<PAGE>
Annual Report o August 31, 1998
[logo]
Tax Free Reserves
MONEY MARKETS
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INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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TABLE OF CONTENTS
Page
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Fund Performance 4
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CITIFUNDS TAX FREE RESERVES
Statement of Assets and Liabilities 5
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Statement of Operations 5
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Statement of Changes in Net Assets 6
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Financial Highlights 6
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Notes to Financial Statements 7
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Independent Auditors' Report 10
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TAX FREE RESERVES PORTFOLIO
Portfolio of Investments 11
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Statement of Assets and Liabilities 19
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Statement of Operations 19
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Statement of Changes in Net Assets 20
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Financial Highlights 20
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Notes to Financial Statements 21
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Independent Auditors' Report 23
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
The 12-month period ended August 31, 1998 saw a continuation of the positive
economic conditions that have prevailed over the past three years. Late in the
period, however, heightened volatility caused the stock market to retrace its
gains for the year.
Such volatility suggests that tax-exempt money market securities may once
again be poised to demonstrate their true value as relatively safer
investments where investors seek to protect their principal and earn interest
that is free from federal income taxes. In our view, CitiFunds(SM) Tax Free
Reserves can play a valuable role in investors' diversified investment
portfolios.
As you have probably heard, Citicorp announced its intention to merge with
The Travelers Group. The merger is expected to occur on or about October 8,
1998. As necessary, we will provide you with information that specifically
affects the fund.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
September 21, 1998
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
YIELDS ON MONEY MARKET INSTRUMENTS ENDED THE 12-MONTH REPORTING PERIOD LOWER
THAN WHERE THEY BEGAN, reflecting the general trend of short-term interest
rates. That decline was interrupted, however, during the first quarter of
1998, which saw an increase in short-term interest rates amid uncertainty over
the economic effects of the financial crisis in Asia. When evidence emerged
early in the year that U.S. economic growth was stronger than most analysts
expected, interest rates rose in anticipation of a move by the Federal Reserve
Board to a more restrictive monetary policy.
Such a move never took place, however, because of the absence of
inflationary pressures. During the second and third quarters of 1998, it
became clearer that the Asian crisis was, in fact, negatively affecting U.S.
corporate earnings and dampening U.S. economic growth. In effect, lower demand
for U.S. goods from overseas markets and improved competitive positions for
Asian companies constrained sales and earnings of U.S. exporters. As a result,
fixed-income investors became more confident that the Federal Reserve would
maintain short-term interest rates at current levels, and money market yields
settled back to their previous lows.
In this economic environment, yields of short-term municipal securities
generally tracked the movements of yields of comparable U.S. Treasury bills.
However, the market also responded to its own unique influences, most notably
changes in the supply of newly issued securities. While issuance of
longer-term municipal securities increased, the short end of the market saw a
reduction of supply relative to one year ago. Favorable economic conditions,
attractive rates in the longer end of the market and improved fiscal
operations appear to have reduced the need for municipalities to finance their
operating and capital needs with short-term debt. As a result, the diminished
supply of new municipal notes that came to market in 1998 was quickly absorbed
by tax-exempt money market funds.
The relative shortage of short-term municipal notes was offset by increased
issuance of tax-exempt variable-rate demand notes (VRDNs), which are
securitized and issued by investment banks. As these "floaters" saturated the
market, they became the most attractive alternative for investors seeking
competitive yields from short-term tax-exempt securities.
AS NOTES IN THE PORTFOLIO MATURED, WE REINVESTED THE PROCEEDS IN VRDNS to
take advantage of their higher yields. As a result, the portfolio's average
maturity declined from about 50 days at the start of the 12-month reporting
period to as low as 35 days. By mid-1998, VRDNs comprised approximately 70% of
the portfolio, with the remainder allocated among conventional notes and
commercial paper. In July, when calls and redemptions of many tax-exempt notes
made more cash available for reinvestment, increased demand for higher
yielding tax-exempt money market securities caused rates to decline further.
This reduced the yield advantage of longer-dated money market securities over
shorter term securities. Accordingly, we found no reason to extend the average
maturity of the portfolio by buying longer-dated notes.
WE BELIEVE SHORT-TERM INTEREST RATES ARE LIKELY TO REMAIN NEAR CURRENT
LEVELS FOR THE REMAINDER OF THE YEAR. If economic growth continues to moderate
in the fourth quarter of 1998, as we expect, the Federal Reserve Board will
have little reason to raise short-term interest rates, which they might
otherwise do to forestall a reacceleration of inflation. In our opinion, the
opposite is the more likely scenario: if the economy continues to slow, the
Federal Reserve Board may eventually reduce short-term interest rates modestly
in order to provide an economic stimulus.
In the meantime, we remain encouraged by the strength of the short-term
municipal securities market. In our analysis, the nation's municipalities are
more fiscally sound than at any other time in recent memory. Even cities and
towns that had persistent financial problems just a few years ago appear to be
economically healthier. If this favorable credit environment continues, it
should help us continue to deliver competitive after-tax returns consistent
with capital preservation to our shareholders.
FUND FACTS
FUND OBJECTIVE
Provide high levels of current income which is exempt from
Federal income taxes,* preservation of capital and liquidity.
INVESTMENT ADVISER, DIVIDENDS
TAX FREE RESERVES PORTFOLIO Declared daily, paid monthly
Citibank, N.A.
CAPITAL GAINS
COMMENCEMENT OF OPERATIONS Distributed annually, if any
August 31, 1984
BENCHMARKS
NET ASSETS AS OF 8/31/98 o Lipper Tax Exempt Money Funds Average
$514.8 million o IBC General Tax Free Funds Average
* A portion of the income may be subject to the Federal Alternative Minimum
Tax (AMT). Consult your personal tax advisor.
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
ONE FIVE TEN
ALL PERIODS ENDED AUGUST 31, 1998 YEAR YEARS* YEARS*
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CitiFunds Tax Free Reserves 3.08% 2.88% 3.57%
Lipper Tax Exempt Money Funds Average 3.04% 2.87% 3.56%
* Average Annual Total Return
7-DAY YIELDS
Annualized Current 2.83%
Effective 2.87%
The Annualized Current 7-Day Yield reflects the amount of income generated by
the investment during that seven-day period and assumes that the income is
generated each week over a 365-day period. The yield is shown as a percentage
of the investment.
The Effective 7-Day 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 current yield
because of the compounding effect of this assumed reinvestment.
Note: A money market fund's yield more closely reflects the current earnings
of the fund than does the total return.
IMPORTANT TAX INFORMATION -- For the fiscal year ended August 31, 1998, the
Fund paid $0.03042 per share to shareholders from net investment income. For
such period, the Fund designated all dividends paid as exempt-interest
dividends. Thus, 100% of these distributions were exempt from Federal income
tax. In addition, 12.7% of the dividends were derived from income earned from
certain government obligations which may be subject to the Federal Alternative
Minimum Tax (AMT).
COMPARISON OF 7-DAY YIELDS FOR CITIFUNDS TAX FREE RESERVES
VS. IBC GENERAL TAX FREE FUNDS AVERAGE
As illustrated, CitiFunds Tax Free Reserves generally provided a similar
annualized seven-day yield to that of a comparable IBC Money Fund Average, as
published in IBC Money Fund Report(TM), for the one-year period.
IBC General
Tax Free CitiFunds
Funds Tax Free
Average Reserves
9/02/97 2.84 2.90
4/11/97 3.09 3.09
1/06/98 3.24 3.26
3/10/98 2.66 2.57
5/12/98 3.21 3.16
7/14/98 2.75 2.70
8/31/98 2.83 2.84
Note: The Fund seeks to maintain a stable $1.00 per share price, although
there is no assurance that this will be so on a continuing basis. Fund shares
are not insured or guaranteed by the U.S. Government. Yields and total returns
will fluctuate and past performance is no guarantee of future results. Total
return figures include reinvestment of dividends. Returns and yields reflect
certain voluntary fee waivers. If the waivers were not in place, the Fund's
returns and yields would have been lower.
<PAGE>
CITIFUNDS TAX FREE RESERVES
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
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ASSETS:
Investment in Tax Free Reserves Portfolio, at value (Note 1) $516,133,245
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LIABILITIES:
Payable for shares of beneficial interest repurchased 119,302
Dividends payable 966,748
Payable to affiliate -- Shareholder Servicing Agents'
fees (Note 3B) 107,932
Accrued expenses and other liabilities 168,709
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Total liabilities 1,362,691
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NET ASSETS for 514,784,440 shares of beneficial
interest outstanding $514,770,554
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NET ASSETS CONSIST OF:
Paid-in capital $514,784,440
Accumulated net realized loss on investments (13,886)
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Total $514,770,554
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NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $1.00
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CITIFUNDS TAX FREE RESERVES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
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INVESTMENT INCOME (Note 1A):
Income from Tax Free Reserves Portfolio $17,637,421
Allocated expenses from Tax Free Reserves
Portfolio (717,076)
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$16,920,345
EXPENSES:
Shareholder Servicing Agents' fees (Note 3B) 1,194,360
Administrative fees (Note 3A) 1,194,360
Distribution fees (Note 4) 477,744
Registration fees 27,568
Shareholder reports 26,969
Custody and fund accounting fees 20,295
Transfer agent fees 13,873
Trustees' fees 11,813
Audit fees 11,500
Legal fees 4,799
Miscellaneous 19,016
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Total expenses 3,002,297
Less aggregate amounts waived by Administrator
and Distributor (Notes 3A and 4) (614,435)
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Net expenses 2,387,862
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Net investment income 14,532,483
NET REALIZED GAIN ON INVESTMENTS FROM TAX FREE RESERVES
PORTFOLIO 13,752
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NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $14,546,235
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See notes to financial statements
<PAGE>
CITIFUNDS TAX FREE RESERVES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
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1998 1997
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INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 14,532,483 $12,138,295
Net realized gain on investments 13,752 4,286
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Net increase in net assets from operations . 14,546,235 12,142,581
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Dividends to Shareholders from:
Net investment income (14,532,483) (12,138,295)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
AT NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
Proceeds from sale of shares 950,656,793 785,995,599
Net asset value of shares issued to
shareholders from reinvestment of dividends 2,647,143 2,758,764
Cost of shares repurchased (861,030,403) (737,624,515)
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Net increase in net assets from
transactions in shares of beneficial
interest 92,273,533 51,129,848
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NET INCREASE IN NET ASSETS 92,287,285 51,134,134
NET ASSETS:
Beginning of period 422,483,269 371,349,135
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End of period $514,770,554 $ 422,483,269
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CitiFunds Tax Free Reserves
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
Net investment income 0.03042 0.03004 0.02973 0.03197 0.02002
Less dividends from net investment income (0.03042) (0.03004) (0.02973) (0.03197) (0.02002)
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Net Asset Value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
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RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000's omitted) $ 514,771 $ 422,483 $ 371,349 $ 392,172 $ 232,333
Ratio of expenses to average net assets(+) 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets(+) 3.04% 3.01% 2.97% 3.22% 1.99%
Total return 3.08% 3.05% 3.01% 3.24% 2.02%
Note: If agents of the Fund and agents of Tax Free Reserves Portfolio had not waived 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 $ 0.02782 $ 0.02715 $ 0.02693 $ 0.02929 $ 0.01730
RATIOS:
Expenses to average net assets(+) 0.92% 0.94% 0.93% 0.92% 0.92%
Net investment income to average net assets(+) 2.77% 2.72% 2.69% 2.95% 1.72%
=======================================================================================================
(+) Includes the Fund's share of Tax Free Reserves Portfolio's allocated expenses.
</TABLE>
See notes to financial statements
<PAGE>
CITIFUNDS TAX FREE RESERVES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Tax Free Reserves (the "Fund") is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end,
management investment company. Effective January 2, 1998 Landmark Tax Free
Reserves changed its name to CitiFunds Tax Free Reserves. The Fund invests all
of its investable assets in Tax Free Reserves Portfolio (the "Portfolio"), a
management investment company for which Citibank, N.A. ("Citibank") serves as
investment adviser. CFBDS, Inc. ("CFBDS", formerly Landmark Funds
Broker-Dealer Services, Inc.) acts as the Fund's Administrator and
Distributor. Citibank also serves as Sub-Administrator and makes Fund shares
available to customers as Shareholder Servicing Agent. Citibank is a
wholly-owned subsidiary of Citicorp. Citicorp announced its intention to merge
with The Travelers Group. The merger is expected to occur on or about October
8, 1998.
The Fund seeks to achieve its investment objective of a high level of current
income which is exempt from federal income taxes, consistent with preservation
of capital and liquidity, by investing all of its investable assets in the
Portfolio, an open-end, non-diversified management investment company having the
same investment objective as the Fund. The value of such investment reflects the
Fund's proportionate interest (approximately 71.3% at August 31, 1998) in the
net assets of the Portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The significant accounting policies consistently followed by the Fund are as
follows:
A. Investment Income The Fund earns income, net of Portfolio expenses, daily
on its investment in the Portfolio.
B. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders all of its net investment income. Accordingly, no
provision for federal income or excise tax is necessary. At August 31, 1998, the
Fund, for federal income tax purposes, had a capital loss carryover of $13,886,
all of which will expire on August 31, 2005. Such capital loss carryover will
reduce the Fund's taxable income arising from future net realized gain on
investment transactions, if any, to the extent permitted by the Internal Revenue
Code, and thus will reduce the amount of distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for federal
income tax. Dividends paid by the Fund from net interest received on tax-exempt
money market instruments are not includable by shareholders as gross income for
federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt-interest dividends. The
portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item to shareholders.
C. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS.
2. DIVIDENDS The net income of the Fund is determined once daily, as of 12:00
noon, Eastern standard time, and all of the net income of the Fund so
determined is declared as a dividend to shareholders of record at the time of
such determination. Dividends are distributed in the form of additional shares
of the Fund or, at the election of the shareholder, in cash (subject to the
policies of the shareholder's Shareholder Servicing Agent) on or prior to the
last business day of the month.
3. ADMINISTRATIVE SERVICES PLAN The Fund has adopted an Administrative
Services Plan which provides that the Fund may obtain the services of an
Administrator, one or more Shareholder Servicing Agents, and other Servicing
Agents, and may enter into agreements providing for the payment of fees for such
services. Under the Fund's Administrative Services Plan, the aggregate of the
fee paid to the Administrator from the Fund, the fees paid to the Shareholder
Servicing Agents from the Fund under such plan and the Basic Distribution Fee
paid from the Fund to the Distributor under the Distribution Plan may not exceed
0.60% of the Fund's average daily net assets on an annualized basis for the
Fund's then-current fiscal year. For the year ended August 31, 1998, Management
agreed to voluntarily limit Fund expenses to 0.65%.
A. Administrative Fees Under the terms of an Administrative Services
Agreement, CFBDS is entitled to an administrative fee, as compensation for
overall administrative services and general office facilities, which is computed
at the annual rate of 0.25% of the Fund's average daily net assets.
Administrative fees amounted to $1,194,360, of which $409,833 was voluntarily
waived for the year ended August 31, 1998. Citibank acts as Sub-Administrator
and performs such duties and receives such compensation from CFBDS as from time
to time is agreed to by CFBDS and Citibank. The Fund pays no compensation
directly to any Trustee or any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Fund from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Fund are officers and a director of the Administrator or its affiliates.
B. Shareholder Servicing Agent Fees The Fund has entered into shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which
that Shareholder Servicing Agent acts as an agent for its customers and provides
other related services. For their services, each Shareholder Servicing Agent
receives a fee from the Fund, which may be paid periodically, but may not
exceed, on an annualized basis, an amount equal to 0.25% of the average daily
net assets of the Fund represented by shares owned during the period for which
payment is being made by investors for whom such Shareholder Servicing Agent
maintains a servicing relationship. Shareholder Servicing Agent fees amounted to
$1,194,360 for the year ended August 31, 1998.
4. DISTRIBUTION FEE The Fund has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund compensates the Distributor at an annual rate not to exceed 0.10% of the
Fund's average daily net assets. The Distributor may also receive an additional
fee from the Fund at an annual rate not to exceed 0.10% of the Fund's average
daily net assets in anticipation of, or as reimbursement for, advertising
expenses incurred by the Distributor in connection with the sale of shares of
the Fund. No payments of such additional fees have been made during the period.
Distribution fees amounted to $477,744, of which $204,602 was voluntarily waived
for the year ended August 31, 1998.
5. SHARE OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value).
6. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment
in the Portfolio aggregated $661,786,594 and $586,096,759 respectively, for the
year ended August 31, 1998.
<PAGE>
CITIFUNDS TAX FREE RESERVES
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
CITIFUNDS TAX FREE RESERVES:
We have audited the accompanying statement of assets and liabilities of
CitiFunds Tax Free Reserves (a Massachusetts business trust) as of August 31,
1998, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended August 31, 1998 and 1997, and the
financial highlights for each of the years in the five-year period ended August
31, 1998. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CitiFunds Tax Free
Reserves at August 31, 1998, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 6, 1998
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 1998
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
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TAX-EXEMPT COMMERCIAL PAPER -- 3.1%
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Dallas, Texas, 3.55% due 10/15/98 $ 6,140 $ 6,140,000
Houston, Texas, Airport System Revenue, AMT,
3.55% due 11/17/98 3,000 3,000,000
Montgomery County, Pennsylvania, Municipal
Securities Trust Certificates,
3.77% due 10/05/98 10,000 10,000,000
Venango, Pennsylvania, Industrial Development
Revenue, AMT, 3.55% due 11/16/98 3,300 3,300,000
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22,440,000
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GENERAL OBLIGATION BONDS AND NOTES -- 3.3%
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Broward County, Florida, School District,
7.125% due 2/15/99 150 155,155
Chicago, Illinois, 3.55% due 10/29/98 7,200 7,199,745
Chicago, Illinois, 3.65% due 12/03/98 2,500 2,500,000
Chicago, Illinois, 3.55% due 2/04/99 5,000 4,999,041
Clark County, Ohio, 4.20% due 4/01/99 490 491,096
Dade County, Florida, School District,
7.10% due 7/01/99 1,000 1,048,583
Georgia State, 7.70% due 2/01/99 2,165 2,201,580
Georgia State, 6.30% due 3/01/99 2,000 2,026,745
Honolulu, Hawaii, 6.90% due 10/01/98 1,025 1,042,958
Houston, Texas, 6.50% due 2/01/99 1,000 1,011,913
Mecklenburg County, North Carolina,
4.70% due 3/01/99 1,025 1,030,683
Seattle, Washington, 4.50% due 9/01/98 465 465,000
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24,172,499
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ANNUAL AND SEMI-ANNUAL TENDER REVENUE
BONDS AND NOTES (PUTS) -- 12.5%
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Austin, Texas, Utilities System Revenue,
7.25% due 11/15/98 300 307,960
Brazos River, Texas Harbor, 6.50% due 8/15/99 350 358,733
Charlotte, North Carolina, Certificates of
Participation, 4.00% due 9/01/98 1,000 1,000,000
Chicago, Illinois, Metropolitan Water
Reclamation District, 7.25% due 1/01/99 1,200 1,213,726
Chicago, Illinois, Public Building Commercial
Revenue, 7.75% due 1/01/99 1,530 1,579,696
Clark County, Kentucky, Pollution Control
Revenue, 3.60% due 10/15/98 7,500 7,500,000
Cobb County, Georgia, School District,
4.00% due 12/31/98 1,500 1,501,246
Colorado Springs, Colorado, Utilities Revenue,
5.40% due 11/15/98 1,315 1,319,598
Dade County, Florida, Water and Sewer System
Revenue, 4.50% due 10/01/98 350 350,180
Dade County, Florida, Water and Sewer System
Revenue, 12.00% due 10/01/98 2,000 2,013,079
East Stroudsburg, Pennsylvania,
4.50% due 11/15/98 1,000 1,001,785
Florida State, Dividend Bond Financial
Department, 5.00% due 7/01/99 4,900 4,963,832
Fort Smith, Arizona, Sales and Use Tax,
4.00% due 12/01/98 480 480,000
Hamilton, Ohio, Electric System Revenue,
8.00% due 10/15/98 400 410,035
Hawaii State, Airports System Revenue,
5.40% due 7/01/99 1,000 1,015,410
Illinois State, Health Facilities Authority
Revenue, 7.25% due 4/01/99 500 519,233
Illinois State, Sales Tax Revenue,
7.00% due 6/15/99 1,000 1,045,889
Indianapolis, Illinois, Airport Authority
Revenue, 5.00% due 7/01/99 250 252,420
Intermountain Power Agency Revenue,
5.50% due 7/01/99 1,000 1,015,770
Jonesboro, Arkansas, Sales and Use Tax,
3.90% due 11/15/98 1,000 1,000,000
Louisiana Public Facilities Authority,
4.40% due 12/10/98 4,000 4,006,011
Marion County, Tennessee, Industrial
Environmental, AMT, 3.65% due 2/01/99 2,500 2,500,000
Maryland State Department of Transportation,
6.375% due 11/01/98 2,000 2,009,227
Maryland State Department of Transportation,
6.80% due 11/15/98 1,000 1,021,369
Massachusetts State Health and Educational
Facilities, 7.25% due 12/01/98 500 514,142
Massachusetts State Health and Educational
Facilities, 7.375% due 12/01/98 1,995 2,052,265
Mecklenburg County, North Carolina,
6.20% due 1/01/99 1,000 1,008,451
Michigan State, Building Authority Revenue,
4.00% due 10/15/98 575 575,243
Michigan State, Trunk Line,
7.00% due 8/15/99 1,500 1,577,474
Michigan State, Underground Storage,
5.00% due 5/01/99 3,000 3,029,820
Milwaukee, Wisconsin, Metro Sewer District,
6.50% due 10/01/98 1,000 1,002,313
Minnesota Water Pollution Control Revenue,
5.00% due 3/01/99 2,170 2,184,711
Nashville, Tennessee, Health and Educational
Facilities, 3.75% due 1/15/99 4,000 4,000,000
New Berlin, Wisconsin, 4.50% due 12/01/98 1,105 1,106,999
Newport News, Virginia, 6.875% due 12/01/98 1,700 1,751,699
North Little Rock, Arkansas, Industrial
Development, 3.358% due 2/01/99 750 750,000
Ohio State Public Facilities Authority,
4.50% due 11/01/98 5,000 5,007,297
Ohio State Public Facilities Authority,
5.00% due 11/01/98 1,000 1,002,110
Oklahoma State Water Resource Board State Loan
Revenue, 3.55% due 9/01/98 4,425 4,425,000
Orlando, Florida, Waste Water System Revenue,
5.00% due 10/01/98 300 300,262
Port Seattle, Washington, AMT, 4.80% due 5/01/99 1,400 1,410,390
Pulaski County, Kentucky, Solid Waste Disposal
Revenue, AMT, 3.60% due 2/15/99 4,800 4,800,000
San Antonio, Texas, 8.00% due 8/01/99 1,000 1,039,440
Washington D.C., Airport Authority Revenue, AMT,
6.80% due 10/01/98 1,000 1,002,409
Washington State, 7.70% due 12/01/98 1,000 1,009,703
Washington State, Housing Finance Community, AMT,
3.90% due 12/15/98 310 310,000
Washington State, Public Power Supply,
6.00% due 7/01/99 1,525 1,555,217
Washington State, Public Power Supply,
7.50% due 7/01/99 450 472,343
Washington Suburban Sanitation District,
7.00% due 12/01/98 2,500 2,544,243
Western Minnesota Municipal Power Supply
Agency, 10.25% due 1/01/99 600 612,674
York County, South Carolina, Pollution
Control, 3.50% due 9/15/98 7,000 7,000,000
-------------
90,429,404
-------------
REVENUE, TAX, BOND AND TAX REVENUE ANTICIPATION NOTES -- 2.0%
- ----------------------------------------------------------------------------
Butts County, Georgia, School District,
3.85% due 9/01/98 1,390 1,390,000
Iowa State School Cash Anticipation Program,
4.25% due 1/28/99 5,970 5,986,016
Kentucky, TRAN'S, 4.50% due 6/25/99 2,800 2,822,268
Michigan State, TRAN'S, 4.50% due 9/30/98 4,500 4,503,133
-------------
14,701,417
-------------
VARIABLE RATE DEMAND NOTES* -- 78.9%
- ----------------------------------------------------------------------------
ABN Amaro Munitops Certificates Trust,
due 4/05/06 5,000 5,000,000
ABN Amaro Munitops Certificates Trust, AMT,
due 7/05/06 2,000 2,000,000
Alexandria, Virginia, Industrial Development
Authority, due 7/01/26 1,300 1,300,000
Allegheny County, Pennsylvania Industrial
Development, due 7/01/27 2,400 2,400,000
Allegheny County, Pennsylvania Sanitation
Authority Sewer, due 12/01/24 7,000 7,000,000
Allendale County, South Carolina, Industrial
Revenue, due 8/01/01 3,900 3,900,000
Arapahoe County, Colorado, Revenue
Authority, due 7/01/07 1,955 1,955,000
Ashe County, North Carolina, Industrial
Facilities and Pollution, due 7/01/10 2,100 2,100,000
Atlanta, Georgia, Railroad Transit, AMT,
due 7/01/10 2,300 2,300,000
Beloit, Kansas, Industrial Development
Authority, AMT, due 12/01/16 3,100 3,100,000
Bexar County, Texas, Health Facilities
Development, due 7/11/11 915 915,000
Bexar County, Texas, Housing Finance
Authority, due 9/15/26 1,900 1,900,000
Brooks County, Georgia, Development Authority
Revenue, due 3/01/18 2,000 2,000,000
California Pollution Control Financing,
due 10/01/11 600 600,000
Capital Projects Financial Authority Revenue,
due 8/01/17 1,700 1,700,000
Capital Projects Financial Authority Revenue,
due 7/01/27 3,300 3,300,000
Carrollton, Georgia, Payroll Development
Authority, due 3/01/15 1,750 1,750,000
Carthage, Missouri, Industrial Development
Authority Revenue, due 4/01/07 2,000 2,000,000
Carthage, Missouri, Industrial Development
Authority Revenue, AMT, due 9/01/30 2,000 2,000,000
Cherokee County, South Carolina, Industrial
Revenue, AMT, due 8/01/19 200 200,000
Chicago, Illinois, due 1/01/27 23,900 23,900,000
Clarksville, Tennessee, Public Building
Authority, due 10/01/25 980 980,000
Clayton County, Georgia, Housing Authority,
due 1/01/21 865 865,000
Clipper Tax Exempt Trust, AMT, due 3/01/15 3,035 3,035,000
Clipper Tax Exempt Trust, AMT, due 3/01/16 3,500 3,500,000
Colorado Health Facilities Authority Revenue,
due 2/01/22 15,995 15,995,000
Colorado Housing Finance Authority,
due 2/15/28 2,000 2,000,000
Columbus, Georgia, Housing Authority Revenue,
due 11/01/17 850 850,000
Connecticut State, due 3/15/12 2,000 2,000,000
Connecticut State, Health & Educational
Facilities, due 7/01/27 1,500 1,500,000
Coweta County, Georgia, Pollution
Development Authority, due 9/01/26 1,600 1,600,000
Crossett, Arizona, Pollution Control Revenue,
due 10/01/98 3,500 3,500,000
Dallas, Fort Worth, Texas, Regional
Airport, AMT,
due 11/01/23 1,000 1,000,000
Dauphin County, Pennsylvania, General
Authority Revenue, due 10/01/27 5,000 5,000,000
Davidson County, North Carolina, Industrial
Facilities, due 7/01/20 2,140 2,140,000
De Kalb County, Georgia, Industrial
Development Revenue, due 8/01/00 1,500 1,500,000
De Kalb County, Georgia, Industrial Development
Revenue, due 2/01/18 1,100 1,100,000
De Kalb County, Georgia, Multifamily Housing
Revenue, due 6/01/25 4,300 4,300,000
District of Columbia, due 6/01/03 400 400,000
District of Columbia, Housing Mortgage
Revenue, due 6/01/28 8,100 8,100,000
District of Columbia, Revenue, due 10/01/15 500 500,000
Effingham County, Georgia, Development
Authority, due 4/01/37 2,400 2,400,000
Eloy, Arizona, Industrial Development
Authority Revenue, AMT, 8/01/20 1,000 1,000,000
Farmington, New Mexico, Pollution Control
Revenue, 12/01/16 7,000 7,000,000
Fayetteville, Arkansas, Industrial
Development, AMT, due 12/01/04 1,100 1,100,000
Forsyth County, Georgia, Industrial
Development Revenue, due 1/01/07 2,000 2,000,000
Fort Wayne, Indiana, Economic Development
Revenue, due 12/01/03 1,000 1,000,000
Fort Wayne, Indiana, Hospital Authority
Revenue, due 1/01/16 1,000 1,000,000
Fulton County, Georgia, Development
Authority, due 12/01/12 5,000 5,000,000
Fulton County, Georgia, Development
Authority Revenue, due 2/01/18 2,000 2,000,000
Fulton County, Georgia, Industrial
Development Authority, AMT, due 6/01/27 500 500,000
Gage County, Nevada, Industrial Development
Revenue, AMT, due 10/10/17 1,000 1,000,000
Garfield County, Oklahoma, Industrial Authority,
AMT, due 10/01/15 1,000 1,000,000
Gila County, Arizona, Industrial Development
Authority, due 11/01/25 1,865 1,865,000
Gordon County, Georgia, Industrial
Development Authority Revenue, due 8/01/17 1,000 1,000,000
Grant Parish, Louisiana, Industrial
Development Revenue, AMT, due 10/01/21 1,000 1,000,000
Grapevine, Texas, Industrial Development
Corp. Revenue, due 12/01/24 1,200 1,200,000
Green River, Wyoming, Pollution Control
Revenue, AMT, due 10/01/18 400 400,000
Gulf Breeze, Florida, Revenue, due 3/31/21 4,825 4,825,000
Gwinett County, Georgia, Industrial
Development Revenue, due 6/01/05 1,500 1,500,000
Gwinett County, Georgia, Industrial
Development Revenue, due 3/01/17 700 700,000
Halifax County, North Carolina, Industrial
Facilities, AMT, due 12/01/19 1,500 1,500,000
Henderson, Nevada, Health Care Facilities
Revenue, due 7/01/20 700 700,000
Hernando County, Florida, Industrial
Development Revenue, due 12/01/04 4,550 4,550,000
Illinois Development, due 11/01/17 2,725 2,725,000
Illinois Health Facilities Authority Revenue,
due 11/01/20 1,600 1,600,000
Inland, Florida, Protection Financial Corp.,
due 1/01/04 4,320 4,320,000
Jackson, Mississippi, Industrial
Development Revenue, due 12/01/15 2,650 2,650,000
Jasper County, Missouri, Industrial
Development Authority, AMT, due 10/01/27 1,000 1,000,000
Jefferson Parish, Louisiana, Hospital
District 2, due 12/01/15 2,700 2,700,000
Johnson City, Tennessee Health, due 10/27/99 5,000 5,000,000
Kansas City, Missouri, Industrial Development
Hospital, due 4/15/15 500 500,000
Kentucky Economic Development Finance
Authority, due 11/01/20 3,000 3,000,000
Kentucky State Turnpike Authority, Resource
Recovery, due 7/01/03 8,690 8,690,000
Knox County, Tennessee, Health Educational
Hospital Facilities, due 12/01/27 8,000 8,000,000
Knox County, Tennessee, Industrial
Development Board Revenue, AMT,
due 10/01/00 1,400 1,400,000
Kohler, Wisconsin, Industrial Sewer
Facilities, AMT, due 9/01/17 4,000 4,000,000
Long Island Power Authority, due 5/01/33 4,100 4,100,000
Louisa County, Virginia, Industrial
Development Authority, due 1/01/20 900 900,000
Louisiana Housing Finance Agency
Mortgage Revenue, AMT, due 6/01/27 5,390 5,390,000
Macon, Trust Pooled Receipts, due 3/03/07 33,460 33,460,000
Madison, Wisconsin, Community Development
Authority, due 6/01/22 1,105 1,105,000
Marshfield, Wisconsin, Industrial Development
Revenue, due 12/01/14 2,500 2,500,000
Mason County, Kentucky, Pollution Control,
due 10/15/14 2,950 2,950,000
Massachusetts State Turnpike Authority,
due 1/01/17 80 80,000
Mecklenburg County, North Carolina, Industrial
Facilities, due 9/01/14 2,000 2,000,000
Mississippi Home Corp., Single Family,
due 11/01/29 3,305 3,305,000
Mississippi Home Corp., Single Family, AMT,
due 6/01/28 3,485 3,485,000
Missouri State, Health and Educational
Facilities Revenue, due 7/01/18 3,700 3,700,000
Missouri State, Health and Educational
Facilities Revenue, due 8/15/21 1,100 1,100,000
Moorhead, Minnesota, Solid Waste Disposal,
AMT, due 4/01/12 3,000 3,000,000
Morgan Keegan Municipal Productions, AMT,
due 5/06/99 3,685 3,685,000
Multi-State Municipal Securities Trust
Certificates, due 3/01/01 9,140 9,140,000
Multi-State Municipal Securities Trust
Certificates, due 12/01/03 8,380 8,380,000
Municipal Tax Exempt Trust Receipts
due 10/01/30 14,500 14,500,000
Municipal Tax Exempt Trust Receipts
due 10/01/32 17,250 17,250,000
Nash County, North Carolina, due 12/01/14 1,000 1,000,000
Nashville, Tennessee, due 5/15/25 6,450 6,450,000
Nevada Business & Industry Development
Revenue, AMT, due 8/01/20 910 910,000
New Hampshire Highway, Educational and Health
Facilities, due 6/01/23 5,945 5,945,000
New Hampshire State Industrial Development
Authority, AMT, due 1/01/18 1,325 1,325,000
New Hanover County, North Carolina,
due 3/01/14 2,250 2,250,000
New Jersey Economic Development Authority,
AMT, due 12/15/98 6,000 6,000,000
New York MTA Trust Receipts, due 1/01/18 2,400 2,400,000
New York MTA Trust Receipts, due 1/01/22 1,600 1,600,000
New York State, due 7/01/15 1,000 1,000,000
New York State, due 2/01/19 1,125 1,125,000
New York State, due 8/01/19 1,300 1,300,000
New York State, due 8/01/20 2,100 2,100,000
New York State, due 8/01/21 2,600 2,600,000
New York State Medical Care Facilities
Finance Authority, due 8/15/22 1,000 1,000,000
North Carolina Medical Care Hospital
Authority, due 10/01/13 200 200,000
North Little Rock, Arkansas, Health
Facilities, due 12/01/21 1,700 1,700,000
Oak Creek, Wisconsin, Industrial Development
Authority, due 12/01/07 1,700 1,700,000
Ohio Housing Finance Agency Revenue, AMT,
due 3/01/99 6,000 6,000,000
Orange County, Florida, Industrial
Development Authority, due 1/01/11 450 450,000
Peoria, Illinois, Health Care Facilities
Revenue, due 5/01/17 1,380 1,380,000
Person County, North Carolina, Pollution
Control Authority, due 11/01/19 3,000 3,000,000
Philadelphia, Pennsylvania, Airport
Revenue, due 6/15/10 3,915 3,915,000
Piedmont, South Carolina, Municipal Power
Agency, due 1/01/25 4,700 4,700,000
Pinal County, Arizona, Pollution Control
Revenue, due 12/01/09 1,200 1,200,000
Pinellas County, Florida, Health Facilities
Authority, due 12/01/15 1,000 1,000,000
Pitney Bowes Corp., due 11/13/02 1,873 1,872,640
Pitt County, North Carolina, Industrial
Facilities and Pollution, AMT,
due 5/01/18 3,000 3,000,000
Port Arthur, Texas, Navigation District,
due 10/01/24 300 300,000
Puerto Rico Electricity Power Authority,
due 7/01/22 1,200 1,200,000
Rhode Island State Industrial Facilities
Corp., AMT, due 6/01/05 3,850 3,850,000
Rhode Island State Industrial Facilities
Corp., due 11/01/05 4,240 4,240,000
Richmond, Virginia,Redevelopment and Housing
Authority, due 11/01/05 5,355 5,355,000
Richmond, Virginia, Redevelopment and Housing
Authority, due 11/01/29 7,000 7,000,000
Roswell, Georgia, Multifamily Housing
Authority, due 8/01/27 2,500 2,500,000
Rutherford County, Tennessee, Industrial
Development, AMT, due 12/01/03 1,500 1,500,000
Saline County, Nebraska, Industrial
Development Revenue, AMT, due 10/01/11 1,000 1,000,000
Savannah, Illinois, Industrial Development
Revenue, due 6/01/04 600 600,000
Scotland County, North Carolina, Industrial
Facilities, AMT, due 5/01/18 1,350 1,350,000
Seattle, Washington, Municipal Lighting
and Power Revenue, due 11/01/18 900 900,000
Sevier County, Tennessee, Public Building
Authority, due 6/01/05 8,000 8,000,000
Sevier County, Tennessee, Public Building
Authority, due 6/01/12 2,590 2,590,000
Sevier County, Tennessee, Public Building
Authority, due 6/01/17 3,255 3,255,000
Sevier County, Tennessee, Public Building
Authority, due 6/01/21 3,400 3,400,000
Sevier County, Tennessee, Public Building
Authority, due 6/01/27 2,500 2,500,000
Shelby County, Tennessee, due 12/01/10 11,725 11,725,000
Sikeston, Missouri, Electricity Revenue
Authority, due 6/01/22 10,098 10,098,000
South Carolina Jobs Economic Development,
AMT, due 11/01/10 3,400 3,400,000
South Carolina Jobs Economic Development,
AMT, due 12/01/12 300 300,000
South Carolina Jobs Economic Development,
AMT, due 4/01/17 300 300,000
Southeastern Oklahoma Industrial Development
Authority, due 6/01/16 3,400 3,400,000
St. Charles Parish, Louisiana, Pollution
Revenue, due 3/01/24 10,725 10,725,000
State of Utah, General Obligations, AMT,
due 7/01/22 3,330 3,330,000
Tarrant County, Texas, Health Facilities
Development, due 2/15/17 8,700 8,700,000
Tarrant County, Texas, Health Facilities
Development, due 11/15/26 980 980,000
Texas State, due 10/01/02 4,950 4,950,000
Texas State, due 4/01/20 9,440 9,440,100
Texas State, Department of Housing and
Community, due 3/01/17 1,995 1,995,000
Texas State, Turnpike Authority, due 1/01/23 3,000 3,000,000
Tipton, Indiana, Economic Development Revenue,
due 7/01/22 1,045 1,045,000
Traill County, North Dakota, Industrial
Development, AMT, due 12/01/11 1,000 1,000,000
Traill County, North Dakota, Industrial
Development, AMT, due 12/11/11 1,000 1,000,000
Traill County, North Dakota, Solid Waste,
AMT, due 12/01/11 6,100 6,100,000
Utah State Board of Regents, due 11/01/25 900 900,000
Utah State Housing Finance Agency,
due 7/01/22 1,245 1,245,000
Vermont Industrial Development Authority,
due 12/01/11 800 800,000
Walton County, Georgia, Industrial Building
Authority, due 10/01/00 1,050 1,050,000
Walton County, Georgia, Industrial Building
Authority, due 10/01/02 1,080 1,080,000
Walton County, Georgia, Industrial Building
Authority, due 10/01/17 700 700,000
Washington State Health Care Facilities
Revenue, due 1/01/18 5,540 5,540,000
Washington State Health Care Facilities
Revenue, due 1/01/23 200 200,000
Wayne Charter County, Michigan, Airport
Revenue, AMT, due 12/01/09 12,865 12,865,000
Whitfield County, Georgia, Development
Authority Revenue, AMT, due 11/01/17 1,000 1,000,000
Winchester, Kentucky, Industrial Building,
AMT, due 10/01/18 2,300 2,300,000
Wisconsin Housing and Economic Development,
due 9/01/26 3,870 3,870,000
-------------
570,740,740
-------------
TOTAL INVESTMENTS, AT AMORTIZED COST 99.8% 722,484,060
OTHER ASSETS, LESS LIABILITIES 0.2 1,374,345
----------------------
NET ASSETS 100.0% $ 723,858,405
======================
AMT-Subject to Alternative Minimum Tax
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 day's notice.
See notes to financial statements.
<PAGE>
TAX FREE RESERVES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
- -----------------------------------------------------------------------------
ASSETS:
Investments, at amortized cost and value (Note 1A) $722,484,060
Cash 58,305
Interest receivable 5,898,496
- -----------------------------------------------------------------------------
Total assets 728,440,861
- -----------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 4,465,364
Payable to affiliate -- Investment Advisory fees (Note 2A) 75,574
Accrued expenses and other liabilities 41,518
- -----------------------------------------------------------------------------
Total liabilities 4,582,456
- -----------------------------------------------------------------------------
NET ASSETS $723,858,405
- -----------------------------------------------------------------------------
REPRESENTED BY:
Capital paid-in for beneficial interests $723,858,405
=============================================================================
TAX FREE RESERVES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
- -----------------------------------------------------------------------------
INVESTMENT INCOME (Note 1B) $ 21,440,138
EXPENSES:
Investment Advisory fees (Note 2A) $1,164,274
Administrative fees (Note 2B) 291,069
Custody and fund accounting fees 186,461
Audit fees 17,800
Trustees' fees 12,338
Legal fees 1,329
Miscellaneous 7,054
- -----------------------------------------------------------------------------
Total expenses 1,680,325
Less aggregate amounts waived by Investment
Advisor and Administrator (Notes 2A and 2B) (796,055)
Less fees paid indirectly (Note 1D) (11,532)
- -----------------------------------------------------------------------------
Net expenses 872,738
- -----------------------------------------------------------------------------
Net investment income 20,567,400
NET REALIZED GAIN ON INVESTMENTS 17,001
- -----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 20,584,401
=============================================================================
See notes to financial statements
<PAGE>
TAX FREE RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
-------------------------------
1998 1997
- ------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 20,567,400 $ 14,529,341
Net realized gain on investments 17,001 4,286
- ------------------------------------------------------------------------------
Increase in net assets from operations 20,584,401 14,533,627
- ------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 1,069,295,431 574,845,460
Value of withdrawals (849,651,201) (477,920,393)
- ------------------------------------------------------------------------------
Net increase in net assets from capital
transactions 219,644,230 96,925,067
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 240,228,631 111,458,694
NET ASSETS:
Beginning of period 483,629,774 372,171,080
- ------------------------------------------------------------------------------
End of period $ 723,858,405 $483,629,774
==============================================================================
TAX FREE RESERVES PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $ 723,858 $ 483,630 $ 372,171 $ 394,222 $ 233,108
Ratio of expenses to average net
assets 0.15% 0.19% 0.30% 0.32% 0.31%
Ratio of net investment income
to average net assets 3.53% 3.46% 3.31% 3.55% 2.33%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees
during the periods indicated and the expenses were not reduced for fees paid indirectly
for the years after August 31, 1995, the ratios would have been as follows:
RATIOS:
Expenses to average net assets 0.29% 0.31% 0.32% 0.32% 0.32%
Net investment income to average
net assets 3.39% 3.35% 3.29% 3.55% 2.32%
=======================================================================================
</TABLE>
See notes to financial statements
<PAGE>
TAX FREE RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Tax Free Reserves Portfolio (the
"Portfolio") is registered under the Investment Company Act of 1940, as amended,
as a no-load, non-diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York. The Declaration of
Trust permits the Trustees to issue beneficial interests in the Portfolio.
CFBDS, Inc. ("CFBDS"), (formerly Landmark Funds Broker-Dealer Services, Inc.)
acts as the Portfolio's Administrator. Citibank, N.A. ("Citibank") acts as the
Investment Adviser. Citibank is a wholly-owned subsidiary of Citicorp. Citicorp
announced its intention to merge with The Travelers Group. The merger is
expected to occur on or about October 8, 1998.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. Valuation of Investments Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair value.
The Portfolio's use of amortized cost is subject to the Portfolio's compliance
with certain conditions as specified under Rule 2a-7 of the Investment Company
Act of 1940.
B. Investment Income and Expenses Investment income consists of interest
accrued and discount earned (including both original issue and market discount),
adjusted for amortization of premium, on the investments of the Portfolio.
Expenses of the Portfolio are accrued daily.
C. Federal Income Taxes The Portfolio's policy is to comply with the
applicable provisions of the Internal Revenue Code. Accordingly, no provision
for federal income taxes is necessary.
D. Fees Paid Indirectly The Fund's custodian bank calculates its fees based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
E. Other Purchases, maturities and sales, of money market instruments are
accounted for on the date of the transaction.
2. INVESTMENT ADVISORY FEE AND ADMINISTRATIVE FEE
A. Investment Advisory Fee The investment advisory fee paid to Citibank, as
compensation for overall investment management services, amounted to $1,164,274,
of which $504,986 was voluntarily waived for the year ended August 31, 1998. The
investment advisory fee is computed at the annual rate of 0.20% of the
Portfolio's average daily net assets.
B. Administrative Fee Under the terms of an Administrative Services Agreement,
the administrative fee payable to the Administrator, as compensation for overall
administrative services and general office facilities, is computed at the annual
rate of 0.05% of the Portfolio's average daily net assets and amounted to
$291,069, all of which was voluntarily waived for the year ended August 31,
1998. The Portfolio pays no compensation directly to any Trustee or any officer
who is affiliated with the Administrator, all of whom receive remuneration for
their services to the Portfolio from the Administrator or its affiliates.
Certain of the officers and a Trustee of the Portfolio are officers and a
director of the Administrator or its affiliates.
3. INVESTMENT TRANSACTIONS Purchases, and maturities and sales of money market
instruments, exclusive of securities purchased subject to repurchase agreements,
aggregated $1,907,277,518 and $1,685,688,833, respectively, for the year ended
August 31, 1998.
4. FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES The cost of investment
securities owned at August 31, 1998, for federal income tax purposes, amounted
to $722,484,060.
5. LINE OF CREDIT The Portfolio, along with other CitiFunds, entered into an
agreement with a bank which allows the Funds collectively to borrow up to $60
million for temporary or emergency purposes. Interest on borrowings, if any,
is charged to the specific fund executing the borrowing at the base rate of
the bank. The line of credit requires a quarterly payment of a commitment fee
based on the average daily unused portion of the line of credit. For the year
ended August 31, 1998, the commitment fee allocated to the Portfolio was
$1,924. Since the line of credit was established, there have been no
borrowings.
<PAGE>
TAX FREE RESERVES PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF TAX FREE RESERVES PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Tax Free Reserves Portfolio (a New
York Trust) as of August 31, 1998, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
August 31, 1998 and 1997, and the financial highlights for each of the years
in the five-year period ended August 31, 1998. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of August 31, 1998, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Tax Free Reserves
Portfolio at August 31, 1998, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 6, 1998
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
Mark T. Finn
Riley C. Gilley
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
INVESTMENT ADVISER
(OF TAX FREE RESERVES PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
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THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio*
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders.
It is authorized for distribution to prospective investors
only when preceded or accompanied by an effective prospectus.
*Purchase orders will be accepted beginning November 2, 1998.
For more information contact your Service Agent or call
1-800-625-4554
CitiFunds are made available by CFBDS, Inc. as distributor.
(C)1998 Citicorp (R)Printed on recycled paper CFA/RTF/898
