption or Repurchase............................... Purchases; Exchanges; Redemptions
Item 9. Pending Legal Proceedings.............................. Not Applicable
<CAPTION>
STATEMENT OF
ADDITIONAL
PART B INFORMATION
- ------ -----------
<C> <S> <C>
Item 10. Cover Page............................................. Cover Page
Item 11. Table of Contents...................................... Cover Page
Item 12. General Information and History........................ The Fund
Item 13. Investment Objectives and Policies..................... Investment Objectives, Policies and
Restrictions
Item 14. Management of the Fund................................. Management
Item 15. Control Persons and Principal Holders of Securities.... Management
Item 16. Investment Advisory and Other Services................. Management
Item 17. Brokerage Allocation and Other Practices............... Portfolio Transactions
Item 18. Capital Stock and Other Securities..................... Description of Shares, Voting Rights and
Liabilities
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered.......................................... Description of Shares, Voting Rights and
Liabilities; Determination of Net Asset
Value
Item 20. Tax Status............................................. Certain Additional Tax Matters
Item 21. Underwriters........................................... Management
Item 22. Calculation of Performance Data........................ Performance Information
Item 23. Financial Statements................................... Independent Accountants and Financial
Statements
</TABLE>
PART C Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration
Statement.
<PAGE>
Prospectus January 2, 1998
CitiFundsSM Cash Reserves
CitiFundsSM U.S. Treasury Reserves
CitiFundsSM Tax Free Reserves
CitiFundsSM California Tax Free Reserves
CitiFundsSM Connecticut Tax Free Reserves
CitiFundsSM New York Tax Free Reserves
This Prospectus describes six money market mutual funds in the CitiFundsSM
family of funds: CitiFundsSM Cash Reserves, CitiFundsSM U.S. Treasury Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves and CitiFundsSM New York Tax Free
Reserves. Each Fund has its own investment objective and policies.
Citibank, N.A. is the investment adviser.
Unlike other mutual funds which directly acquire and manage their own portfolios
of securities, CitiFunds Cash Reserves, CitiFunds U.S. Treasury Reserves and
CitiFunds Tax Free Reserves seek their investment objective by investing all of
their investable assets in a portfolio with the same investment objective and
policies. See "Special Information Concerning Investment Structure" on page 21.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. EACH FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE; HOWEVER, THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO DO
SO.
EACH OF CALIFORNIA TAX FREE RESERVES, CONNECTICUT TAX FREE RESERVES AND NEW YORK
TAX FREE RESERVES INVESTS PRIMARILY IN THE MUNICIPAL OBLIGATIONS OF A SINGLE
STATE; AS A RESULT, AN INVESTMENT IN THESE FUNDS MAY BE RISKIER THAN AN
INVESTMENT IN A MORE DIVERSIFIED MONEY MARKET FUND.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. Separate Statements of
Additional Information dated January 2, 1998 (and incorporated by reference in
this Prospectus) have been filed with the Securities and Exchange Commission.
Copies of the Statements of Additional Information may be obtained without
charge, and further inquiries about the Funds may be made by contacting the
investor's Shareholder Servicing Agent or by calling 1-800-625-4554.
- ------------------------------------------------------------------------------
REMEMBER THAT SHARES OF THE FUNDS:
o ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
CITIBANK OR ANY OF ITS AFFILIATES;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary 3
..............................................................................
Expense Summary 6
..............................................................................
Condensed Financial Information 8
..............................................................................
Investment Information 14
..............................................................................
Risk Considerations 17
..............................................................................
Valuation of Shares 22
..............................................................................
Purchases 23
..............................................................................
Exchanges 24
..............................................................................
Redemptions 24
..............................................................................
Net Income and Distributions 25
..............................................................................
Management 26
..............................................................................
Tax Matters 30
..............................................................................
Performance Information 32
..............................................................................
General Information 33
..............................................................................
Appendix A -- Permitted Investments and Investment Practices 36
..............................................................................
Appendix B -- Ratings of Municipal Obligations 39
..............................................................................
Appendix C -- Taxable Equivalent Yield Tables 43
..............................................................................
<PAGE>
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed in
this summary.
THE FUNDS: This Prospectus describes six money market mutual funds: CitiFunds
Cash Reserves, CitiFunds U.S. Treasury Reserves, CitiFunds Tax Free Reserves,
CitiFunds California Tax Free Reserves, CitiFunds Connecticut Tax Free Reserves
and CitiFunds New York Tax Free Reserves. Cash Reserves and U.S. Treasury
Reserves are diversified; the other Funds are non-diversified. Each Fund has its
own investment objective and policies. There can be no assurance that any Fund
will achieve its objective.
Each of Cash Reserves, U.S. Treasury Reserves and Tax Free Reserves seeks its
objective by investing its investable assets in a Portfolio having the same
investment objective and policies as that Fund. Because these Funds invest
through their corresponding Portfolios, all references to these Funds include
the Portfolios, unless otherwise noted.
INVESTMENT OBJECTIVES AND POLICIES: CitiFunds Cash Reserves. To provide its
shareholders with liquidity and as high a level of current income as is
consistent with the preservation of capital. Through Cash Reserves Portfolio,
the Fund invests in U.S. dollar-denominated money market obligations with
maturities of 397 days or less issued by U.S. and non-U.S. issuers.
CitiFunds U.S. Treasury Reserves. To provide its shareholders with liquidity
and as high a level of current income from U.S. Government obligations as is
consistent with the preservation of capital. Through U.S. Treasury Reserves
Portfolio, the Fund invests in obligations issued by the U.S. Government with
maturities of 397 days or less.
CitiFunds Tax Free Reserves. To provide its shareholders with high levels of
current income exempt from federal income taxes, preservation of capital and
liquidity. Through Tax Free Reserves Portfolio, the Fund invests primarily in
short-term, high quality fixed rate and variable rate obligations issued by or
on behalf of states and municipal governments or their authorities, agencies,
instrumentalities and political subdivisions and by other qualifying issuers,
the interest on which is exempt from federal income taxes ("Municipal
Obligations").
CitiFunds California Tax Free Reserves. To provide its shareholders with high
levels of current income exempt from both federal and California personal income
taxes, preservation of capital and liquidity. The Fund invests primarily in
short-term, high quality Municipal Obligations, including obligations of the
State of California and its political subdivisions.
CitiFunds Connecticut Tax Free Reserves. To provide its shareholders with high
levels of current income exempt from both federal and Connecticut personal
income taxes, preservation of capital and liquidity. The Fund invests primarily
in short-term, high quality Municipal Obligations, including obligations of the
State of Connecticut and its political subdivisions.
CitiFunds New York Tax Free Reserves. To provide its shareholders with high
levels of current income exempt from federal, New York State and New York City
personal income taxes, preservation of capital and liquidity. The Fund invests
primarily in short-term, high quality Municipal Obligations, including
obligations of the State of New York and its political subdivisions.
INVESTMENT ADVISER AND DISTRIBUTOR: Citibank, N.A. ("Citibank" or the
"Adviser"), a wholly-owned subsidiary of Citicorp, is the investment adviser
of each Fund. Citibank and its affiliates manage more than $88 billion in
assets worldwide. CFBDS, Inc. ("CFBDS" or the "Distributor") is the
distributor of shares of each Fund. See "Management."
PURCHASES AND REDEMPTIONS: Customers may purchase and redeem shares of the
Funds on any day the New York Stock Exchange is open for trading. See
"Purchases" and "Redemptions."
PRICING: Shares of the Funds are purchased and redeemed at net asset value
(normally $1.00 per share) without a sales load or redemption fees. While
there are no sales loads, shares of each Fund are subject to a distribution
fee. See "Purchases" and "Management -- Distribution Arrangements."
EXCHANGES: Shares may be exchanged for shares of certain other mutual funds
managed or advised by Citibank, if such shares are offered for sale in a
shareholder's place of residence. See "Exchanges."
DIVIDENDS: Declared daily and distributed monthly. Shares begin accruing
dividends on the day they are purchased. See "Net Income and Distributions."
REINVESTMENT: Dividends may be received either in cash or in Fund shares at
net asset value, subject to the policies of a shareholder's Shareholder
Servicing Agent. See "Net Income and Distributions."
WHO SHOULD INVEST: Each Fund is designed for investors seeking liquidity,
preservation of capital and current income, and for whom growth of capital is
not a consideration.
Cash Reserves also is designed for investors seeking a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
consisting of short-term U.S. dollar-denominated money market obligations
issued by U.S. and non-U.S. issuers.
U.S. Treasury Reserves also is designed for investors seeking a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio consisting of short-term U.S. Government obligations.
Tax Free Reserves also is designed for investors seeking income exempt from
federal income taxes.
California Tax Free Reserves also is designed for investors seeking income
exempt from federal and California personal income taxes and who are willing to
bear the increased risk of an investment portfolio which is concentrated in
obligations of the State of California and its political subdivisions.
Connecticut Tax Free Reserves also is designed for investors seeking income
exempt from federal and Connecticut personal income taxes and who are willing to
bear the increased risk of an investment portfolio which is concentrated in
obligations of the State of Connecticut and its political subdivisions.
New York Tax Free Reserves also is designed for investors seeking income exempt
from federal and New York State and New York City personal income taxes and who
are willing to bear the increased risk of an investment portfolio which is
concentrated in obligations of the State of New York and its political
subdivisions.
Each of Tax Free Reserves, California Tax Free Reserves, Connecticut Tax Free
Reserves and New York Tax Free Reserves is referred to as a "Tax Free Fund."
See "Investment Information."
RISK FACTORS: There can be no assurance that any Fund will achieve its
investment objective. In addition, while each Fund intends to maintain a stable
net asset value of $1.00 per share, there can be no assurance that any Fund will
be able to do so. Investments in high quality, short-term instruments may, in
many circumstances, result in a lower yield than would be available from
investments with a lower quality or a longer term.
Investors in Cash Reserves should be able to assume the special risks of
investing in non-U.S. securities, which include possible adverse political,
social and economic developments abroad, differing regulations to which non-
U.S. issuers are subject and different characteristics of non-U.S. economies
and markets. In addition, the prices of securities of non-U.S. issuers may be
more volatile than those of comparable U.S. issuers.
Each of the Tax Free Funds is a non-diversified mutual fund, which means that it
is not subject to any statutory restrictions under the Investment Company Act of
1940 limiting the investment of its assets in one or relatively few issuers
(although certain diversification requirements are imposed by the Internal
Revenue Code). Each of these Funds may therefore invest a relatively high
percentage of its assets in the obligations of a limited number of issuers.
Also, each of these Funds may invest 25% or more of its assets in securities of
issuers in similar or related industries or issuers located in the same state.
Under normal circumstances, California Tax Free Reserves invests primarily in
obligations of the State of California and its political subdivisions,
Connecticut Tax Free Reserves invests primarily in obligations of the State of
Connecticut and its political subdivisions and New York Tax Free Reserves
invests primarily in obligations of the State of New York and its political
subdivisions. Each of the Tax Free Funds is more susceptible to any single
economic, political or regulatory occurrence than a more diversified fund.
Certain investment practices also may entail special risks. Prospective
investors should read "Risk Considerations" for more information about risk
factors.
<PAGE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses for each Fund and, for each of Cash Reserves, U.S. Treasury
Reserves and Tax Free Reserves, its corresponding Portfolio.* For more
information on costs and expenses, see "Management" -- page 26 and "General
Information-Expenses" -- page 34.
<TABLE>
<CAPTION>
U.S. CALIFORNIA CONNECTICUT NEW YORK
CASH TREASURY TAX FREE TAX FREE TAX FREE TAX FREE
RESERVES RESERVES RESERVES RESERVES RESERVES RESERVES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES: None None None None None None
ANNUAL FUND
OPERATING EXPENSES,
AFTER FEE WAIVERS AND
REIMBURSEMENTS (AS A
PERCENTAGE OF AVERAGE
NET ASSETS):
Management Fee (1) 0.07% 0.06% 0.20% 0.16% 0.16% 0.16%
12b-1 Fees (1)(2) 0.08% 0.05% 0.03% 0.09% 0.09% 0.03%
Other Expenses
Administrative
Services Fees (1) 0.25% 0.27% 0.08% 0.03% 0.00% 0.15%
Shareholder Servicing
Agent Fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Operating
Expenses 0.05% 0.07% 0.09% 0.12% 0.15% 0.06%
- -----------------------------------------------------------------------------------------------------------------------
Total Fund Operating
Expenses (1) 0.70% 0.70% 0.65% 0.65% 0.65% 0.65%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*This table is intended to assist investors in understanding the various
costs and expenses that a shareholder of a Fund will bear, either directly
or indirectly. The table shows the fees paid to various service providers
after giving effect to expected voluntary partial fee waivers. There can be
no assurance that the fee waivers and reimbursements reflected in the table
will continue at their present levels.
(1) Absent fee waivers and reimbursements, management fees, 12b-1 fees,
administrative services fees and total fund operating expenses would be as
follows:
Cash Reserves: 0.15%, 0.20%, 0.40%, and 1.05%
U.S. Treasury Reserves: 0.15%, 0.20%, 0.40%, and 1.07%
Tax Free Reserves: 0.20%, 0.20%, 0.30%, and 1.04%
California Tax Free Reserves: 0.20%, 0.20%, 0.25%, and 1.02%
Connecticut Tax Free Reserves: 0.20%, 0.20%, 0.25%, and 1.05%
New York Tax Free Reserves: 0.20%, 0.20%, 0.25%, and 0.96%
(2) Fees under the 12b-1 distribution plans are asset-based sales charges.
Long-term shareholders in a Fund could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
EXAMPLE: A shareholder would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at the end of each
period indicated below:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH RESERVES $ 7 $22 $39 $87
U.S. TREASURY RESERVES $ 7 $22 $39 $87
TAX FREE RESERVES $ 7 $21 $36 $81
CALIFORNIA TAX FREE RESERVES $ 7 $21 $36 $81
CONNECTICUT TAX FREE RESERVES $ 7 $21 $36 $81
NEW YORK TAX FREE RESERVES $ 7 $21 $36 $81
</TABLE>
The Example assumes that all dividends are reinvested, and expenses are based on
each Fund's fiscal year ended August 31, 1997, after waivers and reimbursements.
If waivers and reimbursements were not in place, the amounts in the Example
would be as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cash Reserves: $11 $34 $58 $130
U.S. Treasury Reserves: $11 $34 $59 $132
Tax Free Reserves: $11 $33 $58 $129
California Tax Free Reserves: $10 $33 $57 $126
Connecticut Tax Free Reserves: $11 $34 $58 $130
New York Tax Free Reserves: $10 $31 $53 $119
</TABLE>
The assumption of a 5% annual return is required by the Securities and Exchange
Commission for all mutual funds, and is not a prediction of any Fund's future
performance. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OF ANY FUND. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
CONDENSED FINANCIAL INFORMATION
The following tables provide condensed financial information about the Funds for
the periods indicated. This information should be read in conjunction with the
financial statements appearing in each Fund's Annual Report to Shareholders,
which are incorporated by reference in each Fund's Statement of Additional
Information. The financial statements and notes, as well as the tables below,
covering the fiscal periods through August 31, 1997 have been audited by Price
Waterhouse LLP, independent accountants, on behalf of CitiFunds Cash Reserves
(formerly Landmark Cash Reserves), and by Deloitte & Touche LLP, independent
accountants, on behalf of CitiFunds U.S. Treasury Reserves (formerly Landmark
U.S. Treasury Reserves), CitiFunds Tax Free Reserves (formerly Landmark Tax Free
Reserves), CitiFunds California Tax Free Reserves (formerly Landmark California
Tax Free Reserves), CitiFunds Connecticut Tax Free Reserves (formerly Landmark
Connecticut Tax Free Reserves) and CitiFunds New York Tax Free Reserves
(formerly Landmark New York Tax Free Reserves). The accountants' reports are
included in the applicable Fund's Annual Report. Copies of the Annual Reports
may be obtained without charge from an investor's Shareholder Servicing Agent or
by calling 1-800-625-4554.
<PAGE>
CITIFUNDS CASH RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment
income 0.04940 0.05039 0.05174 0.03137 0.02671 0.04010 0.06606 0.07785 0.08354 0.06483
Less dividends from
net investment
income (0.04940) (0.05039) (0.05174) (0.03137) (0.02671) (0.04010) (0.06606) (0.07785) (0.08354) (0.06483)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end
of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000's
omitted) $1,827,181 $1,468,177 $931,886 $445,600 $470,758 $498,447 $580,052 $413,756 $322,469 $264,728
Ratio of expenses to
average net assets* 0.70% 0.69% 0.69% 0.69% 0.69% 0.67% 0.61% 0.73% 0.80% 0.81%
Ratio of net
investment income
to average net
assets 4.96% 5.02% 5.17% 3.12% 2.67% 4.05% 6.48% 7.80% 8.39% 6.48%
Total return 5.05% 5.16% 5.30% 3.18% 2.70% 4.13% 6.81% 8.04% 8.66% 6.62%
Note: If certain agents of the Fund and agents of Cash Reserves Portfolio had
not waived all or a portion of their fees during the periods indicated, the
net investment income per share and the ratios would have been as follows:
Net investment
income per share $0.04697 $0.04766 $0.04895 $0.02840 $0.02381 $0.03753 $0.06025 $0.07466 $0.08195 $0.06323
RATIOS:
Expenses to average
net assets* 0.95% 0.96% 0.97% 0.99% 0.98% 0.93% 0.94% 0.97% 0.96% 0.97%
Net investment
income to average
net assets 4.71% 4.75% 4.89% 2.82% 2.38% 3.79% 5.91% 7.48% 8.23% 6.32%
</TABLE>
*Includes the Fund's share of Cash Reserves Portfolio's allocated expenses after
May 4, 1990 (date of the Fund's investment of all of its assets in the
Portfolio).
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR EBDED
YEAR ENDED AUGUST 31, AUGUST 31, DECENBER 31,
1997 1996 1995 1994 1993*** 1992 1991+
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.04547 0.04602 0.04751 0.02837 0.01662 0.03117 0.03411
Less dividends from
net investment
income (0.04547) (0.04602 (0.04751) (0.02837) (0.01662) (0.03117) (0.03411)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
end of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
end of period
(000's omitted) $360,717 $317,996 $256,452 $203,400 $249,466 $338,719 $548,722
Ratio of expenses
to average net
assets* 0.70% 0.70% 0.70% 0.70% 0.66%** 0.70% 0.53%**
Ratio of net
investment income
to average net
assets 4.57% 4.61% 4.77% 2.81% 2.49%** 3.19% 4.89%**
Total return 4.64% 4.70% 4.86% 2.87% 2.53%** 3.16% 3.46%**
Note: If certain agents of the Fund and agents of U.S. Treasury Reserves
Portfolio had not waived all or a portion of their fees during the periods
indicated, the net investment income per share and the ratios would have been as
follows:
Net investment income
per share $0.04278 $0.04313 $0.04452 $0.02514 $0.01455 $0.02853 $0.03076
RATIOS:
Expenses to average
net assets* 0.97% 1.00% 1.00% 1.02% 0.97%** 0.96% 1.02%**
Net investment
income to average
net assets 4.30% 4.32% 4.47% 2.49% 2.18%** 2.92% 4.41%**
</TABLE>
*Includes the Fund's share of U.S. Treasury Reserves Portfolio's allocated
expenses.
**Annualized.
***On April 15, 1993, the Fund changed its fiscal year end from December 31 to
August 31.
+For the period from the commencement of operations, May 3, 1991, to December
31, 1991.
<PAGE>
CITIFUNDS TAX FREE RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment
income 0.03004 0.02973 0.03197 0.02002 0.02014 0.03125 0.04667 0.05488 0.05604 0.04356
Less dividends from
net investment
income (0.03004) (0.02973) (0.03197) (0.02002) (0.02014) (0.03125) (0.04667) (0.05488) (0.05604) (0.04356
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
end of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000's
omitted) $422,483 $371,349 $392,172 $232,333 $227,296 $211,978 $200,002 $151,356 $126,462 $140,886
Ratio of expenses to
average net
assets* 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.80% 0.81%
Ratio of net
investment income
to average net
assets 3.01% 2.97% 3.22% 1.99% 2.01% 3.10% 4.62% 5.49% 5.60% 4.35%
Total return 3.05% 3.01% 3.24% 2.02% 2.03% 3.17% 4.77% 5.62% 5.74% 4.43%
Note: If agents of the Fund and agents of Tax Free Reserves Portfolio had not
waived all or a portion of their fees during the periods indicated, the net
investment income per share and the ratios would have been as follows:
Net investment
income per share $0.02715 $0.02693 $0.02929 $0.01730 $0.01723 $0.02813 $0.04364 $0.05158 $0.05404 $0.04236
RATIOS:
Expenses to average
net assets* 0.94% 0.93% 0.92% 0.92% 0.94% 0.97% 0.95% 0.98% 1.00% 0.93%
Net investment
income to average
net assets 2.72% 2.69% 2.95% 1.72% 1.72% 2.79% 4.32% 5.16% 5.40% 4.23%
</TABLE>
*Includes the Fund's share of Tax Free Reserves Portfolio's allocated
expenses.
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992+
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.02899 0.03089 0.03434 0.02288 0.02467 0.01304
Less dividends from net investment income (0.02899) (0.03089) (0.03434) (0.02288) (0.02467) (0.01304)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $207,345 $150,557 $51,832 $52,863 $37,808 $16,295
Ratio of expenses to average net assets 0.65% 0.42% 0.30% 0.25% 0.00% 0.00%*
Ratio of net investment income to
average net assets 2.91% 3.05% 3.43% 2.30% 2.42% 2.71%*
Total return 2.94% 3.13% 3.49% 2.31% 2.50% 2.75%*
Note: If agents of the Fund had not voluntarily waived all or a portion of their
fees from the Fund and the Administrator had not voluntarily assumed expenses
for the periods before August 31, 1996, and the expenses were not reduced for
the fees paid indirectly for the years after August 31, 1995, the ratios and net
investment income per share would have been as follows:
Net investment income per share $0.02630 $0.02481 $0.02513 $0.01423 $0.01121 $0.00279
RATIOS:
Expenses to average net assets 0.92% 1.01% 1.21% 1.12% 1.32% 2.13%*
Net investment income to
average net assets 2.64% 2.45% 2.51% 1.43% 1.10% 0.58%*
</TABLE>
*Annualized.
+For the period from the commencement of operations, March 10, 1992, to
August 31, 1992.
<PAGE>
CITIFUNDS CONNECTICUT TAX FREE RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996 1995 1994+
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.02914 0.03135 0.03564 0.01754
Less dividends from net investment
income (0.02914) (0.03135) (0.03564) (0.01754)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000 $1.00000 $1.00000 $1.00000
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted) $169,322 $116,025 $46,556 $15,949
Ratio of expenses to average net
assets 0.65% 0.42% 0.22% 0.00%*
Ratio of net investment income to
average net assets 2.92% 3.08% 3.60% 2.61%*
Total return 2.95% 3.18% 3.62% 1.75%**
Note: If certain agents of the Fund had not voluntarily waived all or a portion
of their fees from the Fund for the period indicated and the Administrator had
not voluntarily assumed expenses for the periods before August 31, 1996, and the
expenses were not reduced for fees paid indirectly for the years after August
31, 1995, the ratios and net investment income per share would have been as
follows:
Net investment income per share $0.02615 $0.02504 $0.02732 $0.00128
RATIOS:
Expenses to average net assets 0.95% 1.04% 1.06% 2.42%*
Net investment income to average net
assets 2.62% 2.46% 2.76% 0.19%*
</TABLE>
*Annualized.
**Not annualized.
+For the period from the commencement of operations, December 1, 1993, to
August 31, 1994.
<PAGE>
CITIFUNDS NEW YORK TAX FREE RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
beginning of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment
income 0.02949 0.02936 0.03136 0.01954 0.01858 0.02914 0.04211 0.05187 0.05012 0.03969
Less dividends
from net
investment income (0.02949) (0.02936) (0.03136) (0.01954) (0.01858) (0.02914) (0.04211) (0.05187) (0.05012) (0.03969)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
end of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000's
omitted) $976,959 $941,691 $767,129 $684,687 $607,992 $675,238 $586,720 $622,820 $380,539 $349,677
Ratio of expenses to
average net assets 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.64% 0.66% 0.80% 0.80%
Ratio of net
investment income
to average net
assets 2.95% 2.92% 3.15% 1.96% 1.86% 2.88% 4.21% 5.18% 5.09% 3.97%
Total return 2.99% 2.98% 3.18% 1.97% 1.87% 2.94% 4.29% 5.29% 5.17% 4.03%
Note: If agents of the Fund had not voluntarily waived all or a portion of their
fees for the periods indicated and the expenses were not reduced for fees paid
indirectly for the years after August 31, 1995, the ratios and net investment
income per share would have been as follows:
Net investment
income per share $0.02739 $0.02725 $0.02917 $0.01715 $0.01628 $0.02691 $0.04001 $0.04947 $0.04914 $0.03889
RATIOS:
Expenses to average
net assets 0.86% 0.86% 0.87% 0.88% 0.88% 0.87% 0.85% 0.89% 0.90% 0.88%
Net investment
income to average
net assets 2.74% 2.71% 2.93% 1.72% 1.63% 2.66% 4.00% 4.94% 4.99% 3.89%
</TABLE>
<PAGE>
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES: The investment objective of Cash Reserves is to provide
its shareholders with liquidity and as high a level of current income as is
consistent with the preservation of capital.
The investment objective of U.S. Treasury Reserves is to provide its
shareholders with liquidity and as high a level of current income from U.S.
Government obligations as is consistent with the preservation of capital.
The investment objectives of Tax Free Reserves are to provide its shareholders
with high levels of current income exempt from federal income taxes,
preservation of capital and liquidity.
The investment objectives of California Tax Free Reserves are to provide its
shareholders with high levels of current income exempt from both federal and
California personal income taxes, preservation of capital and liquidity.
The investment objectives of Connecticut Tax Free Reserves are to provide its
shareholders with high levels of current income exempt from both federal and
Connecticut personal income taxes, preservation of capital and liquidity.
The investment objectives of New York Tax Free Reserves are to provide its
shareholders with high levels of current income exempt from federal, New York
State and New York City personal income taxes, preservation of capital and
liquidity.
The investment objective of each Fund may be changed by its Trustees without
approval by that Fund's shareholders, but shareholders will be given written
notice at least 30 days before any change is implemented. Of course, there can
be no assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES: Cash Reserves seeks its objective by investing in high
quality U.S. dollar-denominated money market instruments. These instruments
include short-term obligations of the U.S. Government and repurchase agreements
covering these obligations, bank obligations (such as certificates of deposit,
bankers' acceptances and fixed time deposits) of U.S. and non-U.S. banks and
obligations issued or guaranteed by the governments of Western Europe,
Scandinavia, Australia, Japan and Canada. The U.S. Government obligations in
which the Fund invests include U.S. Treasury bills, notes and bonds, and
instruments issued by U.S. Government agencies or instrumentalities. Some
obligations of U.S. Government agencies and instrumentalities are supported by
the "full faith and credit" of the United States, others by the right of the
issuer to borrow from the U.S. Treasury and others only by the credit of the
agency or instrumentality. For more information regarding the Fund's permitted
investments and investment practices, see Appendix A -- Permitted Investments
and Investment Practices on page 36.
U.S. Treasury Reserves seeks its objective by investing in U.S. Treasury bills,
notes and bonds, and instruments issued by U.S. Government agencies or
instrumentalities which are supported by the "full faith and credit" of the
United States. The Fund will not enter into repurchase agreements. For more
information regarding the Fund's permitted investments and investment practices,
see Appendix A -- Permitted Investments and Investment Practices on page 36.
ALTHOUGH THE FUND INVESTS IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN THE
FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
Tax Free Reserves, California Tax Free Reserves, Connecticut Tax Free Reserves
and New York Tax Free Reserves seek their objectives by investing primarily in
Municipal Obligations. As a fundamental policy, each of these Funds invests at
least 80% of its assets, under normal circumstances, in the following types of
Municipal Obligations and in participation interests in these obligations issued
by banks, insurance companies or other financial institutions ("Participation
Interests"):
(1) Municipal bonds that at the date of purchase are rated Aa or better by
Moody's Investors Service, Inc. ("Moody's") or AA or better by Standard &
Poor's Ratings Group ("S&P") or Fitch IBCA, Inc. ("Fitch"), or are unrated
but are of comparable quality as determined by the Adviser on the basis of
a credit evaluation of the obligor, or of the bank issuing the
Participation Interest or guarantee of the bonds, or of any insurance
issued in support of the bonds or the Participation Interest;
(2) Municipal notes that at the date of purchase are rated MIG 2/VMIG 2 or
better by Moody's, SP-2 or better by S&P or F-2 or better by Fitch, or are
unrated but are of comparable quality as determined by the Adviser; and
(3) Municipal commercial paper that at the date of purchase is rated Prime-2
or better by Moody's, A-2 or better by S&P or F-2 or better by Fitch, or
is unrated but is of comparable quality as determined by the Adviser.
See Appendix A for an explanation of Municipal Obligations and Appendix B for an
explanation of ratings of Municipal Obligations.
Under normal circumstances, California Tax Free Reserves invests at least 65% of
its assets in Municipal Obligations the interest on which is exempt from both
federal and California personal income taxes ("California Municipal
Obligations"). California Municipal Obligations include Municipal Obligations of
the State of California and its political subdivisions, Puerto Rico, other U.S.
territories and their political subdivisions and other qualifying issuers. To
the extent that acceptable California Municipal Obligations are not available to
the Fund, the Fund may purchase Municipal Obligations issued by issuers in other
states. The interest on these securities will be subject to California personal
income taxes. Because California Tax Free Reserves invests primarily in
California Municipal Obligations, an investment in this Fund may be riskier than
an investment in a more diversified money market fund.
Under normal circumstances, Connecticut Tax Free Reserves invests at least 65%
of its assets in Municipal Obligations the interest on which is exempt from both
federal and Connecticut personal income taxes ("Connecticut Municipal
Obligations"). Connecticut Municipal Obligations include Municipal Obligations
issued by or on behalf of the State of Connecticut, its political subdivisions
and public entities created under Connecticut law, Puerto Rico and other U.S.
territories and their political subdivisions and other qualifying issuers. To
the extent that acceptable Connecticut Municipal Obligations are not available
to the Fund, the Fund may purchase Municipal Obligations issued by issuers in
other states. The interest on these securities will be subject to Connecticut
personal income taxes. Because Connecticut Tax Free Reserves invests primarily
in Connecticut Municipal Obligations, an investment in this Fund may be riskier
than an investment in a more diversified money market fund.
Under normal circumstances, New York Tax Free Reserves invests at least 65% of
its assets in Municipal Obligations the interest on which is exempt from
federal, New York State and New York City personal income taxes ("New York
Municipal Obligations"). This Fund is a "triple tax-exempt money market fund."
New York Municipal Obligations include Municipal Obligations of the State of New
York and its political subdivisions, Puerto Rico and other U.S. territories and
their political subdivisions and other qualifying issuers. To the extent that
acceptable New York Municipal Obligations are not available to the Fund, the
Fund may purchase Municipal Obligations issued by issuers in other states. The
interest on these securities will be subject to New York State and New York City
personal income taxes. Because New York Tax Free Reserves invests primarily in
New York Municipal Obligations, an investment in this Fund may be riskier than
an investment in a more diversified money market fund.
Although each of the Tax Free Funds attempts to invest all of its assets in
Municipal Obligations, each of these Funds may invest up to 20% of its assets in
taxable securities (such as U.S. Government obligations or certificates of
deposit of domestic banks). Any taxable securities in which the Fund invests are
of comparable quality to the Municipal Obligations in which it invests.
In determining the tax status of interest on Municipal Obligations, the Adviser
relies on opinions of bond counsel who may be counsel to the issuer.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
$1.00 Net Asset Value. Each Fund employs specific investment policies and
procedures designed to maintain a constant net asset value of $1.00 per share.
There can be no assurance, however, that a constant net asset value will be
maintained on a continuing basis. See "Net Income and Distributions."
90-day Average Maturity. All of the Funds' investments either mature in 397 days
or less from the date of purchase, have a variable rate of interest adjusted no
less frequently than every 397 days, or are purchased pursuant to a repurchase
agreement which provides for repurchase by the seller within 397 days from the
date of purchase (except that U.S. Treasury Reserves does not enter into
repurchase agreements). The average maturity of each Fund's investments (on a
dollar-weighted basis) is 90 days or less. All of the Funds' investments are
"eligible securities" within the meaning of Rule 2a-7 under the 1940 Act, and
are determined by the Adviser to present minimal credit risks. Investment in
high quality, short-term instruments may, in many circumstances, result in a
lower yield than would be available from investment in instruments with a lower
quality or a longer term.
Cash Reserves and U.S. Treasury Reserves invest only in "first tier securities."
To be a first tier security, a security must be rated in the highest rating
category for short-term obligations by at least two nationally recognized
statistical rating organizations (each, an "NRSRO") assigning a rating to the
security or issuer or, if only one NRSRO assigns a rating, that NRSRO or, in the
case of an investment which is not rated, of comparable quality as determined by
the Adviser.
Permitted Investments. Uninvested cash reserves may be held temporarily for each
Fund pending investment. For more information regarding permitted investments
and investment practices, see Appendix A -- Permitted Investments and Investment
Practices on page 36. The Funds will not necessarily invest or engage in each of
the investments and investment practices in the Appendix but reserve the right
to do so.
Investment in Another Investment Company. Each of California Tax Free Reserves,
Connecticut Tax Free Reserves and New York Tax Free Reserves may, in the future,
seek its investment objectives by investing all of its investable assets in an
open-end management investment company having the same investment objectives and
policies and substantially the same investment restrictions as that Fund. This
investment would be made only if a Fund's Trustees believe that the aggregate
per share expenses of the Fund and such other investment company would be less
than or approximately equal to the expenses which the Fund would incur if the
assets of the Fund were to continue to be invested directly in portfolio
securities. Prior shareholder approval would not be required, except for New
York Tax Free Reserves.
Investment Restrictions. The Statements of Additional Information contain a list
of specific investment restrictions which govern the investment policies of the
Funds including a limitation that each Fund may borrow money from banks in an
amount not to exceed 1/3 of the Fund's net assets for extraordinary or emergency
purposes (e.g., to meet redemption requests). Except as otherwise indicated, the
Funds' investment objectives and policies may be changed without shareholder
approval. If a percentage or rating restriction (other than a restriction as to
borrowing) is adhered to at the time an investment is made, a later change in
percentage or rating resulting from changes in the Funds' securities will not be
a violation of policy.
Brokerage Transactions. The primary consideration in placing the Funds'
securities transactions with broker-dealers for execution is to obtain and
maintain the availability of execution at the most favorable prices and in the
most effective manner possible.
RISK CONSIDERATIONS
The risks of investing in each Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
"Concentration" in Bank Obligations. Cash Reserves invests at least 25% of its
assets, and may invest up to 100% of its assets, in bank obligations. This
concentration policy is fundamental, and may not be changed without shareholder
approval. Banks are subject to extensive governmental regulation which may limit
both the amounts and types of loans and other financial commitments which may be
made and interest rates and fees which may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operation of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations.
Non-U.S. Securities. Investors in Cash Reserves should be aware that
investments in non-U.S. securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and non-U.S. issuers and
markets are subject. These risks may include expropriation, confiscatory
taxation, withholding taxes on dividends and interest, limitations on the use
or transfer of Portfolio assets and political or social instability. In
addition, non-U.S. companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be less
public information about their operations. Non-U.S. markets may be less liquid
and more volatile than U.S. markets, and may offer less protection to
investors such as the Fund.
Non-diversified Status. Each of the Tax Free Funds is a non-diversified mutual
fund. This means that these Funds are not subject to any statutory restrictions
under the 1940 Act limiting the investment of their assets in one or relatively
few issuers (although certain diversification requirements are imposed by the
Internal Revenue Code). Since each of these Funds may invest a relatively high
percentage of its assets in the obligations of a limited number of issuers, the
value of shares of these Funds may be more susceptible to any single economic,
political or regulatory occurrence than the value of shares of a diversified
mutual fund would be. Each Tax Free Fund also may invest 25% or more of its
assets in securities the issuers of which are located in the same state or the
interest on which is paid from revenues of similar type projects or that are
otherwise related in such a way that a single economic, business or political
development or change affecting one of the securities would also affect other
securities. Investors should consider the greater risk inherent in these
policies when compared with a more diversified mutual fund.
"Concentration" in Participation Interests. Each of the Tax Free Funds may
invest more than 25% of its assets in Participation Interests in Municipal
Obligations which are secured by bank letters of credit or guarantees. Banks are
subject to extensive governmental regulation which may limit both the amounts
and types of loans and other financial commitments which may be made and
interest rates and fees which may be charged. The profitability of this industry
is largely dependent upon the availability and cost of capital funds for the
purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operation of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations under a letter of credit or guarantee. For additional information
concerning variable rate instruments and Participation Interests, see Appendix
A.
Investment Practices. Certain of the investment practices employed for the
Funds may entail certain risks. See Appendix A -- Permitted Investments and
Investment Practices on page 36.
Risks Affecting Investments in State Municipal Obligations. California Tax Free
Reserves intends to invest a high proportion of its assets in California
Municipal Obligations. Payment of interest and principal of these Municipal
Obligations is dependent on the continuing ability of issuers in California and
obligors of state, municipal and public authority debt obligations to meet their
obligations. Investors in the Fund should consider the greater risks inherent in
the Fund's concentration in these obligations when compared with the safety that
comes with a less geographically concentrated investment portfolio.
Investors should be aware of special economic factors affecting California
before investing in the Fund. While these factors are summarized below, a more
detailed description is set forth in the Fund's Statement of Additional
Information and the Appendix thereto (see "Investment Objectives, Policies and
Restrictions -- Risk Factors Affecting Investment in California Municipal
Obligations" in the Statement of Additional Information). The information below
and in the Statement of Additional Information is a summary of certain
information contained in official statements of issuers of California Municipal
Obligations and does not purport to be complete. The Fund is not responsible for
the accuracy or timeliness of this information.
The State of California and other issuers of California Municipal Obligations
have experienced severe financial difficulties. From 1990-1993, the State
suffered through a severe recession, the worst since the 1930's, heavily
influenced by large cutbacks in the defense/aerospace industries and military
base closures and a major drop in real estate construction. In December, 1994,
Orange County, California and its pooled investment funds filed for protection
under the federal Bankruptcy Code. Orange County's financial difficulties could
continue to adversely affect other issues and issuers of California Municipal
Obligations. Since the start of 1994, California's economy has been recovering
and growing steadily stronger, to the point where the State's economic growth is
outpacing the rest of the nation. After having been downgraded in 1994 as the
result of the financial difficulties of the State of California, the credit
ratings of certain of the State's obligations have been upgraded by certain
rating agencies. There can be no assurance that the State's economic growth will
continue or that credit ratings on obligations of the State of California and
other California Municipal Obligations will not be downgraded again. Many of the
Fund's Municipal Obligations are likely to be obligations of California
governmental issuers which rely in whole or in part, directly or indirectly, on
real property taxes as a source of revenue.
"Proposition Thirteen" and similar California constitutional and statutory
amendments and initiatives in recent years have restricted the ability of
California taxing entities to increase real property tax revenues. Other
initiative measures approved by California voters in recent years, through
limiting various other taxes, have resulted in a substantial reduction in state
revenues. Decreased state revenues may result in reductions in allocations of
state revenues to local governments.
Connecticut Tax Free Reserves intends to invest a high proportion of its assets
in Connecticut Municipal Obligations. Payment of interest and principal of these
Municipal Obligations is dependent on the continuing ability of issuers in
Connecticut and obligors of state, municipal and public authority debt
obligations to meet their obligations. Investors in the Fund should consider the
greater risks inherent in the Fund's concentration in these obligations when
compared with the safety that comes with a less geographically concentrated
investment portfolio.
Investors should be aware of special economic factors affecting Connecticut
before investing in the Fund. While these factors are summarized below, a more
detailed description is set forth in the Fund's Statement of Additional
Information and the Appendix thereto (see "Investment Objectives, Policies and
Restrictions -- Risk Factors Affecting Investment in Connecticut Municipal
Obligations" in the Statement of Additional Information). The information below
and in the Statement of Additional Information is a summary of certain
information contained in official statements of issuers of Connecticut Municipal
Obligations and does not purport to be complete. The Fund is not responsible for
the accuracy or timeliness of this information.
As a result of recurring budgetary problems, certain rating agencies downgraded
Connecticut's general obligation bonds in 1990 and 1991. Since that time,
certain rating agencies have further downgraded certain of the State's
obligations. There can be no assurance that credit ratings on Connecticut
Municipal Obligations will not be downgraded again. Many of the Fund's Municipal
Obligations are likely to be obligations of Connecticut governmental issuers
which rely in whole or in part, directly or indirectly, on real property taxes
as a source of revenue.
New York Tax Free Reserves intends to invest a high proportion of its assets in
New York Municipal Obligations. Payment of interest and principal of these
Municipal Obligations is dependent on the continuing ability of issuers in New
York and obligors of state, municipal and public authority debt obligations to
meet their obligations. Investors in the Fund should consider the greater risks
inherent in the Fund's concentration in these obligations when compared with the
safety that comes with a less geographically concentrated investment portfolio.
Investors should be aware of special economic factors affecting New York before
investing in the Fund. While these factors are summarized below, a more detailed
description is set forth in the Fund's Statement of Additional Information and
the Appendix thereto (see "Investment Objectives, Policies and Restrictions --
Risk Factors Affecting Investment in New York Municipal Obligations" in the
Statement of Additional Information). The information below and in the Statement
of Additional Information is a summary of certain information contained in
official statements of issuers of New York Municipal Obligations and does not
purport to be complete. The Fund is not responsible for the accuracy or
timeliness of this information.
New York State and other issuers of New York Municipal Obligations over the past
several years have experienced financial difficulties, which caused the credit
ratings of certain of their obligations to be downgraded by certain rating
agencies. Although the steady growth that has characterized the New York economy
recently continued during the first half of 1997, there can be no assurance that
it will continue or that credit ratings on obligations of New York State, New
York City and other New York Municipal Obligations will not be downgraded again.
The Adviser believes that by maintaining each Tax Free Fund's investment
portfolio in liquid, short-term high quality Municipal Obligations, including
Participation Interests and other variable rate instruments that have high
quality credit support from banks, insurance companies or other financial
institutions, the Funds are somewhat insulated from the credit risks that may
exist for long-term Municipal Obligations, including Municipal Obligations of
issuers in a single state.
Investors in California Tax Free Reserves, Connecticut Tax Free Reserves and New
York Tax Free Reserves also should compare the yield available on a portfolio of
single state issues with the yield of a more diversified portfolio including
other state issues before making an investment decision. For a comparison of
yields on Municipal Obligations and taxable securities, see Appendix C.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE: Cash Reserves, U.S.
Treasury Reserves and Tax Free Reserves do not invest directly in securities.
Instead, these Funds invest all of their investable assets in their
corresponding Portfolios, which are mutual funds having the same investment
objectives and policies as the Funds. The Portfolios, in turn, buy, hold and
sell securities in accordance with these objectives and policies. Of course,
there can be no assurance that the Funds or the Portfolios will achieve their
objectives.
The Trustees of each Fund believe that the aggregate per share expenses of that
Fund and its corresponding Portfolio will be less than or approximately equal to
the expenses that the Fund would incur if the assets of the Fund were invested
directly in the types of securities held by its Portfolio. Each Fund may
withdraw its investment in its Portfolio at any time, and will do so if the
Fund's Trustees believe it to be in the best interest of the Fund's
shareholders. If a Fund were to withdraw its investment in its Portfolio the
Fund could either invest directly in securities in accordance with the
investment policies described above or invest in another mutual fund or pooled
investment vehicle having the same investment objectives and policies. If a Fund
were to withdraw, the Fund could receive securities from the Portfolio instead
of cash, causing the Fund to incur brokerage, tax and other charges or leaving
it with securities which may or may not be readily marketable or widely
diversified.
Each Portfolio may change its investment objective and certain of its investment
policies and restrictions without approval by its investors, but the Portfolio
will notify its corresponding Fund (which in turn will notify its shareholders)
and its other investors at least 30 days before implementing any change in its
investment objective. A change in investment objective, policies or restrictions
may cause a Fund to withdraw its investment in its Portfolio.
Certain investment restrictions of each Portfolio cannot be changed without
approval by the investors in that Portfolio. These policies are described in the
Statement of Additional Information. When a Fund is asked to vote on matters
concerning its Portfolio (other than a vote to continue the Portfolio following
the withdrawal of an investor), the Fund will hold a shareholder meeting and
vote in accordance with shareholder instructions. Of course, the Fund could be
outvoted, or otherwise adversely affected, by other investors in its Portfolio.
The Portfolios may sell interests to investors in addition to the Funds. These
investors may be mutual funds which offer shares to their shareholders with
different costs and expenses than the Funds. Therefore, the investment returns
for all investors in funds investing in a Portfolio may not be the same. These
differences in returns are also present in other mutual fund structures.
Information about other holders of interests in the Portfolios is available from
the Funds' distributor, CFBDS (6 St. James Avenue, Boston, MA 02116, (617)
423-1679).
VALUATION OF SHARES
Net asset value per share of each Fund is determined each day the New York Stock
Exchange is open for trading (a "Business Day"). This determination is normally
made once each day as of 3:00 p.m., Eastern time, for Cash Reserves, and 12:00
noon, Eastern time, for the other Funds by adding the market value of all
securities and other assets of a Fund (including, where applicable, its interest
in its Portfolio), then subtracting the liabilities charged to the Fund, and
then dividing the result by the number of outstanding shares of the Fund. The
amortized cost method of valuing portfolio securities is used in order to
stabilize the net asset value of shares of each Fund at $1.00; however, there
can be no assurance that a Fund's net asset value will always remain at $1.00
per share. The net asset value per share is effective for orders received and
accepted by the Distributor prior to its calculation. On days when the financial
markets in which the Funds invest close early, each Fund's net asset value is
determined as of the close of these markets if such time is earlier than the
time at which the net asset value is normally calculated.
The amortized cost method involves valuing a security at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the stated value of a security is higher or lower
than the price the Fund would receive if the security were sold.
PURCHASES
Shares of the Funds are offered continuously and may be purchased on any
Business Day without a sales load at the shares' net asset value (normally $1.00
per share) next determined after an order is transmitted to and accepted by the
Distributor. Shares may be purchased either through a securities broker which
has a sales agreement with the Distributor or through a bank or other financial
institution which has an agency agreement with the Distributor. Shares of the
Funds are being offered exclusively to customers of a Shareholder Servicing
Agent (i.e., a financial institution, such as a federal or state-chartered bank,
trust company, savings and loan association or savings bank, or a securities
broker, that has entered into a shareholder servicing agreement concerning a
Fund). Each Fund and the Distributor reserve the right to reject any purchase
order and to suspend the offering of Fund shares for a period of time.
While there is no sales load imposed on shares of the Funds, the Distributor
receives fees from each Fund pursuant to a Distribution Plan. See "Management
- -- Distribution Arrangements."
Each shareholder's account is established and maintained by his or her
Shareholder Servicing Agent, which will be the shareholder of record of the
Fund. Each Shareholder Servicing Agent may offer services to its customers such
as pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs, and may establish its own terms, conditions and charges with
respect to services it offers to its customers. Charges for these services may
include fixed annual fees and account maintenance fees. The effect of any such
fees will be to reduce the net return on the investment of customers of that
Shareholder Servicing Agent.
Shareholder Servicing Agents will not transmit purchase orders to the
Distributor until they have received the purchase price in federal or other
immediately available funds. If Fund shares are purchased by check, there will
be a delay (usually not longer than two business days) in transmitting the
purchase order until the check is converted into federal funds.
From time to time the Distributor may make payments for distribution and/or
shareholder servicing activities out of its past profits and other sources
available to it. The Distributor may also make payments for marketing,
promotional or related expenses to dealers who engage in marketing efforts on
behalf of the Funds. The amounts of these payments will be determined by CFBDS
in its sole discretion and may vary among different dealers.
EXCHANGES
Shares of each Fund may be exchanged for shares of certain other mutual funds
managed or advised by Citibank that are made available by a shareholder's
Shareholder Servicing Agent or service agent, as the case may be, or may be
acquired through an exchange of shares of those funds.
Shareholders must place exchange orders through their Shareholder Servicing
Agents, and may do so by telephone if their account applications so permit. For
more information on telephone transactions see "Redemptions." All exchanges will
be effected based on the relative net asset values per share next determined
after the exchange order is received by the Distributor. See "Valuation of
Shares." Shares of the Funds may be exchanged only after payment in federal
funds for the shares has been made.
This exchange privilege may be modified or terminated at any time, upon at least
60 days' notice when such notice is required by SEC rules, and is available only
in those jurisdictions where such exchanges legally may be made. See the
Statements of Additional Information for further details. Before making any
exchange, shareholders should contact their Shareholder Servicing Agents to
obtain more information and prospectuses of the funds to be acquired through the
exchange.
REDEMPTIONS
Fund shares may be redeemed at their net asset value (normally $1.00 per share)
next determined after a redemption request in proper form is received by a
shareholder's Shareholder Servicing Agent. Shares of each Fund may be redeemed
without a sales charge. Shareholders may redeem shares of a Fund only by
authorizing their Shareholder Servicing Agents to redeem such shares on their
behalf through the Distributor.
Redemptions by Mail. Shareholders may redeem Fund shares by sending written
instructions in proper form (as determined by a shareholder's Shareholder
Servicing Agent) to their Shareholder Servicing Agents. Shareholders are
responsible for ensuring that a request for redemption is in proper form.
Redemptions by Telephone. Shareholders may redeem or exchange Fund shares by
telephone, if their account applications so permit, by calling their Shareholder
Servicing Agents. During periods of drastic economic or market changes or severe
weather or other emergencies, shareholders may experience difficulties
implementing a telephone exchange or redemption. In such an event, another
method of instruction, such as a written request sent via an overnight delivery
service, should be considered. The Funds and each Shareholder Servicing Agent
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures may include recording of the telephone
instructions and verification of a caller's identity by asking for the
shareholder's name, address, telephone number, Social Security number, and
account number. If these or other reasonable procedures are not followed, the
Fund or the Shareholder Servicing Agent may be liable for any losses to a
shareholder due to unauthorized or fraudulent instructions. Otherwise, the
shareholder will bear all risk of loss relating to a redemption or exchange by
telephone.
Payment of Redemptions. The proceeds of a redemption are paid in federal funds
normally on the Business Day the redemption is effected, but in any event within
seven days. If a shareholder requests redemption of shares which were purchased
recently, a Fund may delay payment until it is assured that good payment has
been received. In the case of purchases by check, this can take up to ten days.
See "Determination of Net Asset Value" in each Statement of Additional
Information regarding the Funds' right to pay the redemption price in kind with
securities (instead of cash).
Questions about redemption requirements should be referred to the shareholder's
Shareholder Servicing Agent. The right of any shareholder to receive payment
with respect to any redemption may be suspended or the payment of the redemption
price postponed during any period in which the New York Stock Exchange is closed
(other than weekends or holidays) or trading on the Exchange is restricted or if
an emergency exists.
NET INCOME AND DISTRIBUTIONS
The net income of each Fund is determined each Business Day (and on such other
days as is necessary in order to comply with the 1940 Act). This determination
is normally made once during each such day as of 3:00 p.m., Eastern time, for
Cash Reserves and 12:00 noon, Eastern time, for the other Funds. All or
substantially all of each Fund's net income of each Fund is declared as a
dividend to shareholders of record at the time of such determination. Shares
begin accruing dividends on the day they are purchased, and accrue dividends up
to and including the day prior to redemption. Dividends are distributed monthly
on or prior to the last Business Day of each month. Unless a shareholder elects
to receive dividends in cash (subject to the policies of the shareholder's
Shareholder Servicing Agent), dividends are distributed in the form of full and
fractional additional shares of the applicable Fund at the rate of one share of
the Fund for each one dollar of dividend income. On days when the financial
markets in which the Funds invest close early, each Fund's net income is
determined as of the close of these markets if such time is earlier than the
time at which the net income is normally calculated.
Since the net income of each Fund is declared as a dividend each time the net
income of the Fund is determined, the net asset value per share of each Fund is
expected to remain at $1.00 per share immediately after each such determination
and dividend declaration. Any increase in the value of a shareholder's
investment in a Fund, representing the reinvestment of dividend income, is
reflected by an increase in the number of shares of the Fund in the
shareholder's account.
Because of the short-term maturities of the portfolio investments of each Fund,
the Funds do not expect to realize long-term capital gains or losses. Any net
realized short-term capital gains will be declared and distributed to the Funds'
shareholders annually after the close of each Fund's fiscal year. Distributions
of short-term capital gains are taxable to shareholders as described in "Tax
Matters." Any realized short-term capital losses will be offset against
short-term capital gains or, to the extent possible, utilized as capital loss
carryover. Each Fund may distribute short-term capital gains more frequently
than annually, reduce shares to reflect capital losses or make distributions of
capital if necessary in order to maintain the Fund's net asset value of $1.00
per share.
It is expected that each Fund will have a positive net income at the time of
each determination thereof. If for any reason a Fund's net income is a negative
amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in the
shareholder's account which represents the shareholder's share of the amount of
such excess. Each shareholder would be deemed to have agreed to such
contribution in these circumstances by investment in the Fund.
MANAGEMENT
TRUSTEES AND OFFICERS: Each Fund and each Portfolio is supervised by a Board of
Trustees. In each case, a majority of the Trustees are not affiliated with the
Adviser. In addition, a majority of the disinterested Trustees of the Funds are
different from a majority of the disinterested Trustees of their corresponding
Portfolios. More information on the Trustees and officers of the Funds and the
Portfolios appears under "Management" in the Statements of Additional
Information.
INVESTMENT ADVISER: CITIBANK. Each Fund draws on the strength and experience of
Citibank. Citibank offers a wide range of banking and investment services to
customers across the United States and throughout the world, and has been
managing money since 1822. Its portfolio managers are responsible for investing
in money market, equity and fixed income securities. Citibank and its affiliates
manage more than $88 billion in assets worldwide. Citibank is a wholly-owned
subsidiary of Citicorp.
Citibank manages the assets of each Fund pursuant to separate Investment
Advisory Agreements. Subject to policies set by the Trustees, Citibank makes
investment decisions for the Funds.
Advisory Fees. For its services under the Investment Advisory Agreements, the
Adviser receives investment advisory fees, which are accrued daily and paid
monthly, of 0.15% of Cash Reserves' and U.S. Treasury Reserves' average daily
net assets and 0.20% of each Tax Free Fund's average daily net assets, in each
case on an annualized basis for the Fund's then-current fiscal year. The Adviser
has voluntarily agreed to waive a portion of its investment advisory fee.
For the fiscal year ended August 31, 1997, the investment advisory fees paid to
Citibank, after waivers, were the following percentages of each Fund's average
daily net assets for that fiscal year:
Cash Reserves .................................................. 0.07%
U.S. Treasury Reserves ......................................... 0.06%
Tax Free Reserves .............................................. 0.12%
California Tax Free Reserves ................................... 0.10%
Connecticut Tax Free Reserves .................................. 0.09%
New York Tax Free Reserves ......................................0.12%
Banking Relationships. Citibank and its affiliates may have deposit, loan and
other relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Citibank has informed
the Funds that, in making its investment decisions, it does not obtain or use
material inside information in the possession of any division or department of
Citibank or in the possession of any affiliate of Citibank.
Bank Regulatory Matters. The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting securities of open-end
investment companies, such as the Funds. Citibank believes that its services
under the Investment Advisory Agreements and the activities performed by it or
its affiliates as Shareholder Servicing Agents and sub-administrator are not
underwriting and are consistent with the Glass-Steagall Act and other relevant
federal and state laws. However, there is no controlling precedent regarding the
performance of the combination of investment advisory, shareholder servicing and
sub-administrative activities by banks. State laws on this issue may differ from
applicable federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either federal
or state statutes or regulations, or in their interpretations, could prevent
Citibank or its affiliates from continuing to perform these services. If
Citibank or its affiliates were to be prevented from acting as the Adviser,
sub-administrator or a Shareholder Servicing Agent, the Funds or Portfolios
would seek alternative means for obtaining these services. The Funds do not
expect that shareholders would suffer any adverse financial consequences as a
result of any such occurrence.
ADMINISTRATIVE SERVICES PLANS: The Funds and Portfolios have Administrative
Services Plans which provide that the applicable Fund or Portfolio may obtain
the services of an administrator, a transfer agent, a custodian, a fund
accountant, and, in the case of the Funds, one or more Shareholder Servicing
Agents, and may enter into agreements providing for the payment of fees for such
services. Under each Fund's Administrative Services Plan, the total of the fees
paid to each Fund's Administrator and Shareholder Servicing Agents and the
distribution fee paid to the Distributor (other than any fee concerning
electronic or other media advertising) may not exceed 0.70% of a Fund's average
daily net assets (0.60% for each Tax Free Fund) on an annualized basis for the
Fund's then-current fiscal year. Within this overall limitation, individual fees
may vary. Under each Portfolio's Administrative Services Plan, fees paid to the
Portfolio's Administrator may not exceed 0.05% of the Portfolio's average daily
net assets on an annualized basis for the Portfolio's then-current fiscal year.
See "Administrators," "Shareholder Servicing Agents" and "Transfer Agent,
Custodian and Fund Accountant."
ADMINISTRATORS: CFBDS provides certain administrative services to the Funds,
U.S. Treasury Reserves Portfolio and Tax Free Reserves Portfolio, and Signature
Financial Group (Cayman) Ltd. ("SFG") provides certain administrative services
to Cash Reserves Portfolio, in each case under administrative services
agreements. These administrative services include providing general office
facilities, supervising the overall administration of the Funds and Portfolios,
and providing persons satisfactory to the Boards of Trustees to serve as
Trustees and officers of the Funds and Portfolios. These Trustees and officers
may be directors, officers or employees of CFBDS, SFG or their affiliates.
For these services, the Administrators receive fees accrued daily and paid
monthly of 0.35% of the average daily net assets of each Fund (0.25% for each
Tax Free Fund) and 0.05% of the assets of each Portfolio, in each case on an
annualized basis for the Fund's or the Portfolio's then-current fiscal year.
However, each of the Administrators may voluntarily agree to waive a portion of
the fees payable to it.
CFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group, Inc.
SUB-ADMINISTRATOR: Pursuant to sub-administrative services agreements, Citibank
performs such sub-administrative duties for the Funds and Portfolios as from
time to time are agreed upon by Citibank and CFBDS or SFG. Citibank's
compensation as sub-administrator is paid by CFBDS or SFG.
SHAREHOLDER SERVICING AGENTS: The Funds have entered into separate shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which
that Shareholder Servicing Agent provides shareholder services, including
answering customer inquiries, assisting in processing purchase, exchange and
redemption transactions and furnishing Fund communications to shareholders. For
these services, each Shareholder Servicing Agent receives a fee from each Fund
at an annual rate of 0.25% of the average daily net assets of the Fund
represented by shares owned by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship.
Some Shareholder Servicing Agents may impose certain conditions on their
customers in addition to or different from those imposed by the Funds, such as
requiring a minimum initial investment or charging their customers a direct fee
for their services. Each Shareholder Servicing Agent has agreed to transmit to
its customers who are shareholders of a Fund appropriate prior written
disclosure of any fees that it may charge them directly and to provide written
notice at least 30 days prior to imposition of any transaction fees.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT: State Street Bank and Trust
Company acts as transfer agent and dividend disbursing agent for each Fund.
State Street acts as the custodian of each Fund's and each Portfolio's assets.
Securities held for a Fund or Portfolio may be held by a sub-custodian bank
approved by the Fund's or Portfolio's Trustees. State Street (or its affiliate
State Street Canada, Inc.) also provides fund accounting services to the Funds
and the Portfolios and calculates the daily net asset value for the Funds and
the Portfolios.
DISTRIBUTION ARRANGEMENTS: CFBDS is the distributor of each Fund's shares and
also serves as distributor for other mutual funds managed or advised by Citibank
and as a Shareholder Servicing Agent for certain investors. CFBDS receives
distribution fees from the Funds pursuant to Distribution Plans adopted in
accordance with Rule 12b-1 under the 1940 Act. In those states where CFBDS is
not a registered broker-dealer, shares of the Funds are sold through Signature
Broker-Dealer Services, Inc., as dealer.
Under the Distribution Plans, the Funds pay the Distributor a fee at an annual
rate not to exceed 0.10% of the average daily net assets of each Fund. However,
the Distributor has agreed to waive a portion of these fees on a month-to-month
basis. The Distribution Plans also permit the Funds to pay the Distributor an
additional fee (not to exceed 0.10% of the average daily net assets of the
applicable Fund) in anticipation of or as reimbursement for print or electronic
media advertising expenses incurred in connection with the sale of the shares.
The Funds did not make any payments under this provision during their fiscal
years ended August 31, 1997 and do not anticipate doing so during the current
fiscal year.
The Distributor uses the distribution fees to offset each Fund's marketing
costs, such as preparation of sales literature, advertising, and printing and
distributing prospectuses and other shareholder materials to prospective
investors. In addition, the Distributor may use the distribution fees to pay
costs related to distribution activities, including employee salaries, bonuses
and other overhead expenses. The Funds and the Distributor provide to the
Trustees quarterly a written report of amounts expended pursuant to the
Distribution Plans and the purposes for which the expenditures were made.
During the period they are in effect, the Distribution Plans and related
Distribution Agreements obligate the Funds to pay distribution fees to CFBDS as
compensation for its distribution activities, not as reimbursement for specific
expenses incurred. Thus, even if CFBDS's expenses exceed its distribution fees
for any Fund, the Fund will not be obligated to pay more than those fees and, if
CFBDS's expenses are less than such fees, it will retain its full fees and
realize a profit. Each Fund will pay the distribution fees to CFBDS until either
its Distribution Plan or Distribution Agreement is terminated or not renewed. In
that event, CFBDS's expenses in excess of distribution fees received or accrued
through the termination date will be CFBDS's sole responsibility and not
obligations of the Fund.
TAX MATTERS
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
Each Fund intends to meet requirements of the Internal Revenue Code applicable
to regulated investment companies so that it will not be liable for any federal
income or excise taxes.
FEDERAL INCOME TAXES: With respect to Cash Reserves and U.S. Treasury Reserves,
shareholders are required to pay federal income tax on any dividends and other
distributions received. Generally, distributions from a Fund's net investment
income and short-term capital gains will be taxed as ordinary income.
Distributions from long-term net capital gains will be taxed as such regardless
of how long the shares of a Fund have been held. Dividends and distributions are
treated in the same manner for federal tax purposes whether they are paid in
cash or as additional shares. Distributions derived from interest on U.S.
Government obligations may be exempt from certain state and local taxes.
With respect to Tax Free Reserves, California Tax Free Reserves, Connecticut Tax
Free Reserves and New York Tax Free Reserves, each Fund expects that most of its
net income will be attributable to interest on Municipal Obligations and as a
result most of each Fund's dividends to shareholders will be excludable from
shareholders' gross income. However, each Fund may invest from time to time in
taxable securities, and certain Fund dividends may be subject to the federal
alternative minimum tax. It is also possible, but not intended, that a Fund may
realize short-term or long-term capital gains or losses. Generally,
distributions from a Fund's short-term capital gains will be taxed as ordinary
income, and distributions from long-term net capital gains will be taxed as such
regardless of how long the shares of the Fund have been held. Dividends and
distributions are treated in the same manner for federal tax purposes whether
they are paid in cash or as additional shares.
Fund dividends of tax-exempt income are taken into account in determining the
amount of a shareholder's social security and railroad retirement benefits that
may be subject to federal income tax. No deduction may be claimed for interest
on indebtedness incurred or continued for the purpose of purchasing or carrying
Fund shares. Investors who are, or who are related to, "substantial users" of
facilities financed by private activity bonds should consult their tax advisers
before buying Fund shares.
Early each year, each Fund will notify its shareholders of the amount and tax
status of distributions paid to shareholders for the preceding year.
The account application asks each new shareholder to certify that the
shareholder's Social Security or taxpayer identification number is correct and
that the shareholder is not subject to 31% backup withholding for failing to
report income to the IRS. A Fund may be required to withhold (and pay over to
the IRS for the shareholder's credit) 31% of certain distributions paid to
shareholders who fail to provide this information or otherwise violate IRS
regulations.
STATE AND LOCAL TAXES: Except as noted below, Fund dividends that are excludable
from shareholders' gross income for federal income tax purposes may not
necessarily be exempt from the income or other tax laws of any state or local
taxing authority. Investors should consult their own tax advisers in this
regard.
California Tax Free Reserves: Under existing California law, as long as at the
end of each quarter of the Fund's fiscal year the Fund continues to qualify for
the special federal income tax treatment afforded regulated investment companies
and at least 50% of the value of the Fund's assets consists of California
Municipal Obligations, shareholders of the Fund will be able to exclude from
income, for California personal income tax purposes, dividends received from the
Fund which are derived from income (less related expenses) from the California
Municipal Obligations of the Fund. These dividends must be designated as such by
the Fund by written notice to shareholders within 60 days after the close of
that fiscal year.
The foregoing description is a general, abbreviated summary that relates solely
to the taxation of shareholders subject to California personal income tax.
Accordingly, potential investors, including, in particular, investors who may be
subject to California corporate franchise tax or California corporate income
tax, should consult with their own tax advisers.
Connecticut Tax Free Reserves: Under existing law, the Fund expects that
shareholders will not be subject to the Connecticut personal income tax on
exempt-interest dividends received from the Fund to the extent that such
distributions are derived from interest on Connecticut Municipal Obligations.
Capital-gain dividends derived from Connecticut Municipal Obligations other than
obligations of U.S. territories or possessions and their political subdivisions
are also free from this tax. Other distributions from the Fund, including
exempt-interest dividends attributable to obligations of issuers in other
states, other long-term capital gains and all short-term capital gains, will not
be exempt from the Connecticut personal income tax. Moreover, distributions by
the Fund derived from interest income, other than interest on Connecticut
Municipal Obligations, that are treated as a preference item for federal income
tax purposes may be subject to the net Connecticut minimum tax in the case of
any shareholder subject to the Connecticut personal income tax and required to
pay the federal alternative minimum tax.
New York Tax Free Reserves: To the extent that dividends received from the Fund
are derived from interest on New York Municipal Obligations, the dividends will
also be excluded from the gross income of individual shareholders who are New
York residents for New York State and New York City personal income tax
purposes. Dividends from the Fund are not excluded in determining New York State
or New York City franchise taxes on corporations and financial institutions.
FOREIGN SHAREHOLDERS: Each Fund will withhold U.S. federal income tax payments
at the rate of 30% (or any lower applicable treaty rate) on taxable dividends
and other payments subject to withholding taxes that are made to persons who are
not citizens or residents of the United States. Distributions received from a
Fund by non-U.S. persons also may be subject to tax under the laws of their own
jurisdictions.
PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and other
communications in terms of yield, effective yield, tax equivalent yield, total
rate of return or tax equivalent total rate of return. All performance
information is historical and is not intended to indicate future performance.
Yields and total rates of return fluctuate in response to market conditions and
other factors.
Each Fund may provide its period and average annualized "total rates of return"
and U.S. Treasury Reserves and each Tax Free Fund may also provide "tax
equivalent total rates of return." The "total rate of return" refers to the
change in the value of an investment in a Fund over a stated period and is
compounded to include the value of any shares purchased with any dividends or
capital gains declared during such period. Period total rates of return may be
"annualized." An "annualized" total rate of return assumes that the period total
rate of return is generated over a one-year period. The "tax equivalent total
rate of return" refers to the total rate of return that a fully taxable money
market fund would have to generate in order to produce an after-tax total rate
of return equivalent to that of a Fund. The use of a tax equivalent total rate
of return allows investors to compare the total rates of return of a Fund, the
dividends from which may be exempt from federal or state personal income taxes,
with the total rates of return of funds the dividends from which are not tax
exempt.
Each Fund may provide annualized "yield" and "effective yield" quotations, and
U.S. Treasury Reserves and each Tax Free Fund may also provide "tax equivalent
yield" quotations. The "yield" of a Fund refers to the income generated by an
investment in the Fund over a seven-day period (which period is stated in any
such advertisement or communication). This income is then annualized; that is,
the amount of income generated by the investment over that period is assumed to
be generated each week over a 365-day period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but when annualized
the income earned by the investment during that seven-day period is assumed to
be reinvested. The effective yield is slightly higher than the yield because of
the compounding effect of this assumed reinvestment. The "tax equivalent yield"
refers to the yield that a fully taxable money market fund would have to
generate in order to produce an after-tax yield equivalent to that of a Fund.
The use of a tax equivalent yield allows investors to compare the yield of the
Fund, the dividends from which may be exempt from federal or state personal
income tax, with yields of funds the dividends from which are not tax exempt. A
Fund may also provide yield, effective yield and tax equivalent yield quotations
for longer periods.
Of course, any direct fees charged by a shareholder's Shareholder Servicing
Agent will reduce that shareholder's net return on his or her investment. See
the Statement of Additional Information for more information concerning the
calculation of yield and total rate of return quotations for the Funds.
GENERAL INFORMATION
ORGANIZATION: Cash Reserves and U.S. Treasury Reserves are diversified series of
CitiFunds Trust III. Prior to January 2, 1998, Cash Reserves and U.S. Treasury
Reserves were called Landmark Cash Reserves and Landmark U.S. Treasury Reserves,
respectively, and CitiFunds Trust III was called Landmark Funds III. CitiFunds
Trust III is a Massachusetts business trust which was organized on June 28,
1985; the Trust also is an open-end management investment company registered
under the 1940 Act.
Under the 1940 Act, a diversified series or diversified investment company must
invest at least 75% of its assets in cash and cash items, U.S. Government
securities, investment company securities and other securities limited as to any
one issuer to not more than 5% of the total assets of the investment company and
not more than 10% of the voting securities of the issuer.
Tax Free Reserves is a non-diversified, open-end management investment company
which was organized as a Massachusetts business trust on June 21, 1985. The Fund
is registered under the 1940 Act. Prior to January 2, 1998, the Fund was called
Landmark Tax Free Reserves. The Fund is the successor to the business of The
Landmark Funds Tax Free Reserves, Inc., which was incorporated in Maryland in
1983.
California Tax Free Reserves, Connecticut Tax Free Reserves and New York Tax
Free Reserves are non-diversified series of CitiFunds Multi-State Tax Free
Trust. CitiFunds Multi-State Tax Free Trust is a Massachusetts business trust
which was organized on August 30, 1985. Prior to January 2, 1998, these Funds
were called Landmark California Tax Free Reserves, Landmark Connecticut Tax Free
Reserves and Landmark New York Tax Free Reserves, respectively, and CitiFunds
Multi-State Tax Free Trust was called Landmark Multi-State Tax Free Funds.
CitiFunds Multi-State Tax Free Trust is a non-diversified, open-end management
investment company registered under the 1940 Act.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
"CitiFunds" is a service mark of Citicorp.
Each Portfolio is a separate trust organized under the laws of the State of New
York. The Declaration of Trust of each Portfolio provides that a Fund and other
entities investing in a Portfolio are each liable for all obligations of that
Portfolio. However, it is not expected that the liabilities of a Portfolio would
ever exceed its assets.
VOTING AND OTHER RIGHTS: Each of CitiFunds Trust III, CitiFunds Multi-State Tax
Free Trust and CitiFunds Tax Free Reserves may issue an unlimited number of
shares, may create new series of shares and may divide shares in each series
into classes. Each share of each Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares ofr
each series have equal voting rights except that, in matters affecting only a
particular series or class, only shares of that particular series or class are
entitled to vote.
At any meeting of shareholders of a Fund, a Shareholder Servicing Agent may vote
any shares of which it is the holder of record and for which it does not receive
voting instructions proportionately in accordance with instructions it receives
for all other shares of which that Shareholder Servicing Agent is the holder of
record.
As Massachusetts business trusts, the Trusts are not required to hold annual
shareholder meetings. Shareholder approval will usually be sought only for
changes in a Fund's or Portfolio's fundamental investment restrictions and for
the election of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of each Fund is entitled to
participate equally in dividends and other distributions and the proceeds of any
liquidation of that Fund.
CERTIFICATES: The Funds' Transfer Agent maintains a share register for
shareholders of record, i.e., Shareholder Servicing Agents. Share certificates
are not issued.
RETIREMENT PLANS: Investors in Cash Reserves and U.S. Treasury Reserves may be
able to establish new accounts in these Funds under one of several tax-sheltered
plans. Such plans include IRAs, Keogh or Corporate Profit-Sharing and
Money-Purchase Plans, 403(b) Custodian Accounts, and certain other qualified
pension and profit-sharing plans. Investors should consult with their
Shareholder Servicing Agents and tax and retirement advisers.
EXPENSES: For the fiscal year ended August 31, 1997, total operating expenses
of the Funds, after allocating to each applicable Fund its share of its
Portfolio's expenses and after giving effect to fee waivers or reimbursements,
were as follows: for Cash Reserves, 0.70% of the Fund's average daily net
assets for that fiscal year; for U.S. Treasury Reserves, 0.70% of the Fund's
average daily net assets for that fiscal year; and for each Tax Free Fund,
0.65% of each Fund's average daily net assets for that fiscal year. All fee
waivers and reimbursements are voluntary and may be reduced or terminated at
any time.
- --------------------------------------------------------------------------------
The separate Statements of Additional Information dated the date hereof contain
more detailed information about the Funds, including information related to (i)
investment policies and restrictions, (ii) the Trustees, officers, Adviser and
Administrators, (iii) securities transactions, (iv) the Funds' shares, including
rights and liabilities of shareholders, (v) the method used to calculate
performance information and (vi) the determination of net asset value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by rthe Funds
or their distributor. This Prospectus does not constitute an offering by the
Funds or their distributor in any jurisdiction in which such offering may not
lawfully be made.
<PAGE>
APPENDIX A
PERMITTED INVESTMENTS AND
INVESTMENT PRACTICES
Repurchase Agreements. Each Fund (other than U.S. Treasury Reserves) may enter
into repurchase agreements. Repurchase agreements are transactions in which an
institution sells the Fund a security at one price, subject to the Fund's
obligation to resell and the selling institution's obligation to repurchase that
security at a higher price normally within a seven day period. There may be
delays and risks of loss if the seller is unable to meet its obligation to
repurchase.
Treasury Receipts. Cash Reserves and U.S. Treasury Reserves may each invest in
Treasury Receipts, which are unmatured interest coupons of U.S. Treasury bonds
and notes which have been separated and resold in a custodial receipt program
administered by the U.S. Treasury.
Commercial Paper. Cash Reserves may invest in commercial paper, which is
unsecured debt of corporations usually maturing in 270 days or less from its
date of issuance.
Asset-Backed Securities. Cash Reserves may invest in asset-backed securities,
which represent fractional interests in underlying pools of assets, such as car
installment loans or credit card receivables. The rate of return on asset-
backed securities may be affected by prepayment of the underlying loans or
receivables. Reinvestment of principal may occur at higher or lower rates than
the original yield.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements and in order to generate additional income, each Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral (cash
or U.S. Government securities) in an amount not less than the market value,
determined daily, of the securities loaned. It is intended that the value of
securities loaned by a Fund would not exceed 33 1/3% of the Fund's net assets.
In the event of the bankruptcy of the other party to a securities loan or a
repurchase agreement, a Fund could experience delays in recovering either the
securities lent or cash. To the extent that, in the meantime, the value of the
securities lent have increased or the value of the securities purchased have
decreased, the Fund could experience a loss.
Private Placements and Illiquid Investments. Each Fund may invest up to 10% of
its net assets in securities for which there is no readily available market.
These illiquid securities may include privately placed restricted securities for
which no institutional market exists. The absence of a trading market can make
it difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Fund to sell them promptly at an
acceptable price.
Additional Permitted Investments and Investment Practices for the Tax Free
Funds:
Municipal Bonds. Municipal bonds are debt obligations of states, cities,
municipalities and municipal agencies and authorities which generally have a
maturity at the time of issuance of one year or more and which are issued to
raise funds for various public purposes, such as construction of a wide range of
public facilities, refunding outstanding obligations or obtaining funds for
institutions and facilities. The two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The principal of and interest on revenue
bonds are payable from the income of specific projects or authorities and
generally are not supported by the issuer's general power to levy taxes. In some
cases, revenues derived from specific taxes are pledged to support payments on a
revenue bond.
In addition, certain kinds of private activity bonds ("IDBs") are issued by or
on behalf of public authorities to provide funding for various privately
operated industrial facilities, such as warehouse, office, plant and store
facilities and environmental and pollution control facilities. IDBs are, in most
cases, revenue bonds. The payment of the principal and interest on IDBs usually
depends solely on the ability of the user of the facilities financed by the
bonds or other guarantor to meet its financial obligations and, in certain
instances, the pledge of real and personal property as security for payment.
Many IDBs may not be readily marketable; however, the IDBs or the participation
certificates in IDBs purchased by a Fund will have liquidity because they
generally will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions.
Municipal Notes. There are four major varieties of state and municipal notes:
Tax and Revenue Anticipation Notes ("TRANs"); Tax Anticipation Notes ("TANs");
Revenue Anticipation Notes ("RANs"); and Bond Anticipation Notes ("BANs").
TRANs, TANs and RANs are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Many TRANs, TANs and RANs are general obligations of the issuing
entity payable from taxes or designated revenues, respectively, expected to be
received within the related fiscal period. BANs are issued with the expectation
that their principal and interest will be paid out of proceeds from renewal
notes or bonds to be issued prior to the maturity of the BANs. BANs are issued
most frequently by both general obligation and revenue bond issuers usually to
finance such items as land acquisition, facility acquisition and/or construction
and capital improvement projects.
Variable Rate Instruments and Participation Interests. Variable rate instruments
provide for a periodic adjustment in the interest rate paid on the instrument
and usually permit the holder to receive payment of principal and accrued
interest upon a specified number of day's notice. Variable rate instruments in
which a Fund may invest include participation interests in Municipal Obligations
owned by a bank, insurance company or other financial institution or affiliated
organization ("Participation Interests"). A variable rate instrument or a
Participation Interest may be backed by an irrevocable letter of credit or
guarantee of, or a right to put to, a bank, or an insurance policy of an
insurance company. See "Stand-by Commitments." Purchase of a Participation
Interest may involve the risk that the Fund will not be deemed to be the owner
of the underlying Municipal Obligation for purposes of the ability to claim tax
exemption of interest paid on that Municipal Obligation. If interest rates rise
or fall, the rates payable on variable rate instruments will generally be
readjusted. As a result variable rate instruments do not offer the same
opportunity for capital appreciation or loss as fixed rate instruments.
Stand-by Commitments. When a Fund purchases Municipal Obligations it may also
acquire stand-by commitments from banks with respect to such Municipal
Obligations. A Fund also may acquire stand-by commitments from broker-dealers.
Under a stand-by commitment, a bank or broker-dealer agrees to purchase at the
Fund's option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option with respect to a particular
Municipal Obligation. Each Fund intends to acquire stand-by commitments solely
to facilitate liquidity. Stand-by commitments are subject to certain risks,
which include the ability of the issuer of the commitment to pay for the
Municipal Obligations at the time the commitment is exercised, the fact that the
commitment is not marketable, and that the maturity of the underlying security
will generally be different from that of the commitment.
"When-Issued" Securities. In order to ensure the availability of suitable
securities, a Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, which means that the securities would be delivered to the Fund
at a future date beyond customary settlement time. Under normal circumstances,
the Fund takes delivery of the securities. In general, the purchaser does not
pay for the securities until received and does not start earning interest until
the contractual settlement date. While awaiting delivery of the securities, the
Fund establishes a segregated account consisting of cash, cash equivalents or
high quality debt securities equal to the amount of the Fund's commitments to
purchase "when-issued" securities. An increase in the percentage of a Fund's
assets committed to the purchase of securities on a "when-issued" basis may
increase the volatility of its net asset value.
<PAGE>
APPENDIX B
RATINGS OF MUNICIPAL OBLIGATIONS*
The ratings of Moody's Investors Service, Inc., Standard & Poor's Ratings Group
and Fitch IBCA, Inc. represent their opinions as to the quality of various debt
obligations. It should be emphasized, however, that ratings are not absolute
standards of quality. Consequently, Municipal Obligations with the same
maturity, coupon and rating may have different yields while Municipal
Obligations of the same maturity and coupon with different ratings may have the
same yield.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST LONG-TERM DEBT RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Note: Those bonds in the Aa group which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST RATINGS OF STATE
AND MUNICIPAL NOTES:
Moody's ratings for state and municipal short-term obligations are designated
Moody's Investment Grade ("MIG"). Issues or the features associated with MIG or
VMIG ratings are identified by date of issue, date of maturity or maturities or
rating expiration date and description to distinguish each rating from other
ratings. Each rating designation is unique with no implication as to any other
similar issue of the same obligor. MIG ratings terminate at the retirement of
the obligation while VMIG rating expiration will be a function of each issue's
specific structural or credit features. Symbols used are as follows:
MIG 1/VMIG 1 -- This designation denotes best quality. There is presently strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
- ----------
*As described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST SHORT-TERM DEBT RATINGS:
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year.
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: (1) leading market
positions in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well established
access to a range of financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
TWO HIGHEST LONG-TERM DEBT RATINGS:
AAA -- An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitments on the
obligation is extremely strong.
AA -- An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial obligations is very
strong.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a plus
or minus sign to show relative standing within the AA rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO HIGHEST RATINGS OF STATE
AND MUNICIPAL NOTES:
A Standard & Poor's note rating reflects the liquidity factors and market access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment:
-- Amortization schedule -- the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note.
-- Source of payment -- the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Note rating symbols and definitions are as follows:
SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
TWO HIGHEST COMMERCIAL PAPER RATINGS:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 -- A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2 -- A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
RATINGS OF TAX-EXEMPT DEMAND BONDS:
Standard & Poor's assigns "dual" ratings to all debt issues that have a put
option or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols for the put option (for example, "AAA/A-1+").
With short-term demand debt, Standard & Poor's rating symbols are used with the
commercial paper rating symbols (for example, "SP-1+/A-1+").
DESCRIPTION OF FITCH IBCA, INC.'S
TWO HIGHEST INTERNATIONAL LONG-TERM CREDIT RATINGS:
When assigning ratings, Fitch IBCA considers the historical and prospective
financial condition, quality of management, and the operating performance of the
issuer and of any quarantor, any special features of a specific issue or
guarantee, the issue's relationship to other obligations of the issuer, as well
as developments in the economic and political environment that might affect the
issuer's financial strength and credit quality.
Variable rate demand obligations and other securities which contain a demand
feature will have a dual rating, such as "AAA/F1+". The first rating denotes
long-term ability to make principal and interest payments. The second rating
denotes ability to meet a demand feature in full and on time.
AAA -- Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA -- Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
Plus (+) or Minus (-): "+" or "-" may be appended to a rating of "AA" to denote
relative status within the rating category.
DESCRIPTION OF FITCH IBCA, INC.'S
TWO HIGHEST INTERNATIONAL SHORT-TERM CREDIT RATINGS:
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F-1 -- Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" denote any exceptionally
strong credit feature.
F-2 -- Good Credit Quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
<PAGE>
APPENDIX C
TAXABLE EQUIVALENT YIELD TABLES
RATES FOR 1997 UNDER FEDERAL PERSONAL INCOME TAX LAW
The table below shows the approximate taxable bond yields which are equivalent
to tax-exempt bond yields under 1997 federal personal income tax laws. SUCH
YIELDS MAY DIFFER UNDER THE LAWS APPLICABLE TO SUBSEQUENT YEARS IF THE EFFECT OF
ANY SUCH LAW IS TO CHANGE ANY TAX BRACKET OR THE AMOUNT OF TAXABLE INCOME WHICH
IS APPLICABLE TO A TAX BRACKET. Separate calculations, showing the applicable
taxable income brackets, are provided for investors who file joint returns and
for investors who file individual returns. While it is expected that a
substantial portion of the dividends paid to shareholders of the Fund will be
exempt from federal personal income taxes, portions of such dividends from time
to time may be subject to federal income taxes.
FEDERAL TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME* FEDERAL TAX-EXEMPT YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME
TAX
SINGLE RETURN JOINT RETURN BRACKET 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 24,650 $ 0 $ 41,200 15.00% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 24,650 $ 59,750 $ 41,200 $ 99,600 28.00% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 59,750 $124,650 $ 99,600 $151,750 31.00% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$124,650 $271,050 $151,750 $271,050 36.00% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
271,051 $271,051 39.60% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
</TABLE>
*Net amount subject to federal income tax after deductions and exemptions.
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE RESERVES
RATES FOR 1997 UNDER FEDERAL AND CALIFORNIA PERSONAL INCOME TAX LAWS
The table below shows the approximate taxable bond yields which are equivalent
to tax-exempt bond yields under 1997 federal and California personal income tax
laws. SUCH YIELDS MAY DIFFER UNDER THE LAWS APPLICABLE TO SUBSEQUENT YEARS IF
THE EFFECT OF ANY SUCH LAW IS TO CHANGE ANY TAX BRACKET OR THE AMOUNT OF TAXABLE
INCOME WHICH IS APPLICABLE TO A TAX BRACKET. Separate calculations, showing the
applicable taxable income brackets, are provided for investors who file joint
returns and for investors who file individual returns. While it is expected that
a substantial portion of the dividends paid to shareholders of the Fund will be
exempt from federal and California personal income taxes, portions of such
dividends from time to time may be subject to federal income taxes and/or
California personal income taxes.
FEDERAL AND CALIFORNIA STATE TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME* TAX-EXEMPT YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME
TAX
SINGLE RETURN JOINT RETURN BRACKET** 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 24,650 17.81% 2.43% 3.04% 3.65% 4.26% 4.87% 5.48% 6.08% 6.69% 7.30% 7.91%
$ 0 $ 41,200 17.36% 2.42% 3.03% 3.63% 4.24% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87%
$ 24,650 $ 59,750 34.42% 3.05% 3.81% 4.57% 5.34% 6.10% 6.86% 7.62% 8.39% 9.15% 9.91%
$ 41,200 $ 99,600 34.03% 3.03% 3.79% 4.55% 5.31% 6.06% 6.82% 7.58% 8.34% 9.10% 9.85%
$ 59,750 $124,650 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
$ 99,600 $151,750 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
$124,650 $271,050 41.95% 3.45% 4.31% 5.17% 6.03% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20%
$151,750 $271,050 41.95% 3.45% 4.31% 5.17% 6.03% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20%
$271,051 $271,051 45.22% 3.65% 4.56% 5.48% 6.39% 7.30% 8.21% 9.13% 10.04% 10.95% 11.87%
</TABLE>
*Net amount subject to federal and California personal income tax after
deductions and exemptions.
**Effective combined federal and state tax bracket. State tax rate based on the
average state rate for the federal tax bracket. Combined Federal and
California rate assumes itemization of state tax deduction.
<PAGE>
CITIFUNDS CONNECTICUT TAX FREE RESERVES
RATES FOR 1997 UNDER FEDERAL AND CONNECTICUT PERSONAL INCOME TAX LAWS
The table below shows the approximate taxable bond yields which are equivalent
to tax-exempt bond yields under 1997 federal and Connecticut personal income tax
laws. SUCH YIELDS MAY DIFFER UNDER THE LAWS APPLICABLE TO SUBSEQUENT YEARS IF
THE EFFECT OF ANY SUCH LAW IS TO CHANGE ANY TAX BRACKET OR THE AMOUNT OF TAXABLE
INCOME WHICH IS APPLICABLE TO A TAX BRACKET. Separate calculations, showing the
applicable taxable income brackets, are provided for investors who file joint
returns and for investors who file individual returns. While it is expected that
a substantial portion of the dividends paid to shareholders of the Fund will be
exempt from federal and Connecticut personal income taxes, portions of such
dividends from time to time may be subject to federal income taxes and/or
Connecticut personal income taxes.
FEDERAL AND CONNECTICUT TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME* TAX-EXEMPT YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME
TAX
SINGLE RETURN JOINT RETURN BRACKET** 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 24,650 18.59% 2.46% 3.07% 3.69% 4.30% 4.91% 5.53% 6.14% 6.76% 7.37% 7.98%
$ 0 $ 41,200 18.55% 2.46% 3.07% 3.68% 4.30% 4.91% 5.52% 6.14% 6.75% 7.37% 7.98%
$ 24,650 $ 59,750 $ 41,200 $ 96,600 31.24% 2.91% 3.64% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45%
$ 59,750 $124,650 $ 99,600 $151,750 34.11% 3.04% 3.79% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86%
$124,650 $271,050 $151,750 $271,050 38.88% 3.27% 4.09% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63%
$271,051 $271,051 42.32% 3.47% 4.33% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54% 10.40% 11.27%
</TABLE>
*Net amount subject to federal and Connecticut personal income tax after
deductions and exemptions.
**Effective combined federal and state tax bracket. State tax rate based on the
average state rate for the federal tax bracket. Combined Federal and
Connecticut rate assumes itemization of state tax deduction.
<PAGE>
CITIFUNDS NEW YORK TAX FREE RESERVES
RATES FOR 1997 UNDER FEDERAL AND NEW YORK PERSONAL INCOME TAX LAWS
The tables below show the approximate taxable bond yields which are equivalent
to tax-exempt bond yields under 1997 federal and New York personal income tax
laws. SUCH YIELDS MAY DIFFER UNDER THE LAWS APPLICABLE TO SUBSEQUENT YEARS IF
THE EFFECT OF ANY SUCH LAW IS TO CHANGE ANY TAX BRACKET OR THE AMOUNT OF TAXABLE
INCOME WHICH IS APPLICABLE TO A TAX BRACKET. Separate calculations, showing the
applicable taxable income brackets, are provided for investors who file joint
returns and for investors who file individual returns. While it is expected that
a substantial portion of the dividends paid to shareholders of the Fund will be
exempt from federal, New York State and New York City personal income taxes,
portions of such dividends from time to time may be subject to federal income
taxes and/or New York State and New York City personal income taxes.
FEDERAL AND NEW YORK STATE TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME* TAX-EXEMPT YIELD
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME
TAX
SINGLE RETURN JOINT RETURN BRACKET** 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 24,650 19.45% 2.48% 3.10% 3.72% 4.35% 4.97% 5.59% 6.21% 6.83% 7.45% 8.07%
$ 0 $ 41,200 19.18% 2.47% 3.09% 3.71% 4.33% 4.95% 5.57% 6.19% 6.81% 7.42% 8.04%
$ 24,650 $ 59,750 32.93% 2.98% 3.73% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$ 41,200 $ 99,600 32.93% 2.98% 3.73% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$ 59,750 $124,650 35.73% 3.11% 3.89% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.34% 10.11%
$ 99,600 $151,750 35.73% 3.11% 3.89% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.34% 10.11%
$124,650 $271,050 $151,750 $271,050 40.38% 3.35% 4.19% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.06% 10.90%
$271,051 $271,051 43.74% 3.55% 4.44% 5.33% 6.22% 7.11% 8.00% 8.89% 9.78% 10.66% 11.55%
</TABLE>
*Net amount subject to federal and New York personal income tax after
deductions and exemptions.
**Effective combined federal and state tax bracket. State tax rate based on the
average state rate for the federal income tax bracket and 1997 State Tax
rates.
<PAGE>
FEDERAL, NEW YORK STATE AND NEW YORK CITY TABLE
<TABLE>
<CAPTION>
TAXABLE INCOME* TAX-EXEMPT YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME
TAX
SINGLE RETURN JOINT RETURN BRACKET** 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 24,650 22.71% 2.59% 3.23% 3.88% 4.53% 5.18% 5.82% 6.47% 7.12% 7.76% 8.41%
$ 0 $ 41,200 22.41% 2.58% 3.22% 3.87% 4.51% 5.16% 5.80% 6.44% 7.09% 7.73% 8.38%
$ 24,650 $ 59,750 36.11% 3.13% 3.91% 4.70% 5.48% 6.26% 7.04% 7.83% 8.61% 9.39% 10.17%
$ 41,200 $ 99,600 36.11% 3.13% 3.91% 4.70% 5.48% 6.26% 7.04% 7.83% 8.61% 9.39% 10.17%
$ 59,750 $124,650 38.80% 3.27% 4.08% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80% 10.62%
$ 99,600 $151,750 38.80% 3.27% 4.08% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80% 10.62%
$124,650 $271,050 $151,750 $271,050 43.24% 3.52% 4.40% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57% 11.45%
$271,051 $271,051 46.43% 3.73% 4.67% 5.60% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20% 12.13%
</TABLE>
*Net amount subject to federal and New York State personal income tax after
deductions and exemptions.
**Effective combined federal, state, and city tax bracket. State tax rate based
on the average rate for the federal income tax bracket and 1997 State tax
rates including surcharges.
<PAGE>
CFCP/RET 198 [RECYCLE LOGO] Printed on recycled paper
<PAGE>
Statement of
Additional Information
January 2, 1998
CITIFUNDS(SM) TAX FREE RESERVES
(A member of the CitiFunds(SM) Family of Funds)
CitiFunds(SM) Tax Free Reserves (the "Fund") is a no-load, non-diversified,
open-end management investment company. The Fund invests all of its investable
assets in Tax Free Reserves Portfolio (the "Portfolio"). The address and
telephone number of the Fund and the Portfolio are 6 St. James Avenue, Boston,
Massachusetts 02116, (617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
TABLE OF CONTENTS PAGE
- ----------------- ----
1. The Fund .............................................................. 2
2. Investment Objectives, Policies and Restrictions ...................... 2
3. Performance Information ............................................... 10
4. Determination of Net Asset Value ...................................... 11
5. Management ............................................................ 12
6. Portfolio Transactions ................................................ 17
7. Description of Shares, Voting Rights and Liabilities .................. 18
8. Certain Additional Tax Matters ........................................ 19
9. Independent Accountants and Financial Statements ...................... 20
This Statement of Additional Information sets forth information which may be
of interest to investors but which is not necessarily included in the Fund's
Prospectus, dated January 2, 1998, by which shares of the Fund are offered. This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Fund's Distributor (see back cover for address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
<PAGE>
1. THE FUND
The Fund is a no-load, non-diversified, open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on June 21, 1985 and is the successor to the
business of The Landmark Funds Tax Free Reserves, Inc., which was incorporated
under the laws of the State of Maryland in 1983. Prior to January 2, 1998, the
Fund was called Landmark Tax Free Reserves. All references in this Statement of
Additional Information to the Fund's activities are intended to include those of
the Fund and its predecessor, unless the context indicates otherwise. References
in this Statement of Additional Information to the Prospectus are to the Fund's
Prospectus, dated January 2, 1998, by which shares of the Fund are offered.
The Fund is a type of mutual fund commonly referred to as a "tax-exempt
money market fund." The net asset value of each of the Fund's shares is expected
to remain constant at $1.00, although there can be no assurance that this will
be so on a continuing basis. (See "Determination of Net Asset Value.")
The Fund seeks its investment objectives by investing all of its investable
assets in the Portfolio. The Portfolio is non-diversified, open-end management
investment company and has the same investment objectives and policies as the
Fund.
Citibank, N.A. ("Citibank" or the "Adviser") is the investment adviser to
the Portfolio. The Adviser manages the investments of the Portfolio from day to
day in accordance with the Portfolio's investment objectives and policies. The
selection of investments for the Portfolio, and the way they are managed, depend
on the conditions and trends in the economy and the financial marketplaces.
CFBDS, Inc. ("CFBDS," the "Administrator" or "Portfolio Administrator"), the
administrator of the Fund and Portfolio, supervises the overall administration
of the Fund and Portfolio. The Boards of Trustees of the Fund and Portfolio
provide broad supervision over the affairs of the Fund and Portfolio,
respectively. Shares of the Fund are continuously sold by CFBDS, the Fund's
distributor (the "Distributor"), only to investors who are customers of a
financial institution, such as a federal or state-chartered bank, trust company,
savings and loan association or savings bank, or a securities broker, that has
entered into a shareholder servicing agreement with the Fund (collectively,
"Shareholder Servicing Agents"). Although shares of the Fund are sold without a
sales load, CFBDS may receive a fee from the Fund pursuant to a Distribution
Plan adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act").
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objectives of the Fund are to provide its shareholders with
high levels of current income exempt from federal income taxes, preservation of
capital and liquidity.
The investment objectives of the Fund may not be changed without approval by
the Fund's shareholders. Of course, there can be no assurance that the Fund will
achieve its investment objectives.
INVESTMENT POLICIES
The Fund seeks its investment objectives by investing all of its investable
assets in the Portfolio, which has the same investment objectives and policies
as the Fund. The Prospectus contains a discussion of the various types of
securities in which the Fund and Portfolio may invest and the risks involved in
such investments. The following supplements the information contained in the
Prospectus concerning the investment objectives, policies and techniques of the
Fund and Portfolio. Since the investment characteristics of the Fund will
correspond directly to those of the Portfolio, the following is a supplementary
discussion with respect to the Portfolio.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees determines that it is in the best interests of the Fund to do
so. Upon any such withdrawal, the Fund's assets would be invested in accordance
with the investment policies described below with respect to the Portfolio. The
approval of the Fund's shareholders would not be required to change any of the
Fund's investment policies. The approval of the Fund and of the other investors
in the Portfolio would not be required to change the Portfolio's investment
objectives or any of the Portfolio's investment policies discussed below,
including those concerning securities transactions. The Portfolio would,
however, give written notice to its investors at least 30 days prior to
implementing any change in its investment objectives.
The Portfolio seeks its investment objectives by investing primarily in
short-term, high quality fixed rate and variable rate obligations issued by or
on behalf of states and municipal governments, and their authorities, agencies,
instrumentalities and political subdivisions and other qualifying issuers, the
interest on which is exempt from federal income taxes, including participation
interests in such obligations issued by banks, insurance companies or other
financial institutions. (These securities, whether or not the interest thereon
is subject to the federal alternative minimum tax, are referred to herein as
"Municipal Obligations.") In determining the tax status of interest on Municipal
Obligations, the Adviser relies on opinions of bond counsel who may be counsel
to the issuer. Although the Portfolio will attempt to invest 100% of its assets
in Municipal Obligations, the Portfolio reserves the right to invest up to 20%
of its total assets in securities, the interest income on which is subject to
federal, state and local income tax or the federal alternative minimum tax. The
Portfolio invests more than 25% of its assets in participation certificates
issued by banks in industrial development bonds and other Municipal Obligations.
In view of this "concentration" in these bank participation certificates, an
investment in Fund shares should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. (See "Variable Rate Instruments and Participation Interests" below.)
The Portfolio may hold uninvested cash reserves pending investment. The
Portfolio's investments may include "when- issued" or "forward delivery"
Municipal Obligations, stand-by commitments and taxable repurchase agreements.
For a general discussion of Municipal Obligations and an explanation of the
ratings of Municipal Obligations by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Rating Group ("Standard & Poor's") and Fitch IBCA, Inc.
("Fitch"), see Appendix B to the Prospectus. For a comparison of yields on such
Municipal Obligations and taxable securities, see Appendix C to the Prospectus.
All investments by the Portfolio mature or are deemed to mature within 397
days from the date of acquisition and the average maturity of the Portfolio's
securities (on a dollar-weighted basis) is 90 days or less. The maturities of
variable rate instruments held by the Portfolio are deemed to be the longer of
the notice period, or the period remaining until the next interest rate
adjustment, although the stated maturities may be in excess of 397 days. (See
"Variable Rate Instruments and Participation Interests" below.) All investments
by the Portfolio are "eligible securities," that is, rated in one of the two
highest rating categories for short-term obligations by at least two nationally
recognized statistical rating organizations (each a "NRSRO") assigning a rating
to the security or issuer or, if only one NRSRO assigns a rating, that NRSRO,
or, in the case of an investment which is not rated, of comparable quality as
determined by or on behalf of the Portfolio's Board of Trustees on the basis of
its credit evaluation of the obligor or of the bank issuing a participation
interest, letter of credit or guarantee, or insurance issued in support of the
Municipal Obligations or participation interests. (See "Variable Rate
Instruments and Participation Interests" below.) Such instruments may produce a
lower yield than would be available from less highly rated instruments. The
Portfolio's Board of Trustees has determined that Municipal Obligations which
are backed by the full faith and credit of the U.S. Government are considered to
have a rating equivalent to Moody's Aaa. (See "Ratings of Municipal Obligations"
in Appendix B to the Prospectus.)
As a fundamental policy, the Portfolio invests at least 80% of its assets,
under normal circumstances, in:
(1) Municipal bonds with remaining maturities of one year or less that
are rated within the Aaa or Aa categories at the date of purchase by Moody's
or within the AAA or AA categories by Standard & Poor's or Fitch or, if not
rated by these rating agencies, are of comparable quality as determined by
the Adviser on the basis of the credit evaluation of the obligor on the
bonds or of the bank issuing a participation interest or guarantee or of any
insurance issued in support of the bonds or the participation interests.
(2) Municipal notes with remaining maturities of one year or less that
at the date of purchase are rated MIG 1/VMIG 1 or MIG 2/VMIG 2 by Moody's,
SP-1+, SP-1 or SP-2 by Standard & Poor's or F-1 or F-2 by Fitch or, if not
rated by these rating agencies, are of comparable quality as determined by
the Adviser. The principal kinds of municipal notes are tax and revenue
anticipation notes, tax anticipation notes, bond anticipation notes and
revenue anticipation notes. Notes sold in anticipation of collection of
taxes, a bond sale or receipt of other revenues are usually general
obligations of the issuing municipality or agency.
(3) Municipal commercial paper that is rated Prime-1 or Prime-2 by
Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1 or F-2 by Fitch or, if
not rated by these rating agencies, is of comparable quality as determined
by the Adviser. Issues of municipal commercial paper typically represent
very short-term, unsecured, negotiable promissory notes. These obligations
are often issued to meet seasonal working capital needs of municipalities or
to provide interim construction financing and are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
municipal commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the event
of default by the issuer of the commercial paper.
Subsequent to its purchase by the Portfolio, a rated Municipal Obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event requires sale of such Municipal
Obligation by the Portfolio (other than variable rate instruments which must be
sold if they are not "high quality"), but the Adviser considers such event in
determining whether the Portfolio should continue to hold the Municipal
Obligation. To the extent that the ratings given to the Municipal Obligations or
other securities held by the Portfolio are altered due to changes in any of the
Moody's, Standard & Poor's or Fitch ratings systems (see Appendix B to the
Prospectus for an explanation of these rating systems), the Adviser adopts such
changed ratings as standards for its future investments in accordance with the
investment policies contained in the Prospectus. Certain Municipal Obligations
issued by instrumentalities of the U.S. Government are not backed by the full
faith and credit of the U.S. Treasury but only by the creditworthiness of the
instrumentality. The Portfolio's Board of Trustees has determined that any
Municipal Obligation that depends directly, or indirectly through a government
insurance program or other guarantee, on the full faith and credit of the U.S.
Government is considered to have a rating in the highest category. Where
necessary to ensure that the Municipal Obligations are "eligible securities"
(i.e., within the two highest ratings assigned by Moody's, Standard & Poor's or
Fitch), or where the obligations are not freely transferable, the Portfolio will
require that the obligation to pay the principal and accrued interest be backed
by an unconditional irrevocable bank letter of credit, a guarantee, insurance
policy or other comparable undertaking of an approved financial institution.
The Portfolio may invest 25% or more of its assets in securities that are
related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS
Variable rate instruments that the Portfolio may purchase are tax-exempt
Municipal Obligations (including municipal notes and municipal commercial paper)
that provide for a periodic adjustment in the interest rate paid on the
instrument and permit the holder to receive payment upon a specified number of
days' notice of the unpaid principal balance plus accrued interest either from
the issuer or by drawing on a bank letter of credit, a guarantee or an insurance
policy issued with respect to such instrument or by tendering or "putting" such
instrument to a third party.
The variable rate instruments in which the Portfolio's assets may be
invested are payable upon a specified period of notice which may range from one
day up to one year. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to one year and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Portfolio will
decide which variable rate instruments it will purchase in accordance with
procedures prescribed by its Board of Trustees to minimize credit risks. An
unrated variable rate instrument may be determined to meet the Portfolio's high
quality criteria if it is backed by a letter of credit or guarantee or a right
to tender or put the instrument to a third party or is insured by an insurer
that meets the high quality criteria for the Portfolio discussed above or on the
basis of a credit evaluation of the underlying obligor. If the credit of the
obligor is of "high quality," no credit support from a bank or other financial
institution will be necessary. Each unrated variable rate instrument will be
evaluated on a quarterly basis to determine that it continues to meet the
Portfolio's high quality criteria. If an instrument is ever deemed to be of less
than high quality, the Portfolio either will sell it in the market or exercise
the liquidity feature described below.
Variable rate instruments in which the Portfolio may invest include
participation interests in variable rate, tax-exempt Municipal Obligations owned
by a bank, insurance company or other financial institution or affiliated
organizations. Although the rate of the underlying Municipal Obligations may be
fixed, the terms of the participation interest may result in the Portfolio
receiving a variable rate on its investment. A participation interest gives the
Portfolio an undivided interest in the Municipal Obligation in the proportion
that the Portfolio's participation bears to the total principal amount of the
Municipal Obligation and provides the liquidity feature. Each participation may
be backed by an irrevocable letter of credit or guarantee of, or a right to put
to, a bank (which may be the bank issuing the participation interest, a bank
issuing a confirming letter of credit to that of the issuing bank, or a bank
serving as agent of the issuing bank with respect to the possible repurchase of
the participation interest) or insurance policy of an insurance company that has
been determined by or on behalf of the Board of Trustees of the Portfolio to
meet the prescribed quality standards of the Portfolio. The Portfolio has the
right to sell the participation interest back to the institution or draw on the
letter of credit or insurance after a specified period of notice, for all or any
part of the full principal amount of the Portfolio's participation in the
security, plus accrued interest. The Portfolio intends to exercise the liquidity
feature only (1) upon a default under the terms of the bond documents, (2) as
needed to provide liquidity to the Portfolio in order to facilitate withdrawals
from the Portfolio, or (3) to maintain a high quality investment portfolio. In
some cases, this liquidity feature may not be exercisable in the event of a
default on the underlying Municipal Obligations; in these cases, the underlying
Municipal Obligations must meet the Portfolio's high credit standards at the
time of purchase of the participation interest. Issuers of participation
interests will retain a service and letter of credit fee and a fee for providing
the liquidity feature, in an amount equal to the excess of the interest paid on
the instruments over the negotiated yield at which the participations were
purchased on behalf of the Portfolio. The total fees generally range from 5% to
15% of the applicable prime rate or other interest rate index. With respect to
insurance, the Portfolio will attempt to have the issuer of the participation
interest bear the cost of the insurance, although the Portfolio retains the
option to purchase insurance if necessary, in which case the cost of insurance
will be an expense of the Portfolio subject to the expense limitation of 2 1/2%
of the first $30 million of the Portfolio's average net assets, 2% of the next
$70 million and 1 1/2% of the Portfolio's average net assets in excess of $100
million. The Adviser has been instructed by the Portfolio's Board of Trustees to
monitor continually the pricing, quality and liquidity of the variable rate
instruments held by the Portfolio, including the participation interests, on the
basis of published financial information and reports of the rating agencies and
other bank analytical services to which the Portfolio may subscribe. Although
participation interests may be sold, the Portfolio intends to hold them until
maturity, except under the circumstances stated above.
In view of the "concentration" of the Portfolio in bank participation
interests in Municipal Obligations secured by bank letters of credit or
guarantees, an investment in the Portfolio should be made with an understanding
of the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulation
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operation of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit.
Periods of high inflation and periods of economic slowdown, together with
the fiscal measures adopted to attempt to deal with them, have brought wide
fluctuations in interest rates. When interest rates rise, the value of fixed
income securities generally falls; and vice versa. While this is true for
variable rate instruments generally, the variable rate nature of the underlying
instruments should minimize these changes in value. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation and the risk
of potential capital depreciation is less than would be the case with a
portfolio of fixed income securities. Because the adjustment of interest rates
on the variable rate instruments is made in relation to movements of various
interest rate adjustment indices, the variable rate instruments are not
comparable to long-term fixed rate securities. Accordingly, interest rates on
the variable rate instruments may be higher or lower than current market rates
for fixed rate obligations of comparable quality with similar maturities.
Because of the variable rate nature of the instruments, when prevailing
interest rates decline the Portfolio's yield will decline and its shareholders
will forgo the opportunity for capital appreciation. On the other hand, during
periods when prevailing interest rates increase, the Portfolio's yield will
increase and its shareholders will have reduced risk of capital depreciation.
For purposes of determining whether a variable rate instrument held by the
Portfolio matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Portfolio is entitled to receive payment of the principal amount of
the instrument after notice or (2) the period remaining until the instrument's
next interest rate adjustment. The maturity of a variable rate instrument will
be determined in the same manner for purposes of computing the Portfolio's
dollar-weighted average portfolio maturity.
"WHEN-ISSUED" SECURITIES
New issues of certain Municipal Obligations frequently are offered on a
"when-issued" or "forward delivery" basis. The payment obligation and the
interest rate that will be received on the Municipal Obligations are each fixed
at the time the buyer enters into the commitment although settlement, i.e.,
delivery of and payment for the Municipal Obligations, takes place beyond
customary settlement time (but normally within 45 days after the date of the
Portfolio's commitment to purchase). Although the Portfolio will only make
commitments to purchase "when-issued" or "forward delivery" Municipal
Obligations with the intention of actually acquiring them, the Portfolio may
sell these securities before the settlement date if deemed advisable by the
Adviser.
Municipal Obligations purchased on a "when-issued" or "forward delivery"
basis and the securities held in the Portfolio's portfolio are subject to
changes in value based upon the public's perception of the credit-worthiness of
the issuer and changes, real or anticipated, in the level of interest rates. The
value of these Municipal Obligations and securities generally change in the same
way, that is, both experience appreciation when interest rates decline and
depreciation when interest rates rise. Purchasing Municipal Obligations on a
"when-issued" or "forward delivery" basis can involve a risk that the yields
available in the market on the settlement date may actually be higher or lower
than those obtained in the transaction itself. A separate account of the
Portfolio consisting of cash or liquid debt securities equal to the amount of
the "when-issued" or "forward delivery" commitments will be established at the
Portfolio's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value. If the market value of such securities declines, additional cash or
highly liquid securities will be placed in the account daily so that the value
of the account will equal the amount of the Portfolio's commitments. On the
settlement date of the "when-issued" or "forward delivery" securities, the
Portfolio's obligations will be met from then-available cash flow, sale of
securities held in the separate account, sale of other securities or, although
not normally expected, from sale of the "when-issued" or "forward delivery"
securities themselves (which may have a value greater or lesser than the
Portfolio's payment obligations). Sale of securities to meet such obligations
may result in the realization of capital gains or losses, which are not exempt
from federal income tax.
STAND-BY COMMITMENTS
When the Portfolio purchases Municipal Obligations it may also acquire
stand-by commitments from banks with respect to such Municipal Obligations. The
Portfolio also may acquire stand-by commitments from broker-dealers. Under the
stand-by commitment, a bank or broker-dealer agrees to purchase at the
Portfolio's option a specified Municipal Obligation at a specified price. A
stand-by commitment is the equivalent of a "put" option acquired by the
Portfolio with respect to a particular Municipal Obligation held in the
Portfolio's portfolio.
The amount payable to the Portfolio upon the exercise of a stand-by
commitment normally would be (1) the acquisition cost of the Municipal
Obligation (excluding any accrued interest paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Portfolio owned the security, plus (2) all interest
accrued on the security since the last interest payment date during the period
the security was owned by the Portfolio. Absent unusual circumstances relating
to a change in market value, the Portfolio would value the underlying Municipal
Obligation at amortized cost. Accordingly, the amount payable by a bank or
dealer during the time a stand-by commitment is exercisable would be
substantially the same as the market value of the underlying Municipal
Obligation. The Portfolio values stand-by commitments at zero for purposes of
computing the value of its net assets.
The stand-by commitments that the Portfolio may enter into are subject to
certain risks, which include the ability of the issuer of the commitment to pay
for the securities at the time the commitment is exercised and the fact that the
commitment is not marketable by the Portfolio and the maturity of the underlying
security will generally be different from that of the commitment.
TAXABLE SECURITIES
Although the Portfolio attempts to invest 100% of its net assets in
tax-exempt Municipal Obligations, the Portfolio may invest up to 20% of the
value of the Portfolio's net assets in securities of the kind described below,
the interest income on which is subject to federal income tax. Circumstances in
which the Portfolio may invest in taxable securities include the following: (a)
pending investment in the type of securities described above; (b) to maintain
liquidity for the purpose of meeting anticipated withdrawals; and (c) when, in
the opinion of the Fund's investment adviser, it is advisable to do so because
of adverse market conditions affecting the market for Municipal Obligations. The
kinds of taxable securities in which the Portfolio's assets may be invested are
limited to the following short-term, fixed-income securities (maturing in 397
days or less from the time of purchase): (1) obligations of the U.S. Government
or its agencies, instrumentalities or authorities; (2) commercial paper rated
Prime-1 or Prime-2 by Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1+,
F-1 or F-2 by Fitch; (3) certificates of deposit of U.S. banks with assets of $1
billion or more; and (4) repurchase agreements with respect to any Municipal
Obligations or other securities which the Portfolio is permitted to own. The
Portfolio's assets may also be invested in Municipal Obligations which are
subject to an alternative minimum tax.
REPURCHASE AGREEMENTS
The Portfolio may invest assets in instruments subject to repurchase
agreements only with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. Under the terms of a typical repurchase agreement, the
Portfolio would acquire an underlying debt instrument for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase and the Portfolio to resell the instrument at a fixed price and
time, thereby determining the yield during the Portfolio's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. A repurchase agreement is subject to the risk that the seller may fail
to repurchase the security. Repurchase agreements may be deemed to be loans
under the 1940 Act. All repurchase agreements entered into by the Portfolio
shall be fully collateralized at all times during the period of the agreement in
that the value of the underlying security shall be at least equal to the amount
of the loan, including the accrued interest thereon, and the Portfolio or its
custodian or sub-custodian shall have possession of the collateral, which the
Portfolio's Board of Trustees believes will give it a valid, perfected security
interest in the collateral. Whether a repurchase agreement is the purchase and
sale of a security or a collateralized loan has not been definitively
established. This might become an issue in the event of the bankruptcy of the
other party to the transaction. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Portfolio but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Portfolio may
suffer time delays and incur costs in connection with the disposition of the
collateral. The Portfolio's Board of Trustees believes that the collateral
underlying repurchase agreements may be more susceptible to claims of the
seller's creditors than would be the case with securities owned by the
Portfolio. Repurchase agreements will give rise to income which will not qualify
as tax-exempt income when distributed by the Portfolio. The Portfolio will not
invest in a repurchase agreement maturing in more than seven days if any such
investment together with illiquid securities held by the Portfolio exceed 10% of
the Portfolio's total net assets. Repurchase agreements are also subject to the
same risks described herein with respect to stand-by commitments.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to generate
income, the Portfolio may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks of
the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate a
loan at any time on customary industry settlement notice (which will not usually
exceed three business days). During the existence of a loan, the Portfolio would
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned and with respect to cash collateral would also
receive compensation based on investment of the collateral (subject to a rebate
payable to the borrower). Where the borrower provides the Portfolio with
collateral consisting of U.S. Treasury obligations the borrower is also
obligated to pay the Portfolio a fee for use of the borrowed securities. The
Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but would call the loan in
anticipation of an important vote to be taken among holders of the securities or
of the giving or withholding of their consent on a material matter affecting the
investment. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. However, the loans would be made only to entities deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. In addition, the Portfolio could suffer loss if the borrower
terminates the loan and the Portfolio is forced to liquidate investments in
order to return the cash collateral to the buyer. If the Adviser determines to
make loans, it is not intended that the value of the securities loaned by the
Portfolio would exceed 33 1/3% of the value of its net assets.
INVESTMENT RESTRICTIONS
The Fund and Portfolio have each adopted the following policies which may
not be changed without approval by a "majority of the outstanding shares" of the
Fund or the Portfolio, respectively, which as used in this Statement of
Additional Information means the vote of the lesser of (i) 67% or more of the
shares of the Fund or the Portfolio, respectively, present at a meeting, if the
holders of more than 50% of the outstanding "voting securities" of the Fund or
the Portfolio, respectively, are present or represented by proxy, or (ii) more
than 50% of the outstanding "voting securities" of the Fund or the Portfolio,
respectively. The term "voting securities" as used in this paragraph has the
same meaning as in the 1940 Act. Whenever the Fund is requested to vote on a
change in the investment restrictions of the Portfolio, the Fund will hold a
meeting of its shareholders and will cast its vote as instructed by the
shareholders. The Fund will vote the shares held by its shareholders who do not
give voting instructions in the same proportion as the shares of the Fund's
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no effect on the outcome of these matters.
The Fund may not:
(1) Make investments other than as described under "Investment Policies"
above or any other form of federal tax-exempt investment which meets the
Fund's high quality criteria, as determined by the Board of Trustees and
which is consistent with the Fund's investment objectives and policies
(provided, however, that the Fund may invest all of its assets in a
diversified, open-end management investment company with substantially the
same investment objectives, policies and restrictions as the Fund);
(2) Borrow money. This restriction shall not apply to borrowings from
banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the Fund's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any investments. Interest paid on borrowings
will reduce net income;
(3) Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 15% of the value of its total assets and only to
secure borrowings for temporary or emergency purposes;
(4) Sell securities short or purchase securities on margin, or engage in
the purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Policies" above;
(5) Underwrite the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security (provided, however, that the Fund may
invest all of its assets in a diversified, open-end management investment
company with substantially the same investment objectives, policies and
restrictions as the Fund);
(6) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests,
but this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests in real estate;
(7) Make loans to others, except through the purchase of Fund
investments, including repurchase agreements, as described under "Investment
Policies" above;
(8) Invest more than 5% of the value of its total assets in the
securities of issuers where the entity providing the revenues from which the
issue is to be paid has a record, including predecessors, of fewer than
three years of continuous operation, except obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities (provided,
however, that the Fund may invest all of its assets in a diversified,
open-end management investment company with substantially the same
investment objectives, policies and restrictions as the Fund);
(9) Invest more than 25% of its assets in the securities of "issuers" in
any single industry, provided that there shall be no limitation on the
purchase of Municipal Obligations or on obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. In addition, the
Fund reserves the freedom of action to invest more than 25% of its assets in
instruments (including without limitation participation interests) issued by
U.S. branches of domestic banks; or
(10) Invest in securities of other investment companies, except the Fund
may purchase unit investment trust securities where such unit trusts meet
the investment objectives and policies of the Fund and then only up to 5% of
the Fund's net assets, except as they may be acquired as part of a merger,
consolidation or acquisition of assets (provided, however, that the Fund may
invest all of its assets in a diversified, open-end management investment
company with substantially the same investment objectives, policies and
restrictions as the Fund).
The Fund has adopted the following non-fundamental policy, which may be
changed without approval by a majority of the outstanding shares of the Fund.
The Fund will not invest in a repurchase agreement maturing in more than seven
days or other illiquid securities if as a result thereof the Fund's total
illiquid assets (including repurchase agreements maturing in more than seven
days) would exceed 10% of the Fund's net assets.
The Portfolio may not:
(1) borrow money, except that as a temporary measure for extraordinary
or emergency purposes borrow from banks in an amount not to exceed 1/3 of
the value of the net assets of the Portfolio, including the amount borrowed
(moreover, the Portfolio may not purchase any securities at any time at
which borrowings exceed 5% of its total assets (taken at market value)); (it
is intended that the Portfolio would borrow money only from banks and only
to accommodate requests for the withdrawal of all or a portion of a
beneficial interest in the Portfolio while effecting an orderly liquidation
of securities);
(2) purchase any security or evidence of interest therein on margin,
except that the Portfolio may obtain such short term credit as may be
necessary for the clearance of purchases and sales of securities;
(3) underwrite securities issued by other persons, except insofar as the
Portfolio may technically be deemed an underwriter under the Securities Act
of 1933 in selling a security;
(4) make loans to other persons except (a) through the lending of
securities held by the Portfolio, but not in excess of 33 1/3% of the
Portfolio's net assets, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short term obligations, or (c) by
purchasing all or a portion of an issue of debt securities of types commonly
distributed privately to financial institutions; for purposes of this
paragraph (4) the purchase of short term commercial paper or a portion of an
issue of debt securities which are part of an issue to the public shall not
be considered the making of a loan;
(5) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts in the ordinary course of business (the Portfolio reserves the
freedom of action to hold and to sell real estate acquired as a result of
the ownership of securities by the Fund or the Portfolio);
(6) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of its investment objective, up to
25% of the assets of the Portfolio (taken at market value at the time of
each investment) may be invested in any one industry, except that the
Portfolio will invest at least 25% of its assets and may invest up to 100%
of its assets in bank obligations; or
(7) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating the investment restriction in paragraph (1)
above.
For purposes of the investment restriction in paragraph (6) above, "bank
obligations" shall include bank participation interests in Municipal
Obligations.
DESIGNATION OF ISSUER OF SECURITIES
For purposes of the investment restrictions described above, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of principal of and interest on the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
issuing entity and a security is backed only by the assets and revenues of the
entity, the entity would be deemed to be the sole issuer of the security.
Similarly, in the case of a private activity bond, if that bond is backed only
by the assets and revenues of the non-governmental user, then such
non-governmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity, such as an insurance
company or other corporate obligor, guarantees a security or a bank issues a
letter of credit, such a guarantee or letter of credit may, in accordance with
applicable Securities and Exchange Commission ("SEC") rules, be considered a
separate security and could be treated as an issue of such government, other
entity or bank.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction or a rating restriction (other than a
restriction as to borrowing) on investment or utilization of assets set forth
above or referred to in the Prospectus is adhered to at the time an investment
is made or assets are so utilized, a later change in percentage resulting from
changes in the value of the securities held by the Fund or the Portfolio or a
later change in the rating of a security held by the Fund or the Portfolio will
not be considered a violation of policy.
3. PERFORMANCE INFORMATION
Any current yield quotation of the Fund which is used in such a manner as to
be subject to the provisions of Rule 482(d) under the Securities Act of 1933, as
amended, consists of an annualized historical yield, carried at least to the
nearest hundredth of one percent, based on a specific seven calendar day period
and is calculated by dividing the net change in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period and multiplying the quotient by 365/7. For this
purpose the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any effective yield quotation of the Fund so used shall be calculated by
compounding the current yield quotation for such period by multiplying such
quotation by 7/365, adding 1 to the product, raising the sum to a power equal to
365/7, and subtracting 1 from the result.
Any tax equivalent yield quotation of the Fund is calculated as follows: If
the entire current yield quotation for such period is tax-exempt, the tax
equivalent yield will be the current yield quotation divided by 1 minus a stated
income tax rate or rates. If a portion of the current yield quotation is not
tax-exempt, the tax equivalent yield will be the sum of (a) that portion of the
yield which is tax-exempt divided by 1 minus a stated income tax rate or rates
and (b) the portion of the yield which is not tax-exempt.
A total rate of return quotation for the Fund is calculated for any period
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price on the first day of such
period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Any tax equivalent total rate of return quotation of the Fund is calculated
as follows: If the entire current total rate of return quotation for such period
is tax-exempt, the tax equivalent total rate of return will be the current total
rate of return quotation divided by 1 minus a stated income tax rate or rates.
If a portion of the current total rate of return quotation is not tax-exempt,
the tax equivalent total rate of return will be the sum of (a) that portion of
the total rate of return which is tax-exempt divided by 1 minus a stated income
tax rate or rates and (b) the portion of the total rate of return which is not
tax-exempt.
Set forth below is total rate of return information, assuming that dividends
and capital gains distributions, if any, were reinvested, for the Fund for the
periods indicated, at the beginning of which periods no sales charges were
applicable to purchases of shares of the Fund (unless otherwise indicated).
<TABLE>
<CAPTION>
REDEEMABLE VALUE
ANNUALIZED OF A HYPOTHETICAL
TOTAL $1,000 INVESTMENT
PERIOD RATE OF RETURN AT THE END OF THE PERIOD
- ------ -------------- ------------------------
<S> <C> <C>
Ten years ended August 31, 1997 ........................... 3.70% $1,438.40
Five years ended August 31, 1997 .......................... 2.67% $1,140.82
One year ended August 31, 1997 ............................ 3.05% $1,030.46
</TABLE>
The annualized yield of the Fund for the seven-day period ended August 31,
1997 was 2.84%. The effective compound annualized yield of the Fund for such
period was 2.88%, and the annualized tax equivalent yield of the Fund for such
period was 4.70% (assuming a federal tax bracket of 39.60%).
4. DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on each
day on which the New York Stock Exchange is open for trading. This determination
is normally made once during each such day as of 12:00 noon, Eastern time, by
dividing the value of the Fund's net assets (i.e., the value of its investment
in the Portfolio and other assets less its liabilities, including expenses
payable or accrued) by the number of the Fund's shares outstanding at the time
the determination is made. On days when the financial markets in which the Fund
invests close early, the Fund's net asset value is determined as of the close of
these markets if such time is earlier than the time at which the net asset value
is normally calculated. As of the date of this Statement of Additional
Information, the Exchange is open for trading every weekday except for the
following holidays (or the days on which they are observed): New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It is
anticipated that the net asset value of each share of the Fund will remain
constant at $1.00 and, although no assurance can be given that they will be able
to do so on a continuing basis, as described below, the Fund and Portfolio
employ specific investment policies and procedures to accomplish this result.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Fund is determined. The net asset value of the Fund's investment in
the Portfolio is equal to the Fund's pro rata share of the total investment of
the Fund and of other investors in the Portfolio less the Fund's pro rata share
of the Portfolio's liabilities.
The securities held by the Portfolio are valued at their amortized cost.
Amortized cost valuation involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium. If fluctuating interest rates cause the market value of the securities
held by the Portfolio to deviate more than 1/2 of 1% from their value determined
on the basis of amortized cost, the Portfolio's Board of Trustees will consider
whether any action should be initiated, as described in the following paragraph.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the stated value of an instrument is higher or
lower than the price the Portfolio would receive if the instrument were sold.
Pursuant to the rules of the SEC, the Fund's and Portfolio's Boards of
Trustees have established procedures to stabilize the value of the Fund's and
Portfolio's net assets within 1/2 of 1% of the value determined on the basis of
amortized cost. These procedures include a review of the extent of any such
deviation of net asset value, based on available market rates. Should that
deviation exceed 1/2 of 1% for the Fund or Portfolio, the Fund's or Portfolio's
Board of Trustees will consider whether any action should be initiated to
eliminate or reduce material dilution or other unfair results to investors in
the Fund or Portfolio. Such action may include withdrawal in kind, selling
securities prior to maturity and utilizing a net asset value as determined by
using available market quotations. The Fund and Portfolio maintain a
dollar-weighted average maturity of 90 days or less, do not purchase any
instrument with a remaining maturity greater than 397 days or subject to a
repurchase agreement having a duration of greater than 397 days, and limit their
investments, including repurchase agreements, to those U.S. dollar-denominated
instruments that are determined by the Adviser to present minimal credit risks
and comply with certain reporting and recordkeeping procedures. The Fund and
Portfolio also have established procedures to ensure that securities purchased
by the Fund and Portfolio meet the high quality criteria described in
"Investment Policies."
Subject to compliance with applicable regulations, the Fund and Portfolio
have each reserved the right to pay the redemption price of shares of the Fund
or beneficial interests in the Portfolio, either totally or partially, by a
distribution in kind of readily marketable securities (instead of cash). The
securities so distributed would be valued at the same amount as that assigned to
them in calculating the net asset value for the shares or beneficial interests
being sold. If a holder of shares or beneficial interests received a
distribution in kind, such holder could incur brokerage or other charges in
converting the securities to cash.
The Fund or the Portfolio may suspend the right of redemption or postpone
the date of payment for shares of the Fund or beneficial interests in the
Portfolio for more than seven days during any period when (a) trading in the
markets the Fund or Portfolio normally utilizes is restricted, or an emergency,
as defined by the rules and regulations of the SEC, exists making disposal of
the Fund's or Portfolio's investments or determination of its net asset value
not reasonably practicable; (b) the New York Stock Exchange is closed (other
than customary weekend and holiday closings); or (c) the SEC has by order
permitted such suspension.
5. MANAGEMENT
The Trustees and officers of the Fund and Portfolio, their ages and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Fund or the Portfolio. Unless otherwise indicated below, the address of each
Trustee and officer is 6 St. James Avenue, Boston, Massachusetts.
TRUSTEES OF THE FUND
PHILIP W. COOLIDGE; 46* -- President of the Fund and Portfolio; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.
C. OSCAR MORONG, JR.; 62 -- Chairman of the Board of Trustees of the Fund;
Managing Director, Morong Capital Management (since February, 1993); Senior Vice
President and Investment Manager, CREF Investments, Teachers Insurance & Annuity
Association (retired January, 1993). His address is 1385 Outlook Drive
West, Mountainside, New Jersey.
E. KIRBY WARREN; 63 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR.; 77 -- Vice President - Investments, Sun Company
(retired, April, 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO
ELLIOTT J. BERV; 54 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE; 46* -- President of the Fund and Portfolio; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.
MARK T. FINN; 54 -- President and Director, Delta Financial, Inc. (since June,
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
WALTER E. ROBB, III; 71 -- President, Benchmark Consulting Group (since 1991);
Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since 1989);
Trustee of certain registered investment companies in the MFS Family of Funds.
His address is 35 Farm Road, Sherborn, Massachusetts.
OFFICERS OF THE FUND AND PORTFOLIO
PHILIP W. COOLIDGE; 46* -- President of the Fund and Portfolio; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.
CHRISTINE A. DRAPEAU; 27* -- Assistant Secretary and Assistant Treasurer of the
Fund and Portfolio; Assistant Vice President, Signature Financial Group, Inc.
(since January,1996); Paralegal and Compliance Officer, various financial
companies (July, 1992 to January, 1996); Graduate Student, Bentley College
(prior to December, 1994).
JOHN R. ELDER; 49* -- Treasurer of the Fund and Portfolio; Vice President,
Signature Financial Group, Inc. (since April, 1995); Treasurer, CFBDS (since
April, 1995); Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life
Mutual Insurance Company) (1983 to March, 1995).
LINDA T. GIBSON; 32* -- Secretary of the Fund and Portfolio; Vice President,
Signature Financial Group, Inc. (since May, 1992); Assistant Secretary, CFBDS
(since October, 1992).
JOAN R. GULINELLO; 42* -- Assistant Secretary and Assistant Treasurer of the
Fund and Portfolio; Vice President, Signature Financial Group, Inc. (since
October, 1993); Secretary, CFBDS (since October, 1995); Vice President and
Assistant General Counsel, Massachusetts Financial Services Company (prior to
October, 1993).
JAMES E. HOOLAHAN; 50* -- Vice President, Assistant Secretary and Assistant
Treasurer of the Fund and Portfolio; Senior Vice President, Signature
Financial Group, Inc.
SUSAN JAKUBOSKI; 33* -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and Portfolio; Vice President, Signature Financial Group
(Cayman) Ltd. (since August, 1994); Fund Compliance Administrator, Concord
Financial Group (November, 1990 to August, 1994). Her address is Suite 193, 12
Church St., Hamilton HM11, Bermuda.
MOLLY S. MUGLER; 46* -- Assistant Secretary and Assistant Treasurer of the
Fund and Portfolio; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS.
SHARON M. WHITSON; 49* -- Assistant Secretary and Assistant Treasurer of the
Fund and Portfolio; Assistant Vice President, Signature Financial Group, Inc.
JULIE J. WYETZNER; 38* -- Vice President, Assistant Secretary and Assistant
Treasurer of the Fund and Portfolio; Vice President, Signature Financial
Group, Inc.
The Trustees and officers of the Fund and Portfolio also hold comparable
positions with certain other funds for which CFBDS or an affiliate serves as the
distributor or administrator.
TRUSTEES COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
TRUSTEE FROM THE FUND(1) FUND AND COMPLEX(2)
- ------- ---------------------- -----------------------
<S> <C> <C>
Philip W. Coolidge ........................................ 0 0
C. Oscar Morong, Jr. ...................................... $6,313.76 $70,000.00
E. Kirby Warren ........................................... $4,592.86 $50,000.00
William S. Woods, Jr. ..................................... $4,859.90 $50,000.00
</TABLE>
- ------------
(1) For the fiscal year ended August 31, 1997.
(2) Information relates to the fiscal year ended August 31, 1997. Messrs.
Coolidge, Morong, Warren and Woods are trustees of 51, 25, 25 and 27 Funds,
respectively, of the family of open-end registered investment companies
advised or managed by Citibank.
As of December 15, 1997, all Trustees and officers as a group owned less
than 1% of the Fund's outstanding shares. As of the same date, more than 95% of
the outstanding shares of the Fund were held of record by Citibank or an
affiliate, as a Shareholder Servicing Agent of the Fund, for the accounts of
their respective clients.
The Declaration of Trust of each of the Fund and Portfolio provides that the
Fund or Portfolio, as the case may be, will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with litigation in which
they may be involved because of their offices with the Fund or Portfolio, as the
case may be, unless, as to liability to the Fund or Portfolio or its respective
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Fund or the Portfolio, as the
case may be. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees of the Fund or the Portfolio, or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
ADVISER
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees the Portfolio may determine, the Adviser manages the
securities of the Portfolio and makes investment decisions for the Portfolio.
The Adviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and effecting
securities transactions for the Portfolio. The Advisory Agreement will continue
in effect as long as its continuance is specifically approved at least annually
by the Board of Trustees of the Portfolio or by a vote of a majority of the
outstanding voting securities of the Portfolio, and, in either case, by a
majority of the Trustees of the Portfolio who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than 60
days' nor less than 30 days' written notice by the Portfolio when authorized
either by a vote of a majority of the outstanding voting securities of the
Portfolio or by a vote of a majority of the Board of Trustees of the Portfolio,
or by the Adviser on not more than 60 days' nor less than 30 days' written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreement provides that neither the Adviser nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of security
transactions for the Portfolio, except for willful misfeasance, bad faith or
gross negligence or reckless disregard of its or their obligations and duties
under the Advisory Agreement.
The Prospectus contains a description of the fees payable to the Adviser for
services under the Advisory Agreement.
For the fiscal years ended August 31, 1995, 1996 and 1997, the fees paid to
Citibank under the Advisory Agreement, after waivers, were $613,607, $737,021
and $506,142, respectively.
ADMINISTRATOR
Pursuant to Administrative Services Agreements (the "Administrative Services
Agreements"), CFBDS provides the Fund and Portfolio, respectively, with general
office facilities and supervises the overall administration of the Fund and
Portfolio, including, among other responsibilities, the negotiation of contracts
and fees with, and the monitoring of performance and billings of, the
independent contractors and agents of the Fund and Portfolio; the preparation
and filing of all documents required for compliance by the Fund and Portfolio
with applicable laws and regulations; and arranging for the maintenance of books
and records of the Fund and Portfolio. CFBDS provides persons satisfactory to
the Board of Trustees of the Fund and Portfolio to serve as Trustees and
officers of the Fund and Portfolio, respectively. Such Trustees and officers may
be directors, officers or employees of CFBDS or its affiliates.
The Prospectus contains a description of the fees payable to CFBDS under the
Administrative Services Agreements.
For the fiscal years ended August 31, 1995, 1996 and 1997, the fees paid to
CFBDS under the Administrative Services Agreement with the Fund, after waivers,
were $79,651, $261,250 and $522,829, respectively. For the fiscal years ended
August 31, 1995, 1996 and 1997, the fees payable to CFBDS under the
Administrative Services Agreement with the Portfolio, after waivers, were
$153,402, $180,025 and $79,252, respectively.
By Agreement, the Fund acknowledges that the name "CitiFunds" is the
property of Citicorp and provides that if Citibank ceases to serve as the
Adviser of the Fund, the Fund will change its name so as to delete the word
"CitiFunds." The Agreement with the Fund also provides that Citibank may permit
other investment companies in addition to the Fund to use the word "CitiFunds"
in their names.
The Administrative Services Agreement with the Fund continues in effect if
such continuance is specifically approved at least annually by the Fund's Board
of Trustees or by a vote of a majority of the outstanding voting securities of
the Fund and, in either case, by a majority of the Trustees of the Fund who are
not interested persons of the Fund or the Administrator. The Administrative
Services Agreement with the Fund terminates automatically if it is assigned and
may be terminated by the Fund without penalty by vote of a majority of the
Fund's outstanding voting securities or by either party on not more than 60
days' nor less than 30 days' written notice. The Administrative Services
Agreement with the Fund also provides that neither the Administrator nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the administration or management of the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its or
their duties or by reason of reckless disregard of its or their obligations and
duties under the Administrative Services Agreement.
The Administrator has agreed to reimburse the Fund for its operating
expenses (exclusive of interest, taxes, brokerage, and extraordinary expenses)
which in any year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale. The expenses incurred by the Fund for
distribution purposes pursuant to the Fund's Distribution Plan are included
within such operating expenses only to the extent required by any state in which
the Fund's shares are qualified for sale. The Fund may elect not to qualify its
shares for sale in every state. The Fund believes that currently the most
restrictive expense ratio limitation imposed by any state is 2 1/2% of the first
$30 million of the Fund's average net assets, 2% of the next $70 million and 1
1/2% of the average net assets in excess of $100 million. For the purpose of
this obligation to reimburse expenses, the Fund's annual expenses are estimated
and accrued daily, and any appropriate estimated payments will be made by the
Administrator. Subject to the obligations of the Administrator to reimburse the
Fund for its excess expenses as described above, the Fund has, under its
Administrative Services Agreement, confirmed its obligation for payment of all
other expenses.
The Administrative Services Agreement with the Portfolio provides that CFBDS
may render administrative services to others. The Administrative Services
Agreement with the Portfolio terminates automatically if it is assigned and may
be terminated without penalty by a vote of a majority of the outstanding voting
securities in the Portfolio or by either party on not more than 60 days' nor
less than 30 days' written notice. The Administrative Services Agreement with
the Portfolio also provides that neither CFBDS, as the Portfolio Administrator,
nor its personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the administration or management of the Portfolio,
except for willful misfeasance, bad faith or gross negligence in the performance
of its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Administrative Services Agreement.
CFBDS is a wholly-owned subsidiary of Signature Financial Group, Inc.
Pursuant to Sub-Administrative Services Agreements (the "Sub- Administrative
Agreements"), Citibank performs such sub-administrative duties for the Fund and
Portfolio as are from time to time agreed upon by Citibank and CFBDS. Citibank's
sub-administrative duties may include providing equipment and clerical personnel
necessary for maintaining the organization of the Fund and Portfolio,
participation in the preparation of documents required for compliance by the
Fund and Portfolio with applicable laws and regulations, preparation of certain
documents in connection with meetings of Trustees and shareholders of the Fund
and Portfolio, and other functions which would otherwise be performed by the
Administrator or the Portfolio Administrator as set forth above. For performing
such sub-administrative services, the Sub- Administrative Agreements provide
that Citibank will receive such compensation as is from time to time agreed upon
by CFBDS and Citibank, not to exceed the amount paid to the Administrator and
the Portfolio Administrator for their services under the Administrative Services
Agreements. All such compensation is paid by CFBDS.
DISTRIBUTOR
The Fund has adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act after having concluded that there
is a reasonable likelihood that the Distribution Plan will benefit the Fund and
its shareholders. The Distribution Plan provides that the Fund shall pay a
distribution fee to the Distributor at an annual rate not to exceed 0.10% of the
Fund's average daily net assets for distribution of the Fund's shares (exclusive
of any advertising expenses incurred by the Distributor in connection with the
sale of shares of the Fund). The Distributor may use all or any portion of such
fee to pay for Fund expenses of printing prospectuses and reports used for sales
purposes, expenses of the preparation and printing of sales literature and other
distribution-related expenses.
The Fund is also permitted to pay the Distributor an additional fee not to
exceed 0.10% per annum of the Fund's average daily net assets in anticipation
of, or as reimbursement for, print or electronic media advertising expenses
incurred in connection with the sale of shares of the Fund. No payments under
the Distribution Plan are made to Shareholder Servicing Agents although
Shareholder Servicing Agents receive payments under the Administrative Services
Plan referred to below.
The Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Fund's Trustees and a majority of the Fund's Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to the
Distribution Plan ("Qualified Trustees"). The Distribution Plan requires that
the Fund and the Distributor shall provide to the Board of Trustees, and the
Board of Trustees shall review, at least quarterly, a written report of the
amounts expended (and the purposes therefor) under the Distribution Plan. The
Distribution Plan further provides that the selection and nomination of the
Qualified Trustees is committed to the discretion of the disinterested Trustees
(as defined in the 1940 Act) then in office. The Distribution Plan may be
terminated with respect to the Fund at any time by a vote of a majority of the
Fund's Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the Fund. The Distribution Plan may not be amended to increase
materially the amount of the Fund's permitted expenses thereunder without the
approval of a majority of the outstanding voting securities of the Fund and may
not be materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees. The Distributor will preserve copies of any
plan, agreement or report made pursuant to each Distribution Plan for a period
of not less than six years from the date of the Plan, and for the first two
years the Distributor will preserve such copies in an easily accessible place.
As contemplated by the Distribution Plan, CFBDS acts as the agent of the
Fund in connection with the offering of shares of the Fund pursuant to a
Distribution Agreement (the "Distribution Agreement"). After the prospectus and
periodic reports have been prepared, set in type and mailed to existing
shareholders, the Distributor pays for the printing and distribution of copies
of the prospectuses and periodic reports which are used in connection with the
offering of shares of the Fund to prospective investors. The Prospectus contains
a description of fees payable to the Distributor under the Distribution
Agreement. For the Fund's fiscal years ended August 31, 1995 and 1996, all fees
payable to the Distributor under the Distribution Agreement were voluntarily
waived. For the fiscal year ended August 31, 1997, the fees paid to the
Distributor under the Distribution Agreement, after waivers, were $162,993.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Fund has adopted an Administrative Services Plan (the "Administrative
Plan") which provides that the Fund may obtain the services of an administrator,
a transfer agent, a custodian and one or more Shareholder Servicing Agents, and
may enter into agreements providing for the payment of fees for such services.
Under the Administrative Plan, the aggregate of the fee paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund and the distribution fee paid from the Fund to the Distributor
under the Distribution Plan may not exceed 0.60% of the Fund's average daily net
assets on an annualized basis for the Fund's then-current fiscal year. The
Administrative Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Fund's Trustees
and a majority of the Fund's Trustees who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Administrative Plan or in any agreement related to such Plan ("Qualified
Trustees"). The Administrative Plan requires that the Fund provide to the Fund's
Board of Trustees and the Fund's Board of Trustees review, at least quarterly, a
written report of the amounts expended (and the purposes therefor) under the
Administrative Plan. The Administrative Plan may be terminated at any time with
respect to the Fund by a vote of a majority of the Fund's Qualified Trustees or
by a vote of a majority of the outstanding voting securities of the Fund. The
Administrative Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the Fund and may not be materially amended in
any case without a vote of the majority of both the Fund's Trustees and the
Qualified Trustees.
The Fund has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent and a Transfer Agency and
Service Agreement and a Custodian Agreement with State Street Bank and Trust
Company ("State Street") pursuant to which State Street acts as transfer agent
and custodian for the Fund. For additional information, including a description
of fees paid to the Shareholder Servicing Agents under the Servicing Agreements,
see "Shareholder Servicing Agents" and "Transfer Agent, Custodian and Fund
Accountant" in the Prospectus. For the fiscal years ended August 31, 1995, 1996
and 1997, the aggregate fees paid by the Fund to Shareholder Servicing Agents
under the Administrative Services Plans, after waivers, were $765,733, $976,208
and $1,008,233, respectively.
The Portfolio has also adopted an Administrative Services Plan (the
"Portfolio Administrative Plan") which provides that the Portfolio may obtain
the services of an administrator, a transfer agent and a custodian, and may
enter into agreements providing for the payment of fees for such services. Under
the Portfolio Administrative Plan, the administrative services fee payable to
the Portfolio Administrator from the Portfolio may not exceed 0.05% of the
Portfolio's average daily net assets on an annualized basis for its then-current
fiscal year.
The Portfolio Administrative Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Portfolio's Trustees and a majority of the Portfolio's Trustees who are not
"interested persons" of the Portfolio and who have no direct or indirect
financial interest in the operation of the Portfolio Administrative Plan or in
any agreement related to such Plan ("Qualified Trustees"). The Portfolio
Administrative Plan requires that the Portfolio provide to the Board of Trustees
and the Board of Trustees review, at least quarterly, a written report of the
amounts expended (and the purposes therefor) under the Portfolio Administrative
Plan. The Portfolio Administrative Plan may be terminated at any time by a vote
of a majority of the Portfolio's Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the Portfolio. The Portfolio
Administrative Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the Portfolio and may not be materially amended
in any case without a vote of the majority of both the Portfolio's Trustees and
the Portfolio's Qualified Trustees.
The Portfolio has entered into a Transfer Agency and Service Agreement and a
Custodian Agreement with State Street pursuant to which State Street acts as
transfer agent and custodian and performs fund accounting services for the
Portfolio.
6. PORTFOLIO TRANSACTIONS
The Portfolio's purchases and sales of portfolio securities usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. The Portfolio does
not anticipate paying brokerage commissions. Any transaction for which the
Portfolio pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of portfolio securities include
a commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
Allocation of transactions, including their frequency, to various dealers is
determined by the Adviser in its best judgment and in a manner deemed to be in
the best interest of investors in the Portfolio rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
Investment decisions for the Portfolio will be made independently from those
for any other account, series or investment company that is or may in the future
become managed by the Adviser or its affiliates. If, however, the Portfolio and
other investment companies, series or accounts managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by the Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for the
Portfolio and for other investment companies or series managed by the Adviser
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
Portfolio transactions may be executed with the Adviser, or with any
affiliate of the Adviser, acting either as principal or as broker, subject to
applicable law. No commissions on portfolio transactions were paid by the
Portfolio during the fiscal year ended August 31, 1997 to the Adviser or any
affiliate of the Adviser.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Fund's Board of Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
(without par value) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in that series. Each share of the series represents an equal proportionate
interest in the series with each other share. Upon liquidation or dissolution of
the Fund, the Fund's shareholders are entitled to share pro rata in the Fund's
net assets available for distribution to its shareholders. The Fund reserves the
right to create and issue additional series of shares, in which case the shares
of each series would participate pro rata in the earnings, dividends and
distribution of net assets of the particular series upon the liquidation or
dissolution of the series. Shares of each series would be entitled to vote
separately to approve advisory agreements or changes in investment policy, but
shares of all series could vote together in the election or selection of
Trustees and accountants for the Fund.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Fund do not have cumulative
voting rights, and shareholders owning more than 50% of the outstanding shares
of the Fund may elect all of the Trustees of the Fund if they choose to do so
and in such event the other shareholders in the Fund would not be able to elect
any Trustee. The Fund is not required to and has no current intention to hold
annual meetings of shareholders but the Fund will hold special meetings of
shareholders when in the judgment of the Fund's Trustees it is necessary or
desirable to submit matters for a shareholder vote. Shareholders have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified number of shareholders) the
right to communicate with other shareholders in connection with requesting a
meeting of shareholders for the purpose of removing one or more Trustees.
Shareholders also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of shareholders. No
material amendment may be made to the Fund's Declaration of Trust without the
affirmative vote of the holders of a majority of its outstanding shares.
The Fund's Declaration of Trust provides that, at any meeting of
shareholders of the Fund or of any series of the Fund, a Shareholder Servicing
Agent may vote any shares of which it is the holder of record and for which it
does not receive voting instructions proportionately in accordance with the
instructions it receives for all other shares of which it is the holder of
record. Shares have no preference, pre-emptive or conversion or similar rights.
Shares, when issued, are fully paid and non-assessable, except as set forth
below.
The Fund may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of the holders of
two-thirds of its outstanding shares voting as a single class, except that if
the Trustees of the Fund recommend such sale of assets, merger or consolidation,
the approval by a vote of the holders of a majority of the Fund's outstanding
voting securities would be sufficient. The Fund may be terminated (i) by a vote
of a majority of the outstanding voting securities of the Fund or (ii) by the
Trustees by written notice to the shareholders of the Fund. If not so
terminated, the Fund will continue indefinitely.
Share certificates will not be used.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and provides for
indemnification and reimbursement of expenses out of Fund property for any
shareholder held personally liable for the obligations of the Fund. The
Declaration of Trust also provides that the Fund shall maintain appropriate
insurance (e.g., fidelity bonding and errors and omissions insurance) for the
protection of the Fund, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the Fund
itself was unable to meet its obligations.
The Fund's Declaration of Trust further provides that obligations of the
Fund are not binding upon the Fund's Trustees individually but only upon the
property of the Fund and that the Fund's Trustees will not be liable for any
action or failure to act, but nothing in the Declarations of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
The Portfolio is organized as a trust under the laws of the State of New
York. The Portfolio's Declaration of Trust provides that investors in the
Portfolio (e.g., other investment companies (including the Fund), insurance
company separate accounts and common and commingled trust funds) are each liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. It is not expected that the liabilities of the Portfolio would
ever exceed its assets.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each business day. At 12:00 noon, Eastern time,
on each such business day, the value of each investor's interest in the
Portfolio is determined by multiplying the net asset value of the Portfolio by
the percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio effective for that day. Any additions or withdrawals,
which are to be effected on that day, are then effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio is then
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 12:00 noon,
Eastern time, on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 12:00 noon, Eastern time, on such day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined is then applied to determine the value
of the investor's interest in the Portfolio as of 12:00 noon, Eastern time, on
the following business day of the Portfolio.
8. CERTAIN ADDITIONAL TAX MATTERS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions (as a percentage of both the Fund's
overall income and its tax-exempt income), and the composition of the Fund's
portfolio assets. Provided all such requirements are met and all of the Fund's
net investment income and realized capital gains are distributed to shareholders
in accordance with the timing requirements imposed by the Code, no federal
income or excise taxes will generally be required to be paid by the Fund. If the
Fund should fail to qualify as a regulated investment company for any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and Fund distributions would generally be taxable as ordinary dividend income to
shareholders. The Portfolio believes that it also will not be required to pay
any federal income or excise taxes.
The portion of the Fund's distributions of net investment income that is
attributable to interest from tax-exempt securities will be designated by the
Fund as an "exempt-interest dividend" under the Code and will generally be
exempt from federal income tax in the hands of shareholders so long as at least
50% of the total value of the Fund's assets consists of tax-exempt securities at
the close of each quarter of the Fund's taxable year. Distributions of
tax-exempt interest earned from certain securities may, however, be treated as
an item of tax preference for shareholders under the federal alternative minimum
tax, and all exempt-interest dividends may increase a corporate shareholder's
alternative minimum tax. Unless the Fund provides shareholders with actual
monthly percentage breakdowns, the percentage of income designated as tax-exempt
will be applied uniformly to all distribution by the Fund of net investment
income made during each fiscal year of the Fund and may differ from the
percentage of distributions consisting of tax-exempt interest in any particular
month. Shareholders are required to report exempt-interest dividends received
from the Fund on their federal income tax returns.
Because the Fund expects to earn primarily interest income, it is expected
that no Fund distributions will qualify for the dividends received deduction for
corporations.
9. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the independent accountants for the Fund and for
the Portfolio, providing audit services and assistance and consultation with
respect to the preparation of filings with the SEC.
The audited financial statements of the Fund (Statement of Assets and
Liabilities at August 31, 1997, Statement of Operations for the year ended
August 31, 1997, Statement of Changes in Net Assets for the years ended August
31, 1997 and 1996, Financial Highlights for each of the years in the five-year
period ended August 31, 1997, Notes to Financial Statements and Independent
Auditors' Report) and of the Portfolio (Portfolio of Investments at August 31,
1997, Statement of Assets and Liabilities at August 31, 1997, Statement of
Operations for the year ended August 31, 1997, Statement of Changes in Net
Assets for the years ended August 31, 1997 and 1996, Financial Highlights for
each of the years in the five-year period ended August 31, 1997, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of the Fund, are incorporated by
reference into this Statement of Additional Information and have been so
incorporated in reliance upon the report of Deloitte & Touche LLP, independent
accountants, as experts in accounting and auditing.
A copy of the Annual Report accompanies this Statement of Additional
Information.
<PAGE>
SHAREHOLDER SERVICING AGENTS
FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
450 West 33rd Street, New York, NY 10001
(212) 564-3456 or (800) 846-5300
FOR CITIGOLD CLIENTS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or, in NY or CT (800) 285-1701,
or for all other states (800) 285-1707
FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100
FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 736-8170 in New York City
<PAGE>
CITIFUNDS(SM) TAX FREE RESERVES
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge, President*
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- ---------------------------------------------------
INVESTMENT ADVISER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
6 St. James Avenue, Boston, MA 02116
(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
- ----------------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside of Cover)
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Condensed Financial Information - Financial Highlights for
each of the years in the ten-year period ended August 31,
1997.
Financial Statements Included in Part B:
LANDMARK TAX FREE RESERVES
Statement of Assets and Liabilities at August 31, 1997*
Statement of Operations for the year ended August 31, 1997*
Statement of Changes in Net Assets for each of the years
ended August 31, 1997 and August 31, 1996*
Financial Highlights for each of the years in the five-year
period ended August 31, 1997*
TAX FREE RESERVES PORTFOLIO
Portfolio of Investments at August 31, 1997*
Statement of Assets and Liabilities at August 31, 1997*
Statement of Operations for the year ended August 31, 1997*
Statement of Changes in Net Assets for each of the years ended
August 31, 1997 and August 31, 1996*
Financial Highlights for each of the years in the five-year
period ended August 31, 1997*
------------------
*Incorporated by reference to the Registrant's Annual Report to
Shareholders for the fiscal year ended August 31, 1997, filed with
the Securities and Exchange Commission on the EDGAR system on
October 28, 1997 (Accession Number 0000864953-97-000004).
<TABLE>
<CAPTION>
<S> <C> <C>
(b) Exhibits
* 1(a) Declaration of Trust of the Registrant
* 1(b) Amendments to Declaration of Trust of the Registrant
* 2(a) Amended and Restated By-Laws of the Registrant
* and filed
herein 2(b) Amendments to Amended and Restated By-Laws of the Registrant
** 4 Form of Certificate representing ownership of a share of beneficial interest
in the Registrant
* 6 Distribution Agreement between the Registrant and CFBDS, Inc. (formerly known as The Landmark Funds
Broker-Dealer Services, Inc.) ("CFBDS"), as distributor
* 7 Custodian Contract between the Registrant and State Street Bank and Trust
Company ("State Street"), as custodian
* 9(a) Amended and Restated Administrative Services Plan of the Registrant
* 9(b) Administrative Services Agreement between the Registrant and CFBDS, as
administrator
* 9(c) Sub-Administrative Services Agreement between Citibank, N.A. and CFBDS
* 9(d)(i) Form of Shareholder Servicing Agreement between the Registrant and Citibank,
N.A., as shareholder servicing agent
* 9(d)(ii) Form of Shareholder Servicing Agreement between the Registrant and a federal
savings bank, as shareholder servicing agent
* 9(d)(iii) Form of Shareholder Servicing Agreement between the Registrant and CFBDS, as
shareholder servicing agent
* 9(e) Transfer Agency and Servicing Agreement between the Registrant and State
Street, as transfer agent
* 9(f) Amended and Restated Exchange Privilege Agreement between the Registrant,
certain other investment companies and CFBDS, as distributor
* 10 Opinion and Consent of Counsel
11 Consent of Deloitte & Touche LLP, independent auditors of the Registrant
and Tax Free Reserves Portfolio
* 15 Amended and Restated Distribution Plan of the Registrant
*** 25(a) Powers of Attorney for the Registrant
*** 25(b) Powers of Attorney for Tax Free Reserves Portfolio
27 Financial data schedule
<FN>
- -----------------
* Incorporated herein by reference to Post-Effective Amendment No. 18 to the Registrant's Registration
Statement on Form N-1A (File No. 2-87509) as filed with the Securities and Exchange Commission on August
29, 1996.
** Information defining the rights of shareholders is contained in the Registrant's Declaration of Trust, as
amended, incorporated herein by reference as Exhibits No. 1(a) and 1(b).
*** Incorporated herein by reference to Post-Effective Amendment No. 19 to the Registrant's Registration
Statement on Form N-1A (File No. 2-87509) as filed with the Securities and Exchange Commission on December 17, 1996.
</FN>
</TABLE>
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
As of December 19, 1997
Shares of Beneficial Interest
(without par value) 6
</TABLE>
Item 27. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, incorporated by reference herein as an Exhibit to the
Registrant's Registration Statement on Form N-1A; (b) Section 4 of the
Distribution Agreement between the Registrant and CFBDS, incorporated by
reference herein as an Exhibit to the Registrant's Registration Statement on
Form N-1A; and (c) the undertaking of the Registrant regarding indemnification
set forth in its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and around
the world. Citibank is a wholly-owned subsidiary of Citicorp, a registered bank
holding company. Citibank also serves as investment adviser to the following
registered investment companies (or series thereof): Asset Allocation Portfolios
(Large Cap Value Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Short-Term Portfolio and Intermediate Income Portfolio),
The Premium Portfolios (Balanced Portfolio, Large Cap Growth Portfolio,
Government Income Portfolio, International Equity Portfolio, Emerging Asian
Markets Equity Portfolio and Small Cap Growth Portfolio), U.S. Treasury Reserves
Portfolio, Cash Reserves Portfolio, Landmark Multi-State Tax Free Funds
(Landmark New York Tax Free Reserves, Landmark Connecticut Tax Free Reserves and
Landmark California Tax Free Reserves), Landmark Fixed Income Funds (Landmark
Intermediate Income Fund), Landmark Tax Free Income Funds (Landmark National Tax
Free Income Fund and Landmark New York Tax Free Income Fund), CitiFunds
Institutional Trust (CitiFunds Institutional Cash Reserves) and Variable Annuity
Portfolios (CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300,
CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP Folio 500 and Landmark Small Cap
Equity VIP Fund). Citibank and its affiliates manage assets in excess of $88
billion worldwide. The principal place of business of Citibank is located at 399
Park Avenue, New York, New York 10043.
John S. Reed is the Chairman of the Board and a Director of Citibank. The
following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins and William R. Rhodes. Other Directors of Citibank are D. Wayne
Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.; John M.
Deutch, Institute Professor, Massachusetts Institute of Technology; Reuben Mark,
Chairman and Chief Executive Officer, Colgate-Palmolive Company; Richard D.
Parsons, President, Time Warner, Inc.; Rozanne L. Ridgway, Former Assistant
Secretary of State for Europe and Canada; Robert B. Shapiro, Chairman, President
and Chief Executive Officer, Monsanto Company; Frank A. Shrontz, Chairman
Emeritus, The Boeing Company; and Franklin A. Thomas, former President, The Ford
Foundation.
Each of the individuals named above is also a Director of Citicorp.
In addition, the following persons have the affiliations indicated:
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Director, Retired Chairman and Chief Executive
Officer, PepsiCo, Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
John M. Deutch Director, Ariad Pharmaceuticals, Inc.
Director, CMS Energy
Director, Cummins Engine Company, Inc.
Director, Schlumberger, Ltd.
Reuben Mark Director, Chairman and Chief Executive Officer
Colgate-Palmolive Company
Director, New York Stock Exchange
Director, Time Warner, Inc.
Non-Executive Director, Pearson, PLC
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
William R. Rhodes Director, Private Export Funding
Corporation
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
Robert B. Shapiro Director, Chairman and Chief Executive
Officer, Monsanto Company
Director, Silicon Graphics
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director and Chairman Emeritus, Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, PepsiCo, Inc.
Item 29. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
Landmark International Equity Fund, Landmark Emerging Asian Markets Equity Fund,
Premium U.S. Treasury Reserves, Premium Liquid Reserves, Landmark Institutional
Liquid Reserves, Landmark Institutional U.S. Treasury Reserves, Landmark
Institutional Tax Free Reserves, CitiFunds(SM) Institutional Cash Reserves
Landmark Cash Reserves, Landmark U.S. Treasury Reserves, Landmark New York Tax
Free Reserves, Landmark California Tax Free Reserves, Landmark Connecticut Tax
Free Reserves, Landmark U.S. Government Income Fund, Landmark Intermediate
Income Fund, Landmark Balanced Fund, Landmark Equity Fund, Landmark Small Cap
Equity Fund, Landmark National Tax Free Income Fund, Landmark New York Tax Free
Income Fund, CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300,
CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP Folio 500, Landmark Small Cap
Equity VIP Fund, CitiSelect(R) Folio 200, CitiSelect(R) Folio 300,
CitiSelect(R) Folio 400 and CitiSelect(R) Folio 500. CFBDS is also the placement
agent for International Equity Portfolio, Balanced Portfolio, Large Cap Growth
Portfolio, Small Cap Growth Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Cash Reserves Portfolio, U.S. Treasury Reserves
Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio, International
Portfolio, Foreign Bond Portfolio, Short-Term Portfolio and Intermediate Income
Portfolio.
(b) The information required by this Item 29 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of Form
BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
<TABLE>
<CAPTION>
<S> <C>
NAME ADDRESS
CFBDS, Inc. 6 St. James Avenue
(administrator and distributor) Boston, MA 02116
State Street Bank and Trust Company 1776 Heritage Drive
(custodian and transfer agent) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
SHAREHOLDER SERVICING AGENTS
Citibank, N.A. 450 West 33rd Street
New York, NY 10001
Citibank, N.A. -- Citigold Citicorp Mortgage Inc. - Citigold
15851 Clayton Road
Ballwin, MO 63011
Citibank, N.A. -- The Citibank 153 East 53rd Street
Private Bank New York, NY 10043
Citibank, N.A. -- Citibank Global 153 East 53rd Street
Asset Management New York, NY 10043
Citibank, N.A. -- North American 111 Wall Street
Investor Services New York, NY 10094
Citicorp Investment Services One Court Square
Long Island City, NY 11120
</TABLE>
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus of Landmark Tax Free Reserves is delivered with a
copy of its latest Annual Report to Shareholders, upon request
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment to its Registration Statement on Form N-1A meets all of
the requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933 and that the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and Commonwealth
of Massachusetts on the 19th day of December, 1997.
LANDMARK TAX FREE RESERVES
By: Philip W. Coolidge
---------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on December 19, 1997.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive Officer and Trustee
- ------------------------
Philip W. Coolidge
John R. Elder Principal Accounting and Financial Officer
- ------------------------
John R. Elder
C. Oscar Morong, Jr.* Trustee
- ------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- ------------------------
E. Kirby Warren
William S. Woods, Jr. Trustee
- ------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
- ------------------------
Philip W. Coolidge
Executed by Philip
W. Coolidge on
behalf of those
indicated pursuant
to Powers of Attorney.
<PAGE>
SIGNATURES
Tax Free Reserves Portfolio has duly caused this Post-Effective
Amendment to the Registration Statement on Form N-1A of Landmark Tax Free
Reserves to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of Massachusetts on the 19th
day of December, 1997.
TAX FREE RESERVES PORTFOLIO
By: Philip W. Coolidge
--------------------
Philip W. Coolidge
President
This Post-Effective Amendment to the Registration Statement on Form
N-1A of Landmark Tax Free Reserves has been signed by the following persons in
the capacities indicated on December 19, 1997.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive Officer and Trustee
- ------------------------
Philip W. Coolidge
John R. Elder Principal Accounting and Financial Officer
- ------------------------
John R. Elder
Elliott J. Berv* Trustee
- ------------------------
Elliott J. Berv
Mark T. Finn* Trustee
- ------------------------
Mark T. Finn
Walter E. Robb, III* Trustee
- ------------------------
Walter E. Robb, III
*By: Philip W. Coolidge
- ------------------------
Philip W. Coolidge
Executed by Philip
W. Coolidge on
behalf of those
indicated pursuant
to Powers of Attorney.
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
- ------- ------------
2(b) Amendment to Amended and Restated By-Laws of the Registrant
11 Consent of Deloitte & Touche LLP, independent auditors of the
Registrant and Tax Free Reserves Portfolio
27 Financial data schedule
<PAGE>
Exhibit 2(b)
Amendment to the By-Laws of Landmark Funds I, Landmark Funds II, Landmark
International Funds, Landmark Fixed Income Funds, Landmark Tax Free Income
Funds, Landmark Funds III, Landmark Premium Funds, Landmark Multi-State Tax Free
Funds, Landmark Institutional Trust, Landmark Tax Free Reserves and Variable
Annuity Portfolios - as adopted by the Boards of Trustees on August 8, 1997:
VOTED: That Article III, Section 4 of the By-Laws of the Trust be and
hereby is amended in its entirety to read as follows*:
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such
vote shall be taken. [Any Shareholder may give authorization through
telephonic or telegraphic methods of communication for another person to
execute his or her proxy.] Pursuant to a vote of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or
one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each full Share shall be entitled to one vote
and fractional Shares shall be entitled to a vote of such fraction. When
any Share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Share. A
proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. If the holder of any
such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the
charge or management of such Share, such Share may be voted by such
guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy. [Unless otherwise specifically
limited by their terms, proxies shall entitle the holder thereof to vote
at any adjournment of a meeting.]
New language is in [brackets].
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post Effective Amendment
No. 20 to Registration Statement No. 2-87509 of CitiFunds Tax Free Reserves
(formerly known as Landmark Tax Free Reserves) of our reports each dated October
6, 1997 appearing in the annual report to shareholders for the year ended August
31, 1997 of CitiFunds Tax Free Reserves and Tax Free Reserves Portfolio, and to
the references to us under the headings "Condensed Financial Information" in the
Prospectus and "Independent Accountants and Financial Statements" in the
Statement of Additional Information, both of which are part of such Registration
Statement.
Deloitte & Touche LLP
Boston, Massachusetts
December 23, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000731762
<NAME> LANDMARK TAX FREE RESERVES
<S> <C>
<PERIOD-TYPE> 1 YEAR
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 423,509,212
<INVESTMENTS-AT-VALUE> 423,509,212
<RECEIVABLES> 20,000
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 423,529,212
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,045,943
<TOTAL-LIABILITIES> 1,045,943
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 422,510,907
<SHARES-COMMON-STOCK> 422,510,907
<SHARES-COMMON-PRIOR> 371,381,059
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,638)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 422,483,269
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,760,212
<OTHER-INCOME> 0
<EXPENSES-NET> 2,621,917
<NET-INVESTMENT-INCOME> 12,138,295
<REALIZED-GAINS-CURRENT> 4,286
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,142,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,138,295)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 785,995,599
<NUMBER-OF-SHARES-REDEEMED> (737,624,515)
<SHARES-REINVESTED> 2,758,764
<NET-CHANGE-IN-ASSETS> 51,134,134
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (31,924)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,347,621
<AVERAGE-NET-ASSETS> 403,422
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
