CITIFUNDS TAX FREE RESERVES, 497, 2000-09-01

CITIFUNDS TAX FREE RESERVES
497, 2000-09-01

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<PAGE>
Rule 497(e) File Nos. 2-87509 and 811-3893

CITITRADE(R)
MONEY MARKET FUNDS

Citibank, N.A., Investment Adviser

Cititrade(R)Cash Reserves
a class of CitiFunds(R) Cash Reserves

Cititrade(R)U.S. Treasury Reserves
a class of CitiFunds(R) U.S. Treasury Reserves

Cititrade(R)Tax Free Reserves
a class of CitiFunds(R) Tax Free Reserves

Cititrade(R)California Tax Free Reserves
a class of CitiFunds(R) California Tax Free Reserves

Cititrade(R)Connecticut Tax Free Reserves
a class of CitiFunds(R) Connecticut Tax Free Reserves

Cititrade(R)New York Tax Free Reserves
a class of CitiFunds(R) New York Tax Free Reserves

[Graphics omitted]

Prospectus
July 14, 2000

as supplemented
September 5, 2000

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.

CITIFUNDS(R)
-----------------------
MONEY MARKET SERIES

INVESTMENT PRODUCTS: NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE>

[Graphics omitted]

TABLE OF CONTENTS

Funds At A Glance ....................................................... 3

Cititrade Cash Reserves ........................................... 4

Cititrade U.S. Treasury Reserves .................................. 9

Cititrade Tax Free Reserves ....................................... 13

Cititrade California Tax Free Reserves ............................ 18

Cititrade Connecticut Tax Free Reserves ........................... 23

Cititrade New York Tax Free Reserves .............................. 28

YOUR CITITRADE ACCOUNT .................................................. 33

How To Buy Shares ................................................. 33

How The Price Of Your Shares Is Calculated ........................ 34

How To Sell Shares ................................................ 34

Dividends ......................................................... 34

Tax Matters ....................................................... 35

MANAGEMENT OF THE FUNDS ................................................. 37

Investment Adviser ................................................ 37

Advisory Fees ..................................................... 37

Distribution Arrangements ......................................... 37

MORE ABOUT THE FUNDS .................................................... 39

Principal Investment Strategies ................................... 39

FINANCIAL HIGHLIGHTS .................................................... 43

APPENDIX ................................................................ 49

Taxable Equivalent Yield Tables ................................... 49
<PAGE>

FUNDS AT A GLANCE

Each of the Funds described in this prospectus is a money market fund. Money
market funds must follow strict rules about the quality, maturity and other
features of securities they purchase. The Funds also try to maintain a share
price of $1.00 while paying income to shareholders. However, no money market
fund guarantees that you will receive your money back.

Each Fund has its own goals and investment strategies, and each offers a
different mix of investments. Of course, there is no assurance that any Fund
will achieve its investment goals.

The four Tax Free Funds invest primarily in high quality municipal securities
and most of the dividends they pay are exempt from federal and, in certain
cases, state income taxes. These Funds are all non-diversified mutual funds,
which means that they may invest relatively high percentages of their assets in
a limited number of issuers. As a result, these Funds have more risk than
broadly diversified money market funds.

The Cititrade Money Market Funds are designed solely for use as sweep
investments in conjunction with an investor's Cititrade customer account.
Customers with a Cititrade account may designate one of the Funds for the
investment of cash balances in the account. Only one Fund may be designated at
any given time as the Fund for sweep investments.
<PAGE>

CITITRADE CASH RESERVES
This summary briefly describes Cititrade Cash Reserves and the principal risks
of investing in it. For more information, see MORE ABOUT THE FUNDS on page 39.

FUND GOAL
The Fund's goal is to provide shareholders with liquidity and as high a level of
current income as is consistent with preservation of capital. Of course, there
is no assurance that the Fund will achieve its goal.

MAIN INVESTMENT STRATEGIES
Cash Reserves invests only in high quality, short-term money market instruments
denominated in U.S. dollars. These may include:

o obligations of U.S. and non-U.S. banks;

o commercial paper and asset backed securities;

o short-term obligations of the U.S. government and its agencies and
instrumentalities, and repurchase agreements for these obligations; and

o obligations issued or guaranteed by the governments of Western Europe,
Australia, Japan and Canada.

The Fund invests at least 25%, and may invest up to 100%, of its assets in bank
obligations, such as certificates of deposit, fixed time deposits and bankers'
acceptances.

Please note that the Fund invests in securities through an underlying mutual
fund.

MAIN RISKS
Investing in a mutual fund involves risk. Although Cash Reserves seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in this Fund. Please remember that an investment in the Fund
is not a deposit of Citibank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

The principal risks of investing in the Fund are described below. Please note
that there are many other factors that could adversely affect your investment
and that could prevent the Fund from achieving its goals, which are not
described here. More information about risks appears in the Funds' Statement of
Additional Information. Before investing, you should carefully consider the
risks that you will assume.

YIELD FLUCTUATION. The Fund invests in short-term money market instruments. As a
result, the amount of income paid to you by the Fund will go up or down
depending on day-to-day variations in short-term interest rates. Investing in
high quality, short-term instruments may result in a lower yield (the income on
your investment) than investing in lower quality or longer-term instruments.

CREDIT RISK. The Fund invests in debt securities that are rated, when the Fund
buys them, in the highest short-term rating category by nationally recognized
rating agencies or, in Citibank's opinion, are of comparable quality. However,
it is possible that some issuers will be unable to make the required payments on
debt securities held by the Fund. Debt securities also fluctuate in value based
on the perceived creditworthiness of issuers. A default on an investment held by
the Fund could cause the value of your investment in the Fund, or its yield, to
decline.

INTEREST RATE AND MARKET RISK. A major change in interest rates or a significant
decline in the market value of a Fund investment, or other market event could
cause the value of your investment in the Fund, or its yield, to decline.

FOREIGN SECURITIES. You should be aware that investments in foreign 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 of assets, confiscatory taxation, withholding taxes on dividends
and interest paid on fund investments, fluctuations in currency exchange rates,
currency exchange controls and other limitations on the use or transfer of
assets by the Fund or issuers of securities, and political or social
instability. In addition, foreign 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. Foreign markets may be
less liquid and more volatile than United States markets. As a result, there may
be rapid changes in the value of foreign securities. Non-U.S. markets also may
offer less protection to investors such as the Fund.

CONCENTRATION IN THE BANKING INDUSTRY. Cash Reserves concentrates in bank
obligations. This means that an investment in the Fund is particularly
susceptible to adverse events affecting the banking industry. Banks are highly
regulated. Decisions by regulators may limit the loans banks make and the
interest rates and fees they charge, and may reduce bank profitability. Banks
also depend on being able to obtain funds at reasonable costs to finance their
lending operations. This makes them sensitive to changes in money market and
general economic conditions. When a bank's borrowers get in financial trouble,
their failure to repay the bank will also affect the bank's financial situation.

$1.00 NET ASSET VALUE. In order to maintain a $1.00 per share net asset value,
the Fund could reduce the number of its outstanding shares. The Fund could do
this if there were a default on an investment held by the Fund, or if the
investment declined significantly in value. If this happened, you would own
fewer shares. By investing in the Fund, you agree to this reduction should it
become necessary.

WHO MAY WANT TO INVEST
You should keep in mind that an investment in a money market fund is not a
complete investment program. THE CITITRADE MONEY MARKET FUNDS ARE DESIGNED
SOLELY FOR USE AS SWEEP INVESTMENTS IN CONJUNCTION WITH AN INVESTOR'S CITITRADE
ACCOUNT.

You should consider investing in Cash Reserves if:

o You're seeking current income and a stabilized share price.

o You want to be able to convert your investment to cash quickly with reduced
risk to principal.

o You're seeking higher returns than are usually available from U.S. Treasury
money market funds.

Don't invest in the Fund if:

o You're seeking long-term growth of capital or high current income and you
can tolerate daily share price fluctuation.

If you are seeking tax-advantaged income, consider the Tax Free Funds.
<PAGE>

FUND PERFORMANCE
The following bar chart and table can help you evaluate the risks and
performance of the Fund. The bar chart shows the Fund's total returns for the
calendar years indicated. The table compares the average annual returns for the
Fund to the performance of the iMoneyNet 1st Tier Taxable Money Market Funds
Average.

The Fund offers three classes of shares -- Cititrade Cash Reserves, Class A and
Class N. Only Cititrade Cash Reserves shares are offered through this
prospectus. The chart and table show the performance of the Fund's Class N
shares because Cititrade Cash Reserves shares are newly offered.

When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future. The Fund's performance reflects certain fee waivers or reimbursements.
If these are reduced or terminated, the Fund's performance may go down. For
current yield information, please call a Cititrade account representative toll
free at 1-888-663-CITI [2484], or log on to the Cititrade website at
www.mycititrade.com.

CASH RESERVES
Annual Total Returns*

1990 7.88%
1991 5.87%
1992 3.30%
1993 2.71%
1994 3.84%
1995 5.59%
1996 4.97%
1997 5.14%
1998 5.05%
1999 4.68%

As of June 30, 2000, Class N shares had a year-to-date return of 2.73%.

* Returns are for Class N shares. Class N shares are not offered in this
prospectus. Class N shares and Cititrade Cash Reserves shares are invested in
the same portfolio of securities, but Cititrade Cash Reserves shares have higher
expenses. As a result, Cititrade Cash Reserves shares would have had
correspondingly lower annual returns.

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART

Class N Quarter Ending
Highest 1.92% September 30, 1990
Lowest 0.64% March 31, 1993

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

1 Year 5 Years 10 Years

Cash Reserves-Class N 4.68% 5.09% 4.89%

iMoneyNet 1st Tier Taxable
Money Market Funds Average 4.58% 4.98% 4.83%
<PAGE>

FUND FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Cititrade Cash Reserves shares.

-------------------------------------------------------------------------------
CITITRADE CASH RESERVES
-------------------------------------------------------------------------------
SHAREHOLDER FEES - Fees Paid Directly From Your Investment
-------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL OPERATING EXPENSES(1) Expenses That Are Deducted From Fund Assets
-------------------------------------------------------------------------------
Management Fees 0.15%
----------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.60%
----------------------------------------------------------------------
Other Expenses (administrative and other expenses) 0.44%
---------------------------------------------------------------------- ----
Total Annual Operating Expenses* 1.19%
-------------------------------------------------------------------------------

* Certain of the Fund's service providers are voluntarily waiving
fees or reimbursing expenses such that current net annual
operating expenses of Cititrade Cash Reserves are: 1.00%

These voluntary fee waivers and reimbursements may be reduced or terminated
at any time.

(1) The Fund invests in securities through an underlying mutual fund, Cash
Reserves Portfolio. This table reflects the expenses of both the Fund and
Cash Reserves Portfolio.
-------------------------------------------------------------------------------

EXAMPLE

-------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and
hold Cititrade Cash Reserves shares. The example assumes that:

o YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;

o YOU REINVEST ALL DIVIDENDS;

o YOU THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS;

o YOUR INVESTMENT HAS A 5% RETURN EACH YEAR - THE ASSUMPTION OF A 5% RETURN IS
REQUIRED BY THE SEC FOR THE PURPOSE OF THIS EXAMPLE AND IS NOT A PREDICTION
OF THE FUND'S FUTURE PERFORMANCE; AND

o THE FUND'S OPERATING EXPENSES AS SHOWN IN THE TABLE REMAIN THE SAME - THE
EXAMPLE DOES NOT INCLUDE VOLUNTARY WAIVERS AND FEE REIMBURSEMENTS.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
CITITRADE CASH RESERVES $121 $378 $654 $1,443
-------------------------------------------------------------------------------
<PAGE>

CITITRADE U.S. TREASURY RESERVES
This summary briefly describes Cititrade U.S. Treasury Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 39.

FUND GOAL
The Fund's goal 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. Of course, there is no assurance that the Fund will
achieve its goal.

MAIN INVESTMENT STRATEGIES
U.S. Treasury Reserves may invest in:

o U.S. Treasury bills, notes and bonds;

o Treasury receipts; and

o securities issued by U.S. Government agencies and instrumentalities that are
backed by the full faith and credit of the U.S. Government.

Although the Fund is permitted to maintain a weighted average maturity of up to
90 days, under normal conditions the Fund will maintain a shorter maturity. In
the event that interest rates decline, the Fund may not generate as high a yield
as other funds with longer weighted average maturities.

Please note that the Fund invests in securities through an underlying mutual
fund.

MAIN RISKS
Investing in a mutual fund involves risk. Although U.S. Treasury Reserves seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in this Fund. Please remember that an investment in the
Fund is not a deposit of Citibank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

The principal risks of investing in the Fund are described below. Please note
that there are many other factors that could adversely affect your investment,
and that could prevent the Fund from achieving its goals, which are not
described here. More information about risks appears in the Funds' Statement of
Additional Information. Before investing, you should carefully consider the
risks that you will assume.

You should consider investing in U.S. Treasury Reserves if:

o You're seeking current income and a stabilized share price.

o You want to be able to convert your investment to cash quickly with reduced
risk to principal.

o You want the added safety of a fund that invests only in U.S. government
securities.

Don't invest in the Fund if:

o You're seeking long-term growth of capital or high current income and you
can tolerate daily share price fluctuation.

If you are seeking tax-advantaged income, consider the Tax Free Funds.
<PAGE>

The Fund offers two classes of shares -- Cititrade U.S. Treasury Reserves and
Class N. Only Cititrade U.S. Treasury Reserves shares are offered through this
prospectus. The chart and table show the performance of the Fund's Class N
shares because Cititrade U.S. Treasury Reserves shares are newly offered.

When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how the Fund will perform in the
future. The Fund's performance reflects certain fee waivers and reimbursements.
If these are reduced or eliminated, the Fund's performance may go down. For
current yield information, please call a Cititrade account representative toll
free at 1-888-663-CITI [2484], or log on to the Cititrade website at
www.mycititrade.com.

U.S. TREASURY RESERVES
Annual Total Returns*

1992 3.16%
1993 2.54%
1994 3.44%
1995 5.09%
1996 4.59%
1997 4.64%
1998 4.50%
1999 4.06%

As of June 30, 2000, Class N shares had a year-to-date return of 2.53%.

*Returns are for Class N shares. Class N shares are not offered in this
prospectus. Class N shares and Cititrade U.S. Treasury Reserves shares are
invested in the same portfolio of securities, but Cititrade U.S. Treasury
Reserves shares have higher expenses. As a result, Cititrade U.S. Treasury
Reserves shares would have had correspondingly lower annual returns.

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART

Class N Quarter Ending
Highest 1.31% June 30, 1995
Lowest 0.61% June 30, 1993

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

Life of Fund
Since
1 Year 5 Years May 3, 1991
U.S. Treasury Reserves-
Class N 4.06% 4.58% 4.09%

iMoneyNet 100% U.S. Treasury Rated
Money Market Funds Average 4.14% 4.64% *%

* Information regarding performance for this period is unavailable.

FUND FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Cititrade U.S. Treasury Reserves shares.

Cititrade U.S. Treasury Reserves

SHAREHOLDER FEES - Fees Paid Directly From Your Investment

Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None
-------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES(1) Expenses That Are Deducted From Fund Assets
-------------------------------------------------------------------------------
Management Fees 0.15%
----------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.60%
----------------------------------------------------------------------
Other Expenses (administrative and other expenses) 0.47%
---------------------------------------------------------------------- ----
Total Annual Operating Expenses* 1.22%
-------------------------------------------------------------------------------

* Certain of the Fund's service providers are voluntarily waiving fees or
reimbursing expenses such that current net annual operating expenses
of Cititrade U.S. Treasury Reserves are: 1.00%

These voluntary fee waivers and reimbursements may be reduced or terminated at
any time.

(1) The Fund invests in securities through an underlying mutual fund, U.S.
Treasury Reserves Portfolio. This table reflects the expenses of both the
Fund and U.S. Treasury Reserves Portfolio.
-------------------------------------------------------------------------------

EXAMPLE

-------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that:

o YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;

o YOU REINVEST ALL DIVIDENDS;

o YOU THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS;

o YOUR INVESTMENT HAS A 5% RETURN EACH YEAR - THE ASSUMPTION OF A 5% RETURN IS
REQUIRED BY THE SEC FOR THE PURPOSE OF THIS EXAMPLE AND IS NOT A PREDICTION
OF THE FUND'S FUTURE PERFORMANCE; AND

o THE FUND'S OPERATING EXPENSES AS SHOWN IN THE TABLE REMAIN THE SAME - THE
EXAMPLE DOES NOT INCLUDE VOLUNTARY WAIVERS AND FEE REIMBURSEMENTS.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
CITITRADE U.S. TREASURY RESERVES $124 $387 $670 $1,477
-------------------------------------------------------------------------------
<PAGE>

CITITRADE TAX FREE RESERVES

This summary briefly describes Cititrade Tax Free Reserves and the principal
risks of investing in it. For more information, see MORE ABOUT THE FUNDS on page
39.

FUND GOALS
The Fund's goals are to provide its shareholders with high levels of current
income exempt from federal income taxes, preservation of capital and liquidity.
Of course, there is no assurance that the Fund will achieve its goals.

MAIN INVESTMENT STRATEGIES

o Under normal market conditions, Tax Free Reserves invests at least 80% of
its assets in high quality municipal obligations and in participation
interests in these obligations issued by banks, insurance companies and
other financial institutions. Municipal obligations are debt securities
issued by states, cities and towns and other public entities or qualifying
issuers. The interest paid on these debt securities is free from federal
income tax but is generally lower than the interest paid on taxable
securities.

o The Fund invests more than 25% of its assets in participation interests in
municipal obligations that are secured by bank letters of credit or
guarantees.

o The Fund may invest up to 20% of its assets in high quality securities that
pay interest that is subject to federal income tax or federal alternative
minimum tax.

Please note that the Fund invests in securities through an underlying mutual
fund.

MAIN RISKS
Investing in a mutual fund involves risk. Although Tax Free Reserves seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in this Fund. Please remember that an investment in the Fund
is not a deposit of Citibank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

CREDIT RISK. The Fund invests in high quality debt securities, meaning
securities that are rated, when the Fund buys them, in one of the two highest
short-term rating categories by nationally recognized rating agencies or, in
Citibank's opinion, are of comparable quality. However, it is possible that some
issuers will be unable to make the required payments on debt securities held by
the Fund. Debt securities also fluctuate in value based on the perceived
creditworthiness of issuers. A default on an investment held by the Fund could
cause the value of your investment in the Fund, or its yield, to decline.

NON-DIVERSIFIED STATUS. The Fund is a non-diversified mutual fund. This means
that it may invest a relatively high percentage of its assets in the obligations
of a limited number of issuers. The Fund also may invest 25% or more of its
assets in securities of issuers that are located in the same state, that derive
income from similar type projects or that are otherwise related. As a result,
many securities held by the Fund may be adversely affected by a particular
single economic, business, regulatory or political event. You should consider
the risk inherent in this policy when you compare the Fund with a more
diversified mutual fund.

CONCENTRATION IN THE BANKING INDUSTRY. Tax Free Reserves concentrates in
participation interests in municipal obligations that are issued by banks and
secured by bank letters of credit or guarantees. This means that an investment
in Tax Free Reserves is particularly susceptible to adverse events affecting the
banking industry. Banks are highly regulated. Decisions by regulators may limit
the loans banks make and the interest rates and fees they charge, and may reduce
bank profitability. Banks also depend on being able to obtain funds at
reasonable costs to finance their lending operations. This makes them sensitive
to changes in money market and general economic conditions. When a bank's
borrowers get in financial trouble, their failure to repay the bank will also
affect the bank's financial situation.

$1.00 NET ASSET VALUE. In order to maintain a $1.00 per share net asset value,
the Fund could reduce the number of its outstanding shares. The Fund could do
this if there were a default on, or significant decline in value of, an
investment held by the Fund. If this happened, you would own fewer shares. By
investing in the Fund, you agree to this reduction should it become necessary.
<PAGE>

You should consider investing in Tax Free Reserves if:

o You're seeking federally tax-exempt income from your investment.*

o You're seeking current income and a stabilized share price.

o You want to be able to convert your investment to cash quickly with reduced
risk to principal.

Don't invest in the Fund if:

o You don't need your income to be tax-exempt, or you're investing through a
tax-deferred vehicle -- such as an IRA account.

o You're seeking long-term growth of capital or high current income and you
can tolerate daily share price fluctuation.

* Some income may be subject to tax. Consult your personal tax adviser.
<PAGE>

FUND PERFORMANCE

The following bar chart and table can help you evaluate the risks and
performance of the Fund. The bar chart shows the Fund's total returns for the
calendar years indicated. The table compares the average annual returns for the
Fund to the performance of the iMoneyNet General Purpose Tax Free Money Market
Funds Average.

The Fund offers two classes of shares -- Cititrade Tax Free Reserves and Class
N. Only Cititrade Tax Free Reserves shares are offered through this prospectus.
The chart and table show the performance of the Fund's Class N shares because
Cititrade Tax Free Reserves shares are newly offered.

When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future. The Fund's performance reflects certain fee waivers and reimbursements.
If these are reduced or eliminated, the Fund's performance may go down. For
current yield information, please call a Cititrade account representative toll
free at 1-888-663-CITI [2484] toll free, or log on to the Cititrade website at
www.mycititrade.com.

TAX FREE RESERVES
Annual Total Returns*

1990 5.58%
1991 4.24%
1992 2.60%
1993 1.92%
1994 2.35%
1995 3.34%
1996 2.91%
1997 3.12%
1998 2.96%
1999 2.72%

As of June 30, 2000, Class N shares had a year-to-date return of 1.70%.

*Returns are for Class N shares. Class N shares are not offered in this
prospectus. Class N shares and Cititrade Tax Free Reserves shares are invested
in the same portfolio of securities, but Cititrade Tax Free Reserves shares have
higher expenses. As a result, Cititrade Tax Free Reserves shares would have had
correspondingly lower annual returns.

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART

Class N Quarter Ending
Highest 1.39% December 31, 1990
Lowest 0.43% March 31, 1994

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

1 Year 5 Years 10 Years

Tax Free Reserves-Class N 2.72% 3.01% 3.17%

iMoneyNet General Purpose Tax Free
Money Market Funds Average 2.68% 3.02% 3.24%
<PAGE>

FUND FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Cititrade Tax Free Reserves shares.

-------------------------------------------------------------------------------
CITITRADE TAX FREE RESERVES
-------------------------------------------------------------------------------
SHAREHOLDER FEES - Fees Paid Directly From Your Investment
-------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL OPERATING EXPENSES(1) Expenses That Are Deducted From Fund Assets
-------------------------------------------------------------------------------
Management Fees 0.20%
----------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.60%
----------------------------------------------------------------------
Other Expenses (administrative and other expenses) 0.36%
---------------------------------------------------------------------- ----
Total Annual Operating Expenses* 1.16%
-------------------------------------------------------------------------------
* Certain of the Fund's service providers are voluntarily waiving
fees or reimbursing expenses such that current net annual
operating expenses of Cititrade Tax Free Reserves are: 1.00%

These voluntary fee waivers and reimbursements may be reduced or terminated at
any time.

(1) The Fund invests in securities through an underlying mutual fund, Tax Free
Reserves Portfolio. This table reflects the expenses of both the Fund and
Tax Free Reserves Portfolio.
-------------------------------------------------------------------------------

EXAMPLE

o YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;

o YOU REINVEST ALL DIVIDENDS;

o YOU THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS;

o YOUR INVESTMENT HAS A 5% RETURN EACH YEAR - THE ASSUMPTION OF A 5% RETURN IS
REQUIRED BY THE SEC FOR THE PURPOSE OF THIS EXAMPLE AND IS NOT A PREDICTION
OF THE FUND'S FUTURE PERFORMANCE; AND

o THE FUND'S OPERATING EXPENSES AS SHOWN IN THE TABLE REMAIN THE SAME - THE
EXAMPLE DOES NOT INCLUDE VOLUNTARY WAIVERS AND FEE REIMBURSEMENTS.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
CITITRADE TAX FREE RESERVES $118 $368 $638 $1,409
-------------------------------------------------------------------------------
<PAGE>

CITITRADE CALIFORNIA TAX FREE RESERVES

This summary briefly describes Cititrade California Tax Free Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 39.

FUND GOALS

The Fund's goals are to provide shareholders with high levels of current income
exempt from both federal and California personal income taxes, preservation of
capital and liquidity. Of course, there is no assurance that the Fund will
achieve its goals.

MAIN INVESTMENT STRATEGIES

o Under normal market conditions, California Tax Free Reserves invests at
least 80% of its assets in high quality municipal obligations and in
participation interests in these obligations issued by banks, insurance
companies and other financial institutions. Municipal obligations are debt
securities issued by states, cities and towns and other public entities or
qualifying issuers. The interest paid on these debt securities is free from
federal income tax but is generally lower than the interest paid on taxable
securities.

o Under normal market conditions, the Fund invests at least 65% of its assets
in municipal obligations that pay interest that is exempt from both federal
and California personal income taxes. These may include obligations of
Puerto Rico and other U.S. territories.

o When acceptable California municipal obligations are not available, the Fund
may purchase other municipal obligations. The interest on these securities
may be subject to California personal income taxes.

o The Fund may invest more than 25% of its assets in participation interests
in municipal obligations that are secured by bank letters of credit or
guarantees.

o The Fund may invest up to 20% of its assets in high quality securities that
pay interest that is subject to federal income tax or federal alternative
minimum tax.

MAIN RISKS
Investing in a mutual fund involves risk. Although California Tax Free Reserves
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in this Fund. Please remember that an
investment in the Fund is not a deposit of Citibank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

NON-DIVERSIFIED STATUS. The Fund is a non-diversified mutual fund. This means
that it may invest a relatively high percentage of its assets in the obligations
of a limited number of issuers. The Fund invests a large portion of its assets
in California issuers and may invest 25% or more of its assets in securities of
issuers that derive income from similar type projects or that are otherwise
related. As a result, many securities held by the Fund may be adversely affected
by a particular single economic, business, regulatory or political event. You
should consider the risk inherent in this policy when you compare the Fund with
a more diversified mutual fund.

CONCENTRATION IN THE BANKING INDUSTRY. California Tax Free Reserves may
concentrate in participation interests in municipal obligations that are issued
by banks and secured by bank letters of credit or guarantees. This means that an
investment in the Fund may be particularly susceptible to adverse events
affecting the banking industry. Banks are highly regulated. Decisions by
regulators may limit the loans banks make and the interest rates and fees they
charge, and may reduce bank profitability. Banks depend on being able to obtain
funds at reasonable costs to finance their lending operations. This makes them
sensitive to changes in money market and general economic conditions. When a
bank's borrowers get in financial trouble, their failure to repay the bank will
also affect the bank's financial situation.

CALIFORNIA ISSUERS. Because the Fund invests a high percentage of its assets in
municipal obligations of issuers located in California, the Fund is more exposed
to events that adversely affect issuers in California. As a result, this Fund
has more risk than a money market fund that invests in municipal obligations of
issuers in many states.

You should be aware that California has experienced difficulties in recent years
and could do so again in the future. This could cause the Fund to lose money. If
the Fund has difficulty finding high quality California municipal obligations to
purchase, the amount of the Fund's income that is subject to California taxes
could increase.

You should consider investing in California Tax Free Reserves if:

o You're seeking tax-exempt income from your investment.*

o You're seeking current income and a stabilized share price.

o You want to be able to convert your investment to cash quickly with reduced
risk to principal.

o Your income is subject to California personal income tax.

Don't invest in the Fund if:

o You don't need your income to be tax-exempt, or you're investing through a
tax-deferred vehicle -- such as an IRA account.

o You're seeking long-term growth of capital or high current income and you
can tolerate daily share price fluctuation.

* Some income may be subject to tax. Consult your personal tax adviser.
<PAGE>

The Fund offers two classes of shares - Cititrade California Tax Free Reserves
and Class N. Only Cititrade California Tax Free Reserves shares are offered
through this prospectus. The chart and table show the performance of the Fund's
Class N shares because Cititrade California Tax Free Reserves shares are newly
offered.

When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future. The Fund's performance reflects certain fee waivers or reimbursements.
If these are reduced or eliminated, the Fund's performance may go down. For
current yield information, please call a Cititrade account representative toll
free at 1-888-663-CITI [2484], or log on to the Cititrade website at
www.mycititrade.com.

CALIFORNIA TAX FREE RESERVES
Annual Total Returns*

1993 2.30%
1994 2.66%
1995 3.57%
1996 2.93%
1997 3.02%
1998 2.82%
1999 2.52%

As of June 30, 2000, Class N shares had a year-to-date return of 1.47%.

* Returns are for Class N shares. Class N shares are not offered in this
prospectus. Class N shares and Cititrade California Tax Free Reserves shares are
invested in the same portfolio of securities, but Cititrade California Tax Free
Reserves shares have higher expenses. As a result, Cititrade California Tax Free
Reserves shares would have had correspondingly lower annual returns.

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART

Class N Quarter Ending
Highest 0.93% June 30, 1995
Lowest 0.53% March 31, 1994

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

Life of Fund
Since
1 Year 5 Years March 10,1992
California Tax Free
Reserves-Class N 2.52% 2.97% 2.82%

iMoneyNet California Tax Free
Money Market Funds Average 2.47% 2.89% *%

* Information regarding performance for this period is unavailable.
<PAGE>

FUND FEES AND EXPENSES

This table describes the fees and expenses that you
may pay if you buy and hold Cititrade California Tax Free Reserves shares.

-------------------------------------------------------------------------------
CITITRADE CALIFORNIA TAX FREE RESERVES
-------------------------------------------------------------------------------
SHAREHOLDER FEES - Fees Paid Directly From Your Investment
-------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL OPERATING EXPENSES Expenses That Are Deducted From Fund Assets
-------------------------------------------------------------------------------
Management Fees 0.20%
----------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.60%
----------------------------------------------------------------------
Other Expenses (administrative and other expenses) 0.33%
---------------------------------------------------------------------- ----
Total Annual Operating Expenses* 1.13%
-------------------------------------------------------------------------------
* Certain of the Fund's service providers are voluntarily
waiving fees or reimbursing expenses such that current
net annual operating expenses of Cititrade California Tax
Free Reserves are: 1.00%.

These voluntary fee waivers and reimbursements may be reduced or terminated
at any time.
-------------------------------------------------------------------------------

EXAMPLE

o YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;

o YOU REINVEST ALL DIVIDENDS;

o YOU THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS;

o YOUR INVESTMENT HAS A 5% RETURN EACH YEAR - THE ASSUMPTION OF A 5% RETURN IS
REQUIRED BY THE SEC FOR THE PURPOSE OF THIS EXAMPLE AND IS NOT A PREDICTION
OF THE FUND'S FUTURE PERFORMANCE; AND

o THE FUND'S OPERATING EXPENSES AS SHOWN IN THE TABLE REMAIN THE SAME - THE
EXAMPLE DOES NOT INCLUDE VOLUNTARY WAIVERS AND FEE REIMBURSEMENTS.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
CITITRADE CALIFORNIA
TAX FREE RESERVES $115 $359 $622 $1,375
-------------------------------------------------------------------------------
<PAGE>

CITITRADE CONNECTICUT TAX FREE RESERVES

This summary briefly describes Cititrade Connecticut Tax Free Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 39.

FUND GOALS

The Fund's goals 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. Of course, there is no assurance that the
Fund will achieve its goals.

MAIN INVESTMENT STRATEGIES

o Under normal market conditions, Connecticut Tax Free Reserves invests at
least 80% of its assets in high quality municipal obligations and in
participation interests in these obligations issued by banks, insurance
companies and other financial institutions. Municipal obligations are debt
securities issued by states, cities and towns and other public entities or
qualifying issuers. The interest paid on these debt securities is free from
federal income tax but is generally lower than the interest paid on taxable
securities.

o Under normal market conditions, the Fund invests at least 65% of its assets
in municipal obligations that pay interest that is exempt from both federal
and Connecticut personal income taxes. These may include obligations of
Puerto Rico and other U.S. territories.

o When acceptable Connecticut municipal obligations are not available, the
Fund may purchase other municipal obligations. The interest on these
securities may be subject to Connecticut personal income taxes.

o The Fund may invest more than 25% of its assets in participation interests
in municipal obligations that are secured by bank letters of credit or
guarantees.

o The Fund may invest up to 20% of its assets in high quality securities that
pay interest that is subject to federal income tax or federal alternative
minimum tax.

MAIN RISKS
Investing in a mutual fund involves risk. Although Connecticut Tax Free Reserves
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in this Fund. Please remember that an
investment in the Fund is not a deposit of Citibank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

NON-DIVERSIFIED STATUS. The Fund is a non-diversified mutual fund. This means
that it may invest a relatively high percentage of its assets in the obligations
of a limited number of issuers. The Fund invests a large portion of its assets
in Connecticut issuers and may invest 25% or more of its assets in securities of
issuers that derive income from similar type projects or that are otherwise
related. As a result, many securities held by the Fund may be adversely affected
by a particular single economic, business, regulatory or political event. You
should consider the risk inherent in this policy when you compare the Fund with
a more diversified mutual fund.

CONCENTRATION IN THE BANKING INDUSTRY. Connecticut Tax Free Reserves may
concentrate in participation interests in municipal obligations that are issued
by banks and secured by bank letters of credit or guarantees. This means that an
investment in the Fund is particularly susceptible to adverse events affecting
the banking industry. Banks are highly regulated. Decisions by regulators may
limit the loans banks make and the interest rates and fees they charge, and may
reduce bank profitability. Banks depend on being able to obtain funds at
reasonable costs to finance their lending operations. This makes them sensitive
to changes in money market and general economic conditions. When a bank's
borrowers get in financial trouble, their failure to repay the bank will also
affect the bank's financial situation.

CONNECTICUT ISSUERS. Because the Fund invests a high percentage of its assets in
municipal obligations of issuers located in Connecticut, the Fund is more
exposed to events that adversely affect issuers in Connecticut. As a result,
this Fund has more risk than a money market fund that invests in municipal
obligations of issuers in many states.

You should be aware that Connecticut has experienced economic difficulties in
recent years, and could do so again in the future. This could cause the Fund to
lose money. If the Fund has difficulty finding high quality Connecticut
municipal obligations to purchase, the amount of the Fund's income that is
subject to Connecticut taxes could increase.

You should consider investing in Connecticut Tax Free Reserves if:

o You're seeking tax-exempt income from your investment.*

o You're seeking current income and a stabilized share price.

o You want to be able to convert your investment to cash quickly with reduced
risk to principal.

o Your income is subject to Connecticut personal income tax.

Don't invest in the Fund if:

o You don't need your income to be tax-exempt, or you're investing through a
tax-deferred vehicle - such as an IRA account.

o You're seeking long-term growth of capital or high current income and you
can tolerate daily share price fluctuation.

* Some income may be subject to tax. Consult your personal tax adviser.
<PAGE>

FUND PERFORMANCE

The Fund offers two classes of shares - Cititrade Connecticut Tax Free Reserves
and Class N. Only Cititrade Connecticut Tax Free Reserves shares are offered
through this prospectus. The chart and table show the performance of the Fund's
Class N shares because Cititrade Connecticut Tax Free Reserves shares are newly
offered.

When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future. The Fund's performance reflects certain fee waivers or reimbursements.
If these are reduced or eliminated, the Fund's performance may go down. For
current yield information, please call a Cititrade account representative toll
free at 1-888-663-CITI [2484], or log on to the Cititrade website at
www.mycititrade.com.

CONNECTICUT TAX FREE RESERVES
Annual Total Returns*

1994 2.80%
1995 3.36%
1996 2.97%
1997 3.00%
1998 2.92%
1999 2.60%

As of June 30, 2000, Class N shares had a year-to-date return of 1.57%.

* Returns are for Class N shares. Class N shares are not offered in this
prospectus. Class N shares and Cititrade Connecticut Tax Free Reserves shares
are invested in the same portfolio of securities, but Cititrade Connecticut Tax
Free Reserves shares have higher expenses. As a result, Cititrade Connecticut
Tax Free Reserves shares would have had correspondingly lower annual returns.

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART

Class N Quarter Ending
Highest 0.94% June 30, 1995
Lowest 0.49% March 31, 1994

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

Life of Fund
Since
1 Year 5 Years Dec. 1, 1993

Connecticut Tax Free
Reserves-Class N 2.60% 3.02% 2.97%

iMoneyNet Connecticut Tax Free Money
Market Funds Average 2.47% 2.83% *%

* Information regarding performance for this period is unavailable.
<PAGE>

FUND FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Cititrade Connecticut Tax Free Reserves shares.

-------------------------------------------------------------------------------
CITITRADE CONNECTICUT TAX FREE RESERVES

SHAREHOLDER FEES - Fees Paid Directly From Your Investment
-------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL OPERATING EXPENSES - Expenses That Are Deducted From Fund Assets
-------------------------------------------------------------------------------
Management Fees 0.20%
----------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.60%
----------------------------------------------------------------------
Other Expenses (administrative and other expenses) 0.36%
---------------------------------------------------------------------- ----
Total Annual Operating Expenses* 1.16%
-------------------------------------------------------------------------------

* Certain of the Fund's service providers are voluntarily
waiving fees or reimbursing expenses such that current
net annual operating expenses of Cititrade Connecticut
Tax Free Reserves are: 1.00%

These voluntary fee waivers and reimbursements may be reduced or terminated at
any time.
-------------------------------------------------------------------------------

EXAMPLE

o YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;

o YOU REINVEST ALL DIVIDENDS;

o YOU THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS;

o YOUR INVESTMENT HAS A 5% RETURN EACH YEAR - THE ASSUMPTION OF A 5% RETURN IS
REQUIRED BY THE SEC FOR THE PURPOSE OF THIS EXAMPLE AND IS NOT A PREDICTION
OF THE FUND'S FUTURE PERFORMANCE; AND

o THE FUND'S OPERATING EXPENSES AS SHOWN IN THE TABLE REMAIN THE SAME - THE
EXAMPLE DOES NOT INCLUDE VOLUNTARY WAIVERS AND FEE REIMBURSEMENTS.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
CITITRADE CONNECTICUT
TAX FREE RESERVES $118 $368 $638 $1,409
-------------------------------------------------------------------------------
<PAGE>

CITITRADE NEW YORK TAX FREE RESERVES

This summary briefly describes Cititrade New York Tax Free Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 39.

FUND GOALS
The Fund's goals 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. Of course, there is no assurance
that the Fund will achieve its goals.

MAIN INVESTMENT STRATEGIES

o Under normal market conditions, New York Tax Free Reserves invests at least
80% of its assets in high quality municipal obligations and in participation
interests in these obligations issued by banks, insurance companies and
other financial institutions. Municipal obligations are debt securities
issued by states, cities and towns and other public entities or qualifying
issuers. The interest paid on these debt securities is free from federal
income tax but is generally lower than the interest paid on taxable
securities.

o Under normal market conditions, the Fund invests at least 65% of its assets
in municipal obligations that pay interest that is exempt from federal, New
York State and New York City personal income taxes. These may include
obligations of Puerto Rico and other U.S. territories.

o When acceptable New York municipal obligations are not available, the Fund
may purchase other municipal obligations. The interest on these securities
may be subject to New York personal income taxes.

o The Fund may invest more than 25% of its assets in participation interests
in municipal obligations that are secured by bank letters of credit or
guarantees.

o The Fund may invest up to 20% of its assets in high quality securities that
pay interest that is subject to federal income tax or federal alternative
minimum tax.

MAIN RISKS
Investing in a mutual fund involves risk. Although New York Tax Free Reserves
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in this Fund. Please remember that an
investment in the Fund is not a deposit of Citibank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

NON-DIVERSIFIED STATUS. The Fund is a non-diversified mutual fund. This means
that it may invest a relatively high percentage of its assets in the obligations
of a limited number of issuers. The Fund invests a large portion of its assets
in New York issuers, and may invest 25% or more of its assets in securities of
issuers that derive income from similar type projects or that are otherwise
related. As a result, many securities held by the Fund may be adversely affected
by a particular single economic, business, regulatory or political event. You
should consider the risk inherent in these policies when you compare the Fund
with a more diversified mutual fund.

CONCENTRATION IN THE BANKING INDUSTRY. New York Tax Free Reserves may
concentrate in participation interests in municipal obligations which are issued
by banks and secured by bank letters of credit or guarantees. This means that an
investment in the Fund is particularly susceptible to adverse events affecting
the banking industry. Banks are highly regulated. Decisions by regulators may
limit the loans banks make and the interest rates and fees they charge, and may
reduce bank profitability. Banks also depend on being able to obtain funds at
reasonable costs to finance their lending operations. This makes them sensitive
to changes in money market and general economic conditions. When a bank's
borrowers get in financial trouble, their failure to repay the bank will also
affect the bank's financial situation.

NEW YORK ISSUERS. Because the Fund invests a high percentage of its assets in
municipal obligations of issuers located in New York, the Fund is more exposed
to events that adversely affect issuers in New York. As a result, this Fund has
more risk than a money market fund that invests in municipal obligations of
issuers in many states.

You should be aware that New York has experienced economic difficulties in
recent years and could do so again in the future. This could cause the Fund to
lose money. If the Fund has difficulty finding high quality New York municipal
obligations to purchase the amount of the Fund's income that is subject to New
York taxes could increase.

You should consider investing in New York Tax Free Reserves if:

o You're seeking tax-exempt income from your investment.*

o You're seeking current income and a stabilized share price.

o You want to be able to convert your investment to cash quickly with reduced
risk to principal.

o Your income is subject to New York State or New York City personal income
taxes.

Don't invest in the Fund if:

o You don't need your income to be tax-exempt, or you're investing through a
tax-deferred vehicle -- such as an IRA account.

o You're seeking long-term growth of capital or high current income and you
can tolerate daily share price fluctuation.

* Some income may be subject to tax. Consult your personal tax adviser.
<PAGE>

The Fund offers two classes of shares - Cititrade New York Tax Free Reserves and
Class N. Only Cititrade New York Tax Free Reserves shares are offered through
this prospectus. The chart and table show the performance of the Fund's Class N
shares because Cititrade New York Tax Free Reserves shares are newly offered.

When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future. The Fund's performance reflects certain fee waivers and reimbursements.
If these are reduced or eliminated, the Fund's performance may go down. For
current yield information, please call a Cititrade account representative toll
free at 1-888-663-CITI [2484], or log on to the Cititrade website at
www.mycititrade.com.

NEW YORK TAX FREE RESERVES
Annual Total Returns*

1990 5.20%
1991 3.86%
1992 2.38%
1993 1.79%
1994 2.30%
1995 3.31%
1996 2.86%
1997 3.06%
1998 2.91%
1999 2.64%

As of June 30, 2000, Class N shares had a year-to-date return of 1.62%.

* Returns are for Class N shares. Class N shares are not offered in this
prospectus. Class N shares and Cititrade New York Tax Free Reserves shares are
invested in the same portfolio of securities, but Cititrade New York Tax Free
Reserves shares have higher expenses. As a result, Cititrade New York Tax Free
Reserves shares would have had correspondingly lower annual returns.

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART

Class N Quarter Ending
Highest 1.28% September 30, 1990
Lowest 0.42% June 30, 1993

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

1 Year 5 Years 10 Years
New York Tax Free
Reserves-Class N 2.64% 2.96% 3.03%

iMoneyNet New York Tax Free Money
Market Funds Average 2.61% 2.91% 3.00%
<PAGE>

FUND FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Cititrade New York Tax Free Reserves shares.

-------------------------------------------------------------------------------
CITITRADE NEW YORK TAX FREE RESERVES
-------------------------------------------------------------------------------
SHAREHOLDER FEES - Fees Paid Directly From Your Investment
-------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

* Certain of the Fund's service providers are voluntarily
waiving fees or reimbursing expenses such that current
net annual operating expenses of Cititrade New York Tax
Free Reserves are: 1.00%

These voluntary fee waivers and reimbursements may be reduced or terminated at
any time.
-------------------------------------------------------------------------------

EXAMPLE

-------------------------------------------------------------------------------

This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that:

o YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;

o YOU REINVEST ALL DIVIDENDS;

o YOU THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS;

o YOUR INVESTMENT HAS A 5% RETURN EACH YEAR - THE ASSUMPTION OF A 5% RETURN IS
REQUIRED BY THE SEC FOR THE PURPOSE OF THIS EXAMPLE AND IS NOT A PREDICTION
OF THE FUND'S FUTURE PERFORMANCE; AND

o THE FUND'S OPERATING EXPENSES AS SHOWN IN THE TABLE REMAIN THE SAME - THE
EXAMPLE DOES NOT INCLUDE VOLUNTARY WAIVERS AND FEE REIMBURSEMENTS.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
CITITRADE NEW YORK
TAX FREE RESERVES $118 $368 $638 $1,409
-------------------------------------------------------------------------------
<PAGE>

YOUR CITITRADE ACCOUNT
HOW TO BUY SHARES
Cititrade shares are offered continuously and purchases may be made Monday
through Friday, except on certain holidays. YOU MAY PURCHASE CITITRADE SHARES
ONLY THROUGH THE AUTOMATIC SWEEP FEATURE SET FORTH BELOW. You pay no front- or
back-end sales charge to invest in Cititrade shares.

Shares may be purchased only through the Cititrade Program by customers that
have established a Cititrade Account. For more detailed information on how to
open a Cititrade Account, please visit the Cititrade website at
www.mycititrade.com, or call a Cititrade account representative at
1-888-663-CITI [2484].

Once you open your Cititrade Account, you will be subject to the general account
requirements of the Cititrade Program, as described in the Cititrade account
application, and will have access to all the electronic financial services made
available from time to time over the Internet by the Cititrade Program. This
prospectus is readily available for viewing and printing on the Cititrade
website. Please note that www.mycititrade.com is an inactive textual reference
only, meaning that the information contained on the website is not part of this
prospectus and is not incorporated herein by reference.

AUTOMATIC SWEEP FEATURE: Cititrade shares are designed for use in conjunction
with a Cititrade Account as a sweep investment option. Once your Cititrade
Account is set up for automatic sweep, your available cash balances will be
invested automatically, in the manner described in your Cititrade account
documentation, in shares of the Cititrade Money Market Fund that you have
designated. This feature keeps your money working for you while it is not
invested in other securities. A complete record of fund dividends, purchases and
redemptions will be included on your regular Cititrade brokerage statement. For
more information, please visit the Cititrade website at www.mycititrade.com, or
call a Cititrade account representative at 1-888-663-CITI [2484].

To set up your Cititrade Account for automatic sweep, you should select one of
the Funds in the appropriate section of the Cititrade Account application. Only
one Fund may be designated, at any given time, as your Fund for sweep
investments.

Each Fund has the right to reject any purchase order or cease offering Fund
shares at any time. Purchases of Fund shares become effective when the Fund
receives, or converts your purchase amount into, immediately available funds,
which ordinarily will be the next Business Day after your trade date. Shares are
purchased at net asset value (normally $1.00 per share) the next time it is
calculated after your order is received by the Fund in proper form.

Investors who have established an account with Cititrade may receive shareholder
information about the Fund they invest in electronically, unless they
otherwise request to receive the information in paper format. Shareholder
information includes prospectuses, financial reports, confirmations, proxy
solicitations and financial statements. Cititrade shareholders may also receive
other Fund-related correspondence through their e-mail account.

You may incur costs imposed by your Internet service provider for on-line access
to shareholder documents and maintaining an e-mail account. The Funds reserve
the right to deliver paper-based documents to investors in certain
circumstances, at no cost to you.

HOW THE PRICE OF YOUR SHARES IS CALCULATED
Each Fund calculates its net asset value (NAV) every day the New York Stock
Exchange is open for trading. Cash Reserves calculates its NAV at 3:00 p.m.
Eastern time, and the other Funds calculate their NAV at 12:00 noon Eastern
time. On days when the financial markets in which the Funds invest close early,
NAV may be calculated as of the earlier close of those markets. The Funds'
securities are valued at amortized cost, which is approximately equal to market
value.

HOW TO SELL SHARES
When you use your Cititrade Account to purchase other investments or make other
payments, shares of your sweep Fund will be sold automatically to cover these
transactions. You may elect to terminate the automatic sweep program, or
designate a different sweep Fund pursuant to the conditions of your Cititrade
Account, in which case shares of your sweep Fund will be sold.

You may also sell (redeem) your shares on any business day by calling a
Cititrade account representative at 1-888-663-CITI [2484]. All redemption
requests must be in proper form, as determined by the Cititrade Program. Before
you can place a redemption order, the Cititrade Program may request further
documentation for large redemptions or other unusual activity in your Cititrade
Account.

The price in any redemption of Fund shares will be the NAV (normally $1.00 per
share) the next time it is calculated after your redemption request has been
received, either through the automatic sweep program or directly, by the
Cititrade Program. Cititrade shares are redeemed without a sales charge.

Your Cititrade Account will be credited with your redemption proceeds in federal
funds normally on the business day on which you sell your shares but, in any
event, within seven days. Your redemption proceeds may be delayed, or your right
to receive redemption proceeds suspended, if the New York Stock Exchange is
closed (other than on weekends or holidays) or trading is restricted, or if an
emergency exists. Each Fund has the right to pay your redemption proceeds by
giving you securities instead of cash. In that case, you may incur costs (such
as brokerage commissions) converting the securities into cash. You should be
aware that you may have to pay taxes on your redemption proceeds.

DIVIDENDS
Each business day when each of the Funds determines its NAV, they calculate the
Fund's net income and declare dividends for all shareholders of record. Shares
begin to accrue dividends on the day your purchase order becomes effective. You
will not receive dividends for the day on which your redemption order becomes
effective, which ordinarily will be the next Business Day after your trade date.
Dividends are distributed once a month, on or before the last business day of
the month. You will receive your dividends as full and fractional additional
Fund shares.

TAX MATTERS
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation.

TAXATION OF DISTRIBUTIONS: For Cash Reserves and U.S. Treasury Reserves, you
normally will be required to pay federal income tax on any dividends and other
distributions you receive, whether you take distributions in cash or reinvest
them in additional shares. Distributions designated as capital gains dividends
will be taxed as long-term net capital gains. Other distributions are generally
taxable as ordinary income. Some dividends paid in January may be taxable as if
they had been paid the previous December.

Each of the Tax Free Funds expects that most of its net income will be
attributable to interest on municipal obligations and as a result most of the
Fund's dividends to you will not be subject to federal income tax. 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 Tax Free Fund may realize short-term or
long-term capital gains or losses. As a result, a Tax Free Fund may designate
some distributions as income or short-term capital gain dividends, generally
taxable to you as ordinary income, or capital gains dividends, taxable to you as
long-term capital gains, whether you take distributions in cash or reinvest them
in additional shares.

Fund dividends which the Fund designates as not taxable are taken into account
in determining the amount of your social security and railroad retirement
benefits, if any, that may be subject to federal income tax. In addition, you
may not claim a deduction for interest on indebtedness you incurred or continued
for the purpose of owning Tax Free Fund shares. Shareholders who are, or who are
related to, "substantial users" of facilities financed by private activity bonds
should consult their tax advisers before buying Tax Free Fund shares.

STATE AND LOCAL TAXES: Generally, you will have to pay state or local taxes on
Fund dividends and other distributions, although distributions derived from
interest on U.S. Government obligations may be exempt from certain state and
local taxes. Except as noted below, Fund dividends that are not taxable to you
for federal income tax purposes may still be subject to tax under the income or
other tax laws of state or local taxing authorities. You should consult your own
tax adviser in this regard.

California Tax Free Reserves: The Fund expects that as long as the Fund meets
certain requirements, including that at least 50% of the value of the Fund's
assets consists of certain qualifying 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 interest (less related expenses) from such California municipal obligations
of the Fund.

The foregoing description is a general, abbreviated summary that relates solely
to the California personal income taxation of dividends received by
shareholders. 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: 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 those 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. 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: The Fund expects that, 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 (with certain limited exceptions provided in the New
York City Tax on Bank Corporations).

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.

BACKUP WITHHOLDING: The account application asks each new investor to certify
that the investor'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 your credit) 31% of certain distributions it pays you if you fail to
provide this information or otherwise violate IRS regulations.

TAXATION OF TRANSACTIONS: If you sell your shares of a Fund, or exchange them
for shares of another Fund, it is considered a taxable event. Depending on
your purchase price and the sales price of the shares you sell or exchange,
you may have a gain or loss on the transaction. You are responsible for any
tax liabilities generated by your transaction.
<PAGE>

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER
Each Fund draws on the strength and experience of Citibank. Citibank is the
investment adviser of each Fund, and subject to policies set by the Funds'
Trustees, Citibank makes investment decisions. Citibank has been managing money
since 1822. With its affiliates, it currently manages more than $351 billion in
assets worldwide.

Citibank, with its headquarters at 153 East 53rd Street, New York, New York, is
a wholly-owned subsidiary of Citicorp, which is, in turn, a wholly-owned
subsidiary of Citigroup Inc. "Cititrade" and "CitiFunds" are registered service
marks of Citicorp.

Citibank and its affiliates may have banking and investment banking
relationships with the issuers of securities that are held in the Funds.
However, in making investment decisions for the Funds, Citibank does not obtain
or use material inside information acquired by any division, department or
affiliate of Citibank in the course of those relationships. Citibank and its
affiliates may have loans outstanding that are repaid with proceeds of
securities purchased by the Funds.

ADVISORY FEES
For the Funds' fiscal year ended August 31, 1999 Citibank received the following
investment advisory fees:
FEE, AS PERCENTAGE OF
AVERAGE DAILY NET
FUND ASSETS, AFTER WAIVER

CitiFunds Cash Reserves 0.08%

CitiFunds U.S. Treasury Reserves 0.07%

CitiFunds Tax Free Reserves 0.11%

CitiFunds California Tax Free Reserves 0.12%

CitiFunds Connecticut Tax Free Reserves 0.11%

CitiFunds New York Tax Free Reserves 0.12%

DISTRIBUTION ARRANGEMENTS
The Funds (other than Cash Reserves) offer two classes of shares, Class N shares
and Cititrade shares, and Cash Reserves offers three classes of shares, Class A
shares, Class N shares and Cititrade shares. These classes have different
expense levels. Only Cititrade shares are offered in this prospectus. The Funds
do not charge any sales loads, deferred sales loads or other fees in connection
with the purchase of Cititrade shares.

Each Fund has adopted a distribution plan for Cititrade shares under rule 12b-1
under the Investment Company Act of 1940. The distribution plan allows a Fund to
pay the distributor, a broker-dealer or financial institution that has entered
into a service agreement with the distributor concerning the Funds, or others a
monthly service fee at an annual rate not to exceed 0.10% of the average daily
net assets represented by Cititrade shares. This service fee may be used to make
payments for providing personal service or the maintenance of shareholder
accounts. The distribution plan also allows a Fund to pay the distributor, a
broker-dealer or financial institution, or others a monthly distribution fee not
to exceed 0.50% of the average daily net assets represented by Cititrade shares.
This distribution fee may be used as compensation for the sale of Fund shares,
for advertising, marketing or other promotional activity. Because fees under the
plans are paid out of Fund assets, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.

The distributor may make payments for distribution and/or shareholder servicing
activities out of its past profits and other available sources. The distributor
may also make payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the distributor and may
be substantial. Citibank may make similar payments under similar arrangements.
<PAGE>

MORE ABOUT THE FUNDS

The Funds' goals, principal investments and risks are summarized in FUNDS AT A
GLANCE. More information on investments and investment strategies appears below.

PRINCIPAL INVESTMENT STRATEGIES
The Funds' principal investment strategies are the strategies that, in the
opinion of Citibank, are most likely to be important in trying to achieve each
Fund's investment goals. Of course, there can be no assurance that any Fund will
achieve its goals. Please note that each Fund may also use strategies and invest
in securities that are not described below but that are described in the
Statement of Additional Information. A Fund may not use all of the strategies
and techniques or invest in all of the types of securities described in this
Prospectus or in the Statement of Additional Information.

Each Fund has specific investment policies and procedures designed to maintain a
constant net asset value of $1.00 per share. Each Fund also complies with
industry regulations that apply to money market funds. These regulations require
that each Fund's investments mature or be deemed to mature within 397 days from
the date purchased and that the average maturity of each Fund's investments (on
a dollar-weighted basis) be 90 days or less. In addition, all of the Funds'
investments must be in U.S. dollar-denominated high quality securities which
have been determined by Citibank to present minimal credit risks. To be high
quality, a security (or its issuer) must be rated in one of the two highest
short-term rating categories by nationally recognized rating agencies, such as
Moody's or Standard & Poor's, or, in Citibank's opinion, be of comparable
quality. Investors should note that within these two rating categories there may
be sub-categories or gradations indicating relative quality. If the credit
quality of a security deteriorates after a Fund buys it, Citibank will decide
whether the security should be held or sold.

-------------------------------------------------------------------------------
WHAT ARE MONEY MARKET INSTRUMENTS?

A MONEY MARKET INSTRUMENT is a short-term IOU issued by banks or other
corporations, or the U.S. or a foreign government and state or local
governments. Money market instruments have maturity dates of 13 months or less.
Money market instruments may include CERTIFICATES OF DEPOSIT, BANKERS'
ACCEPTANCES, VARIABLE RATE DEMAND NOTES (where the interest rate is reset
periodically and the holder may demand payment from the issuer at any time),
FIXED-TERM OBLIGATIONS, COMMERCIAL PAPER (short term unsecured debt of
corporations), ASSET-BACKED SECURITIES (which are backed by pools of accounts
receivable such as car installment loans or credit card receivables) and
REPURCHASE AGREEMENTS. In a repurchase agreement, the seller sells a security
and agrees to buy it back at a later date (usually within seven days) and at a
higher price, which reflects an agreed upon interest rate.
-------------------------------------------------------------------------------

Cash Reserves invests in high quality U.S. dollar-denominated money market
instruments of U.S. and non-U.S. issuers. These obligations include U.S.
Government obligations, obligations of U.S. and non-U.S. banks, obligations
issued or guaranteed by the governments of Western Europe, Australia, Japan and
Canada, commercial paper, asset backed securities and repurchase agreements. The
Fund's U.S. Government obligations may include U.S. Treasury bills, bonds and
notes and obligations of U.S. Government agencies and instrumentalities that
may, but need not, be backed by the full faith and credit of the United States.
While the Fund can invest in all of these types of obligations, the Fund
concentrates in bank obligations, including certificates of deposit, fixed time
deposits and bankers' acceptances. This means that the Fund invests at least 25%
of its assets in bank obligations, and the Fund may invest up to all of its
assets in bank obligations. Except for this concentration policy, the Fund's
investment goals and policies may be changed without a shareholder vote.

Cash Reserves invests only in "first tier" securities. These securities are
rated in the highest short-term rating category by nationally recognized rating
agencies or, in Citibank's opinion, are of comparable quality.

U.S. Treasury Reserves invests in U.S. Treasury bills, bonds, notes and
receipts. Treasury receipts are interest coupons on other U.S. Treasury
obligations. This Fund may also invest in short-term obligations of U.S.
government agencies and instrumentalities, but only if the obligations are
backed by the full faith and credit of the United States. The Fund's
investment goals and policies may be changed without a shareholder vote.
ALTHOUGH THE FUND INVESTS IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN
THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.

Each of the Tax Free Funds -- Tax Free Reserves, California Tax Free Reserves,
Connecticut Tax Free Reserves and New York Tax Free Reserves -- invests
primarily in high quality municipal obligations, including municipal money
market instruments, and in participation interests in municipal obligations.

Under normal market conditions, the Tax Free Funds invest at least 80% of their
assets in municipal obligations and participation interests in municipal
obligations. These policies cannot be changed without a shareholder vote.
<PAGE>

-------------------------------------------------------------------------------
WHAT ARE MUNICIPAL OBLIGATIONS?

Municipal obligations are fixed and variable rate obligations issued by or on
behalf of states and municipal governments, Puerto Rico and other U.S.
territories, and their authorities, agencies, instrumentalities and political
subdivisions, and by other qualifying issuers. The interest on these obligations
is exempt from federal income tax, but is generally lower than the interest paid
on taxable securities.

Longer term municipal obligations (municipal bonds) generally are issued to
raise funds for construction or to retire previous debt. Short term obligations
(municipal notes or commercial paper) may be issued to finance short term cash
needs in anticipation of receipt of tax and other revenues.
-------------------------------------------------------------------------------

Municipal obligations bought by the Funds must be rated in the highest two
rating categories of nationally recognized rating agencies or determined by
Citibank to be of comparable quality.

The Tax Free Funds invest in both "general obligation" securities, which are
backed by the full faith, credit and taxing power of the issuer, and in
"revenue" securities, which are payable only from revenues from a specific
project or another revenue source. The Funds also invest in private activity
bonds, which fund privately operated industrial facilities. Payment on these
bonds generally is made from payments by the operators of the facilities and is
not backed by the taxing authority of the issuing municipality. The Funds invest
in municipal lease obligations, which are undivided interests issued by a state
or municipality in a lease or installment purchase which generally relates to
equipment or facilities. In some cases payments under municipal leases do not
have to be made unless money is specifically approved for that purpose by an
appropriate legislative body.

The Funds may purchase municipal obligations under arrangements (called stand-by
commitments) where they can sell the securities at an agreed-upon price and date
under certain circumstances. The Funds can also purchase securities under
arrangements (called when-issued or forward-delivery basis) where the securities
will not be delivered immediately. The Funds will set aside the assets to pay
for these securities at the time of the agreement.

Tax Free Reserves will, and the other Tax Free Funds may, invest more than 25%
of their assets in participation interests in municipal obligations issued by
banks and other financial institutions and secured by bank letters of credit or
guarantees. In a participation interest, the bank sells undivided interests in a
municipal obligation it owns. These interests may be supported by a bank letter
of credit or guarantee. The interest rate generally is adjusted periodically,
and the holder can sell back to the issuer after a specified notice period. If
interest rates rise or fall, the rates on participation interests and other
variable rate instruments generally will be readjusted.

Under normal market conditions, California Tax Free Reserves, Connecticut Tax
Free Reserves and New York Tax Free Reserves invest at least 65% of their assets
in municipal obligations that pay interest that is exempt from California,
Connecticut and New York personal income taxes, respectively. When acceptable
municipal obligations of this type are not available, the Funds may invest in
municipal obligations that are not free from these state taxes. This would cause
the amount of each Fund's income that is subject to state tax to increase.

Each Tax Free Fund may also invest in taxable money market instruments,
particularly if the after-tax return on those securities is greater than the
return on municipal money market instruments. The Funds' taxable investments
will be comparable in quality to their municipal investments. Under normal
circumstances, not more than 20% of a Tax Free Fund's assets are invested in
taxable instruments. Except for its policy to invest in municipal obligations,
each Tax Free Fund's investment goals and policies may be changed without a
shareholder vote.

DEFENSIVE STRATEGIES. The Tax Free Funds may, from time to time, take temporary
defensive positions that are inconsistent with the Funds' principal investment
strategies in attempting to respond to adverse market, political or other
conditions. When doing so, the Funds may invest without limit in high quality
taxable money market instruments, and may not be pursuing their investment
objectives.

MANAGEMENT STYLE. Managers of mutual funds use different styles when selecting
securities to purchase. Citibank's portfolio managers use a "top-down" approach
when selecting securities for the Funds. When using a "top-down" approach, the
portfolio manager looks first at broad economic factors and market conditions,
such as prevailing and anticipated interest rates. On the basis of those factors
and conditions, the manager selects optimal interest rates and maturities and
chooses certain sectors or industries within the overall market. The manager
then looks at individual issuers within those sectors or industries to select
securities for the investment portfolio.

Since the Funds maintain a weighted average maturity of no more than 90 days,
many of their investments are held until maturity. The manager may sell a
security before maturity when it is necessary to do so to meet redemption
requests. The manager may also sell a security if the manager believes the
issuer is no longer as creditworthy, or in order to adjust the average weighted
maturity of a Fund's portfolio (for example, to reflect changes in the manager's
expectations concerning interest rates), or when the manager believes there is
superior value in other market sectors or industries.

INVESTMENT STRUCTURE. Cash Reserves, U.S. Treasury Reserves and Tax Free
Reserves do not invest directly in securities but instead invest through an
underlying mutual fund having the same goals and strategies. Unless otherwise
indicated, references to these Funds in this Prospectus include the underlying
fund. The other Funds may use this structure in the future. New York Tax Free
Reserves will do so only if its shareholders agree. Each Fund may stop investing
in its corresponding underlying fund at any time, and will do so if the Fund's
Trustees believe that to be in the shareholders' best interests. The Fund could
then invest in another mutual fund or pooled investment vehicle, or could invest
directly in securities.
<PAGE>

FINANCIAL HIGHLIGHTS
Cititrade Cash Reserves shares are newly offered. The Fund has offered Class N
shares since August 31, 1984. The table below shows the financial highlights for
Class N shares. Class N shares and Cititrade Cash Reserves shares are invested
in the same portfolio of securities, but Cititrade Cash Reserves shares have
higher expenses.

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Class N share. The total returns in the table
represent the rate that an investor would have earned on an investment in Class
N shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, is included in the annual report
which is available upon request.
<TABLE>

CITIFUNDS CASH RESERVES
<CAPTION>
CLASS N
YEAR ENDED AUGUST 31,

1999 1998 1997 1996 1995
<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 0.04536 0.05050 0.04940 0.05039 0.05174
Less dividends from net investment income (0.04536) (0.05050) (0.04940) (0.05039) (0.05174)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
---------------------------------------------------------------------------------------------------------------------
Total return 4.63% 5.17% 5.05% 5.16% 5.30%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $2,586,388 $2,198,443 $1,827,181 $1,468,177 $ 931,886
Ratio of expenses to average net assets+ 0.70% 0.70% 0.70% 0.69% 0.69%
Ratio of net investment income to average
net assets+ 4.53% 5.05% 4.96% 5.02% 5.17%

Note: If 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 $ 0.04301 $ 0.04814 $ 0.04697 $ 0.04766 $ 0.04895

RATIOS:
Expenses to average net assets+ 0.94% 0.94% 0.95% 0.96% 0.97%
Net investment income to average net assets+ 4.29% 4.81% 4.71% 4.75% 4.89%

+ Includes the Fund's share of the allocated expenses of Cash Reserves Portfolio, the underlying fund in which the Fund
invests its assets.
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS - Continued
Cititrade U.S. Treasury Reserves shares are newly offered. The Fund has offered
Class N shares since May 3, 1991. The table below shows the financial highlights
for Class N shares. Class N shares and Cititrade U.S. Treasury Reserves shares
are invested in the same portfolio of securities, but Cititrade U.S. Treasury
Reserves shares have higher expenses.

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Class N share. The total returns in the table
represent the rate that an investor would have earned on an investment in Class
N shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's financial statements, is included in the annual report which is
available upon request.

<TABLE>
CITIFUNDS U.S. TREASURY RESERVES
<CAPTION>
CLASS N
YEAR ENDED AUGUST 31,

1999 1998 1997 1996 1995
<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 0.03947 0.04552 0.04547 0.04602 0.04751
Less dividends from net investment income (0.03947) (0.04552) (0.04547) (0.04602) (0.04751)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
---------------------------------------------------------------------------------------------------------------------
Total return 4.02% 4.65% 4.64% 4.70% 4.86%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 343,496 $ 319,930 $ 360,717 $ 317,996 $ 256,452
Ratio of expenses to average net assets+ 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income to average net
assets+ 3.96% 4.55% 4.57% 4.61% 4.77%

Note: If 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 $ 0.03678 $ 0.04292 $ 0.04278 $ 0.04313 $ 0.04452

RATIOS:
Expenses to average net assets+ 0.97% 0.96% 0.97% 1.00% 1.00%
Net investment income to average net assets+ 3.69% 4.29% 4.30% 4.32% 4.47%

+ Includes the Fund's share of the allocated expenses of U.S. Treasury Reserves Portfolio, the underlying fund in
which the Fund invests its assets.
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS - Continued

Cititrade Tax Free Reserves shares are newly offered. The Fund has offered Class
N shares since August 31, 1984. The table below shows the financial highlights
for Class N shares. Class N shares and Cititrade Tax Free Reserves shares are
invested in the same portfolio of securities, but Cititrade Tax Free Reserves
shares have higher expenses.

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Class N share. The total returns in the table
represent the rate that an investor would have earned on an investment in Class
N shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's financial statements, is included in the annual report which is
available upon request.

<TABLE>
CITIFUNDS TAX FREE RESERVES
<CAPTION>
CLASS N
YEAR ENDED AUGUST 31,

1999 1998 1997 1996 1995
<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 0.02626 0.03042 0.03004 0.02973 0.03197
Less dividends from net investment
income (0.02626) (0.03042) (0.03004) (0.02973) (0.03197)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
---------------------------------------------------------------------------------------------------------------------
Total return 2.66% 3.08% 3.05% 3.01% 3.24%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 489,880 $ 514,771 $ 422,483 $ 371,349 $ 392,172
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+ 2.62% 3.04% 3.01% 2.97% 3.22%

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 $ 0.02365 $ 0.02782 $ 0.02715 $ 0.02693 $ 0.02929

RATIOS:
Expenses to average net assets+ 0.91% 0.92% 0.94% 0.93% 0.92%
Net investment income to average net assets+ 2.36% 2.77% 2.72% 2.69% 2.95%

+ Includes the Fund's share of the allocated expenses of Tax Free Reserves Portfolio, the underlying fund in which the
Fund invests its assets.
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS - Continued

Cititrade California Tax Free Reserves shares are newly offered. The Fund has
offered Class N shares since March 10, 1992. The table below shows the financial
highlights for Class N shares. Class N shares and Cititrade California Tax Free
Reserves shares are invested in the same portfolio of securities, but Cititrade
California Tax Free Reserves shares have higher expenses.

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Class N share. The total returns in the table
represent the rate that an investor would have earned on an investment in Class
N shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's financial statements, is included in the annual report which is
available upon request.

<TABLE>
CITIFUNDS CALIFORNIA TAX FREE RESERVES
<CAPTION>
CLASS N
YEAR ENDED AUGUST 31,

1999 1998 1997 1996 1995
<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 0.02473 0.02928 0.02899 0.03089 0.03434
Less dividends from net investment income (0.02473) (0.02928) (0.02899) (0.03089) (0.03434)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
---------------------------------------------------------------------------------------------------------------------
Total return 2.50% 2.97% 2.94% 3.13% 3.49%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 306,033 $ 285,628 $ 207,345 $ 150,557 $ 51,832
Ratio of expenses to average net assets 0.65% 0.65% 0.65% 0.42% 0.30%
Ratio of net investment income to average
net assets 2.47% 2.92% 2.91% 3.05% 3.43%

Note: If agents of the Fund had not waived all or a portion of their fees from the Fund for the periods indicated 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 $ 0.02243 $ 0.02687 $ 0.02630 $ 0.02481 $ 0.02513

RATIOS:
Expenses to average net assets 0.88% 0.90% 0.92% 1.01% 1.21%
Net investment income to average net assets 2.24% 2.67% 2.64% 2.45% 2.51%
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS - Continued

Cititrade Connecticut Tax Free Reserves shares are newly offered. The Fund has
offered Class N shares since December 1, 1993. The table below shows the
financial highlights for Class N shares. Class N shares and Cititrade
Connecticut Tax Free Reserves shares are invested in the same portfolio of
securities, but Cititrade Connecticut Tax Free Reserves shares have higher
expenses.

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Class N share. The total returns in the table
represent the rate that an investor would have earned on an investment in Class
N shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's financial statements, is included in the annual report which is
available upon request.

<TABLE>
CITIFUNDS CONNECTICUT TAX FREE RESERVES
<CAPTION>
CLASS N
YEAR ENDED AUGUST 31,

1999 1998 1997 1996 1995
<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 0.02550 0.02971 0.02914 0.03135 0.03564
Less dividends from net investment income (0.02550) (0.02971) (0.02914) (0.03135) (0.03564)

Net asset value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000

Total return 2.58% 3.01% 2.95% 3.18% 3.62%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 162,053 $ 156,552 $ 169,322 $ 116,025 $ 46,556
Ratio of expenses to average net assets(A) 0.65% 0.66% 0.65% 0.42% 0.22%
Ratio of expenses to average net assets
after fees paid indirectly(A) 0.65% 0.65% 0.65% 0.42% 0.22%
Ratio of net investment income to average
net assets 2.54% 2.98% 2.92% 3.08% 3.60%

Note: If agents of the Fund had not voluntarily waived all or a portion of their fees from the Fund for the periods
indicated 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 $ 0.02289 $ 0.02712 $ 0.02615 $ 0.02504 $ 0.02732

RATIOS:
Expenses to average net assets 0.91% 0.91% 0.95% 1.04% 1.06%
Net investment income to average net assets 2.28% 2.72% 2.62% 2.46% 2.76%

(A) The expense ratios for the year ended August 31, 1996 and the periods thereafter have been adjusted to reflect a
change in reporting requirements. The new report guidelines require the Fund to increase its expense ratio by the
effect of any expense offset arrangements with its service providers. The expense ratios for the periods ended on or
before August 31, 1995 have not been adjusted to reflect this change.
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS - Continued

Cititrade New York Tax Free Reserves shares are newly offered. The Fund has
offered Class N shares since November 4, 1985. The table below shows the
financial highlights for Class N shares. Class N shares and Cititrade New York
Tax Free Reserves shares are invested in the same portfolio of securities, but
Cititrade New York Tax Free Reserves shares have higher expenses.

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Class N share. The total returns in the table
represent the rate that an investor would have earned on an investment in Class
N shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's financial statements, is included in the annual report which is
available upon request.

<TABLE>
CITIFUNDS NEW YORK TAX FREE RESERVES
<CAPTION>
CLASS N
YEAR ENDED AUGUST 31,

1999 1998 1997 1996 1995
<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 0.02572 0.02991 0.02949 0.02936 0.03136
Less dividends from net investment income (0.02572) (0.02991) (0.02949) (0.02936) (0.03136)

Net asset value, end of period $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000

Total return 2.60% 3.03% 2.99% 2.98% 3.18%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $1,181,524 $1,094,732 $ 976,959 $ 941,691 $ 767,129
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 2.56% 2.99% 2.95% 2.92% 3.15%

Note: If agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods
indicated and the expenses were not reduced for the fees paid indirectly for the years after August 31, 1995, the net
investment income per share and ratios would have been as follows:

Net investment income per share $ 0.02391 $ 0.02791 $ 0.02739 $ 0.02725 $ 0.02917

RATIOS:
Expenses to average net assets 0.84% 0.85% 0.86% 0.86% 0.87%
Net investment income to average net assets 2.38% 2.79% 2.74% 2.71% 2.93%
</TABLE>
<PAGE>

APPENDIX

TAXABLE EQUIVALENT YIELD TABLES
RATES FOR 2000 UNDER FEDERAL PERSONAL, STATE AND LOCAL INCOME TAX LAW FOR THE
JURISDICTIONS INDICATED
If you are subject to income tax, you need to earn a higher taxable yield to
achieve the same after-tax income than you would if the yield were tax-exempt.
The following tables show the approximate taxable yields which are equivalent to
tax-exempt yields under 2000 federal personal income tax laws, and under the
state and local income personal income laws described in the tables. If tax
laws, rates or brackets are changed, the information in the table would be out
of date. All of the Tax Free Funds expect that a substantial portion of their
dividends will be exempt from federal personal income taxes. California Tax Free
Reserves and Connecticut Tax Free Reserves also expect that a substantial
portion of their dividends will be exempt from California and Connecticut
personal income taxes, respectively. Similarly, New York Tax Free Reserves
expects that a substantial portion of the dividends it pays will be exempt from
New York State and New York City personal income taxes. However, in reviewing
the tables below, you should remember that each of the Tax Free Funds may also
pay dividends which are subject to federal, state and local personal income
taxes.
<TABLE>

FEDERAL TAX RATES
<CAPTION>

Taxable Income* Income Federal Tax-Exempt Yield
Tax ------------------------
Single 2000 Joint 2000 Bracket 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 -$26,250 $0 -$43,850 15.0% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$26,251 - $63,550 $43,851 - $105,950 28.0% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$63,551 - $132,600 $105,951 - $161,450 31.0% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$132,601 - $288,350 $161,451 - $288,350 36.0% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$288,351 & Over $288,351 & Over 39.6% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%

* Net amount subject to Federal and California personal income tax after deductions and exemptions.

FEDERAL AND CALIFORNIA TAX RATES
<CAPTION>

Taxable Income* Income California Tax-Exempt Yield
Tax ---------------------------
Single 1999*** Joint 1999*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $26,250 17.85% 2.43% 3.04% 3.65% 4.26% 4.87% 5.48% 6.09% 6.70% 7.30% 7.91%
$0 -$43,850 17.40% 2.42% 3.03% 3.63% 4.24% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87%
$26,251 - $63,550 34.45% 3.05% 3.81% 4.58% 5.34% 6.10% 6.86% 7.63% 8.39% 9.15% 9.92%
$43,851 - $105,950 34.06% 3.03% 3.79% 4.55% 5.31% 6.07% 6.82% 7.58% 8.34% 9.10% 9.86%
$63,551 - $132,600 $105,951 - $161,450 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
$132,601 - $288,350 $161,451 - $288,350 41.95% 3.45% 4.31% 5.17% 6.03% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20%
$288,351 & Over $288,351 & Over 45.22% 3.65% 4.56% 5.48% 6.39% 7.30% 8.21% 9.13% 10.04% 10.95% 11.87%

* Net amount subject to Federal and California personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket.
*** State rate based on the average state rate for the federal tax bracket. Combined Federal and California rate
assumes itemization of state tax deduction. California tax rates are based on 1999 information, since at this time
2000 information is not available.
</TABLE>
<PAGE>

<TABLE>
FEDERAL AND CONNECTICUT TAX RATES

<CAPTION>
Taxable Income* Income Connecticut Tax-Exempt Yield
Tax ----------------------------
Single 2000*** Joint 2000*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $26,250 18.34% 2.45% 3.06% 3.67% 4.29% 4.90% 5.51% 6.12% 6.74% 7.35% 7.96%
$0 - $43,850 18.24% 2.45% 3.06% 3.67% 4.28% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95%
$26,251 - $63,550 $43,851 - $105,950 31.24% 2.91% 3.64% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45%
$63,551 - $132,600 $105,951 - $161,450 34.11% 3.04% 3.79% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86%
$132,601 - $288,350 $161,451 - $288,350 38.88% 3.27% 4.09% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63%
$288,351 & Over $288,351 & Over 42.32% 3.47% 4.33% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54% 10.40% 11.27%

* Net amount subject to Federal and Connecticut personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket.
*** State rate based on the average state rate for the federal tax bracket. Combined Federal and Connecticut rate
assumes itemization of state tax deduction.

FEDERAL AND NEW YORK STATE TAX RATES:
<CAPTION>

Taxable Income* Income New York Tax-Exempt Yield
Tax -------------------------
Single 2000*** Joint 2000*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $26,250 19.54% 2.49% 3.11% 3.73% 4.35% 4.97% 5.59% 6.21% 6.84% 7.46% 8.08%
$0 - $43,850 19.28% 2.48% 3.10% 3.72% 4.34% 4.96% 5.57% 6.19% 6.81% 7.43% 8.05%
$26,251 - $63,550 $43,851 - $105,950 32.93% 2.98% 3.73% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$63,551 - $132,600 $105,951 - $161,450 35.73% 3.11% 3.89% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.34% 10.11%
$132,601 - $288,350 $161,451 - $288,350 40.38% 3.35% 4.19% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.06% 10.90%
$288,351 & Over $288,351 & Over 43.74% 3.55% 4.44% 5.33% 6.22% 7.11% 8.00% 8.89% 9.78% 10.66% 11.55%

* Net amount subject to Federal and New York personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket.
*** State rate based on the average state rate for the federal tax bracket. Combined Federal and New York rate assumes
itemization of state tax deduction.

FEDERAL, NEW YORK STATE AND CITY TAX RATES:
<CAPTION>

Taxable Income* Income New York City Tax-Exempt Yield
Tax ------------------------------
Single 2000*** Joint 2000*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $26,250 22.40% 2.58% 3.22% 3.87% 4.51% 5.15% 5.80% 6.44% 7.09% 7.73% 8.38%
$0 - $43,850 22.13% 2.57% 3.21% 3.85% 4.49% 5.14% 5.78% 6.42% 7.06% 7.71% 8.35%
$26,251 - $63,550 35.63% 3.11% 3.88% 4.66% 5.44% 6.21% 6.99% 7.77% 8.54% 9.32% 10.10%
$43,851 - $105,950 35.62% 3.11% 3.88% 4.66% 5.44% 6.21% 6.99% 7.77% 8.54% 9.32% 10.10%
$63,551 - $132,600 $105,951 - $161,450 38.37% 3.25% 4.06% 4.87% 5.68% 6.49% 7.30% 8.11% 8.92% 9.74% 10.55%
$132,601 - $288,350 $161,451 - $288,350 42.83% 3.50% 4.37% 5.25% 6.12% 7.00% 7.87% 8.75% 9.62% 10.50% 11.37%
$288,351 & Over $288,351 & Over 46.05% 3.71% 4.63% 5.56% 6.49% 7.41% 8.34% 9.27% 10.19% 11.12% 12.05%

* Net amount subject to Federal and New York personal income tax after deductions and exemptions.
** Effective combined federal, state and city tax bracket.
*** State and city rates based on the average state and city rates for the federal tax bracket. Combined Federal, New
York State and New York City rate assumes itemization of state tax deduction.
</TABLE>
<PAGE>

This page intentionally left blank.
<PAGE>

The Statement of Additional Information (SAI) provides more details about
the Funds and their policies. The SAI is incorporated by reference into this
Prospectus and is legally part of it.

Additional information about each Fund's investments is available in that Fund's
Annual and Semi-Annual Reports to Shareholders. In each Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected that Fund's performance.

To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call a Cititrade account representative at
1-888-663-CITI [2484], toll-free.

The SAI is also available from the Securities and Exchange Commission. You can
find it on the EDGAR Database on the SEC Internet site at http://www.sec.gov.
Information about the Funds (including the SAI) can also be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. You can get information on
the operation of the Public Reference Room by calling the SEC at: (202)
942-8090. Copies may also be obtained upon payment of a duplicating fee by
electronic request to public [email protected], or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102.

SEC File Numbers
(CitiFunds(R) Cash Reserves, CitiFunds(R)U.S. Treasury Reserves) 811-4052
(CitiFunds(R) Tax Free Reserves) 811-3893
(CitiFunds(R) California Tax Free Reserves, CitiFunds(R)
Connecticut Tax Free Reserves,
CitiFunds(R) New York Tax Free Reserves) 811-4596

CTR0011
<PAGE>
Rule 497(e) File Nos. 2-87509 and 811-3893

Statement of Additional Information
July 14, 2000
as supplemented September 5, 2000

CITIFUNDS(R) CASH RESERVES
CITIFUNDS(R) U.S. TREASURY RESERVES
CITIFUNDS(R) TAX FREE RESERVES
CITIFUNDS(R) CALIFORNIA TAX FREE RESERVES
CITIFUNDS(R) CONNECTICUT TAX FREE RESERVES
CITIFUNDS(R) NEW YORK TAX FREE RESERVES

This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectus, dated December 31, 1999, for CitiFunds(R) Cash Reserves,
CitiFunds(R) U.S. Treasury Reserves, CitiFunds(R) Tax Free Reserves,
CitiFunds(R) California Tax Free Reserves, CitiFunds(R) Connecticut Tax Free
Reserves and CitiFunds(R) New York Tax Free Reserves (the foregoing,
collectively, the "Funds") or the Prospectus dated July 14, 2000, as
supplemented September 5, 2000 for Cititrade Cash Reserves, Cititrade U.S.
Treasury Reserves, Cititrade Tax Free Reserves, Cititrade California Tax Free
Reserves, Cititrade Connecticut Tax Free Reserves and Cititrade New York Tax
Free Reserves (the foregoing, collectively, the "Cititrade shares"), each a
separate class of the Fund with its corresponding name. This Statement of
Additional Information should be read in conjunction with the Prospectuses. This
Statement of Additional Information incorporates by reference the financial
statements described on page 41 hereof. These financial statements can be found
in the Funds' Annual Reports to Shareholders. An investor may obtain copies of
the Funds' Prospectuses and Annual Reports without charge by contacting the
Funds' Distributor (see back cover for address and phone number).

Cash Reserves and U.S. Treasury Reserves are separate series of CitiFunds
(R) Trust III. California Tax Free Reserves, Connecticut Tax Free Reserves and
New York Tax Free Reserves are separate series of CitiFunds(R) Multi-State Tax
Free Trust. The address and telephone number of CitiFunds Trust III, CitiFunds
Multi-State Tax Free Trust and Tax Free Reserves (collectively, the "Trusts")
are 21 Milk Street, Boston, Massachusetts 02109, (617) 423-1679.

CitiFunds Trust III invests all of the investable assets of Cash Reserves
and U.S. Treasury Reserves in Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio, respectively. Tax Free Reserves invests all of its investable assets
in Tax Free Reserves Portfolio (collectively, with Cash Reserves Portfolio and
U.S. Treasury Reserves Portfolio, the "Portfolios"). The address and telephone
number of Cash Reserves Portfolio are Elizabethan Square, George Town, Grand
Cayman, British West Indies, (345) 945-1824. The address and telephone number of
U.S. Treasury Reserves Portfolio and Tax Free Reserves Portfolio are 21 Milk
Street, Boston, Massachusetts 02109, (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 Funds.......................................................... 2
2. Investment Objectives, Policies and Restrictions................... 3
3. Performance Information............................................ 24
4. Determination of Net Asset Value................................... 27
5. Management......................................................... 28
6. Additional Information on the Purchase and Sale of Shares.......... 36
7. Dealer Commissions and Concessions................................. 38
8. Portfolio Transactions............................................. 38
9. Description of Shares, Voting Rights and Liabilities............... 39
10. Certain Additional Tax Matters.................................... 40
11. Independent Accountants and Financial Statements.................. 41
Appendix A -- Ratings of Municipal Obligations........................ A-1
Appendix B -- Additional Information Concerning California Municipal
Obligations......................................................... B-1
Appendix C -- Additional Information Concerning Connecticut Municipal
Obligations......................................................... C-1
Appendix D -- Additional Information Concerning New York Municipal
Obligations......................................................... D-1
Appendix E -- Additional Information Concerning Puerto Rico Municipal
Obligations......................................................... E-1

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 FUNDS

CitiFunds Trust III is a diversified, open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on June 28, 1985 and is the successor to the
business of The Landmark Funds Cash Reserves, Inc., which was incorporated under
the laws of the State of Maryland in 1984. Shares of CitiFunds Trust III are
divided into two separate series, Cash Reserves and U.S. Treasury Reserves.
Prior to January 2, 1998, CitiFunds Trust III was called Landmark Funds III, and
Cash Reserves and U.S. Treasury Reserves were called Landmark Cash Reserves and
Landmark U.S. Treasury Reserves, respectively.

Tax Free Reserves 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, Tax
Free Reserves was called Landmark Tax Free Reserves.

CitiFunds Multi-State Tax Free Trust 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 August 30, 1985. Shares
of CitiFunds Multi-State Tax Free Trust are divided into three separate series,
California Tax Free Reserves, Connecticut Tax Free Reserves and New York Tax
Free Reserves. Prior to January 2, 1998 CitiFunds Multi-State Tax Free Trust was
called Landmark Multi-State Tax Free Funds, and California Tax Free Reserves,
Connecticut Tax Free Reserves and New York Tax Free Reserves were called
Landmark California Tax Free Reserves, Landmark Connecticut Tax Free Reserves
and Landmark New York Tax Free Reserves, respectively.

All references in this Statement of Additional Information to the
activities of the Trusts are intended to include those of the Trusts and their
respective predecessors, if any, unless the context indicates otherwise.
References in this Statement of Additional Information to the Prospectuses are
to the Prospectus, dated December 31, 1999, of the Class N shares of the Funds
and Class A shares of Cash Reserves and the Prospectus, dated July 14, 2000 as
supplemented September 5, 2000, of the Cititrade shares of the Funds, by which
shares of the Funds are offered.

Each of the Funds is a type of mutual fund called a "money market fund."
Tax Free Reserves is referred to as a "tax-exempt money market fund." Each of
California Tax Free Reserves and Connecticut Tax Free Reserves is a type of fund
commonly referred to as a "double tax-exempt money market fund," and New York
Tax Free Reserves is a type of fund commonly referred to as a "triple tax-exempt
money market fund." The net asset value of each 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.")

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." Each Tax Free Fund is non-diversified.

CitiFunds Trust III seeks the investment objectives of Cash Reserves and
U.S. Treasury Reserves by investing all of their investable assets in Cash
Reserves Portfolio and U.S. Treasury Reserves Portfolio, respectively. Tax Free
Reserves seeks its investment objectives by investing all of its investable
assets in Tax Free Reserves Portfolio. Each of Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio is a diversified, open-end management investment
company. Tax Free Reserves Portfolio is a non-diversified, open-end management
investment company. Each Portfolio has the same investment objectives and
policies as its corresponding Fund.

The Trustees of CitiFunds Trust III and Tax Free Reserves believe that the
aggregate per share expenses of Cash Reserves, U.S. Treasury Reserves and Tax
Free Reserves and their corresponding Portfolios will be less than or
approximately equal to the expenses that each 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 below 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 a
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.

The Portfolios, as New York trusts, are not required to hold and have no
intention of holding annual meetings of investors. However, when a Portfolio is
required to do so by law, or in the judgment of Trustees it is necessary or
desirable to do so, the Portfolio will submit matters to its investors for a
vote. When a Fund is asked to vote on matters concerning its corresponding
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, or otherwise act in accordance with applicable
law. Of course, the Fund could be outvoted, or otherwise adversely affected, by
other investors in the 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, Inc. ("CFBDS"), 21 Milk Street,
Boston, Massachusetts 02109, (617) 423-1679.

Citibank, N.A. ("Citibank" or the "Adviser") is the investment adviser to
each of the Portfolios and to CitiFunds Multi-State Tax Free Trust. The Adviser
manages the investments of each Portfolio, California Tax Free Reserves,
Connecticut Tax Free Reserves and New York Tax Free Reserves from day to day in
accordance with the investment objectives and policies of that Portfolio or
Fund. The selection of investments for each Portfolio and Fund, and the way they
are managed, depend on the conditions and trends in the economy and the
financial marketplaces.

CFBDS, the Funds' administrator (the "Administrator"), supervises the
overall administration of the Trusts, U.S. Treasury Reserves Portfolio and
Tax Free Reserves Portfolio. Signature Financial Group (Cayman) Ltd. ("SFG")
supervises the overall administration of Cash Reserves Portfolio. The Boards
of Trustees of the Trusts and the Portfolios provide broad supervision over
the affairs of the Trusts and of the Portfolios, respectively.

Shares of each Fund are continuously sold by CFBDS, each Fund's
distributor (the "Distributor"). Class N shares of each Fund and Class A shares
of Cash Reserves are available 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 appropriate Trust with
respect to that Fund (collectively, "Shareholder Servicing Agents"). Cititrade
shares are available only to investors that have established a customer account
with the Cititrade Program. CFBDS may receive fees from the Funds pursuant to
Distribution Plans 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 objective of CASH RESERVES is to provide shareholders with
liquidity and as high a level of current income as is consistent with
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
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 objectives of each Fund may be changed without approval by
that Fund's shareholders. Of course, there can be no assurance that any Fund
will achieve its investment objectives.

INVESTMENT POLICIES

CitiFunds Trust III seeks the investment objectives of its series by
investing all of the investable assets of Cash Reserves and U.S. Treasury
Reserves in Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio,
respectively. Tax Free Reserves seeks its investment objectives by investing all
of its investable assets in Tax Free Reserves Portfolio. Each Portfolio has the
same investment objectives and policies as its corresponding Fund. The
Prospectus contains a discussion of the principal investment strategies of each
Fund and certain risks of investing in each Fund. The following supplements the
information contained in the Prospectus concerning the investment objectives,
policies and techniques of each Fund and Portfolio, and contains more
information about the various types of securities in which each Fund and each
Portfolio may invest and the risks involved in such investments. Since the
investment characteristics of Cash Reserves, U.S. Treasury Reserves and Tax Free
Reserves will correspond directly to those of the Portfolio in which it invests,
the following is a supplementary discussion with respect to each Portfolio.

Each of Cash Reserves, U.S. Treasury Reserves and Tax Free Reserves may
withdraw its investment from its corresponding Portfolio at any time, if the
Board of Trustees of the applicable Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, a Fund's assets would
be invested in accordance with the investment policies described below with
respect to its corresponding Portfolio. Except for the concentration policy of
Cash Reserves with respect to bank obligations described in paragraph (1) below
and for the policy of each of the Tax Free Funds with respect to investing in
municipal obligations described below, which may not be changed without the
approval of Cash Reserves' or the applicable Tax Free Fund's shareholders, the
approval of a Fund's shareholders would not be required to change that Fund's
investment objectives or any of its investment policies. Likewise, except for
the concentration policy of Cash Reserves Portfolio with respect to bank
obligations described in paragraph (1) below and for the policy of Tax Free
Reserves Portfolio with respect to investing in municipal obligations described
below, which may not be changed without the approval of Cash Reserves
Portfolio's or Tax Free Reserves Portfolio's investors, as applicable, the
approval of the investors in a Portfolio would not be required to change that
Portfolio's investment objectives or any of its investment policies discussed
below, including those concerning securities transactions. Each Portfolio would,
however, give written notice to its investors at least 30 days prior to
implementing any change in its investment objectives.

CASH RESERVES PORTFOLIO

Cash Reserves Portfolio seeks its investment objective through investments
limited to the following types of high quality U.S. dollar-denominated money
market instruments. All investments by Cash Reserves Portfolio mature or are
deemed to mature within 397 days from the date of acquisition, and the average
maturity of the investments held by the Portfolio (on a dollar-weighted basis)
is 90 days or less. All investments by the Portfolio are in "first tier"
securities (i.e., securities 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) and are determined by the Adviser to present minimal credit risks.
Investments in high quality, short term instruments may, in many circumstances,
result in a lower yield than would be available from investments in instruments
with a lower quality or a longer term. Cash Reserves Portfolio may hold
uninvested cash reserves pending investment. Under the 1940 Act, Cash Reserves
and Cash Reserves Portfolio are each classified as "diversified," although in
the case of Cash Reserves, all of its investable assets are invested in the
Portfolio. A "diversified investment company" must invest at least 75% of its
assets in cash and cash items, U.S. government securities, investment company
securities (e.g., interests in the Portfolio) 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.

(1) Bank obligations -- Cash Reserves Portfolio invests at least
25% of its investable assets, and may invest up to 100% of its assets, in
bank obligations. This concentration policy is fundamental and may not be
changed without the approval of the investors in Cash Reserves Portfolio.
Bank obligations include, but are not limited to, negotiable certificates
of deposit, bankers' acceptances and fixed time deposits. Cash Reserves
Portfolio limits its investments in U.S. bank obligations (including
their non-U.S. branches) to banks having total assets in excess of $1
billion and which are subject to regulation by an agency of the U.S.
government. The Portfolio may also invest in certificates of deposit
issued by banks the deposits in which are insured by the Federal Deposit
Insurance Corporation ("FDIC"), having total assets of less than $1
billion, provided that the Portfolio at no time owns more than $100,000
principal amount of certificates of deposit (or any higher principal
amount which in the future may be fully insured by FDIC insurance) of any
one of those issuers. Fixed time deposits are obligations which are
payable at a stated maturity date and bear a fixed rate of interest.
Generally, fixed time deposits may be withdrawn on demand by the
Portfolio, but they may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are
no contractual restrictions on the Portfolio's right to transfer a
beneficial interest in the deposit to a third party.

U.S. banks organized under federal law are supervised and examined
by the Comptroller of the Currency and are required to be members of the
Federal Reserve System and to be insured by the FDIC. U.S. banks
organized under state law are supervised and examined by state banking
authorities and are members of the Federal Reserve System only if they
elect to join. However, state banks which are insured by the FDIC are
subject to federal examination and to a substantial body of federal law
and regulation. As a result of federal and state laws and regulations,
U.S. branches of U.S. banks, among other things, are generally required
to maintain specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial soundness.

Cash Reserves Portfolio limits its investments in non-U.S. bank
obligations (i.e., obligations of non-U.S. branches and subsidiaries of
U.S. banks, and U.S. and non-U.S. branches of non-U.S. banks) to U.S.
dollar-denominated obligations of banks which at the time of investment
are branches or subsidiaries of U.S. banks which meet the criteria in the
preceding paragraphs or are branches of non-U.S. banks which (i) have
more than $10 billion, or the equivalent in other currencies, in total
assets; (ii) in terms of assets are among the 75 largest non-U.S. banks
in the world; (iii) have branches or agencies in the United States; and
(iv) in the opinion of the Adviser, are of an investment quality
comparable with obligations of U.S. banks which may be purchased by the
Portfolio. These obligations may be general obligations of the parent
bank, in addition to the issuing branch or subsidiary, but the parent
bank's obligations may be limited by the terms of the specific obligation
or by governmental regulation. The Portfolio also limits its investments
in non-U.S. bank obligations to banks, branches and subsidiaries located
in Western Europe (United Kingdom, France, Germany, Belgium, the
Netherlands, Italy, Switzerland, Denmark, Norway, Sweden), Australia,
Japan, the Cayman Islands, the Bahamas and Canada. Cash Reserves
Portfolio does not purchase any bank obligation of the Adviser or an
affiliate of the Adviser.

Since Cash Reserves Portfolio may hold obligations of non-U.S.
branches and subsidiaries of U.S. banks, and U.S. and non-U.S. branches
of non-U.S. banks, an investment in Cash Reserves involves certain
additional risks. Such investment risks include future political and
economic developments, the possible imposition of non-U.S. withholding
taxes on interest income payable on such obligations held by the
Portfolio, the possible seizure or nationalization of non-U.S. deposits
and the possible establishment of exchange controls or other non-U.S.
governmental laws or restrictions applicable to the payment of the
principal of and interest on certificates of deposit or time deposits
that might affect adversely such payment on such obligations held by the
Portfolio. In addition, there may be less publicly-available information
about a non-U.S. branch or subsidiary of a U.S. bank or a U.S. or
non-U.S. branch of a non-U.S. bank than about a U.S. bank and such
branches and subsidiaries may not be subject to the same or similar
regulatory requirements that apply to U.S. banks, such as mandatory
reserve requirements, loan limitations and accounting, auditing and
financial record-keeping standards and requirements.

The provisions of federal law governing the establishment and
operation of U.S. branches do not apply to non-U.S. branches of U.S.
banks. However, Cash Reserves Portfolio may purchase obligations only of
those non-U.S. branches of U.S. banks which were established with the
approval of the Board of Governors of the Federal Reserve System (the
"Board of Governors"). As a result of such approval, these branches are
subject to examination by the Board of Governors and the Comptroller of
the Currency. In addition, such non-U.S. branches of U.S. banks are
subject to the supervision of the U.S. bank and creditors of the non-U.S.
branch are considered general creditors of the U.S. bank subject to
whatever defenses may be available under the governing non-U.S. law and
to the terms of the specific obligation. Nonetheless, Cash Reserves
Portfolio generally will be subject to whatever risk may exist that the
non-U.S. country may impose restrictions on payment of certificates of
deposit or time deposits.

U.S. branches of non-U.S. banks are subject to the laws of the
state in which the branch is located or to the laws of the United States.
Such branches are therefore subject to many of the regulations, including
reserve requirements, to which U.S. banks are subject. In addition, Cash
Reserves Portfolio may purchase obligations only of those U.S. branches
of non-U.S. banks which are located in states which impose the additional
requirement that the branch pledge to a designated bank within the state
an amount of its assets equal to 5% of its total liabilities.

Non-U.S. banks in whose obligations Cash Reserves Portfolio may
invest may not be subject to the laws and regulations referred to in the
preceding two paragraphs.

(2) Obligations of, or guaranteed by, non-U.S. governments. Cash
Reserves Portfolio limits its investments in non-U.S. government
obligations to obligations issued or guaranteed by the governments of
Western Europe (United Kingdom, France, Germany, Belgium, the
Netherlands, Italy, Switzerland, Denmark, Norway, Sweden), Australia,
Japan and Canada. Generally, such obligations may be subject to the
additional risks described in paragraph (1) above in connection with the
purchase of non-U.S. bank obligations.

(3) Commercial paper rated Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or A-1 by Standard & Poor's Ratings Group ("Standard &
Poor's") or, if not rated, determined to be of comparable quality by the
Adviser, such as unrated commercial paper issued by corporations having
an outstanding unsecured debt issue currently rated Aaa by Moody's or AAA
by Standard & Poor's. Commercial paper is unsecured debt of corporations
usually maturing in 270 days or less from its date of issuance.

(4) Obligations of, or guaranteed by, the U.S. government, its
agencies or instrumentalities. These include issues of the U.S. Treasury,
such as bills, certificates of indebtedness, notes, bonds and 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, and issues of agencies and
instrumentalities established under the authority of an Act of Congress.
Some of the latter category of obligations are supported by the full
faith and credit of the United States, others are supported by the right
of the issuer to borrow from the U.S. Treasury, and still others are
supported only by the credit of the agency or instrumentality. Examples
of each of the three types of obligations described in the preceding
sentence are (i) obligations guaranteed by the Export-Import Bank of the
United States, (ii) obligations of the Federal Home Loan Mortgage
Corporation, and (iii) obligations of the Student Loan Marketing
Association, respectively.

(5) Repurchase agreements, providing for resale within 397 days or
less, covering obligations of, or guaranteed by, the U.S. government, its
agencies or instrumentalities which may have maturities in excess of 397
days. A repurchase agreement arises when a buyer purchases an obligation
and simultaneously agrees with the vendor to resell the obligation to the
vendor at an agreed-upon price and time, which is usually not more than
seven days from the date of purchase. The resale price of a repurchase
agreement is greater than the purchase price, reflecting an agreed-upon
market rate which is effective for the period of time the buyer's funds
are invested in the obligation and which is not related to the coupon
rate on the purchased obligation. Obligations serving as collateral for
each repurchase agreement are delivered to the Portfolio's custodian or a
subcustodian either physically or in book entry form and the collateral
is marked to the market daily to ensure that each repurchase agreement is
fully collateralized at all times. A buyer of a repurchase agreement runs
a risk of loss if, at the time of default by the issuer, the value of the
collateral securing the agreement is less than the price paid for the
repurchase agreement. If the vendor of a repurchase agreement becomes
bankrupt, Cash Reserves Portfolio might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral. The
Portfolio may enter into repurchase agreements only with a vendor which
is a member bank of the Federal Reserve System or which is a "primary
dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
government obligations. The Portfolio will not enter into any repurchase
agreements with the Adviser or an affiliate of the Adviser. The
restrictions and procedures described above which govern the Portfolio's
investment in repurchase agreements are designed to minimize the
Portfolio's risk of losses in making those investments.
(See "Repurchase Agreements.")

(6) Asset-backed securities, which may include securities such as
Certificates for Automobile Receivables ("CARS") and Credit Card
Receivable Securities ("CARDS"), as well as other asset-backed
securities. CARS represent fractional interests in pools of car
installment loans, and CARDS represent fractional interests in pools of
revolving credit card receivables. The rate of return on asset-backed
securities may be affected by early prepayment of principal on the
underlying loans or receivables. Prepayment rates vary widely and may be
affected by changes in market interest rates. It is not possible to
accurately predict the average life of a particular pool of loans or
receivables. Reinvestment of principal may occur at higher or lower rates
than the original yield. Therefore, the actual maturity and realized
yield on asset-backed securities will vary based upon the prepayment
experience of the underlying pool of loans or receivables. (See
"Asset-Backed Securities.")

Cash Reserves Portfolio does not purchase securities which the
Portfolio believes, at the time of purchase, will be subject to exchange
controls or non-U.S. withholding taxes; however, there can be no
assurance that such laws may not become applicable to certain of the
Portfolio's investments. In the event exchange controls or non-U.S.
withholding taxes are imposed with respect to any of the Portfolio's
investments, the effect may be to reduce the income received by the
Portfolio on such investments or to prevent the Portfolio from receiving
any value in U.S. dollars from its investment in non-U.S. securities.

ASSET-BACKED SECURITIES

As set forth above, Cash Reserves Portfolio may purchase asset-backed
securities that represent fractional interests in pools of retail installment
loans, both secured (such as CARS) and unsecured, or leases or revolving credit
receivables, both secured and unsecured (such as CARDS). These assets are
generally held by a trust and payments of principal and interest or interest
only are passed through monthly or quarterly to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or originator of the
trust.

Underlying automobile sales contracts, leases or credit card receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Reinvestment of principal may occur at higher or lower rates than the
original yield. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying loans, leases or receivables
are not realized by the Portfolio because of unanticipated legal or
administrative costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain contracts, or
other factors. If consistent with its investment objectives and policies, Cash
Reserves Portfolio may invest in other asset-backed securities.

U.S. TREASURY RESERVES PORTFOLIO

U.S. Treasury Reserves Portfolio seeks its investment objective by
investing in obligations of, or guaranteed by, the U.S. government, its agencies
or instrumentalities including issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes, bonds and 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, and in issues of agencies and instrumentalities established under the
authority of an Act of Congress which are supported by the full faith and credit
of the United States. U.S. Treasury Reserves Portfolio will not enter into
repurchase agreements. All investments by the Portfolio are in "first tier"
securities (i.e., securities rated in the highest rating category for short-term
obligations by at least two NRSRO's 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) and are determined by the Adviser to present minimal credit risks.
Investments in high quality, short term instruments may, in many circumstances,
result in a lower yield than would be available from investments in instruments
with a lower quality or a longer term. U.S. Treasury Reserves Portfolio may hold
uninvested cash reserves pending investment.

THE TAX FREE FUNDS
TAX FREE RESERVES PORTFOLIO
Tax Free Reserves 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 bank participation certificates,
an investment in Tax Free Reserves 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.) Tax Free Reserves Portfolio may hold uninvested cash reserves
pending investment. Tax Free Reserves Portfolio's investments may include
"when-issued" or "forward delivery" Municipal Obligations, stand-by commitments
and taxable repurchase agreements.

As a non-diversified investment company, Tax Free Reserves Portfolio is
not subject to any statutory restrictions under the 1940 Act with respect to
limiting the investment of its assets in one or relatively few issuers. This
concentration may present greater risks than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order so to qualify under current law, at the close of each
quarter of the Fund's taxable year, at least 50% of the value of the Fund's
total assets must be represented by cash, U.S. government securities, investment
company securities and other securities limited in respect of any one issuer (or
related issuers) to not more than 5% in value of the total assets of the Fund
and not more than 10% of the outstanding voting securities of such issuer. In
addition, and again under current law, at the close of each quarter of its
taxable year, not more than 25% in value of the Fund's total assets may be
invested in securities, other than U.S. government securities, of one issuer (or
related issuers).

Tax Free Reserves 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.

All investments by Tax Free Reserves 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 Tax Free Reserves 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 Tax Free Reserves Portfolio are "eligible
securities," that is, rated in one of the two highest rating categories for
short-term obligations by at least two NRSROs 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 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. (See "Ratings of Municipal Obligations" in Appendix A to this
Statement of Additional Information.)

The Portfolio's fundamental policy to invest at least 80% of its assets,
under normal circumstances, in certain Municipal Obligations is described below
in "Municipal Obligations."

CALIFORNIA TAX FREE RESERVES, CONNECTICUT TAX FREE RESERVES AND NEW YORK TAX
FREE RESERVES

Each of California Tax Free Reserves, Connecticut Tax Free Reserves and
New York Tax Free Reserves seeks its investment objectives by investing
primarily in short-term, high quality Municipal Obligations (as defined above).
Each such Fund's fundamental policy to invest at least 80% of its assets, under
normal circumstances, in certain Municipal Obligations is described below in
"Municipal Obligations."

All investments by California Tax Free Reserves, Connecticut Tax Free
Reserves and New York Tax Free Reserves are "eligible securities," that is,
rated in one of the two highest rating categories for short-term obligations by
at least two NRSROs 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 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. (See
"Ratings of Municipal Obligations" in Appendix A to this Statement of Additional
Information.)

In the case of California Tax Free Reserves, in general, dividends paid by
the Fund which are attributable to interest income on tax-exempt obligations of
the State of California and its political subdivisions, of Puerto Rico, other
U.S. territories and their political subdivisions and of other qualifying
issuers ("California Municipal Obligations"), will be exempt from federal and
California personal income taxes. For Connecticut Tax Free Reserves, dividends
paid by the Fund which are treated as exempt-interest dividends for federal
income tax purposes, to the extent derived from interest income on tax-exempt
obligations issued by or on behalf of the State of Connecticut, its political
subdivisions, or public instrumentalities, state or local authorities, districts
or similar public entities created under Connecticut law, obligations of Puerto
Rico, other U.S. territories and their political subdivisions and other
qualifying issuers ("Connecticut Municipal Obligations"), will be exempt from
federal and Connecticut personal income taxes. In the case of New York Tax Free
Reserves, dividends paid by the Fund which are attributable to interest income
on tax-exempt obligations of the State of New York and its political
subdivisions, of Puerto Rico, other U.S. territories and their political
subdivisions and of other qualifying issuers ("New York Municipal Obligations"),
will be exempt from federal, New York State and New York City personal income
taxes. These Funds may purchase Municipal Obligations issued by other states,
their agencies and instrumentalities the interest income on which will be exempt
from federal income tax but will be subject to California, Connecticut or New
York State and New York City personal income taxes, as the case may be.

In order for California Tax Free Reserves to pay dividends that are exempt
from federal tax and California personal income tax, the Fund must continue to
qualify as a "regulated investment company" for federal income tax purposes. In
addition, in order for California Tax Free Reserves to be eligible to pay
dividends that are exempt from California personal income tax, at the end of
each quarter of its taxable year at least 50% of the Fund's total assets must be
invested in obligations, the interest on which is exempt from California
taxation when received by an individual ("California Exempt-Interest
Securities").

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.

Under normal circumstances, California Tax Free Reserves, Connecticut Tax
Free Reserves and New York Tax Free Reserves invest at least 65% of their assets
in California Municipal Obligations, Connecticut Municipal Obligations and New
York Municipal Obligations, respectively, although the exact amount of a Fund's
assets invested in such securities varies from time to time. Although these
Funds attempt to invest 100% of their assets in Municipal Obligations, each Fund
may 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. Each Fund may invest more than 25% of its assets in
participation interests issued by banks in industrial development bonds and
other Municipal Obligations. In view of this possible "concentration" in bank
participation interests, an investment in these Funds 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.) Uninvested cash reserves may be held temporarily for the
Funds pending investment. The Funds' investments may include "when-issued" and
"forward delivery" Municipal Obligations, stand-by commitments and taxable
repurchase agreements.

All of California Tax Free Reserves', Connecticut Tax Free Reserves' and
New York Tax Free Reserves' investments mature or are deemed to mature within
397 days from the date of acquisition and the average maturity of the
investments in the Funds' respective portfolios (on a dollar-weighted basis) is
90 days or less. The maturities of variable rate instruments held in such Funds'
portfolios are deemed to be the longer of the period remaining until the next
interest rate adjustment or the period until a Fund would be entitled to payment
pursuant to demand rights, a letter of credit, guarantee or insurance policy or
a right to tender or put the instrument, although the stated maturities may be
in excess of 397 days. (See "Variable Rate Instruments and Participation
Interests" below.)

As non-diversified investment companies, California Tax Free Reserves,
Connecticut Tax Free Reserves and New York Tax Free Reserves are not subject to
any statutory restrictions under the 1940 Act with respect to limiting the
investment of their assets in one or relatively few issuers. This concentration
may present greater risks than in the case of a diversified company. However,
each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In
order so to qualify under current law, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's total assets must be
represented by cash, U.S. government securities, investment company securities
and other securities limited in respect of any one issuer (or related issuers)
to not more than 5% in value of the total assets of the Fund and not more than
10% of the outstanding voting securities of such issuer. In addition, and again
under current law, at the close of each quarter of its taxable year, not more
than 25% in value of the Fund's total assets may be invested in securities,
other than U.S. government securities, of one issuer (or related issuers).

Each Fund 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.

MUNICIPAL OBLIGATIONS

As a fundamental policy, each of the Tax Free Funds invests at least 80%
of its assets, under normal circumstances, in:

(1) Municipal bonds with remaining maturities of one year (397 days
for California Tax Free Reserves and Connecticut Tax Free Reserves) 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 (and, for Connecticut Tax Free Reserves, present a
minimal credit risk as determined by the Adviser) 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 (397 days
for California Tax Free Reserves and Connecticut Tax Free Reserves) 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 (and, for Connecticut Tax Free Reserves, present a minimal credit
risk as determined by the Adviser) 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
(and, for Connecticut Tax Free Reserves, present a minimal credit risk as
determined by the Adviser) 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 a Tax Free Fund, a rated Municipal
Obligation may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event requires sale of
such Municipal Obligation by the Fund (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 Fund should
continue to hold the Municipal Obligation. To the extent that the ratings
given to the Municipal Obligations or other securities held by a Tax Free
Fund are altered due to changes in any of the Moody's, Standard & Poor's
or Fitch ratings systems (see Appendix A to this Statement of Additional
Information 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 above and 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.
CitiFunds Multi-State Tax Free Trust's and Tax Free Reserves Portfolio's
Boards of Trustees have 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" (e.g.,
within the two highest ratings assigned by Moody's, Standard & Poor's or
Fitch or, if not rated, are of comparable quality as determined by the
Adviser), or where the obligations are not freely transferable, a Tax
Free Fund 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.

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 ("PABs") 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. PABs are, in most cases, revenue bonds. The payment
of the principal and interest on PABs 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
PABs may not be readily marketable; however, it is expected that the PABs
or the participation certificates in PABs 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 bonds may be issued as "zero coupon" obligations.
Zero-coupon bonds are issued at a significant discount from their
principal amount in lieu of paying interest periodically. Because
zero-coupon bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market interest
rates than bonds that pay interest currently. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current interest
payments. Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently in cash. Each Tax Free Fund is required
to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though zero-coupon bonds
do not pay current interest in cash. Thus, it may be necessary at times
for a Fund to liquidate investments in order to satisfy its dividend
requirements.

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.

For an explanation of the ratings of Municipal Obligations by
Moody's, Standard & Poor's and Fitch, see Appendix A to this Statement of
Additional Information. For a comparison of yields on such Municipal
Obligations and taxable securities, see the Appendix to the Prospectus.

MUNICIPAL LEASE OBLIGATIONS. Participations in municipal leases are
undivided interests in a portion of a lease or installment purchase
issued by a state or local government to acquire equipment or facilities.
Municipal leases frequently have special risks not normally associated
with general obligation bonds or revenue bonds. Many leases include
"non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. Although the obligations will
be secured by the leased equipment or facilities, the disposition of the
property in the event of non-appropriation or foreclosure might, in some
cases, prove difficult. Municipal lease obligations are deemed to be
illiquid unless otherwise determined by the Board of Trustees.

VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS

Each of the Tax Free Funds may purchase variable rate instruments and
participation interests. Variable rate instruments that the Tax Free Funds 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 Tax Free Funds' 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. An unrated variable
rate instrument may be determined to meet a Fund'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 Fund 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 a Tax Free Fund's high
quality criteria.

Variable rate instruments in which the Tax Free Funds 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 Fund receiving
a variable rate on its investment. A participation interest gives a Tax Free
Fund an undivided interest in the Municipal Obligation in the proportion that
the Fund'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 the Adviser to meet the prescribed quality standards of a Tax
Free Fund. Each Tax Free Fund 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 Fund's participation in the security, plus accrued interest. Each Tax Free
Fund 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 Fund in
order to facilitate withdrawals from the Fund, 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 Fund'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 a Tax Free Fund. With respect to
insurance, each of the Tax Free Funds will attempt to have the issuer of the
participation interest bear the cost of the insurance, although the applicable
Fund may also purchase insurance, in which case the cost of insurance will be an
expense of the Fund. The Adviser has been instructed by the Trusts' Boards of
Trustees to monitor continually the pricing, quality and liquidity of the
variable rate instruments held by the Tax Free Funds, including the
participation interests, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which a
Fund may subscribe. Although participation interests may be sold, each Tax Free
Fund intends to hold them until maturity, except under the circumstances stated
above. Participation interests may include municipal lease obligations. Purchase
of a participation interest may involve the risk that a 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.

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 interest rate 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 each Tax Free Fund'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, each Tax Free
Fund'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 a
Tax Free Fund 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 Fund 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, except that an instrument issued or
guaranteed by the U.S. government or any agency thereof shall be deemed to have
a maturity equal to the period remaining until the next adjustment of the
interest rate. The maturity of a variable rate instrument will be determined in
the same manner for purposes of computing a Fund's dollar-weighted average
portfolio maturity.

In view of the "concentration" of Tax Free Reserves (including Tax Free
Reserves Portfolio for purposes of this discussion) and the possible
concentration of the other Tax Free Funds in bank participation interests in
Municipal Obligations secured by bank letters of credit or guarantees, an
investment in these Funds 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.

"WHEN-ISSUED" SECURITIES

Each of the Tax Free Funds (including Tax Free Reserves Portfolio for
purposes of this discussion) may purchase securities on a "when-issued" or
"forward delivery" basis. 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 Fund's commitment to purchase). Although the Tax
Free Funds will only make commitments to purchase "when-issued" or "forward
delivery" Municipal Obligations with the intention of actually acquiring them,
the Funds 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 a Tax Free Fund's portfolio are subject to
changes in value based upon the market'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 segregated account of a Tax
Free Fund consisting of cash or liquid debt securities equal to the amount of
the "when-issued" or "forward delivery" commitments will be established at the
Fund'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 Fund's commitments. On the
settlement date of the "when-issued" or "forward delivery" securities, the Tax
Free Fund'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 Fund'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. 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.

STAND-BY COMMITMENTS

When a Tax Free Fund (including Tax Free Reserves Portfolio for purposes
of this discussion) purchases Municipal Obligations it may also acquire stand-by
commitments from banks with respect to such Municipal Obligations. A Tax Free
Fund also may acquire stand-by commitments from broker-dealers. Under the
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 acquired by a Tax Free Fund with
respect to a particular Municipal Obligation held in the Fund's portfolio.

The amount payable to a Tax Free Fund 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 Fund 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 Fund. Absent unusual circumstances relating to a change in
market value, the Fund 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. Each Tax Free Fund values
stand-by commitments at zero for purposes of computing the value of its net
assets.

The stand-by commitments that each Tax Free Fund 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 Fund and the maturity of
the underlying security will generally be different from that of the commitment.

TAXABLE SECURITIES

Although each Tax Free Fund (including Tax Free Reserves Portfolio for
purposes of this discussion) attempts to invest 100% of its net assets in
tax-exempt Municipal Obligations, each Fund may invest up to 20% of the value of
its net assets in securities of the kind described below, the interest income on
which is subject to federal income tax. Circumstances in which a Tax Free Fund
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 Tax Free Funds' 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
obligations of the U.S. government or its agencies, instrumentalities, or
authorities. Each Tax Free Fund's assets may also be invested in Municipal
Obligations which are subject to an alternative minimum tax.

REPURCHASE AGREEMENTS

Each of the Tax Free Funds (including Tax Free Reserves Portfolio for
purposes of this discussion) may invest its assets in instruments subject to
repurchase agreements. Repurchase agreements are described in more detail below.
(See "Repurchase Agreements.")

RISK FACTORS AFFECTING INVESTMENT IN CALIFORNIA MUNICIPAL OBLIGATIONS

California Tax Free Reserves intends to invest a high proportion of its
assets in California Municipal Obligations. Payment of interest and preservation
of principal is dependent upon the continuing ability of California issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. For information concerning California
Municipal Obligations, see Appendix B to this Statement of Additional
Information.

The summary set forth in Appendix B is included for the purpose of
providing a general description of the State of California credit and financial
conditions. This summary is based on information from statements of issuers of
California Municipal Obligations and does not purport to be complete. The Trust
is not responsible for the accuracy or timeliness of this information.

RISK FACTORS AFFECTING INVESTMENT IN CONNECTICUT MUNICIPAL OBLIGATIONS

Connecticut Tax Free Reserves intends to invest a high proportion of its
assets in Connecticut Municipal Obligations. Payment of interest and
preservation of principal is dependent upon the continuing ability of
Connecticut issuers and/or obligors of state, municipal and public authority
debt obligations to meet their obligations thereunder. For information
concerning Connecticut Municipal Obligations, see Appendix C to this Statement
of Additional Information.

The summary set forth in Appendix C is included for the purpose of
providing a general description of the State of Connecticut credit and financial
conditions. This summary is based on information from statements of issuers of
Connecticut Municipal Obligations and does not purport to be complete. The Trust
is not responsible for the accuracy or timeliness of this information.

RISK FACTORS AFFECTING INVESTMENT IN NEW YORK MUNICIPAL OBLIGATIONS

New York Tax Free Reserves intends to invest a high proportion of its
assets in Municipal Obligations of the State of New York and its political
subdivisions, municipalities, agencies, instrumentalities and public
authorities. Payment of interest and preservation of principal is dependent upon
the continuing ability of New York issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.

The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.

For further information concerning New York Municipal Obligations, see
Appendix D to this Statement of Additional Information. The summary set forth
above and in Appendix D is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from statements of issuers of New York
Municipal Obligations and does not purport to be complete. The Trust is not
responsible for the accuracy or timeliness of this information.

CERTAIN ADDITIONAL RISK FACTORS

Each of California Tax Free Reserves, Connecticut Tax Free Reserves, and
New York Tax Free Reserves may invest a portion of its assets in the obligations
of the governments of Puerto Rico and other U.S. territories and their political
subdivisions. Payment of interest and preservation of principal is dependent
upon the continuing ability of such issuers and/or obligors of territorial,
municipal and public authority debt obligations to meet their obligations
thereunder. For information concerning the economy of Puerto Rico, see Appendix
E of this Statement of Additional Information.

The summary set forth in Appendix E is included for the purpose of
providing a general description of the economy of Puerto Rico. This summary is
based on information from statements of the Government of Puerto Rico and does
not purport to be complete. The Trust is not responsible for the accuracy or
timeliness of this information.

REPURCHASE AGREEMENTS

Each of the Funds and Portfolios (other than U.S. Treasury Reserves and
U.S. Treasury Reserves Portfolio, which may not invest in repurchase agreements)
may invest its assets in 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 Fund 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 Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund'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. All repurchase
agreements entered into by the Funds 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 Fund or its custodian or sub-custodian shall have
control of the collateral, which the Adviser believes will give the applicable
Fund a valid, perfected security interest in the collateral. 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 Fund
but only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, a Fund may suffer time delays and incur costs in connection
with the disposition of the collateral. The Adviser 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 Funds.
Repurchase agreements will give rise to income which will not qualify as
tax-exempt income when distributed by the Funds. A Fund will not invest in a
repurchase agreement maturing in more than seven days if any such investment
together with illiquid securities held by the Fund exceed 10% of the Fund'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, each of the Funds and Portfolios 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, a Fund
or Portfolio would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and/or with respect to
cash collateral would receive compensation based on investment of the collateral
(subject to a rebate payable to the borrower). The borrower alternatively may
pay the Fund or Portfolio a fee for use of the borrowed securities. The Fund or
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, a Fund or Portfolio could suffer loss if the
borrower terminates the loan and the Fund or 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 a Fund or Portfolio would exceed 33 1/3% of the value of its net
assets.

PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS

Each Fund and Portfolio 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 or Portfolio to sell them
promptly at an acceptable price.

INVESTMENT RESTRICTIONS

The Trusts, on behalf of the Funds, and the Portfolios have each adopted
the following policies which may not be changed without approval by holders of a
"majority of the outstanding shares" of the applicable Fund or Portfolio, which
as used in this Statement of Additional Information means the vote of the lesser
of (i) 67% or more of the outstanding voting securities of the Fund or Portfolio
present at a meeting, if the holders of more than 50% of the outstanding "voting
securities" of the Fund or Portfolio are present or represented by proxy, or
(ii) more than 50% of the outstanding "voting securities" of the Fund or the
Portfolio. The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act.

Whenever a Trust is requested to vote on a change in the investment
restrictions or fundamental policies of a Portfolio in which a Fund invests, the
Trust will hold a meeting of the corresponding Fund's shareholders and will cast
its vote as instructed by the shareholders, or will otherwise vote Fund
interests in a Portfolio in accordance with applicable law. Each Fund will vote
the shares held by its shareholders who do not give voting instructions in the
same proportion as the shares of that Fund's shareholders who do give voting
instructions. Shareholders of the Funds who do not vote will have no effect on
the outcome of these matters.

CASH RESERVES

CitiFunds Trust III, on behalf of Cash Reserves, may not:

(1) Invest in equity securities (e.g., common stock, preferred
stock, options, warrants, puts, calls), voting securities, restricted
securities, corporate debt securities (e.g., bonds, debentures) other
than those bank securities and commercial paper referred to under
"Investment Policies," local or state government securities (e.g.,
municipal bonds, state bonds), commodities or commodity contracts, real
estate, or securities of other investment companies, except that the
Trust may invest all or a portion of the Fund's assets in a diversified,
open-end management investment company with substantially the same
investment objective, policies and restrictions as the Fund. The Trust,
on behalf of the Fund, will not sell securities short, write put or call
options, engage in underwriting, or invest in companies for the purpose
of exercising control. The Trust, on behalf of the Fund, will not make
loans to other persons except that it may acquire debt securities as
discussed under "Investment Policies;'"

(2) Purchase securities or obligations of any one issuer (other
than securities issued by the U.S. government, its agencies and
instrumentalities and repurchase agreements covering such securities) if
immediately after such purchase more than 5% of the value of its assets
would be invested in that issuer except that the Trust may invest all or
a portion of the Fund's assets in a diversified, open-end management
investment company with substantially the same investment objective,
policies and restrictions as the Fund;

(3) Borrow money except from banks as a temporary measure for
extraordinary or emergency purposes (not for leveraging) or in order to
meet unexpectedly heavy redemption requests in an amount not exceeding
15% of the value of the Fund's assets and will not purchase any
securities at any time when the Fund's total outstanding borrowings from
banks exceed 5% of the Fund's gross assets. The Trust, on behalf of the
Fund, will not pledge its assets except to secure borrowings. While the
Trust, on behalf of the Fund, may borrow from its Custodian for the
foregoing purposes, any borrowing from the Custodian will be on terms no
less favorable to the Fund than those offered by the Custodian to
comparable borrowers and on terms which the Trust believes are not less
favorable than those readily obtainable elsewhere;

(4) Concentrate the Fund's investments in any particular industry,
but if it is deemed appropriate to the achievement of the Fund's
investment objective, up to 25% of the assets of the Fund (taken at
market value at the time of each investment) may be invested in any one
industry, provided that, if the Trust withdraws the Fund's investment
from an open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund, it will
invest at least 25%, and may invest up to 100%, of the assets of the Fund
in bank obligations; and provided, further, that nothing in this
Investment Restriction is intended to affect the Trust's ability to
invest 100% of the Fund's assets in a diversified, open-end management
investment company with substantially the same investment objective,
policies and restrictions as the Fund;

(5) There is no limitation on investing in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or
repurchase agreements covering those securities, except that the Trust,
on behalf of the Fund, will not acquire securities that are not readily
marketable or repurchase agreements calling for resale within more than 7
days if, as a result thereof, more than 10% of the value of its net
assets would be invested in such securities. The Trust, on behalf of the
Fund, may not invest in fixed time deposits maturing in more than seven
calendar days, and fixed time deposits maturing from two business days
through seven calendar days may not exceed 10% of the Fund's net assets.

Cash Reserves Portfolio may not:

(1) Borrow money, except that as a temporary measure for
extraordinary or emergency purposes the Portfolio may 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 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 Investment Restriction (1)
above.

U.S. TREASURY RESERVES

Neither CitiFunds Trust III, on behalf of U.S. Treasury Reserves, nor U.S.
Treasury Portfolio may:

(1) Borrow money, except that as a temporary measure for
extraordinary or emergency purposes either the Trust or the Portfolio may
borrow from banks in an amount not to exceed 1/3 of the value of the net
assets of the Fund or the Portfolio, respectively, including the amount
borrowed (moreover, neither the Trust (on behalf of the Fund) nor the
Portfolio may purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund or the Portfolio, respectively
(taken in each case at market value)) (it is intended that the Fund and
the Portfolio would borrow money only from banks and only to accommodate
requests for the repurchase of shares of the Fund or 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 either the Trust, on behalf of the Fund, or 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 that all
the assets of the Fund may be invested in the Portfolio and except
insofar as either the Trust or 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 either the Fund or the Portfolio, but not in excess of
33 1/3% of the Fund's or the Portfolio's net assets, as the case may be,
(b) through the use of 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 a portion
of an issue of debt securities which is 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 Fund and the
Portfolio reserve 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;
provided, that nothing in this Investment Restriction is intended to
affect the ability to invest 100% of the Fund's assets in the Portfolio;
or

TAX FREE RESERVES

Tax Free Reserves 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).

Tax Free Reserves has adopted the following non-fundamental policy,
which may be changed without approval by a majority of the outstanding
shares of the Fund. Tax Free Reserves 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.

Tax Free Reserves Portfolio may not:

(1) Borrow money, except that as a temporary measure for
extraordinary or emergency purposes the Portfolio may 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);

(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;

For purposes of the investment restriction in paragraph (6) above,
"bank obligations" shall include bank participation interests in
Municipal Obligations.

CALIFORNIA TAX FREE RESERVES

CitiFunds Multi-State Tax Free Trust may not with respect to California
Tax Free Reserves:

(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 Trust may invest all or
substantially all of the Fund's assets in another registered investment
company having the same investment objective and policies and
substantially the same investment 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 Trust will not make any investments on
behalf of the Fund. Interest paid on borrowings will reduce net income.

(3) Pledge, hypothecate, mortgage or otherwise encumber the Fund's
assets, except in an amount up to 15% of the value of the Fund's total
assets and only to secure borrowings for temporary or emergency purposes.

(5) Underwrite the securities of other issuers, except insofar as
the Trust may be deemed an underwriter under the Securities Act of 1933
in disposing of a portfolio security of the Fund (provided, however, that
the Trust may invest all or substantially all of the Fund's assets in
another registered investment company having the same investment
objective and policies and substantially the same investment restrictions
as the Fund).

(6) The Trust will not invest on behalf of the Fund in a repurchase
agreement maturing in more than seven days if any such investment
together with other illiquid securities held by the Fund exceed 10% of
the Fund's total net assets.

(7) 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 Trust from investing in Municipal
Obligations secured by real estate or interests in real estate.

(8) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described under
"Investment Policies" above.

(9) Purchase more than 10% of all outstanding voting securities of
any one issuer or invest in companies for the purpose of exercising
control, except that the Trust may invest all or substantially all of the
Fund's assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund.

(10) Invest more than 25% of the Fund's assets in the securities of
"issuers" in any single industry, provided that the Trust may invest more
than 25% of the Fund's assets in bank participation interests and there
shall be no limitation on the purchase of those Municipal Obligations and
other obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, except that the Trust may invest all or
substantially all of the Fund's assets in another registered investment
company having the same investment objectives and policies and
substantially the same investment restrictions as the Fund. 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 would be considered a separate security
and would be treated as an issue of such government, other entity or
bank.

(11) Invest in securities of other investment companies, except the
Trust may purchase on behalf of the Fund unit investment trust securities
(i.e., securities issued by an investment company which (i) is organized
under a trust indenture or contract of custodianship or similar
instrument, (ii) does not have a board of directors, and (iii) issues
only redeemable securities, each of which represents an undivided
interest in a unit of specified 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, except that the Trust may
invest all or substantially all of the Fund's assets in another
registered investment company having the same investment objectives and
policies and substantially the same investment restrictions as the Fund.
As of the date of this Statement of Additional Information, the Trust has
no intention of investing in unit investment trust securities on behalf
of the Fund.

For purposes of the investment restrictions described in (9) and
(10) 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. If, however, 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 treated as an issue of such
government, other entity or bank.

CONNECTICUT TAX FREE RESERVES

CitiFunds Multi-State Tax Free Trust may not with respect to Connecticut
Tax Free Reserves:

(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 Trust may invest all or
substantially all of the Fund's assets in another registered investment
company having the same investment objective and policies and
substantially the same investment 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 Trust will not make any investments on
behalf of the Fund. Interest paid on borrowings will reduce net income.

(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 Trust from investing in Municipal
Obligations secured by real estate or interests in real estate.

(7) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described under
"Investment Policies" above.

(8) Purchase more than 10% of all outstanding voting securities of
any one issuer or invest in companies for the purpose of exercising
control, except that the Trust may invest all or substantially all of the
Fund's assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund.

(9) Invest more than 25% of the Fund's assets in the securities of
"issuers" in any single industry, provided that the Trust reserves the
right to invest more than 25% of the Fund's assets in bank participation
interests and there shall be no limitation on the purchase of those
Municipal Obligations and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, except that the Trust
may invest all or substantially all of the Fund's assets in another
registered investment company having the same investment objective and
policies and substantially the same investment restrictions as the Fund.
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 SEC
rules, be considered a separate security and could be treated as an issue
of such government, other entity or bank.

(10) Invest in securities of other investment companies, except the
Trust may purchase on behalf of the Fund unit investment trust securities
(i.e., securities issued by an investment company which (i) is organized
under a trust indenture or contract of custodianship or similar
instrument, (ii) does not have a board of directors, and (iii) issues
only redeemable securities, each of which represents an undivided
interest in a unit of specified 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, except that the Trust may
invest all or substantially all of the Fund's assets in another
registered investment company having the same investment objectives and
policies and substantially the same investment restrictions as the Fund.
As of the date of this Statement of Additional Information, the Trust has
no intention of investing in unit investment trust securities on behalf
of the Fund.

(11) 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 Investment Restriction (2)
above.

For purposes of the investment restrictions described in (8) and
(9) 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. If, however, 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 SEC
rules, be considered a separate security and treated as an issue of such
government, other entity or bank.

In addition, as a matter of non-fundamental policy, the Trust will
not invest on behalf of the Fund in securities that are not readily
marketable, such as fixed time deposits and repurchase agreements
maturing in more than seven days, if such investments together with other
illiquid securities held by the Fund exceed 10% of the Fund's total net
assets.

NEW YORK TAX FREE RESERVES

CitiFunds Multi-State Tax Free Trust may not with respect to New York Tax
Free Reserves:

(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 Trust will not make any investments on
behalf of the Fund. Interest paid on borrowings will reduce net income.

(5) Underwrite the securities of other issuers, except insofar as
the Trust may be deemed an underwriter under the Securities Act of 1933
in disposing of a portfolio security of the Fund.

(6) Purchase securities subject to restrictions on disposition
under the Securities Act of 1933 ("restricted securities"). The Trust
will not invest on behalf of the Fund in a repurchase agreement maturing
in more than seven days if any such investment together with securities
that are not readily marketable held by the Fund exceed 10% of the Fund's
total net assets.

(8) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described under
"Investment Policies" above.

(9) Purchase more than 10% of all outstanding voting securities of
any one issuer or invest in companies for the purpose of exercising
control.

(10) Invest more than 25% of the Fund's assets in the securities of
"issuers" in any single industry, provided that the Trust may invest more
than 25% of the Fund's assets in bank participation interests and there
shall be no limitation on the purchase of those Municipal Obligations and
other obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities. 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 would be considered a
separate security and would be treated as an issue of such government,
other entity or bank.

(11) Invest in securities of other investment companies, except the
Trust may purchase on behalf of the Fund unit investment trust securities
(i.e., securities issued by an investment company which (i) is organized
under a trust indenture or contract of custodianship or similar
instrument, (ii) does not have a board of directors, and (iii) issues
only redeemable securities, each of which represents an undivided
interest in a unit of specified 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. As of the date of this
Statement of Additional Information, the Trust has no intention of
investing in unit investment trust securities on behalf of the Fund.

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. If,
however, 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 SEC rules, be considered a separate security and treated as an issue
of such government, other entity or bank.

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 a Fund or a Portfolio or a later
change in the rating of a security held by a Fund or a Portfolio is not
considered a violation of policy.

3. 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.

From time to time, in reports or other communications to shareholders or
in advertising or sales materials, performance of Fund shares may be compared
with current or historical performance of other mutual funds or classes of
shares of other mutual funds, as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds, financial indices such as the S&P 500 Index or
other industry or financial publications, including, but not limited to, Bank
Rate Monitor, iMoneyNet's Money Fund Report, Morningstar, Inc. and Thomson
Financial Bank Watch. A Fund may also present statistics on current and
historical rates of Money Market Deposit Accounts and Statement Savings,
Certificates of Deposit (CDs) and other bank or depository products prepared by
outside services such as Bank Rate Monitor, Inc., and compare this performance
to the current or historical performance of the Fund. Any given "performance" or
performance comparison should not be considered as representative of any
performance in the future. In addition, there may be differences between a Fund
and the various indexes and products which may be compared to the Fund. In
particular, mutual funds differ from bank deposits or other bank products in
several respects. For example, a fund may offer greater liquidity or higher
potential returns than CDs, but a fund does not guarantee your principal or your
returns, and fund shares are not FDIC insured.

Each Fund may provide annualized yield and effective 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. Any
current yield quotation of a 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 as a result of a Fund's investment in a
Portfolio or from the sale of securities or any unrealized appreciation or
depreciation on portfolio securities. 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. Any effective yield quotation of a 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.

U.S. Treasury Reserves and each Tax Free Fund may provide tax equivalent
yield quotations. 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. Any tax equivalent yield quotation of a
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 Fund also may provide yield, effective yield and tax equivalent
yield quotations for longer periods.

Each Fund may provide its period and average annualized 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. A total rate of return quotation for a 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. Period total rate 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. 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.

U.S. Treasury Reserves and each Tax Free Fund may provide tax equivalent
total rates of return. 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. Any tax
equivalent total rate of return quotation of a 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 each
Fund for the periods indicated. The Class A shares of Cash Reserves were newly
offered in 1999. Performance results for the Class A shares of Cash Reserves
after class inception on January 4, 1999 are based on actual performance,
whereas performance results before that date are based on Class N performance,
adjusted to reflect differences in sales charges (but not the differences in
fees and expenses). All outstanding shares of U.S. Treasury Reserves, Tax Free
Reserves, California Tax Free Reserves, Connecticut Tax Free Reserves, and New
York Tax Free Reserves were designated Class N shares on July 14, 2000.
Cititrade shares of each Fund are newly offered and have no investment history.
Performance results include any applicable fee waivers or expense subsidies in
place during the time period, which may cause the results to be more favorable
than they would otherwise have been.

REDEEMABLE VALUE
OF A HYPOTHETICAL
ANNUALIZED $1,000 INVESTMENT
TOTAL AT THE END OF THE
PERIOD RATE OF RETURN PERIOD
------ -------------- -----------------

CASH RESERVES
CLASS N
Ten years ended August 31, 1999........... 5.00% $1,629.66
Five years ended August 31, 1999.......... 5.06% $1,280.03
One year ended August 31, 1999............ 4.63% $1,046.32

CLASS A
Ten years ended August 31, 1999........... 5.00% $1,629.66
Five years ended August 31, 1999.......... 5.06% $1,280.03
One year ended August 31, 1999............ 4.63% $1,046.32

U.S. TREASURY RESERVES
CLASS N
May 3, 1991 (commencement of operations)
to August 31, 1999..................... 4.09% $1,396.12
Five years ended August 31, 1999.......... 4.57% $1,250.54
One year ended August 31, 1999............ 4.02% $1,040.19

TAX FREE RESERVES
CLASS N
Ten years ended August 31, 1999........... 3.26% $1,378.38
Five years ended August 31, 1999.......... 3.01% $1,159.79
One year ended August 31, 1999............ 2.66% $1,026.58

CALIFORNIA TAX FREE RESERVES
CLASS N
March 10, 1992 (commencement of operations)
to August 31, 1999..................... 2.83% $1,231.92
Five years ended August 31, 1999.......... 3.01% $1,159.56
One year ended August 31, 1999............ 2.50% $1,025.02

CONNECTICUT TAX FREE RESERVES
CLASS N
December 1, 1993 (commencement of operations)
to August 31, 1999..................... 2.98% $1,183.71
Five years ended August 31, 1999.......... 3.07% $1,159.56
One year ended August 31, 1999............ 2.58% $1,025.80

NEW YORK TAX FREE RESERVES
CLASS N
Ten years ended August 31, 1999........... 3.11% $1,358.81
Five years ended August 31, 1999.......... 2.96% $1,156.80
One year ended August 31, 1999............ 2.60% $1,026.03

The following table shows the annualized yield and effective
compound annualized yield for each Fund for the seven-day period ended
August 31, 1999:

COMPOUND
ANNUALIZED YIELD ANNUALIZED YIELD
---------------- ----------------

Cash Reserves, Class N............. 4.69% 4.80%
Cash Reserves, Class A............. 4.69% 4.80%
U.S. Treasury Reserves, Class N.... 3.99% 4.07%
Tax Free Reserves, Class N......... 2.65% 2.69%
California Tax Free Reserves, Class N 2.41% 2.44%
Connecticut Tax Free Reserves, Class N 2.53% 2.56%
New York Tax Free Reserves, Class N 2.58% 2.61%

The annualized tax equivalent yields for the seven-day period ended August
31, 1999 were as follows for Class N shares of the Tax Free Funds: U.S. Treasury
Reserves 4.50% (assuming a combined state and local tax rate of 11.307% for New
York City residents); Tax Free Reserves 4.39% (assuming a federal tax bracket of
39.60%); California Tax Free Reserves 3.39% (assuming (i) a combined California
State and federal tax bracket of 45.22% and (ii) that 77.08% of the Fund's
assets were invested in California Municipal Obligations); Connecticut Tax Free
Reserves 3.40% (assuming (i) a combined Connecticut State and federal tax
bracket of 42.32% and (ii) that 77.43% of the Fund's assets were invested in
Connecticut Municipal Obligations); and New York Tax Free Reserves 3.83%
(assuming (i) a combined New York State, New York City and federal tax bracket
of 46.43% and (ii) that 79.45% of the Fund's assets were invested in New York
Municipal Obligations).

For advertising and sales purposes, the Funds will generally use the
performance of Class N shares. All outstanding Cash Reserves shares were
designated Class N shares on January 4, 1999, and all outstanding shares of the
other Funds were designated Class N shares on July 14, 2000. Cash Reserves
commenced offering Class A shares on January 4, 1999, and Cash Reserves and the
other Funds commenced offering Cititrade shares on July 14, 2000. If the
performance of Cash Reserves' Class A shares or of any Fund's Cititrade shares
is used for advertising and sales purposes, performance after the class
inception date will be actual performance, while performance prior to that date
will be Class N performance, adjusted to reflect the differences in sales
charges (if any) but not the differences in fees and expenses among the classes.
The performance of Cititrade shares of any Fund generally would have been lower
than Class N performance, because the expenses attributable to the Cititrade
shares are higher than the expenses attributable to the Class N shares. Fund
performance may also be presented in advertising and sales literature without
the inclusion of sales charges.

4. DETERMINATION OF NET ASSET VALUE

The net asset value of each share of each class of the Funds 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 3:00 p.m.,
Eastern time, for Cash Reserves and 12:00 noon, Eastern time, for the other
Funds. Net asset value is calculated for each class of a Fund by dividing the
value of the Fund's net assets (i.e., the value of its assets attributable to a
class, including its investment in its underlying Portfolio, if any, less its
liabilities, including expenses payable or accrued) by the number of the shares
of the class outstanding at the time the determination is made. 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. 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 each
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 Funds
and Portfolios employ specific investment policies and procedures to accomplish
this result.

The value of a 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 corresponding Fund is determined. The net asset value of a Fund's
investment in the corresponding 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 a Fund or 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 Fund or Portfolio to deviate more than 1/2 of 1% from their value
determined on the basis of amortized cost, the applicable Trust's or 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 Fund or
Portfolio would receive if the instrument were sold.

Pursuant to the rules of the SEC, the Trusts' and the Portfolios' Boards
of Trustees have established procedures to stabilize the value of the Funds' and
Portfolios' 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 a Fund or Portfolio, the applicable Trust'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 Funds and Portfolios
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 (in the case
of all Funds and Portfolios other than U.S. Treasury Reserves and U.S. Treasury
Reserves Portfolio which may not invest in repurchase agreements) subject to a
repurchase agreement having a duration of greater than 397 days, 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 Trusts and
Portfolios also have established procedures to ensure that securities purchased
by the Funds and Portfolios meet high quality criteria. (See "Investment
Objectives, Policies and Restrictions -- Investment Policies.")

Because of the short-term maturities of the portfolio investments of each
Fund, the Funds do not expect to realize any material 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 "Certain Additional 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 then 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 (and each class of a Fund) will have a
positive net income at the time of each determination thereof. If for any reason
a Fund's or a class' 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 in
that Fund or class 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 of that Fund or class 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.

5. MANAGEMENT

Each Fund and 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 Cash Reserves, U.S.
Treasury Reserves and Tax Free Reserves are different from a majority of the
disinterested Trustees of their corresponding Portfolios.

The Trustees and officers of the Trusts and the Portfolios, 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 a
Trust or a Portfolio. Unless otherwise indicated below, the address of each
Trustee and officer is 21 Milk Street, Boston, Massachusetts. The address of
Cash Reserves Portfolio is Elizabethan Square, George Town, Grand Cayman,
British West Indies. The address of U.S. Treasury Reserves Portfolio and Tax
Free Reserves Portfolio is 21 Milk Street, Boston, Massachusetts.

TRUSTEES OF CITIFUNDS TRUST III AND TAX FREE RESERVES

PHILIP W. COOLIDGE; 48* -- President of the Trusts and the Portfolios; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.

C. OSCAR MORONG, JR.; 65 -- Chairman of the Boards of Trustees of the Trusts;
Managing Director, Morong Capital Management (since February, 1993); Director,
Indonesia Fund (from 1990 to 1999); Director, MAS Funds (since 1993).

WALTER E. ROBB, III; 73 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President and Treasurer, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds (since 1985).

E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (from 1987 to 1999).

TRUSTEES OF CITIFUNDS MULTI-STATE TAX FREE TRUST

ELLIOTT J. BERV; 57 -- President and Chief Executive Officer, Catalyst, Inc.
(Management Consultants) (since June, 1992); President and Director, Elliott J.
Berv & Associates (Management Consultants) (since May, 1984); Chief Executive
Officer, Rocket City Enterprises (Consulting, Publishing, Internet Services
(since January, 2000).

PHILIP W. COOLIDGE; 48* -- President of the Trusts and the Portfolios; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.

MARK T. FINN; 56 -- President and Director, Delta Financial, Inc. (since June,
1983); Chairman of the Board and part Owner, FX 500 Ltd. (Commodity Trading
Advisory Firm) (April, 1990 to February, 1996); General Partner and shareholder,
Greenwich Ventures LLC (Investment Partnership) (since January, 1996);
President, Secretary and Owner, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March, 1997); Director, Chairman and Owner, Vantage Consulting
Group, Inc. (since October, 1988).

RILEY C. GILLEY; 73 -- Vice President and General Counsel, Corporate Property
Investors (November, 1988 to December, 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (Retired, December, 1987).

DIANA R. HARRINGTON; 60 -- Professor, Babson College (since 1994); Trustee, The
Highland Family of Funds (March, 1997 to March, 1998).

SUSAN B. KERLEY; 48 -- Consultant, Global Research Associates, Inc. (Investment
Research) (since September, 1990); Director, Mainstay Institutional Funds (since
December, 1990).

E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (from 1987 to 1999).

TRUSTEES OF THE PORTFOLIOS

PHILIP W. COOLIDGE; 48* -- President of the Trusts and the Portfolios; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.

RILEY C. GILLEY; 73 -- Vice President and General Counsel, Corporate Property
Investors (November, 1988 to December, 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (Retired, December, 1987).

OFFICERS OF THE TRUSTS AND PORTFOLIOS

PHILIP W. COOLIDGE; 48* -- President of the Trusts and the Portfolios; Chief
Executive Officer and President, Signature Financial Group, Inc., and CFBDS.

CHRISTINE D. DORSEY; 29* -- Assistant Secretary and Assistant Treasurer of
Trusts and the Portfolios; Vice President, Signature Financial Group, Inc.
(since January, 1996); Paralegal and Compliance Officer, various financial
companies (July, 1992 to January, 1996).

LINWOOD C. DOWNS; 38* -- Treasurer of the Trusts and the Portfolios; Chief
Financial Officer and Senior Vice President, Signature Financial Group, Inc.,
Treasurer, CFBDS.

TAMIE EBANKS-CUNNINGHAM; 27* -- Assistant Secretary of the Trusts and the
Portfolios; Office Manager, Signature Financial Group (Cayman) Ltd. (Since April
1995); Administrator, Cayman Islands Primary School (prior to April 1995). Her
address is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.

SUSAN JAKUBOSKI; 36* -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trusts and the Portfolios; Vice President, Signature Financial
Group (Cayman) Ltd (since July 1994).

MOLLY S. MUGLER; 48* -- Assistant Secretary and Assistant Treasurer of the
Trusts and the Portfolios; Vice President, Signature Financial Group, Inc.;
Assistant Secretary, CFBDS.

JULIE J. WYETZNER; 40* -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trusts and the Portfolios; Vice President, Signature Financial
Group, Inc.

The Trustees and officers of the Trusts and the Portfolios 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>
TOTAL
COMPENSA-
AGGREGATE AGGREGATE AGGREGATE AGGREGATE PENSION OR TION FROM
AGGREGATE COMPENSA- AGGREGATE COMPENSA- COMPENSA- COMPENSA- RETIREMENT THE TRUSTS
COMPENSA- TION FROM COMPENSA- TION FROM TION FROM TION FROM BENEFITS ESTIMATED AND FUND
TION FROM U.S. TION FROM CALIFORNIA CONNECTICUT NEW YORK ACCRUED AS ANNUAL COMPLEX
CASH TREASURY TAX FREE TAX FREE TAX FREE TAX FREE PART OF BENEFITS PAID TO
RESERVES RESERVES RESERVES RESERVES RESERVES RESERVES FUND UPON TRUSTEES
TRUSTEE (1) (1) (1) (1) (1) (1) EXPENSES RETIREMENT (1)(2)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Elliott J. Berv. N/A N/A N/A $1,313 $1,011 $4,242 None None $69,500
Philip W. Coolidge $0 $0 $0 $0 $0 $0 None None $0
Mark T. Finn N/A N/A N/A $2,472 $1,647 $8,788 None None $63,250
Riley C. Gilley N/A N/A N/A $1,121 $905 $3,480 None None $65,250
Diana R. Harrington N/A N/A N/A $1,904 $1,325 $6,479 None None $71,250
Susan B. Kerley N/A N/A N/A $1,853 $1,299 $6,292 None None $69,750
C. Oscar Morong, Jr. $16,133 $3,303 $5,094 $2,506 $1,644 $8,763 None None $92,000
Walter E. Robb, III(3) $3,344 $1,299 $1,978 $1,175 $936 $3,706 None None $67,500
E. Kirby Warren. $7,997 $2,225 $3,398 $1,498 $1,107 $4,925 None None $62,750
William S. Woods, Jr.(4) $3,588 $793 $1,211 $2,420 $1,609 $3,508 None None $66,000
</TABLE>

(1) Information is for the fiscal year ended August 31, 1999.
(2) Messrs. Berv, Coolidge, Finn, Gilley, Morong, Robb, Warren and Woods
and Mses. Harrington and Kerley are trustees of 27, 49, 26, 33, 40, 30, 40,
26, 28 and 28 funds and portfolios, respectively, in the family of open-end
registered investment companies advised or managed by Citibank.
(3) Mr. Robb was appointed as a trustee of CitiFunds Trust III and Tax Free
Reserves as of September 1, 1998.
(4) Effective December 31, 1999, Mr. Woods became a Trustee Emeritus of
CitiFunds Multi-State Tax Free Trust. Per the terms of the Trust's Trustee
Emeritus Plan, Mr. Woods serves the Board of Trustees in an advisory
capacity. As a Trustee Emeritus, Mr. Woods is paid 50% of the annual
retainer fee and meeting fees otherwise applicable to Trustees, together
with reasonable out-of-pocket expenses for each meeting attended.

As of June 30, 2000, all Trustees and officers as a group owned less than
1% of each Fund's outstanding shares. As of the same date, more than 95% of the
outstanding shares of each Fund were held of record by Citibank or an affiliate,
as a Shareholder Servicing Agent of the Funds, for the accounts of their
respective clients.

The Declaration of Trust of each of the Trusts and the Portfolios provides
that such Trust 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 such
Trust or Portfolio, as the case may be, unless, as to liability to such Trust 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 such
Trust or 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 such Trust or 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 each Portfolio and CitiFunds Multi-State
Tax Free Trust pursuant to separate investment advisory agreements (the
"Advisory Agreements"). Subject to such policies as the Board of Trustees of the
Portfolios or Trust, as applicable, may determine, the Adviser manages the
securities of each Portfolio and California Tax Free Reserves, Connecticut Tax
Free Reserves and New York Tax Free Reserves and makes investment decisions for
each Portfolio and such Funds. The Adviser furnishes at its own expense all
services, facilities and personnel necessary in connection with managing each
Portfolio's and California Tax Free Reserves', Connecticut Tax Free Reserves'
and New York Tax Free Reserves' investments and effecting securities
transactions for each Portfolio and such Funds. Each of the Advisory Agreements
will continue in effect as long as such continuance is specifically approved at
least annually by the Board of Trustees of the applicable Portfolio or Trust or
by a vote of a majority of the outstanding voting securities of the applicable
Portfolio or Fund, and, in either case, by a majority of the Trustees of the
applicable Portfolio or Trust who are not parties to such Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Agreement.

Each Advisory Agreement provides that the Adviser may render services to
others. Each Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the applicable Portfolio or
Trust when authorized either by a vote of a majority of the outstanding voting
securities of the applicable Portfolio or Fund or by a vote of a majority of the
Board of Trustees of the applicable Portfolio or Trust, 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. Each 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 applicable
Portfolio or Fund, except for willful misfeasance, bad faith or gross negligence
or reckless disregard of its or their obligations and duties under the Advisory
Agreement.

For its services under the Advisory Agreements, the Adviser receives
investment advisory fees, which are accrued daily and paid monthly, of 0.15% of
Cash Reserves Portfolio's and U.S. Treasury Reserves Portfolio's average daily
net assets and 0.20% of Tax Free Reserves Portfolio's, California Tax Free
Reserves', Connecticut Tax Free Reserves' and New York Tax Free Reserves'
average daily net assets, in each case on an annualized basis for the Fund's or
Portfolio's then-current fiscal year. The Adviser has voluntarily agreed to
waive a portion of its investment advisory fee.

CASH RESERVES PORTFOLIO: For the fiscal years ended August 31, 1997, 1998
and 1999, the fees paid to Citibank under the Advisory Agreement, after waivers,
were $4,395,286, $6,739,206 and $9,422,276, respectively.

U.S. TREASURY RESERVES PORTFOLIO: For the fiscal years ended August 31,
1997, 1998 and 1999, the fees paid to Citibank under the Advisory Agreement,
after waivers, were $494,339, $578,350 and $614,718, respectively.

TAX FREE RESERVES PORTFOLIO: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to Citibank under the Advisory Agreement, after
waivers, were $506,142, $659,288 and $824,462, respectively.

CALIFORNIA TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to Citibank under the Advisory Agreement, after
waivers, were $187,339, $292,561 and $383,383, respectively.

CONNECTICUT TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to Citibank under the Advisory Agreement, after
waivers, were $141,986, $173,117 and $186,539, respectively.

NEW YORK TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to Citibank under the Advisory Agreement, after
waivers, were $1,144,036, $1,316,731 and $1,436,852, respectively.

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.

ADMINISTRATORS

Pursuant to Administrative Services Agreements (the "Administrative
Services Agreements"), CFBDS provides the Trusts, U.S. Treasury Reserves
Portfolio and Tax Free Reserves Portfolio, and SFG provides Cash Reserves
Portfolio, with general office facilities, and CFBDS supervises the overall
administration of the Trusts, U.S. Treasury Reserves Portfolio and Tax Free
Reserves Portfolio and SFG supervises the overall administration of Cash
Reserves 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 Trusts and the Portfolios; the
preparation and filing of all documents required for compliance by the Trusts
and the Portfolios with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trusts and the Portfolios. CFBDS and SFG
provide persons satisfactory to the Board of Trustees of the Trusts and the
Portfolios to serve as Trustees and officers of the Trusts and the Portfolios.
Such 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 Cash Reserves and U.S.
Treasury Reserves, 0.25% of the average daily net assets of 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.

CASH RESERVES: For the fiscal years ended August 31, 1997, 1998 and 1999,
the fees paid to CFBDS from the Fund under the Administrative Services
Agreement, after waivers, were $4,429,870, $5,538,777 and $7,935,090,
respectively. For the fiscal years ended August 31, 1997, 1998 and 1999, the
fees payable to SFG under the Administrative Services Agreement were voluntarily
waived.

U.S. TREASURY RESERVES: For the fiscal years ended August 31, 1997, 1998
and 1999, the fees paid to CFBDS from the Fund under the Administrative Services
Agreement with the Trust, after waivers, were $897,971, $846,110 and $842,720,
respectively. For the fiscal years ended August 31, 1997, 1998 and 1999, the
fees payable to CFBDS under the Administrative Services Agreement with the
Portfolio were voluntarily waived.

TAX FREE RESERVES: For the fiscal years ended August 31, 1997, 1998 and
1999, the fees paid to CFBDS from the Fund under the Administrative Services
Agreement with the Trust, after waivers, were $522,829, $784,522 and $873,949,
respectively. For the fiscal year ended August 31, 1997, the fee payable to
CFBDS under the Administrative Services Agreement with the Portfolio, after
waivers, was $79,252. For the fiscal years ended August 31, 1998 and 1999, the
fees payable to CFBDS under the Administrative Services Agreement with the
Portfolio were voluntarily waived.

CALIFORNIA TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to CFBDS from the Fund under the Administrative
Services Agreement with the Trust, after waivers, were $301,183, $422,331 and
$537,738, respectively.

CONNECTICUT TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to CFBDS from the Fund under the Administrative
Services Agreement with the Trust, after waivers, were $234,859, $253,409 and
$268,250, respectively.

NEW YORK TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid to CFBDS from the Fund under the Administrative
Services Agreement with the Trust, after waivers, were $1,711,547, $1,872,505
and $2,187,095, respectively.

By Agreement, the Trusts acknowledge that the name CitiFunds is the
property of Citigroup Inc. and provide that if Citibank ceases to serve as the
Adviser of the Trusts, the Trusts and the Funds will change their respective
names so as to delete the word CitiFunds. The Agreements with the Trusts also
provide that Citibank may permit other investment companies in addition to the
Trusts to use the word "CitiFunds" in their names.

The Administrative Services Agreements with the Trusts and the Portfolios
provide that CFBDS or SFG, as the case may be, may render administrative
services to others. The Administrative Services Agreements with the Trusts and
the Portfolios continue in effect as to a Fund or Portfolio, as applicable, if
such continuance is specifically approved at least annually by the respective
Trust's or Portfolio's Board of Trustees or by a vote of a majority of the
outstanding voting securities of the applicable Fund or Portfolio and, in either
case, by a majority of the Trustees of the Trust or Portfolio who are not
interested parties of the Trust, Portfolio or CFBDS. The Administrative Services
Agreements with the Trusts and the Portfolios terminate automatically if they
are assigned and may be terminated as to a Fund or Portfolio by the applicable
Trust or Portfolio without penalty by vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as applicable, or by either party
thereto on not more than 60 days' nor less than 30 days' written notice. The
Administrative Services Agreements with the Trusts and the Portfolios also
provide that neither CFBDS 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 Trusts or the Portfolios, 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 Agreements.

CFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group,
Inc.

Pursuant to Sub-Administrative Services Agreements (the
"Sub-Administrative Agreements"), Citibank performs such sub-administrative
duties for the Trusts and the Portfolios as are from time to time agreed upon by
Citibank and, as the case may be, CFBDS or SFG. Citibank's sub-administrative
duties may include providing equipment and clerical personnel necessary for
maintaining the organization of the Trusts and the Portfolios, participation in
preparation of documents required for compliance by the Trusts and the
Portfolios with applicable laws and regulations, preparation of certain
documents in connection with meetings of Trustees and shareholders of the Trusts
and Portfolios, and other functions which would otherwise be performed by CFBDS
as set forth above. For performing such sub-administrative services, Citibank
receives such compensation as is from time to time agreed upon by Citibank and,
as the case may be, CFBDS or SFG not in excess of the amount paid to CFBDS or
SFG for its services under the applicable Administrative Services Agreement. All
such compensation is paid by CFBDS or SFG, as the case may be.

DISTRIBUTOR

Each of the Trusts has adopted Distribution Plans ("Distribution Plans")
in accordance with Rule 12b-1 under the 1940 Act after having concluded that
there is a reasonable likelihood such Distribution Plans will benefit the
applicable Funds and their shareholders.

Each Distribution Plan with respect to Class N shares of the Funds
provides that the applicable Trust shall pay a distribution fee to the
Distributor at an annual rate not to exceed 0.10% of the average daily net
assets of each Fund (exclusive of any advertising expenses incurred by the
Distributor in connection with the sale of shares of each Fund). The
Distribution Plans with respect to Class N shares also permit each Fund to pay
the Distributor an additional fee (not to exceed 0.10% per annum of the average
daily net assets) in anticipation of, or as reimbursement for, print or
electronic media advertising expenses incurred in connection with the sale of
Fund shares. No payments under a Distribution Plan are made to Shareholder
Servicing Agents, although Shareholder Servicing Agents receive payments under
the Administrative Services Plans referred to below.

The Distribution Plans for the Class A shares of Cash Reserves provide
that the Class A shares shall pay a distribution and/or service fee at an annual
rate not to exceed 0.20% of the average daily net assets of Cash Reserves
represented by Class A shares.

The Distribution Plans for the Cititrade shares of the Funds allow a Fund
to pay the Distributor, a broker-dealer or financial institution that has
entered into a service agreement with the Distributor concerning the Funds, or
others a monthly service fee at an annual rate not to exceed 0.10% of the
average daily net assets represented by Cititrade shares. The Distribution Plans
for the Cititrade shares also allow a Fund to pay the Distributor, a
broker-dealer or financial institution, or others a monthly distribution fee not
to exceed 0.50% of the average daily net assets represented by Cititrade shares.

Each Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
applicable Trust's Trustees and a majority of the Trust's Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreement related to the Plan ("Qualified Trustees"). Each
Distribution Plan requires that the applicable Trust 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. Each Distribution Plan further provides
that the selection and nomination of the Qualified Trustees is committed to the
discretion of the Qualified Trustees then in office who are not interested
Trustees of the Trust. Each Distribution Plan may be terminated with respect to
any Fund at any time by a vote of a majority of the applicable Trust's Qualified
Trustees or by a vote of a majority of the outstanding voting securities of the
applicable class. A Distribution Plan may not be amended to increase materially
the amount of a class' permitted expenses thereunder without the approval of a
majority of the outstanding voting securities of that class, 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 a 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 each Distribution Plan, CFBDS acts as the agent of the
Funds in connection with the offering of shares of the Funds pursuant to a
Distribution Agreement (the "Distribution Agreement"). Under the Distribution
Agreements, CFBDS is obligated to use its best efforts to sell shares of each
class of each Fund. 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 each of
the Funds to prospective investors. The Prospectus contains a description of
fees payable to the Distributor under the Distribution Agreements. During the
period they are in effect, each Distribution Plan and Distribution Agreement
obligates the applicable 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 distribution fees to CFBDS until either its
applicable 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. The Distributor has voluntarily agreed to waive a
portion of the fees payable to it by Connecticut Tax Free Reserves and New York
Tax Free Reserves on a month-to-month basis.

Fees paid under the Distribution Plans with respect to Cititrade shares
may be used to make payments to the Distributor for distribution services, to a
broker-dealer or financial institution that has entered into a service agreement
with the Distributor concerning the Funds, or others in respect of the sale of
Cititrade shares, and to make payments for advertising, marketing or other
promotional activity, and payments for preparation, printing and distribution of
prospectuses, statements of additional information and reports for recipients
other than regulators and existing shareholders. Fees also may be used to make
payments to the Distributor, a broker-dealer or financial institution that has
entered into a service agreement with the Distributor concerning the Funds, or
others for providing personal service or the maintenance of shareholder
accounts. The amounts paid by the Distributor to each recipient may vary based
upon certain factors, including, among other things, the levels of sales of
Cititrade shares and/or shareholder services provided.

CASH RESERVES: For the fiscal years ended August 31, 1997, 1998 and 1999,
the fees paid from the Fund to the Distributor under the Distribution Agreement
for Class N shares, after waivers, were $996,306, $1,262,825 and $496,472,
respectively, none of which was applicable to print or electronic media
advertising. For the period from January 4, 1999 (commencement of operations) to
August 31, 1999, the fees due to the Distributor under the Distribution
Agreement for Class A shares were voluntarily waived.

U.S. TREASURY RESERVES: For the fiscal years ended August 31, 1997, 1998
and 1999, the fees paid from the Fund to the Distributor under the Distribution
Agreement for Class N shares, after waivers, were $194,657, $184,159 and
$176,612, respectively, none of which was applicable to print or electronic
media advertising.

TAX FREE RESERVES: For the fiscal years ended August 31, 1997, 1998 and
1999, the fees paid from the Fund to the Distributor under the Distribution
Agreement for Class N shares, after waivers, were $162,993, $273,142 and
$308,091, respectively, none of which was applicable to print or electronic
media advertising.

CALIFORNIA TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid from the Fund to the Distributor under the
Distribution Agreement for Class N shares, after waivers, were $23,302, $38,266
and $74,694, respectively, none of which was applicable to print or electronic
media advertising.

CONNECTICUT TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid from the Fund to the Distributor under the
Distribution Agreement for Class N shares, after waivers, were $1,483, $15,904
and $22,263, respectively, none of which was applicable to print or electronic
media advertising.

NEW YORK TAX FREE RESERVES: For the fiscal years ended August 31, 1997,
1998 and 1999, the fees paid from the Fund to the Distributor under the
Distribution Agreement for Class N shares, after waivers, were $470,746,
$536,134 and $620,394, respectively, none of which was applicable to print or
electronic media advertising.

CODE OF ETHICS

The Trusts, the Portfolios, the Adviser and the Distributor each have
adopted a code of ethics pursuant to Rule 17j-1 under the Investment Company Act
of 1940, as amended. Each code of ethics permits personnel subject to such code
to invest in securities, including securities that may be purchased or held by a
Fund. However, the codes of ethics contain provisions and requirements designed
to identify and address certain conflicts of interest between personal
investment activities and the interests of the Funds. Of course, there can be no
assurance that the codes of ethics will be effective in identifying and
addressing all conflicts of interest relating to personal securities
transactions.

SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN

The Trusts have each adopted an Administrative Services Plan
("Administrative Plan") relating to each class of the Funds other than the
Cititrade class which provides that the applicable Trust may obtain the services
of an administrator, a transfer agent, a custodian, a fund accountant and one or
more Shareholder Servicing Agents, and may enter into agreements providing for
the payment of fees for such services. Under the Administrative Services Plans,
the total of the fees paid to each Administrator and Shareholder Servicing Agent
and the distribution fee paid to the Distributor (other than any fee concerning
electronic or other media advertising) may not exceed 0.70% of the average daily
net assets attributable to Class N shares of Cash Reserves and U.S. Treasury
Reserves or 0.60% of the average daily net assets attributable to Class N shares
of a Tax Free Fund, in each case on an annualized basis for the Fund's
then-current fiscal year; and such fees with respect to the Class A shares of
Cash Reserves, excluding any distribution or service fees, may not exceed 0.70%
of the Fund's average daily net assets attributable to that class on an
annualized basis for the Fund's then-current fiscal year. Within this overall
limitation, individual fees may vary. Each Administrative Plan continues in
effect if such continuance is specifically approved at least annually by a vote
of both a majority of the applicable Trust's Trustees and a majority of the
Trust's Trustees who are not "interested persons" of the Trust 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"). Each
Administrative Plan requires that at least quarterly the applicable Trust
provide to its Board of Trustees and the Board of Trustees review a written
report of the amounts expended (and the purposes therefor) under the
Administrative Plan. Each Administrative Plan may be terminated with respect to
a Fund or a class at any time by a vote of a majority of the applicable Trust's
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the Fund or the class, as the case may be. An Administrative Plan
may not be amended to increase materially the amount of a Fund's or a class'
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the Fund or the class, as the case may be, and
may not be materially amended in any case without a vote of the majority of both
the applicable Trust's Trustees and Qualified Trustees.

Each Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") 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
services provided under each Servicing Agreement, each Shareholder Servicing
Agent receives fees from each class of the Funds other than the Cititrade class
at an annual rate of 0.25% of the average daily net assets of the Fund
attributable to that class 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. For the fiscal years ended
August 31, 1997, 1998 and 1999, aggregate fees paid to Shareholder Servicing
Agents under the Servicing Agreements, after waivers, were as follows: Cash
Reserves Class N $4,065,240, $5,026,036 and $6,231,978, respectively; U.S.
Treasury Reserves Class N $848,485, $797,572 and $816,578, respectively; Tax
Free Reserves Class N $1,008,233, $1,194,360 and $1,291,979, respectively;
California Tax Free Reserves Class N $459,224, $619,577 and $769,975,
respectively; Connecticut Tax Free Reserves Class N $77,265, $377,316 and
$410,689, respectively; and New York Tax Free Reserves Class N $2,405,573,
$2,634,965 and $2,937,943, respectively. For the period from January 4, 1999
(commencement of operations) to August 31, 1999, Cash Reserves Class A paid
$8,629 to the Shareholder Servicing Agents.

Each Trust and Portfolio has entered into a Transfer Agency and Service
Agreement with Citi Fiduciary Trust Company ("Citi Fiduciary") pursuant to which
Citi Fiduciary acts as transfer agent for each Fund. Under the Transfer Agency
and Service Agreement, Citi Fiduciary maintains the shareholder account records
for the Funds, handles certain communications between shareholders and the Funds
and distributes dividends and distributions payable by the Funds. For these
services, Citi Fiduciary receives a monthly fee computed on the basis of the
number of shareholder accounts it maintains for a Fund or Portfolio during the
month and is reimbursed for out-of-pocket expenses. The principal business
address of Citi Fiduciary is 388 Greenwich Street, New York, New York 10013.

PFPC Global Fund Services ("PFPC"), located at Exchange Place, Boston,
Massachusetts 02109, serves as the sub-transfer agent with respect to the
Cititrade shares of the Funds. Under the transfer agency agreement, the
sub-transfer agent maintains the shareholder account records for the Cititrade
shares, handles certain communications between shareholders and the Funds, and
distributes dividends and distributions payable by the Funds. For these
services, the sub-transfer agent receives a monthly fee computed on the basis of
the number of shareholder accounts it maintains for the Funds during the month,
and is reimbursed for out-of-pocket expenses.

Each Trust and Portfolio also has entered into a Custodian Agreement, a
Fund Accounting Agreement, and a Sub-Transfer Agency Agreement with State Street
Bank and Trust Company, or its affiliate State Street Canada, Inc. ("State
Street"), pursuant to which custodial and fund accounting services are provided
for each Fund and Portfolio and sub-transfer agency services are provided for
the Class N shares of each Fund, the Class A shares of Cash Reserves, and the
Portfolios. Among other things, State Street calculates the daily net asset
value for the Funds and the Portfolios. Securities held for a Fund or Portfolio
may be held by a sub-custodian bank approved by the applicable Trust's or
Portfolio's Trustees. The principal business address of State Street is 225
Franklin Street, Boston, Massachusetts 02110.

The Portfolios also have adopted Administrative Services Plans (the
"Portfolio Administrative Plans") which provide that the Portfolios may obtain
the services of an administrator, a transfer agent, a custodian and a fund
accountant, and may enter into agreements providing for the payment of fees for
such services. Under the Portfolio Administrative Plans, the administrative
services fee payable to either CFBDS or SFG, as the case may be, may not exceed
0.05% of a Portfolio's average daily net assets on an annualized basis for its
then-current fiscal year. Each Portfolio Administrative Plan continues in effect
if such continuance is specifically approved at least annually by a vote of both
a majority of the applicable 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"). Each Portfolio Administrative Plan requires that the applicable
Portfolio provide to its 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. Each 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 applicable Portfolio. Neither Portfolio Administrative Plan
may be amended to increase materially the amount of permitted expenses
thereunder without the approval of a majority of the outstanding voting
securities of the applicable 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.

6. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE OF SHARES

As described in the Prospectuses for the Funds, Cash Reserves offers three
classes of shares, Class A, Class N, and Cititrade shares, and each other Fund
offers two classes of shares, Class N and Cititrade shares.

Each class of shares of a Fund represents an interest in the same
portfolio of investments. Each class is identical in all respects except that
each class bears its own class expenses, including distribution and service
fees, and each class has exclusive voting rights with respect to any
distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per share
and dividends per share will vary for each class of shares. There are no
conversion, preemptive or other subscription rights.

Shareholders of each class will share expenses proportionately for
services that are received equally by all shareholders. A particular class of
shares will bear only those expenses that are directly attributable to that
class, where the type or amount of services received by a class varies from one
class to another. The expenses that may be borne by specific classes of shares
may include (i) transfer agency fees attributable to a specific class of shares,
(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific class of shares, (iii) SEC and state
securities registration fees incurred by a specific class, (iv) the expense of
administrative personnel and services required to support the shareholders of a
specific class of shares, (v) litigation or other legal expenses relating to a
specific class of shares, (vi) accounting expenses relating to a specific class
of shares and (vii) any additional incremental expenses subsequently identified
and determined to be properly allocated to one or more classes of shares.

When you place purchase orders, please specify what class you are eligible
for. If you own shares of more than one class in the Fund, and want to sell
shares, you should specify which class of shares you wish to sell. If you fail
to specify, Class N shares will be redeemed first followed by Cititrade shares,
and then Class A shares (if applicable).

CLASS N SHARES

o Class N shares are generally available for any purchases that are not made
through an exchange. All Cash Reserves shares held prior to January 4,
1999 have been redesignated Class N shares, and all shares of the other
Funds held prior to July 14, 2000 have been redesignated Class N shares.

o Class N shares are sold at net asset value without an initial sales
charge. There are no fees or deferred sales charges when you sell your
shares.

o Class N shares may pay up to 0.10% of the average daily net assets
represented by Class N shares to compensate the Funds' Distributor for its
distribution activities. Class N shares may pay up to an additional 0.10%
of the average daily net assets represented by Class N shares in
anticipation of or as reimbursement for certain advertising expenses.
Class N shares of the Funds have lower annual expenses than Cititrade
shares.

CITITRADE SHARES

o Cititrade shares are available only to investors that have established a
customer account with the Cititrade Program and are designed solely as
sweep investments, in conjunction with an investor's Cititrade customer
account.

o Cititrade shares are sold at net asset value without an initial sales
charge. There are no fees or deferred sales charges when you sell your
shares.

o Cititrade shares may pay distribution and service fees of up to 0.60% of
the average daily net assets represented by Cititrade shares. Cititrade
shares of the Funds have higher annual expenses than Class N shares.

CLASS A SHARES OF CASH RESERVES

o Class A shares of Cash Reserves are available only to holders of Class A
shares of other CitiFunds that wish to exchange their shares for shares of
Cash Reserves. This class may therefore be convenient for shareholders
seeking a temporary investment vehicle pending an investment in the same
class of shares of another fund in the CitiFunds family.

o Class A shares of Cash Reserves are sold at net asset value without an
initial sales charge. There are no fees or deferred sales charges when you
sell your shares, unless you received your Class A shares in exchange for
Class A shares of another CitiFund on which there was a deferred sales
charge.

o Class A shares of Cash Reserves may pay distribution and service fees of
up to 0.20% of the average daily net assets represented by Class A shares.

EXCHANGES

o You may exchange your Class A shares of Cash Reserves for shares of the
same class (if available) of certain other CitiFunds or other funds
managed by Citibank. Class A shares of Cash Reserves that are not subject
to a contingent deferred sales charge may also be exchanged for shares of
certain CitiFunds or other funds managed by Citibank that offer only a
single class of shares. Class N shares of the Funds may be exchanged for
shares of certain CitiFunds or other funds managed by Citibank. Cititrade
shares of a Fund do not offer any exchange privilege.

o Generally, there is no sales charge on shares you get through an exchange.
However, if you are exchanging shares of a Fund for shares of another fund
that are subject to an initial sales charge, and if the initial sales
charge for the shares being exchanged into is greater than the sales
charge you paid to acquire the Fund shares being exchanged, you will have
to pay an initial sales charge at a rate equal to the difference.

o If you exchange your shares of a Fund for shares subject to an initial
sales charge, you may qualify for elimination or reduction of the sales
charge if you meet any of the following conditions:

|_| You held the Fund shares being exchanged as of January 4, 1999.

|_| The Fund shares being exchanged were purchased with a sales charge or
acquired through a previous exchange from shares purchased with a
sales charge.

|_| The Fund shares being exchanged represent capital appreciation or the
reinvestment of dividends or capital gains distributions.

To qualify for this reduction or elimination of the sales charge, you
must notify your Shareholder Servicing Agent at the time of exchange. You
may need to provide documentation to confirm your entitlement to the sales
charge elimination or reduction.

o The exchange privilege may be changed or terminated at any time. You
should be aware that you may have to pay taxes on your exchange.

ADDITIONAL PURCHASE AND SALE INFORMATION

Shareholders may redeem Class A and Class N shares by sending written
instructions in proper form (as determined by a shareholder's Shareholder
Servicing Agent) to their Shareholder Servicing Agents. Shareholders may redeem
or exchange Class A and Class N shares by telephone, if their account
applications so permit, by calling their Shareholder Servicing Agents. When an
investor in Cititrade shares uses his or her Cititrade Account to purchase other
investments or make other payments, Cititrade shares will be sold automatically
to cover these transactions. A shareholder may also sell (redeem) his or her
shares on any business day by calling a Cititrade account representative at
1-888-663-CITI [2484]. Shareholders are responsible for ensuring that a request
for redemption is in proper form.

During periods of drastic economic or market changes or severe weather or
other emergencies, shareholders may experience difficulties implementing a
telephone or Internet exchange or redemption. In such an event, another method
of instruction, if available, such as a written request sent via an overnight
delivery service, in the case of Class A or Class N shares, should be
considered. The Funds, each Shareholder Servicing Agent, and the Cititrade
Program will employ reasonable procedures to confirm that instructions
communicated by telephone or Internet are genuine. These procedures may include
recording of the telephone or Internet instructions and verification of a
shareholder's identity by asking for the shareholder's name, address, telephone
number, Social Security number, account number, or password identification
number. If these or other reasonable procedures are not followed, the Fund, the
Shareholder Servicing Agent, or the Cititrade Program may be liable for any
losses to a shareholder due to unauthorized or fraudulent instructions.
Otherwise, the shareholders will bear all risk of loss relating to a redemption
or exchange by telephone or Internet.

Subject to compliance with applicable regulations, the Trust and the
Portfolios have each reserved the right to pay the redemption price of shares of
the Funds or beneficial interests in the Portfolios, either totally or
partially, by a distribution in kind of 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 Trusts and the Portfolios may suspend the right of redemption or
postpone the date of payment for shares of a Fund or beneficial interests in a
Portfolio 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.

7. DEALER COMMISSIONS AND CONCESSIONS

From time to time, the Funds' Distributor or Citibank, at its expense, may
provide additional commissions, compensation or promotional incentives
("concessions") to dealers that sell or arrange for the sale of shares of the
Funds. Such concessions provided by the Funds' Distributor or Citibank may
include financial assistance to dealers in connection with preapproved
conferences or seminars, sales or training programs for invited registered
representatives and other employees, payment for travel expenses, including
lodging, incurred by registered representatives and other employees for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more Funds, and/or other dealer-sponsored events.
From time to time, the Funds' Distributor or Citibank may make expense
reimbursements for special training of a dealer's registered representatives and
other employees in group meetings or to help pay the expenses of sales contests.
Other concessions may be offered to the extent not prohibited by state laws or
any self-regulatory agency, such as the NASD.

8. PORTFOLIO TRANSACTIONS

The Portfolios' and CitiFunds Multi-State Tax Free Trust's purchases and
sales of portfolio securities usually are principal transactions. Portfolio
securities normally are 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 Portfolios and CitiFunds Multi-State
Tax Free Trust do not anticipate paying brokerage commissions. Any transaction
for which a Portfolio or a Fund 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 applicable Portfolio or Fund 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 each Portfolio and for CitiFunds Multi-State Tax
Free Trust 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, a Portfolio or Fund 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 Fund or the size of the position obtainable for the Portfolio or Fund. In
addition, when purchases or sales of the same security for a Portfolio or Fund
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 any
Portfolio or by CitiFunds Multi-State Tax Free Trust during the fiscal year
ended August 31, 1999 to the Adviser or any affiliate of the Adviser.

9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES

Each Trust's Declaration of Trust permits the Trust's Board of Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
(without par value) of each series and to divide or combine the shares of any
series into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series and to divide
such series into classes. Currently, the Funds are the only series of shares of
each of the Trusts. Each share of each class represents an equal proportionate
interest in a Fund with each other share of that class. Upon liquidation or
dissolution of a Fund, the Fund's shareholders are entitled to share pro rata in
the Fund's net assets available for distribution to its shareholders. The Trust
reserves the right to create and issue additional series and classes of shares.
Shares of each series participate equally in the earnings, dividends and
distribution of net assets of the particular series upon the liquidation or
dissolution (except for any differences among classes of shares of a series).
Shares of each series are entitled to vote separately to approve advisory
agreements or changes in investment policy, but shares of all series may vote
together in the election or selection of Trustees and accountants for the Trust.
In matters affecting only a particular series or class, only shares of that
particular series or class are entitled to vote.

Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of a Trust may elect all of the Trustees of that Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trusts are not required and have no
current intention to hold annual meetings of shareholders, but the Trusts will
hold special meetings of a Fund's shareholders when in the judgment of the
Trust'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 a Trust's
Declaration of Trust without the affirmative vote of the holders of a majority
of its outstanding shares.

Each Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Trust or of any series of the Trust, 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, conversion or similar rights.
Shares, when issued, are fully paid and non-assessable, except as set forth
below.

Each Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders of
two-thirds of the Trust's outstanding shares voting as a single class, or of the
affected series of the Trust, as the case may be, except that if the Trustees of
the Trust recommend such sale of assets, merger or consolidation, the approval
by vote of the holders of a majority of the Trust's or the affected series'
outstanding shares would be sufficient. A Trust or any series of the Trust, as
the case may be, may be terminated (i) by a vote of a majority of the
outstanding voting securities of the Trust or the affected series or (ii) by the
Trustees by written notice to the shareholders of the Trust or the affected
series. If not so terminated, each Trust will continue indefinitely.

Share certificates will not be issued.

Each Trust 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 and liabilities. However, each Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
applicable Trust and provides for indemnification and reimbursement of expenses
out of Trust property for any shareholder held personally liable for the
obligations of the Trust. Each Declaration of Trust also provides that the
applicable Trust shall maintain appropriate insurance (e.g., fidelity bonding
and errors and omissions insurance) for the protection of the Trust, 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 applicable Trust itself was unable to meet
its obligations.

Each Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he or she 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 or her office.

Each Portfolio is organized as a trust under the laws of the State of New
York. Each Portfolio's Declaration of Trust provides that investors in the
Portfolio (e.g., other investment companies (including the corresponding Fund),
insurance company separate accounts and common and commingled trust funds) are
each liable for all obligations of the Portfolio. However, the risk of a Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the applicable
Portfolio itself was unable to meet its obligations. It is not expected that the
liabilities of any Portfolio would ever exceed its assets.

Each investor in a Portfolio, including the corresponding Fund, may add to
or reduce its investment in the Portfolio on each business day. At 3:00 p.m.,
Eastern time, for Cash Reserves Portfolio, and 12:00 noon, Eastern time, for
U.S. Treasury Reserves Portfolio and Tax Free Reserves Portfolio, 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 re-computed 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 3:00 p.m. Eastern time, for Cash
Reserves Portfolio, and 12:00 noon, Eastern time, for U.S. Treasury Reserves
Portfolio and Tax Free Reserves Portfolio, 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 3:00 p.m., Eastern
time, for Cash Reserves Portfolio, and 12:00 noon, Eastern time, for U.S.
Treasury Reserves Portfolio and Tax Free Reserves Portfolio, 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 3:00 p.m., Eastern time, for
Cash Reserves Portfolio, and 12:00 noon, Eastern time, for U.S. Treasury
Reserves Portfolio and Tax Free Reserves Portfolio, on the following business
day of the Portfolio.

10. CERTAIN ADDITIONAL TAX MATTERS

Each of the Funds has elected to be treated and intends to qualify each
year as a "regulated investment company" under Subchapter M of 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 a Tax Free 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 a 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 generally will be required to be
paid by the Fund. If a 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. Each of the Portfolios believes that
it will not be required to pay any federal income or excise taxes.

Investment income received by Cash Reserves from non-U.S. investments may
be subject to foreign income taxes withheld at the source; Cash Reserves does
not expect to be able to pass through to shareholders any foreign tax credits or
deductions with respect to those foreign taxes. The United States has entered
into tax treaties with many foreign countries that may entitle Cash Reserves to
a reduced rate of tax or an exemption from tax on these investments. It is not
possible to determine Cash Reserves' effective rate of foreign tax in advance
since that rate depends upon the proportion of the Cash Reserves Portfolio's
assets ultimately invested within various countries.

The portion of a Tax Free 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 Tax Free Fund
provides shareholders with actual monthly percentage breakdowns, the percentage
of income designated as tax-exempt will be applied uniformly to all
distributions 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 a Tax Free Fund on their federal income
tax returns.

Because each Fund expects to earn primarily interest income, it is
expected that no Fund distributions will qualify for the dividends received
deduction for corporations.

With respect to California Tax Free Reserves, under existing California
law, if, at the close of each quarter of its taxable 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 total assets
consist of California Exempt-Interest Securities, then "California exempt-
interest dividends" attributable to such securities will be exempt from
California personal income tax. A "California exempt-interest dividend" is any
dividend distributed by California Tax Free Reserves to the extent that it is
derived from the interest received by the Fund from California Exempt-Interest
Securities (less related expenses) and designated as such by written notice to
shareholders. Distributions other than "California exempt-interest dividends" by
California Tax Free Reserves to California residents will be subject to
California personal income tax. Interest on indebtedness incurred or continued
by a shareholder in connection with the purchase of Fund shares will not be
deductible for California personal income tax purposes if the Fund distributes
dividends that are exempt from California taxation. The foregoing is only a
brief summary of some of the important tax considerations generally affecting
the taxation of dividends received by shareholders that are subject to
California personal income tax. Potential investors, including, in particular,
investors who may be subject to other taxes, such as California corporate
franchise tax, California corporate income tax or taxes of other jurisdictions,
should consult with their own tax advisers.

11. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

PricewaterhouseCoopers LLP are the independent and chartered accountants
for Cash Reserves and Cash Reserves Portfolio, respectively, providing audit
services and assistance and consultation with respect to the preparation of
filings with the SEC. Deloitte & Touche LLP are the independent accountants for
U.S. Treasury Reserves, U.S. Treasury Reserves Portfolio, Tax Free Reserves
Portfolio and each of the Tax Free Funds, providing audit services and
assistance and consultation with respect to the preparation of filings with the
SEC.

The audited financial statements of Cash Reserves (Statement of Assets and
Liabilities at August 31, 1999, Statement of Operations for the year ended
August 31, 1999, Statement of Changes in Net Assets for the years ended August
31, 1999 and 1998, Financial Highlights for each of the years in the five-year
period ended August 31, 1999, Notes to Financial Statements and Independent
Auditors' Report) and of Cash Reserves Portfolio (Portfolio of Investments at
August 31, 1999, Statement of Assets and Liabilities at August 31, 1999,
Statement of Operations for the year ended August 31, 1999, Statement of Changes
in Net Assets for the years ended August 31, 1999 and 1998, Financial Highlights
for each of the years in the five-year period ended August 31, 1999, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of Cash Reserves, are incorporated
by reference into this Statement of Additional Information and have been so
incorporated in reliance upon the reports of PricewaterhouseCoopers LLP, as
experts in accounting and auditing.

The audited financial statements of U.S. Treasury Reserves (Statement of
Assets and Liabilities at August 31, 1999, Statement of Operations for the year
ended August 31, 1999, Statement of Changes in Net Assets for the years ended
August 31, 1999 and 1998, Financial Highlights for each of the years in the
five-year period ended August 31, 1999, Notes to Financial Statements and
Independent Auditors' Report) and of U.S. Treasury Reserves Portfolio (Portfolio
of Investments at August 31, 1999, Statement of Assets and Liabilities at August
31, 1999, Statement of Operations for the year ended August 31, 1999, Statement
of Changes in Net Assets for the years ended August 31, 1999 and 1998, Financial
Highlights for each of the years in the five-year period ended August 31, 1999,
Notes to Financial Statements and Independent Auditors' Report), each of which
is included in the Annual Report to Shareholders of U.S. Treasury Reserves, 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.

The audited financial statements of Tax Free Reserves (Statement of Assets
and Liabilities at August 31, 1999, Statement of Operations for the year ended
August 31, 1999, Statement of Changes in Net Assets for the years ended August
31, 1999 and 1998, Financial Highlights for each of the years in the five-year
period ended August 31, 1999, Notes to Financial Statements and Independent
Auditors' Report) and of Tax Free Reserves Portfolio (Portfolio of Investments
at August 31, 1999, Statement of Assets and Liabilities at August 31, 1999,
Statement of Operations for the year ended August 31, 1999, Statement of Changes
in Net Assets for the years ended August 31, 1999 and 1998, Financial Highlights
for each of the years in the five-year period ended August 31, 1999, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of Tax Free Reserves, 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.

The audited financial statements of California Tax Free Reserves
(Portfolio of Investments at August 31, 1999, Statement of Assets and
Liabilities at August 31, 1999, Statement of Operations for the year ended
August 31, 1999, Statement of Changes in Net Assets for the years ended August
31, 1999 and 1998, Financial Highlights for each of the years in the five-year
period ended August 31, 1999, Notes to Financial Statements and Independent
Auditors' Report), which are included in the Annual Report to Shareholders of
California Tax Free Reserves, 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.

The audited financial statements of Connecticut Tax Free Reserves
(Portfolio of Investments at August 31, 1999, Statement of Assets and
Liabilities at August 31, 1999, Statement of Operations for the year ended
August 31, 1999, Statement of Changes in Net Assets for the years ended August
31, 1999 and 1998, Financial Highlights for each of the years in the five-year
period ended August 31, 1999, Notes to Financial Statements and Independent
Auditors' Report), which are included in the Annual Report to Shareholders of
Connecticut Tax Free Reserves, 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.

The audited financial statements of New York Tax Free Reserves (Portfolio
of Investments at August 31, 1999, Statement of Assets and Liabilities at August
31, 1999, Statement of Operations for the year ended August 31, 1999, Statement
of Changes in Net Assets for the years ended August 31, 1999 and 1998, Financial
Highlights for each of the years in the five-year period ended August 31, 1999,
Notes to Financial Statements and Independent Auditors' Report), which are
included in the Annual Report to Shareholders of New York Tax Free Reserves, 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 each of the Annual Reports accompanies this Statement of
Additional Information.

<PAGE>

APPENDIX A

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 THREE 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 are generally 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 the Aaa
securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Note: Moody's applies numerical modifiers 1, 2, and 3 in the generic
rating classifications Aa and A. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.

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.

MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

-----------
* 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.

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, unless explicitly noted.

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.

A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

Plus (+) or Minus (-): The AA and A ratings may be modified by the
addition of a plus or minus sign to show relative standing within the applicable
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 due 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 it will 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. An issue
determined to possess a very strong capacity to pay debt service is 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 guarantor, 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 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.

F1 -- Highest credit quality. Indicates the best capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.

F2 -- 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 B

ADDITIONAL INFORMATION CONCERNING

CALIFORNIA MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in California Municipal Obligations. The sources of payment for such
obligations and the marketability thereof may be affected by financial or other
difficulties experienced by the State of California (the "State") and certain of
its municipalities and public authorities. This information does not purport to
be a complete description and is based on information from statements relating
to offerings of California issuers. CitiFunds California Tax Free Reserves is
not responsible for the accuracy or timeliness of this information.

RECENT DEVELOPMENTS

In the Governor's Budget released on January 10, 2000, the Department of
Finance projected that the California economy will continue to show strong
growth in 2000, followed by more moderate gains in 2001. The projection also
assumes continued growth in the stock market, although at lower rates than the
past two years. The economic expansion has been marked by strong growth in high
technology business services (including software, computer programming and the
Internet), nonresidential construction, and tourism-related industries. The
Asian economic crisis, which dampened growth in high technology manufacturing
much of 1998 and 1999, appears to have ended. California made exports advanced
10.2 percent in the third quarter of 1999 over the comparable 1998 period, led
by a 48.5 percent increase in sales to East Asia (excluding Japan). As a result,
employment in several electronics manufacturing industries began to recover in
the latter months of 1999. Continued improvement in Asia, ongoing strength in
NAFTA partners Mexico and Canada, and stronger growth in Europe are expected to
further increase California-made exports in 2000 and 2001. Nonresidential
construction has been strong for the past four years. New residential
construction has increased since lows of the early 1990's recession, but remains
lower than during the previous economic expansion in the 1980's.

Moody's, Standard and Poor's and Fitch IBCA assigned their municipal bond
ratings of A1, A+ and AA-, respectively, to the State's general obligation
bonds. Each such rating reflects only the views of the respective rating agency,
and an explanation of the significance of such rating may be obtained from such
rating agency. There is no assurance that such ratings will continue for any
given period of time or that they will not be revised or withdrawn entirely by
such rating agency if, in the judgment of such rating agency, circumstances so
warrant. A downward revision or withdrawal of any such rating may have an
adverse effect on the market price of the State's general obligation bonds.

CONSTITUTIONAL LIMITS ON SPENDING AND TAXES

STATE APPROPRIATIONS LIMIT

The State is subject to an annual appropriations limit imposed by Article
XIII B of the State Constitution (the "Appropriations Limit"). The
Appropriations Limit does not restrict appropriations to pay debt service on
voter-authorized bonds.

Article XIII B prohibits the State from spending "appropriations subject
to limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed "the cost reasonably borne by that entity in providing the
regulation, product or service," but "proceeds of taxes" exclude most State
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.

Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriations of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.

The State's Appropriations Limit in each year is based on the limit for
the prior year, adjusted annually for changes in State per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from another
unit of government or any transfer of the financial source for the provisions of
services from tax proceeds to non tax proceeds. The measurement of change in
population is a blended average of statewide overall population growth, and
change in attendance at local school and community college ("K-14") districts.
The Appropriations Limit is tested over consecutive two-year periods. Any excess
of the aggregate "proceeds of taxes" received over such two-year period above
the combined Appropriations Limits for those two years is divided equally
between transfers to K-14 districts and refunds to taxpayers.

PROPOSITION 98

On November 8, 1988, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 changed State
funding of public education below the university level and the operation of the
State Appropriations Limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. Under Proposition 98 (as modified by Proposition
111, which was enacted on June 5, 1990), K-14 schools are guaranteed the greater
of (a) in general, a fixed percent of General Fund revenues ("Test 1"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted for changes in
the cost of living (measured as in Article XIII B by reference to State per
capita personal income) and enrollment ("Test 2"), or (c) a third test, which
would replace Test 2 in any year when the percentage growth in per capita
General Fund revenues from the prior year plus one half of one percent is less
than the percentage growth in State per capita personal income ("Test 3"). Under
Test 3, schools would receive the amount appropriated in the prior year adjusted
for changes in enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If Test 3 is used in any year, the
difference between Test 3 and Test 2 would become a "credit" to schools which
would be the basis of payments in future years when per capita General Fund
revenue growth exceeds per capita personal income growth. Legislation adopted
prior to the end of the 1988-89 Fiscal Year, implementing Proposition 98,
determined the K-14 schools' funding guarantee under Test 1 to be 40.3 percent
of the General Fund tax revenues, based on 1986-87 appropriations. However, that
percentage has been adjusted to approximately 35 percent to account for a
subsequent redirection of local property taxes, since such redirection directly
affects the share of General Fund revenues to schools.

Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.

During the recession in the early 1990's, General Fund revenues for
several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. By implementing these actions, per-pupil funding
from Proposition 98 sources stayed almost constant at approximately $4,200 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. The settlement
of this case, finalized in July, 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State is repaying
$935 million by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected as an appropriation
above the current Proposition 98 base calculation. The schools' share of the
repayment will count as appropriations that count toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact.

Substantially increased General Fund revenues, above initial budget
projections, in the fiscal years 1994-95 through 1999-00 have resulted in
retroactive increases in Proposition 98 appropriations from subsequent fiscal
years' budgets. Because of the State's increasing revenues, per-pupil funding at
the K-12 level has increased by about 50 percent from the level in place in
1991-92, and is estimated at about $6,313 per ADA in 2000-01. A significant
amount of the "extra" Proposition 98 monies in the last few years have been
allocated to special programs, including an initiative to increase the number of
computers in schools throughout the State. Furthermore, since General Fund
revenue growth is expected to continue in 2000-01, the Governor has also
proposed new initiatives to improve student achievement, provide better teacher
recruitment and training, and provide schools with advanced technology and the
opportunity to form academic partnerships to help them meet increased
expectations.

SOURCES OF TAX REVENUE

The following is a summary of the State's major revenue sources.

PERSONAL INCOME TAX

The California personal income tax, which in 1998-99 contributed about 53
percent of General Fund revenues, is closely modeled after the federal income
tax law. It is imposed on net taxable income (gross income less exclusions and
deductions). The tax is progressive with rates ranging from 1 to 9.3 percent.
Personal, dependent, and other credits are allowed against the gross tax
liability. In addition, taxpayers may be subject to an alternative minimum tax
("AMT") which is much like the federal AMT.

Taxes on capital gains realizations, which have in part been linked to
stock market performance, have become a larger component of personal income
taxes in the last few years. For the 1999 tax year, capital gains are projected
to be 17 percent of the total personal income tax liability compared to an
average of 8.5 percent for the period 1985-94.

The personal income tax is adjusted annually by the change in the consumer
price index to prevent taxpayers from being pushed into higher tax brackets
without a real increase in income.

SALES TAX

The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Sales tax accounted for about 32
percent of General Fund revenue in 1998-99. Most retail sales and leases are
subject to the tax. However, exemptions have been provided for certain
essentials such as food for home consumption, prescription drugs, gas delivered
through mains and electricity. Other exemptions provide relief for a variety of
sales ranging from custom computer software to aircraft. Pursuant to federal
law, sales over the Internet are not taxed by the State at this time.

BANK AND CORPORATION TAX

Bank and corporation tax revenues, which comprised about 10 percent of
General Fund revenues and transfers in 1998-99, are derived from the
following taxes:

1. The franchise tax and the corporate income tax are levied at an 8.84
percent rate on profits. The former is imposed on corporations for the privilege
of doing business in California, while the latter is imposed on corporations
that derive income from California sources but are not sufficiently present to
be classified as doing business in the State.

2. Banks and other financial corporations are subject to the franchise tax
plus an additional tax at the rate of 2.0 percent on their net income. This
additional tax is in lieu of personal property taxes and business license taxes.

3. The alternative minimum tax ("AMT") is similar to that in federal law.
In general, the AMT is based on a higher level of net income computed by adding
back certain tax preferences. This tax is imposed at a rate of 6.65 percent.

4. A minimum franchise tax of up to $800 is imposed on corporations
subject to the franchise tax but not on those subject to the corporate income
tax. Beginning in 2000, all new corporations are exempted from the minimum
franchise tax for the first two years of incorporation.

5. Sub-Chapter S corporations are taxed at 1.5 percent of profits.

INSURANCE TAX

The majority of insurance written in California is subject to a 2.35
percent gross premium tax. For insurers, this premium tax takes the place of all
other State and local taxes except those on real property and motor vehicles.
Exceptions to the 2.35 percent rate are certain pension and profit-sharing plans
which are taxed at the lesser rate of 0.50 percent, surplus lines and
nonadmitted insurance at 3 percent and ocean marine insurers at 5 percent of
underwriting profits. Insurance taxes comprised approximately 2.1 percent of
General Fund revenues and transfers in 1998-99.

OTHER TAXES

Other General Fund major taxes and license revenues include: Estate,
Inheritance and Gift Taxes, Cigarette Taxes, Alcoholic Beverage Taxes, Horse
Racing Revenues and trailer coach license fees. These other sources totaled
approximately 2.3 percent of General Fund revenues and transfers in the 1998-99
Fiscal Year.

SPECIAL FUND REVENUES

The California Constitution, codes and statutes specify the uses of
certain revenue. Such receipts are accounted for in various Special Funds. In
general, Special Fund revenues comprise three categories of income:

1. Receipts from tax levies which are allocated to specified functions,
such as motor vehicle taxes and fees and certain taxes on tobacco products.

2. Charges for special services to specific functions, including such
items as business and professional license fees.

3. Rental royalties and other receipts designated for particular purposes
(e.g., oil and gas royalties).

Motor vehicle related taxes and fees accounted for about 55 percent of all
Special Fund revenues and transfers in 1998-99. Principal sources of this income
are motor vehicle fuel taxes, registration and weight fees and vehicle license
fees. During the 1998-99 Fiscal Year, $8.6 billion was derived from the
ownership or operation of motor vehicles. About $4.7 billion of this revenue was
returned to local governments. The remainder was available for various State
programs related to transportation and services to vehicle owners. These amounts
include the additional fees and taxes derived from the passage of Proposition
111 in June 1990.

Chapter 322, Statutes of 1998 established a vehicle license fee offset
program. Pursuant to this chapter, vehicle license fees were reduced by 25
percent beginning January 1, 1999. In addition, Chapter 74, Statutes of 1999,
provided a one-time expansion of the offset program by an additional 10 percent
for the 2000 calendar year only, and Chapter 76, Statutes of 1999, allowed a
one-year reduction in vehicle license fees for certain commercial motor
vehicles. For 1999-00 and 2000-01, the offset program is expected to reduce
revenues by $1.350 billion and $1.712 billion, respectively. This loss of local
revenue is replaced by the State's General Fund.

Vehicle license fees, over and above the costs of collection and refunds
authorized by law, are constitutionally defined local revenues. A continuous
appropriation from the General Fund replaces the vehicle license fee revenue
that local governments would otherwise lose due to the fee reductions. If in any
year the Legislature fails to appropriate enough funds to fully offset the then
applicable vehicle license fee reduction, the percentage offset will be reduced
to assure that local governments are not disadvantaged.

In addition to the initial 25 percent reduction, Chapter 322 also sets out
a series of "trigger" levels, so that the percentage fee reduction could be
increased in annual stages up to a maximum of 67.5 percent in 2003 depending on
whether future General Fund revenues reach the target levels. In order for the
next 10 percent fee reduction, which will result in a cumulative 35 percent cut
from 1998 base levels, to go into effect permanently beginning calendar year
2001, General Fund revenues in FY 2000-01 would need to reach about $65.5
billion. Based on the current revenue forecast, the 35 percent offset will go
into effect in the 2001 calendar year.

On November 8, 1988, voters approved Proposition 99, which imposed, as of
January 1, 1989, an additional 25 cents per pack excise tax on cigarettes, and a
new, equivalent excise tax on other tobacco products. The initiative requires
that funds from this tax be allocated to anti-tobacco education and research and
indigent health services, and environmental and recreation programs. Legislation
enacted in 1993 added an additional 2 cents per pack excise tax for the purpose
of funding breast cancer research.

Proposition 10, approved in 1998, increased the excise tax imposed on
distributors selling cigarettes in California to 87 cents per pack effective
January 1, 1999. At the same time, this proposition imposed a new excise tax on
cigars, chewing tobacco, pipe tobacco, and snuff at a rate equivalent to the tax
increase on cigarettes of 50 cents per pack. In addition, the higher excise tax
on cigarettes automatically triggered an additional increase in the tax on other
tobacco products effective July 1, 1999, with the proceeds going to the
Cigarette and Tobacco Products Surtax Fund. Thus, this proposition increased the
total excise tax on other tobacco products by an amount equivalent to an
increase in the cigarette tax of one dollar per pack.

TOBACCO LITIGATION

In late 1998, the State signed a settlement agreement with the four major
cigarette manufacturers. The State agreed to drop its lawsuit and not to sue in
the future. Tobacco manufacturers agreed to billions of dollars in payments and
restrictions in marketing activities. Under the settlement, the companies will
pay California governments a total of approximately $25 billion over a period of
25 years. In addition, payments of approximately $1 billion per year will
continue in perpetuity. Under the settlement, half of the moneys will be paid to
the State and half to local governments (all counties and the cities of San
Diego, Los Angeles, San Francisco and San Jose). The State's revised 1999-2000
Budget includes receipt of $517 million of settlement money to the General Fund.
The Governor's Budget for 2000-01 projects receipt of $388 million of settlement
money to the General Fund.

The specific amount to be received by the State and local governments is
subject to adjustment. Details in the settlement allow reduction of the
companies' payments because of federal government actions, or reductions in
cigarette sales. Settlement payments can increase due to inflation or increases
in cigarette sales. The "second initial" payment, received in December 1999, was
14 percent lower than the base settlement amount due to reduced sales. Future
payment estimates have been reduced by a similar percentage. In the event that
any of the companies goes into bankruptcy, the State could seek to terminate the
agreement with respect to those companies filing bankruptcy actions thereby
reinstating all claims against those companies. The State may then pursue those
claims in the bankruptcy litigation, or as otherwise provided by law. Also,
several parties have brought a lawsuit challenging the settlement and seeking
damages; see "Litigation" below.

PRIOR YEARS' FINANCIAL RESULTS

Following a severe recession beginning in 1990, the State's financial
condition improved markedly during the fiscal years starting in 1995-96, with a
combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint based on the actions taken in
earlier years. The State's cash position also improved, and no external deficit
borrowing has occurred over the end of the last four fiscal years.

The economy grew strongly during the fiscal years beginning in 1995-96,
and as a result, the General Fund took in substantially greater tax revenues
(around $2.2 billion in 1995-96, $1.6 billion in 1996-97, $2.4 billion in
1997-98 and $1.7 billion in 1998-99) than were initially planned when the
budgets were enacted. These additional funds were largely directed to school
spending as mandated by Proposition 98, and to make up shortfalls from reduced
federal health and welfare aid in 1995-96 and 1996-97 and particularly in
1998-99 to fund new program incentives.

The following were major features of the 1998 Budget Act and certain
additional fiscal bills enacted before the end of the legislative session:

1. The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element was a bill which provided
for a phased-in reduction of the Vehicle License Fee ("VLF"). Since the VLF is
transferred to cities and counties under existing law, the bill provided for the
General Fund to replace the lost revenues. Starting on January 1, 1999, the VLF
has been reduced by 25 percent, at a cost to the General Fund of approximately
$500 million in the 1998-99 Fiscal Year and about $1 billion annually
thereafter.

In addition to the cut in VLF, the 1998-99 budget included both temporary
and permanent increases in the personal income tax dependent credit ($612
million General Fund cost in 1998-99, but less in future years), a nonrefundable
renters tax credit ($133 million), and various targeted business tax credits
($106 million).

2. Proposition 98 funding for K-14 schools was increased by $1.7 billion
in General Fund moneys over revised 1997-98 levels, over $300 million higher
than the minimum Proposition 98 guarantee. Of the 1998-99 funds, major new
programs included money for instructional and library materials, deferred
maintenance, support for increasing the school year to 180 days and reduction of
class sizes in Grade 9. The Budget also included $250 million as repayment of
prior years' loans to schools, as part of the settlement of the CTA v.
Gould lawsuit.

3. Funding for higher education increased substantially above the actual
1997-98 level. General Fund support was increased by $340 million (15.6 percent)
for the University of California and $267 million (14.1 percent) for the
California State University system. In addition, Community Colleges funding
increased by $300 million (6.6 percent).

4. The Budget included increased funding for health, welfare and social
services programs. A 4.9 percent grant increase was included in the basic
welfare grants, the first increase in those grants in 9 years.

5. Funding for the judiciary and criminal justice programs increased by
about 11 percent over 1997-98, primarily to reflect increased State support for
local trial courts and rising prison population.

6. Major legislation enacted after the 1998 Budget Act included new
funding for resources projects, a share of the purchase of the Headwaters
Forest, funding for the Infrastructure and Economic Development Bank ($50
million) and funding for the construction of local jails. The State realized
savings of $433 million from a reduction in the State's contribution to the
State Teacher's Retirement System in 1998-99.

Final tabulation of revenues and expenditures contained in the 2000-01
Governor's Budget, released on January 10, 2000, reveals that stronger than
expected economic conditions in the State produced total 1998-99 General Fund
revenues of about $58.6 billion, almost $1.6 billion above the 1998 Budget Act
estimates. Actual General Fund expenditures were $57.8 billion, the amount
estimated at the 1998 Budget Act. Some of this additional revenue will be
directed to K-14 schools pursuant to Proposition 98. The Governor's Budget
reports a balance in the SFEU at June 30, 1999, of approximately $3.1 billion on
a budgetary basis.

CURRENT STATE BUDGET

The discussion below of the 1999-00 Fiscal Year budget is based on
estimates and projections of revenues and expenditures for the current fiscal
year and must not be construed as statements of fact. These estimates and
projections are based upon various assumptions in the 1999 Budget Act which may
be affected by numerous factors, including future economic conditions in the
State and the nation, and there can be no assurance that the estimates will be
achieved.

1999-00 FISCAL YEAR BUDGET

On January 8, 1999, Governor Davis released his proposed budget for Fiscal
Year 1999-00 (the "January Governor's Budget"). The January Governor's Budget
generally reported that general fund revenues for FY 1998-99 and FY 1999-00
would be lower than earlier projections (primarily due to weaker overseas
economic conditions perceived in late 1998), while some caseloads would be
higher than earlier projections. The January Governor's Budget proposed $60.5
billion of general fund expenditures in FY 1999-00, with a $415 million SFEU
reserve at June 30, 2000.

The 1999 May Revision showed an additional $4.3 billion of revenues for
combined fiscal years 1998-99 and 1999-00. The completion of the 1999 Budget Act
occurred in a timely fashion. The final Budget Bill was adopted by the
Legislature on June 16, 1999, and was signed by the Governor on June 29, 1999
(the "1999 Budget Act"), meeting the Constitutional deadline for budget
enactment for only the second time in the 1990's.

The final 1999 Budget Act estimated General Fund revenues and transfers of
$63.0 billion, and contained expenditures totaling $63.7 billion after the
Governor used his line-item veto to reduce the legislative Budget Bill
expenditures by $581 million (both General Fund and Special Fund). The 1999
Budget Act also contained expenditures of $16.1 billion from special funds and
$1.5 billion from bond funds. The Administration estimated that the SFEU would
have a balance at June 30, 2000, of about $880 million. Not included in this
amount was an additional $300 million which (after the Governor's vetoes) was
"set aside" to provide funds for employee salary increases (to be negotiated in
bargaining with employee unions), and for litigation reserves. The 1999 Budget
Act anticipates normal cash flow borrowing during the fiscal year.

The principal features of the 1999 Budget Act include the following:

1. Proposition 98 funding for K-12 schools was increased by $1.6
billion in General Fund moneys over revised 1998-99 levels, $108.6
million higher than the minimum Proposition 98 guarantee. Of the 1990-00
funds, major new programs included money for reading improvement, new
textbooks, school safety, improving teacher quality, funding teacher
bonuses, providing greater accountability for school performance,
increasing preschool and after school care programs and funding deferred
maintenance of school facilities. The Budget also includes $310 million
as repayment of prior years' loans to school, as part of the settlement
of the CTA v. Gould lawsuit.

2. Funding for higher education increased substantially above the
actual 1998-99 level. General Fund support was increased by $184 million
(7.3 percent) for the University of California and $126 million (5.9
percent) for the California State University system. In addition,
Community Colleges funding increased by $324.3 million (6.6 percent). As
a result, undergraduate fees at UC and CSU will be reduced for the second
consecutive year, and the per-unit charge at Community Colleges will be
reduced by $1.

3. The Budget included increased funding of nearly $600 million for
health and human services.

4. About $800 million from the general fund will be directed toward
infrastructure costs, including $425 million in additional funding for
the Infrastructure Bank, initial planning costs for a new prison in the
Central Valley, additional equipment for train and ferry service, and
payment of deferred maintenance for state parks.

5. The Legislature enacted a one-year additional reduction of 10
percent of the VLF for calendar year 2000, at a General Fund cost of
about $250 million in each of fiscal year 1999-00 and 2000-01 to make up
lost funding to local governments. Conversion of this one-time reduction
to a permanent cut will remain subject to the revenue tests in the
legislation adopted last year. Several other targeted tax cuts, primarily
for businesses, were also approved, at a cost of $54 million in 1999-00.

6. A one-time appropriation of $150 million, to be split between
cities and counties, was made to offset property tax shifts during the
early 1990's. Additionally, an ongoing $50 million was appropriated as a
subvention to cities for jail booking or processing fees charged by
counties when an individual arrested by city personnel is taken to a
county detention facility.

ADDITIONAL CONSIDERATIONS

California Municipal Obligations may also include obligations of the
governments of Puerto Rico and other U.S. territories and their political
subdivisions to the extent that these obligations are exempt from California
State personal income taxes. Accordingly, the Fund may be adversely affected by
local political and economic conditions and developments within Puerto Rico and
certain other U.S. territories affecting the issuers of such obligations. For
information concerning the economy of Puerto Rico, please see Appendix E of this
Statement of Additional Information.

YEAR 2000

The State's Department of Information Technology has received no reports
that the State experienced any interruption in the delivery of mission critical
services as a result of the date change to the Year 2000 or during the leap year
period of February 28-29 and March 1, 2000.

LITIGATION

The State is a party to numerous legal proceedings. The following are the
most significant pending proceedings, as reported by the Office of the Attorney
General.

On December 24, 1997, a consortium of California counties filed a test
claim with the Commission on State Mandates (the "Commission") asking the
Commission to determine whether the property tax shift from counties to school
districts beginning in 1993-94 is a reimbursable state mandated cost. The test
claim was heard on October 29, 1998, and the Commission on State Mandates found
in favor of the State. In October, 1999, the Superior Court of Sonoma County
overturned the Commission's decision. The State has appealed and briefing will
be completed by the end of June 2000. Should the final decision on this matter
be in favor of the counties, the impact to the State General Fund could be as
high as $10.0 billion. In addition, there would be an annual Proposition 98
General Fund cost of at least $3.75 billion. This cost would grow in accordance
with the annual assessed value growth rate.

On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et al.
v. Kathleen Connell filed a complaint for certain declaratory and injunctive
relief challenging the authority of the State Controller to make payments from
the State Treasury in the absence of a state budget. On July 21, 1998, the trial
court issued a preliminary injunction prohibiting the State Controller from
paying moneys from the State Treasury for fiscal year 1998-99, with certain
limited exceptions, in the absence of a state budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to any continuing appropriation.

On July 22 and 27, 1998, various employee unions which had intervened in
the case appealed the trial court's preliminary injunction and asked the Court
of Appeal to stay the preliminary injunction. On July 28, 1998, the Court of
Appeal granted the unions' requests and stayed the preliminary injunction
pending the Court of Appeal's decision on the merits of the appeal. On August 5,
1998, the Court of Appeal denied the plaintiffs' request to reconsider the stay.
Also on July 22, 1998, the State Controller asked the California Supreme Court
to immediately stay the trial court's preliminary injunction and to overrule the
order granting the preliminary injunction on the merits. On July 29, 1998, the
Supreme Court transferred the State Controller's request to the Court of Appeal.
The matters are now pending before the Court of Appeal. Briefs have been
submitted; no date has yet been set for oral agreement.

The State is involved in a lawsuit, Thomas Hayes v. Commission on State
Mandates, related to State-mandated costs. The action involves an appeal by the
Director of Finance from a 1984 decision by the State Board of Control (now
succeeded by the Commission on State Mandates ("Commission")). The Board of
Control decided in favor of local school districts' claims for reimbursement for
special education programs for handicapped students. The case was then brought
to the trial court by the State and later remanded to the Commission for
redetermination. The Commission has since expanded the claim to include
supplemental claims filed by seven other educational institutions. To date, the
Legislature has not appropriated funds. The Commission issued a decision in
December 1998 determining that a small number of components of the State's
special education program are state mandated local costs. The administrative
proceeding is in the "parameters and guidelines" stage where the Commission is
considering whether and to what extent the costs associated with the state
mandated components of the special education program are offset by funds that
the State already allocates to that program. The State's position is that all
costs are offset by existing funding. The State has the option to seek judicial
review of the mandate findings. Potential liability of the State, if all
potentially eligible school districts pursue timely claims, has been estimated
by the Department of Finance to be in excess of $1.5 billion, if the State is
not credited for its existing funding of the program.

In January of 1997, California experienced major flooding with preliminary
estimates of property damage of approximately $1.6 to $2.0 billion. In McMahon
v. State, a substantial number of plaintiffs have joined suit against the State,
local agencies, and private companies and contractors seeking compensation for
the damages they suffered as a result of the 1997 flooding. After various
pre-trial proceedings, the State filed its answer to the plaintiffs' complaint
in January of 2000. No trial date has been set. The State is vigorously
defending the action.

The State is a defendant in Ceridian Corporation v. Franchise Tax Board,
which challenges the constitutionality of a Revenue & Taxation Code section
which limits deductions for insurance dividends to those dividends paid from
earnings previously subject to California taxation. On August 13, 1998, the
trial court issued a judgment against the Franchise Tax Board. The Franchise Tax
Board has appealed the judgment. Briefing has been completed. The State has
taken the position that, if the challenged section of the Revenue & Taxation
Code is struck down, all deductions relating to dividends would be eliminated
and the result would be additional income to the State. Plaintiffs, however,
contend that if they prevail, the deduction should be extended to all dividends
which would result in a one-time liability for open years of approximately $60
million, including interest, and an annual revenue loss of approximately $10
million.

The State is also a defendant in First Credit Bank etc. v. Franchise Tax
Board which challenges a Revenue & Taxation Code section similar to the one
challenged in the Ceridian case, but applicable to a different group of
corporate taxpayers. The State's motion for summary judgment is currently
pending and a trial date has been set in April 2000. A decision in the Ceridian
case could impact the outcome of this case. The State has taken the position
that, if the challenged section of the Revenue & Taxation Code is struck down,
all deductions relating to dividends would be eliminated and the result would be
additional income to the State. Plaintiffs, however, contend that if they
prevail, the deduction should be extended to all dividends which would result in
a one-time liability for open years of approximately $385 million, including
interest, and an annual revenue loss of approximately $60 million.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J.B. Stringfellow, Jr. et al., the State is seeking recovery for
the past costs of cleanup of the site, a declaration that the defendants are
jointly and severally liable for future costs, and an injunction ordering
completion of the cleanup. However, the defendants have filed a counterclaim
against the State for alleged negligent acts resulting in significant findings
of liability against the State as owner, operator, and generator of wastes taken
to the site. The State has appealed the rulings. Present estimates of the
cleanup range from $400 million to $600 million. Potential State liability falls
within this same range. However, all or a portion of any judgment against the
State could be satisfied by recoveries from the State's insurance carriers. The
State has filed a suit against certain of these carriers. The trial is expected
to begin in early 2001.

The State is a defendant in Paterno v. State of California, a coordinated
action involving 3,000 plaintiffs seeking recovery for damages caused by the
Yuba River flood of February 1986. The trial court found liability in inverse
condemnation and awarded damages of $500,000 to a sample of plaintiffs. The
State's potential liability to the remaining plaintiffs ranges from $800 million
to $1.5 billion. In 1992, the State and plaintiffs filed appeals. In August
1999, the court of appeal issued a decision reversing the trial court's judgment
against the State and remanding the case for retrial on the inverse condemnation
cause of action. The California Supreme Court denied plaintiffs' petition for
review. No trial date has been set.

Plaintiffs in County of San Bernardino v. Barlow Respiratory Hospital and
related actions seek mandamus relief requiring the State to retroactively
increase out-patient Medi-Cal reimbursement rates. Plaintiffs have estimated the
damages to be several hundred million dollars. The State is vigorously defending
these cases, as well as related federal cases addressing the calculation of
Medi-Cal reimbursement rates in the future.

The State is involved in two refund actions, Cigarettes Cheaper!, et al v.
Board of Equalization, et al. and California Assn. Of Retail Tobacconists (CART)
et al v. Board of Equalization, et al., that challenge the constitutionality of
Proposition 10, approved by the voters in 1998. Plaintiffs allege that
Proposition 10, which increases the excise tax on tobacco products, violates 11
sections of the California Constitution and related provisions of law.
Plaintiffs Cigarettes Cheaper! seek declaratory and injunctive relief and a
refund over $4 million. The CART case filed by retail tobacconists in San Diego
seeks a refund of $5million. The State is vigorously contesting these cases. If
the statute is declared unconstitutional, exposure may include the entire $750
million collected annually with interest.

The State is involved in two cases challenging the constitutionality of
the interest offset provisions of the Revenue and Taxation Code: Hunt-Wesson,
Inc., v. Franchise Tax Board and F.W. Woolworth Co. and Kinney Shoe Corporation
v. Franchise Tax Board. In both cases, the Franchise Tax board prevailed in
California Court of Appeal and the California Supreme Court denied taxpayers'
petitions for review. In both cases, the United States Supreme Court granted
certiorari. On February 22, 2000, the United States Supreme Court reversed and
remanded the Hunt-Wesson case to the California Court of Appeal for further
proceedings. Although the Court did not take similar action in the Woolworth Co.
case, it is anticipated that it will do so. The Franchise Tax Board recently
estimated that the adverse decisions in these cases will result in a reduction
in state revenues of approximately $15 million annually, with past year
collection and interest exposure of approximately $85 million.

Guy F. Atkinson Company of California v. Franchise Tax Board is a
corporation tax refund action involving the solar energy system tax credit
provided for under the Revenue & Taxation Code. The case went to trial May 1998
and the trial court entered judgment in favor of the Franchise Tax Board. The
taxpayer has filed an appeal to the California Court of Appeal and briefing is
completed. The Franchise Tax Board estimates that the cost would be $150 million
annually if the plaintiff prevails. Allowing refunds for all open years would
entail a refund of at least $500 million.

Jordan et al. v. Department of Motor Vehicles, et al., challenges the
validity of the Vehicle Smog Impact Fee, a $300 fee which is collected by the
Department of Motor Vehicles from vehicle registrants when a vehicle without a
California new vehicle certification is first registered in California. The
plaintiffs contend that the fee violates the interstate commerce and equal
protection clauses of the United States Constitution as well as Article XIX of
the State Constitution. In October, 1999 the Court of Appeal upheld a trial
court judgment for the plaintiffs and the State has declined to appeal further.
Although refunds through the court actions could be limited by a three year
statute of limitations, with a potential liability of about $350 million, the
Governor has proposed refunding fees collected back to the initiation of these
fees in 1990. The 2000-01 Governor's Budget proposes expenditures of $562
million as a supplemental appropriation in 1999-2000 to pay these claims (see
"Current State Budget - 1999-2000 Fiscal year Budget").

PTI, Inc., et al. v. Philip Morris, et al. was filed by five distributors
in the cigarette import-/re-entry business, seeking to overturn the tobacco
Master Settlement Agreement (MSA) entered between 46 states and the tobacco
industry in November, 1998. See "State Finances - Tobacco Litigation" above. The
primary focus of the complaint is the provision of the MSA encouraging
participating states to adopt a statute requiring nonparticipating manufacturers
to either become participating manufacturers and share the financial obligations
under the MSA or pay money into an escrow account. Plaintiffs seek compensatory
and punitive damages against the state and state officials and an order placing
tobacco settlement funds into a trust to be administered by the court for the
treatment of medical expenses of persons injured by tobacco products. Plaintiffs
have filed an amended complaint and the State has filed a motion to dismiss the
amended complaint. A hearing on the State's motion to dismiss is set for May 8,
2000. The potential fiscal impact of an adverse ruling is largely unknown, but
could exceed the full amount of the settlement (estimated to be $1 billion
annually, of which 50 percent will go directly to the State's General Fund and
the other 50 percent directly to the State's 58 counties and 4 largest cities).

In FORCES Action Project et al. v. State of California et al., various
smokers rights groups challenge the tobacco settlement as it pertains to
California, Utah and the City and County of San Francisco. Plaintiffs assert a
variety of constitutional challenges, including that the settlement represents
an unlawful tax on smokers. Motions to dismiss by all defendants, including the
tobacco companies, were eventually converted to summary judgment motions by the
court and heard on September 17, 1999. On January 5, 2000, the court dismissed
the complaint for lack of subject matter jurisdiction because the plaintiffs
lacked standing to sue. The court also concluded that the plaintiffs' claims
against the State and its officials are barred by the 11th Amendment. Plaintiffs
have appealed. Briefing is expected to be complete by July, 2000.

Louis Bolduc et al. v. State of California et al. is a class action filed
on July 13, 1999 by six Medi-Cal beneficiaries who have received medical
treatment for smoking-related diseases. Plaintiffs allege the State owes them an
unspecified portion of the tobacco settlement monies under a federal regulation
that requires a state to turn over to an injured Medicaid beneficiary any monies
the state recovers from a third party tortfeasor in excess of the costs of the
care provided. The State moved to dismiss the complaint on September 8, 1999. On
February 29, 2000, the court denied the State's motion to dismiss, but struck
the Plaintiffs' class action allegations. The State intends to appeal that
portion of the court's order denying its motion to dismiss.

Arnett v. California Public Employees Retirement System, et. al. was filed
by seven former employees of the State of California and local agencies, seeking
back wages, damages and injunctive relief. Plaintiffs are former public safety
members who began employment after the age of 40 and are recipients of
Industrial Disability Retirement ("IDR") benefits. Plaintiffs contend that the
formula which determines the amount of IDR benefits violates the federal Age
Discrimination in Employment Act of 1967 ("ADEA"). Plaintiffs contend that, but
for their ages at hire, they would receive increased monthly IDR benefits
similar to their younger counterparts who began employment before the age of 40.
CalPERS has estimated the liability to the State as approximately $315.5 million
were the plaintiffs to prevail. The District Court dismissed the complaint for
failure to state a claim. On August 17, 1999, the Ninth Circuit Court of Appeals
reversed the District Court's dismissal of the complaint. The State sought
further review in the United States Supreme Court. On January 11, 2000, the
United States Supreme Court in Kimel v. Florida Board of Regents, held that
Congress did not abrogate the sovereign immunity of the states when it enacted
the ADEA. Thereafter, on January 18, 2000, the Supreme Court granted the
petition for writ of certiorari in Arnett, vacated the judgment of the Ninth
Circuit, and remanded the case to the Ninth Circuit for further proceedings
consistent with Kimel. It now appears that the District Court will dismiss the
State Defendants from the lawsuit.
<PAGE>

APPENDIX C

ADDITIONAL INFORMATION CONCERNING

CONNECTICUT MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in Connecticut Municipal Obligations. The sources of payment for
such obligations and the marketability thereof may be affected by financial or
other difficulties experienced by Connecticut (the "State") and certain of its
municipalities and public authorities. This summary does not purport to be a
complete description and is based on information from statements relating to
offerings of Connecticut bond issues. CitiFunds Connecticut Tax Free Reserves is
not responsible for the accuracy or timeliness of this information.

CERTAIN ECONOMIC CONSIDERATIONS

Connecticut is a highly developed and urbanized state. It is situated
directly between the financial centers of Boston and New York. More than
one-quarter of the total population of the United States and approximately 60%
of the Canadian population live within 500 miles of the State. The State's
population grew at a rate which exceeded the United States' rate of population
growth during the period 1940 to 1970, and slowed substantially during later
decades. The State provides extensive transportation and utility services to
support its economy.

Connecticut's economic performance is measured by personal income which
has been and is expected to remain among the highest in the nation; gross state
product (the market value of all final goods and services produced by labor and
property located within the State) which demonstrated stronger output growth
than the nation in general during the 1980s, slower growth for a few years in
the early 1990s and steadily increasing growth during the rest of the 1990s;
employment which fell during the early 1990s but has risen steadily during the
rest of the decade to the levels achieved in the late 1980s; and the
unemployment rate, which is the lowest in a decade and lower than the regional
and national rate.

Manufacturing has traditionally been of prime economic importance to
Connecticut but has declined during the last decade. Connecticut has a diverse
manufacturing sector, with the construction of transportation equipment
(primarily aircraft engines, helicopters and submarines) being the dominant
industry. The State is also a leading produce of military and civilian
helicopters. Employment in the transportation equipment sector is followed by
fabricated metals, nonelectrical machinery, and electrical equipment for the
total number employed in 1998.

During the past ten years, Connecticut's manufacturing employment was at
its highest in 1989 at over 359,260 workers. Since that year, employment in
manufacturing was on a downward trend until 1997. A number of factors, such as
the overvalued dollar of the mid-1980s, heightened foreign competition, a sharp
decrease in defense spending, and improved productivity played a significant
role in affecting the overall level of manufacturing employment. Total
manufacturing jobs in Connecticut rebounded in 1997 and continued to improve in
1998, registering a gain of 3,590 jobs or 1.3% over the recent low of 274,750
recorded in 1996.

Over the past several decades the non-manufacturing sector of the State's
economy has risen in economic importance, from just over 50% of total State
employment in 1950 to approximately 83% by 1998. This trend has decreased the
State's dependence on manufacturing. The State's non-manufacturing sector
expanded by 2.3% in 1998 as compared to 2.1% in both 1997 and 1996. Services,
retail and wholesale trade, state and local government, as well as finance,
insurance and real estate ("FIRE"), collectively comprise approximately 90% of
the State's employment in the non-manufacturing sector.

FISCAL CONDITION IN RECENT YEARS

The State finances most of its operations through its General Fund. The
major components of General Fund revenues are State taxes, including the
personal income tax, the sales and use tax and the corporation business tax.
Miscellaneous fees, receipts, transfers and unrestricted federal grants account
for most of the other General Fund revenue.

The adopted budget for 1998-99 anticipated General Fund revenues of
$9,992.0 million and General Fund expenditures of $9,972.1 million, resulting in
a projected surplus of $19.9 million. The adopted budget for the 1999-2000
fiscal year anticipated General Fund revenues of $10,646.0 million and General
Fund expenditures of $10,581.6 million resulting in a projected surplus of $64.4
million. By statute, the State's fiscal position is reported monthly by the
Comptroller. This report compares revenues already received and the expenditures
already made to estimated revenues to be collected and estimated expenditures to
be made during the balance of the fiscal year. This report estimates 1999-2000
fiscal year General Fund revenues of $10,958.9 million, General Fund
expenditures of $10,717.5 million and an estimated operating surplus of $241.4
million. Estimated revenues have been revised upward by $312.9 million from the
enacted budget plan and estimated expenditures have been revised upward by
$135.9 million. In addition, this report no longer reflects the statewide
savings that were projected to be achieved due to the proposed information
technology partnership with a private vendor. In order to mitigate the projected
increase in expenditures above the adopted budget, the Governor has instituted a
statewide hiring freeze and has initiated a plan for agency allotment
reductions. These are expected to result in savings of $21.2 million.

The adopted budget for fiscal year 2000-01 anticipates General Fund
revenues of $11,090.0 million and General Fund expenditures of $11,085.2 million
for a surplus of $4.8 million. The adopted budget is within the expenditure
limits prescribed by the Constitution of the State of Connecticut in conjunction
with Section 2-33a of the General Statutes, $68.6 million below the cap in
fiscal year 1999-2000 and $59.3 million below the cap in fiscal year 2000-01.

The adopted budget makes several modifications to the State's tax law.
These changes total approximately $105 million in fiscal year 1999-2000 and $170
million in fiscal year 2000-01. Over the biennium the most significant change is
the increase in the income tax credit for property taxes paid from the $350 per
filer to $425 per filer in taxable year 1999 and $500 per filer in taxable year
2000. Other major changes included a reduction in taxes paid by hospitals and
the exemption of various items from the sales tax. Finally, the adopted budget
anticipates that a portion of the proceeds from the tobacco case settlement will
be deposited into the General Fund. Over the biennium, the State's anticipated
receipts from the settlement are projected to total approximately $300 million
of which $78.0 million will be deposited into the General Fund in fiscal year
1999-2000 and $150.3 million will be deposited into the General Fund in fiscal
year 2000-01.

The adopted budget anticipates significant expenditure changes in several
areas. State support of local education spending is anticipated to increase by a
total of $128 million by the second year of the biennium primarily through an
increase in formula driven grants and funding aimed at reducing racial isolation
while improving urban education. An additional $42 million above fiscal year
1998-99 is anticipated for the assessment, evaluation and ultimate care of
neglected and abused children. Expenditures are anticipated to increase $62
million through the second year of the biennium in the Department of Corrections
to support the increase in length of prison sentences and an almost $21 million
increase in the Department of Public Safety for new state troopers and support
staff. Fringe benefit costs related to state employees are projected to increase
due to higher health insurance costs and the transfer of fringe benefit costs
related to the patrol function from the Transportation Fund. Finally, debt
service expenditures will increase by approximately $94 million in the first
year of the biennium and $64 million in the second year of the biennium, driven
significantly by the State's commitment to funding education related capital
expenditures and a change in the methodology of funding local school
construction projects. The adopted budget also achieves significant savings
across the biennium in the areas of Medicaid services and state sponsored
pharmacy programs. In addition, the adopted budget anticipates $50 million in
savings in each year of the biennium for the proposed information technology
partnership with a private vendor.

The State imposes a personal income tax on the income of residents of the
State (including resident trusts and estates), part-year residents and certain
non-residents who have taxable income derived from or connected with sources
within Connecticut. The tax imposed is at the maximum rate of 4.5% on
Connecticut taxable income. Depending on federal income tax filing status, the
taxable year and Connecticut adjusted gross income, personal exemptions ranging
from $12,000 to $24,000 are available to taxpayers. In addition, tax credits
ranging from 1% to 75% of a taxpayer's Connecticut tax liability are also
available depending upon federal income tax filing status, the taxable year and
Connecticut adjusted gross income. Such exemptions and tax credits are phased
out at certain higher income levels. Neither the personal exemption nor the tax
credit described above is available to a trust or an estate. Legislation enacted
in 1995 effected a graduated rate structure beginning in tax year 1996. Under
this revised structure, the top rate remains at 4.5% with a rate of 3%
applicable to taxable income up to certain amounts. Subsequent legislation has
increased the amount of taxable income subject to the lower 3% rate. By tax year
1999, the first $20,000 of taxable income for a joint filer and the first
$10,000 of taxable income for a single filer will be taxed at the 3% rate. In
addition, an income tax credit for property taxes paid has been increased to a
maximum of $425 per filer in taxable year 1999, rising to $500 in taxable year
2000 and thereafter. Taxpayers are also subject to a Connecticut minimum tax
based on their liability, if any, for payment of the federal alternative minimum
tax.

The Sales Tax is imposed, subject to certain limitations, on the gross
receipts from certain transactions within the State of persons engaged in
business in the State, including (a) sales at retail of tangible personal
property, (b) the rendering of certain services, (c) the leasing or rental of
tangible personal property, (d) the producing, fabricating, processing,
printing, or imprinting of tangible personal property to special order or with
materials furnished by the consumer, (e) the furnishing, preparing or serving of
food, meals, or drinks, and (f) the transfer of occupancy of hotel or lodging
house rooms for a period not exceeding thirty consecutive calendar days. The Use
Tax is imposed on the consideration paid for certain services or purchases or
rentals of tangible personal property used within the State pursuant to a
transaction not subject to the Sales Tax. A separate rate of 12% is charged on
the occupancy of hotel rooms. The tax rate for the Sales and Use Taxes is six
percent. Various exemptions from the Sales and Use Taxes are provided, based on
the nature, use or price of the property or services involved or the identity of
the purchaser. Tax returns and accompanying payments with respect to revenues
from these taxes are generally due monthly on or before the last day of the
month next succeeding the taxable month.

The Corporation Business Tax is imposed on any corporation, joint stock
company or association, any dissolved corporation that continues to conduct
business, any electric distribution company or fiduciary of any of the foregoing
which carries on or has the right to carry on business within the State or owns
or leases property or maintains an office within the State or is a general
partner in a partnership or a limited partner in a limited partnership, except
an investment partnership, that does business, owns or leases property or
maintains an office within the State. Certain financial services companies are
exempt from this tax. For taxable years commencing on or after January 1, 1999,
this exemption extends to domestic insurance companies. The Corporation Business
Tax provides for three methods of computation. The taxpayer's liability is the
greatest amount computed under any of the three methods. The first method of
computation is a tax measured by the net income of a taxpayer (the "Income-Base
Tax"). Net income, except as applied to insurance companies, means federal gross
income with limited variations less certain deductions, most of which correspond
to the deductions allowed under the Internal Revenue Code of 1986, as amended
from time to time. In the case of life insurance companies subject to the
Corporation Business Tax, net income means life insurance company taxable
income, as determined for federal income tax purposes, with certain adjustments.
The Income-Base Tax had been levied at the rate of 10.5% until January 1, 1998
when it was decreased to 9.5%. Legislation enacted in 1993 and subsequent years
instituted a phase down in the corporation tax rate so that by the taxable year
commencing on or after January 1, 2000 the corporate rate is 7.5%. The second
method of computing the Corporation Business Tax, from which domestic insurance
companies are exempted, is an alternative tax on capital. This alternative tax
is determined either as a specific maximum dollar amount or at a flat rate on a
defined base, usually related in whole or part to its capital stock and balance
sheet surplus, profit and deficit. The third method of computing the Corporation
Business Tax is the minimum tax which is a flat $250. Corporations must compute
their tax under all three methods and pay the tax under the highest computation.

Other tax revenues are derived from inheritance taxes, taxes on gross
receipts of hospital and public service corporations, taxes on net direct
premiums of insurance companies, taxes on oil companies, cigarette and alcoholic
beverage excise taxes, real estate conveyance taxes and other miscellaneous tax
sources.

Federal grants in aid are normally conditioned to some degree, depending
upon the particular program being funded, on resources provided by the State.
More than 99% of unrestricted federal grant revenue is expenditure driven. The
largest federal grants in fiscal 1999 were made for the purposes of providing
medical assistance payments to the indigent and temporary assistance to needy
families. The State also receives certain restricted federal grants which are
not reflected in annual appropriations but which nonetheless are accounted for
in the General Fund. In addition, the State receives certain federal grants
which are not accounted for in the General Fund but are allocated to the
Transportation Fund, various Capital Project Funds and other funds.

Other non-tax revenues are derived from special revenue transfers; Indian
gaming payments; licenses, permits and fees; sales of commodities and services;
rents, fines and escheats; investment income; other miscellaneous revenue
sources; and designated Tobacco Settlement Revenues.

In November 1992, electors approved an amendment to the State Constitution
providing that the amount of general budget expenditures authorized for any
fiscal year shall not exceed the estimated amount of revenue for such fiscal
year. This amendment also provides a framework for a cap on budget expenditures.
The General Assembly is precluded from authorizing an increase in general budget
expenditures for any fiscal year above the amount of general budget expenditures
authorized for the previous fiscal year by a percentage which exceeds the
greater of the percentage increase in personal income or the percentage increase
in inflation, unless the Governor declares an emergency or the existence of
extraordinary circumstances and at least three-fifths of the members of each
house of the General Assembly vote to exceed such limit for the purposes of such
emergency or extraordinary circumstances. The constitutional limitation on
general budget expenditures does not include expenditures for the payment of
bonds, notes or other evidences of indebtedness. There is no statutory or
constitutional prohibition against bonding for general budget expenditures.

By statute, no bonds, notes or other evidences of indebtedness for
borrowed money payable from General Fund tax receipts of the State shall be
authorized by the General Assembly except as shall not cause the aggregate
amount of (1) the total amount of bonds, notes or other evidences of
indebtedness payable from General Fund tax receipts authorized by the General
Assembly but which have not been issued and (2) the total amount of such
indebtedness which has been issued and remains outstanding, to exceed 1.6 times
the total estimated General Fund tax receipts of the State for the fiscal year
in which any such authorization will become effective or in which such
indebtedness is issued, as estimated for such fiscal year by the joint standing
committee of the General Assembly having cognizance of finance, revenue and
bonding. As a result, the State had a debt incurring margin as of January 1,
2000 of $2,441,000,792.

ADDITIONAL CONSIDERATIONS

The classification of CitiFunds Connecticut Tax Free Reserves under the
Investment Company Act of 1940 as a "non-diversified" investment company allows
it to invest more than 5% of its assets in the securities of any issuer, subject
to satisfaction of certain tax requirements. Because of the relatively small
number of issuers of Connecticut obligations, the Fund is likely to invest a
greater percentage of its assets in the securities of a single issuer than is an
investment company which invests in a broad range of Municipal Obligations.
Therefore, the Fund would be more susceptible than a diversified fund to any
single adverse economic or political occurrence or development affecting
Connecticut issuers. The Fund will also be subject to an increased risk of loss
if the issuer is unable to make interest or principal payments or if the market
value of such securities declines. It is also possible that there will not be
sufficient availability of suitable Connecticut tax-exempt obligations for the
Fund to achieve its objective of providing income exempt from Connecticut taxes.

CitiFunds Connecticut Tax Free Reserves may invest 25% or more of its
assets in Connecticut Municipal Obligations of the same type, including, without
limitation, the following: general obligations of the State of Connecticut and
its political subdivisions; lease rental obligations of state and local
authorities; obligations of state and local housing finance authorities,
municipal utilities systems or public housing authorities; or industrial
development or pollution control bonds issued for hospitals, electric utility
systems, steel companies, life care facilities or other purposes. This may make
the Fund more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuers.

Connecticut Municipal Obligations also include obligations of the
governments of Puerto Rico and other U.S. territories and their political
subdivisions to the extent that these obligations are exempt from Connecticut
State personal income taxes. Accordingly, the Fund may be adversely affected by
local political and economic conditions and developments within Puerto Rico and
certain other U.S. territories affecting the issuers of such obligations. Please
see Appendix E of this Statement of Additional Information for information
concerning the economy of Puerto Rico.

YEAR 2000

All mission critical systems and technology infrastructure components are
operating with no Year 2000 impacts. During the rollover period through January
3, 2000, 14 systems incidents were reported to the Department of Information
Technology ("DOIT"). Only 2 incidents were actual Year 2000 failures, and none
directly impacted the public in any way.

The State Legislature approved $15.0 million in bonding in 1997-98 for
equipment and related costs of the Year 2000 issue. An additional $80 million
was appropriated to DOIT as part of the 1998-1999 Midterm Budget Adjustments. In
June, 1999, the State Legislature approved an additional $15.0 million in
appropriations from unexpended 1998-99 general funds.

As of December 31, 1999, 43 agencies had received a total of $99.0 million
in transfer funds from DOIT. Approximately $92.2 million had been recorded in
spending or commitments against these funds, as of that same date.

The State presently believes that the Year 2000 problem will not pose
significant operations problems for the State's computer systems because it has
completed modifications to existing software and conversions to new software,
where warranted. While the State completed its Year 2000 plan on a timely basis,
there is still a risk that testing for all failure scenarios did not
satisfactorily reveal all Year 2000 software or hardware problems. Also, there
can be no assurance that the systems of other companies on which the State's
systems or service commitments may rely were tested and completed in a timely
fashion. If the necessary remediations were not adequately tested, the Year 2000
problem may have a material impact on the operations of the State.

RECENT RATINGS OF CERTAIN GENERAL OBLIGATION BONDS

Moody's, Standard & Poor's and Fitch IBCA assigned their municipal bond
ratings of Aa3, AA- and AA, respectively, to the outstanding general obligation
bonds of the State. Each such rating reflects only the views of the respective
rating agency, and an explanation of the significance of such rating may be
obtained from such rating agency. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised or
withdrawn entirely by the rating agency if, in the judgment of such rating
agency, circumstances so warrant. A downward revision or withdrawal of any such
rating may have an adverse effect on the market price of the State's general
obligation bonds.

LITIGATION

The State, its officers and employees are defendants in numerous lawsuits.
The ultimate disposition and fiscal consequences of these lawsuits are not
presently determinable. The Attorney General's Office has reviewed the status of
pending lawsuits and reports that it is the opinion of the Attorney General that
such pending litigation will not be finally determined so as to result
individually or in the aggregate in a final judgment against the State which
would materially adversely affect its financial position, except that in the
cases described below the fiscal impact of an adverse decision might be
significant but is not determinable at this time. The cases described in this
section generally do not include any individual case where the fiscal impact of
an adverse judgment is expected to be less than $15 million, but adverse
judgments in a number of such cases could, in the aggregate and in certain
circumstances, have a significant impact.

Sheff v. O'Neill is a Superior Court action brought in 1989 on behalf of
black and Hispanic school children in the Hartford school district. The
plaintiffs sought a declaratory judgment that the public schools in the greater
Hartford metropolitan area are segregated de facto by race and ethnicity and are
inherently unequal to their detriment. They also sought injunctive relief
against state officials to provide them with an "integrated education." On April
12, 1995, the Superior Court entered judgment for the State. On July 9, 1996,
the State Supreme Court reversed the Superior Court judgment and remanded the
case with direction to render a declaratory judgment in favor of the plaintiffs.
The Court directed the legislature to develop appropriate measures to remedy the
racial and ethnic segregation in the Hartford public schools. The Supreme Court
also directed the Superior Court to retain jurisdiction of this matter. The 1997
General Assembly enacted P.A. 97-290, An Act Enhancing Educational
Opportunities, in response to the Supreme Court decision. In response to a
motion filed by the plaintiffs, the Superior Court in 1998 ordered the State to
show cause as to whether there has been compliance with the Supreme Court's
ruling. In a Memorandum of Decision issued March 3, 1999, the Superior Court
found that the State complied with the 1996 decision of the Supreme Court. The
Superior Court noted that the plaintiffs failed to allow the State enough time
to take additional steps in its remedial process. Therefore, the plaintiffs may
be able to pursue their claim at a later date.

The Connecticut Traumatic Brain Injury Association, Inc. v. Hogan is a
Federal District Court civil rights action brought in 1990 on behalf of all
persons with retardation or traumatic brain injury who have been, or may be,
placed in Norwich, Fairfield Hills or Connecticut Valley Hospitals. The
plaintiffs claim that the treatment and training they need is unavailable in
state hospitals for the mentally ill and that placement in those hospitals
violates their constitutional rights. The plaintiffs seek relief which would
require that the plaintiff classmembers be transferred to community residential
settings with appropriate support services. This case has been settled as to all
persons with mental retardation by their eventual discharge from Norwich and
Fairfield Hills Hospital. The case is still proceeding as to those persons with
traumatic brain injury and the class of plaintiffs has been expanded to include
persons with acquired brain injury who are in the custody of the Department of
Mental Health and Addiction Services. The Court in 1998 expanded the class of
plaintiffs to include persons who are or have been in the custody of the
Department of Mental Health and Addiction Services at any time during the
pendency of the case without reference to a particular facility.

Johnson v. Rowland is a Superior Court action brought in 1998 in the name
of several public school students and the Connecticut municipalities in which
the students reside, seeking a declaratory judgment that the State's current
system of financing public education through local property taxes and State
payments to municipalities determined under a statutory Education Cost Sharing
("ECS") formula violates the Connecticut Constitution. Additionally, the suit
seeks various injunctive orders requiring the State to, among other things,
cease implementation of the present system, modify the ECS formula, and fund the
ECS formula at the level contemplated in the original 1988 public act which
established the ECS.

Donald P. Karp, Administrator of the Estate of Leslie J. Karp v. State of
Connecticut is a Superior Court action brought in 1999, pursuant to a grant of
permission to sue by the legislature, seeking money damages for the death of
Leslie J. Karp, M.D. who was killed in a head on collision with a vehicle
operated by Edward Kiley. The plaintiff alleges that the death of his decedent
was caused by the carelessness and negligence of the State through the Office of
Adult Probation in their supervision of Kiley who was placed in the suspended
prosecution program.

Hospital Tax Cases. In 1999 several hospitals appealed to the Superior
Court from the Commissioner of Revenue Services' denial of their claims for
partial refunds of the hospital tax imposed on a hospital's gross earnings. The
hospitals claim that the hospital tax should not be imposed on tangible property
transferred incidental to the provision of patient care services. Refunds are
claimed for the last three years. It is anticipated that other hospitals in the
State may bring similar suits.

PTI, Inc. v. Philip Morris et al. was filed in the Federal Court for the
Central District of California in 1999 against the State of Connecticut and the
Attorney General in his official and individual capacities. The plaintiffs
reimport and distribute cigarettes that have previously been sold by their
manufacturers to foreign markets. The plaintiffs challenge certain provisions of
the 1998 Master Settlement Agreement (MSA) entered into by virtually all states
and territories to resolve litigation by the respective states against the major
domestic tobacco companies. The plaintiffs further challenge certain state
statutes, including those banning the sale of re-imported cigarettes, so-called
Non Participating Manufacturer statutes, that would decrease the price advantage
that re-imported cigarettes enjoy over other cigarettes. The plaintiffs claim
that various provisions of the MSA and these state statutes violate the federal
constitution, antitrust and civil rights laws. The plaintiffs seek declaratory
and injunctive relief, compensatory, special and punitive damages, plus
attorneys fees and costs.

While the various cases described in this paragraph involving alleged
Indian Tribes do not claim significant monetary damages from the State, the
cases are mentioned because they claim sovereignty over land areas that are part
of the State of Connecticut. Several suits have been filed since 1977 in the
Federal District Court and the Connecticut Superior Court on behalf of alleged
Indian Tribes in various parts of the State, claiming monetary recovery as well
as ownership of land in issue. Some of these suits have been settled or
dismissed. The plaintiff group in the remaining suits is the alleged Golden Hill
Paugussett Tribe and the lands involved are generally located in Bridgeport,
Trumbull, Orange, Shelton and Seymour. There may be additional suits filed by
other alleged Indian Tribes claiming ownership of land located in the State of
Connecticut but to which the State is not a party. One such claim involves the
alleged Schaghticoke Indian Tribe claiming privately and town held lands in the
Town of Kent. The State has also challenged the decision of the Federal
Department of the Interior which allows the Mashantucket Pequot Tribe to add
trust lands to the land holdings of the Tribe outside of its reservation. The
added land was not part of the Tribe's original reservation designated under the
Federal Settlement Act with the Tribe. The additional land was purchased by the
Tribe.
<PAGE>
APPENDIX D

ADDITIONAL INFORMATION CONCERNING

NEW YORK MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in New York Municipal Obligations. The sources of payment for such
obligations and the marketability thereof may be affected by financial or other
difficulties experienced by New York State (the "State") and certain of its
municipalities and public authorities. This information does not purport to be a
complete description and is based on information from official statements
relating to securities offerings of New York issuers. CitiFunds New York Tax
Free Reserves is not responsible for the accuracy or timeliness of this
information.

NEW YORK STATE

The factors affecting the State's financial condition are complex and the
following description constitutes only a summary.

CURRENT ECONOMIC OUTLOOK

The State Financial Plan is based upon a June 1999 projection by The
Division of Budget ("DOB") of national and State economic activity. The
information in this section summarizes the State economic situation and outlook
upon which projections of receipts and certain disbursements were made for the
1999-2000 Financial Plan.

The State economy has continued to expand, with over 600,000 jobs added
since late 1992. Employment growth has been slower than in the nation during
this period, although the State's relative performance has improved in the last
two years. Growth in average wages in New York has generally outperformed the
nation, while growth in personal income per capita has kept pace with the
nation.

Continued growth is projected for 2000 and 2001 for employment, wages, and
personal income, although the growth in employment will moderate from the 1999
pace. Personal income is estimated to have grown by 4.7 percent in 1999, fueled
in part by a large increase in financial sector bonus payments at the year's
end. Personal income is projected to grow 5.5 percent in 2000 and 4.8 percent in
2001. Total bonus payments are projected to increase by 11 percent in 2000 and
10.5 percent in 2001. Overall employment growth is expected to continue at a
more modest pace than in 1999, reflecting the slower growth in the national
economy, continued spending restraint by government employers, and restructuring
in the manufacturing, health care, social service, and banking sectors.

Many uncertainties exist in any forecast of the national and State
economies. Given the recent volatility in the international and domestic
financial markets, such uncertainties are particularly present at this time. The
timing and impact of changes in economic conditions are difficult to estimate
with a high degree of accuracy. Unforeseeable events may occur. The actual rate
of change in any, or all, of the concepts that are forecasted may differ
substantially and adversely from the outlook described herein.

1998-99 FISCAL YEAR

The State ended its 1998-99 fiscal year on March 31, 1999 in balance on a
cash basis, with a General Fund cash surplus as reported by the DOB of $1.82
billion. The cash surplus was derived primarily from higher-than-projected tax
collections as a result of continued economic growth, particularly in the
financial markets and the securities industries.

The State reported a General Fund closing cash balance of $892 million, an
increase of $254 million from the prior fiscal year. The balance is held in
three accounts within the General Fund: the Tax Stabilization Reserve Fund
(TSRF), the Contingency Reserve Fund (CRF) and the Community Projects Fund
(CPF). The TSRF closing balance was $473 million, following an additional
deposit of $73 million in 1998-99. The CRF closing balance was $107 million,
following a deposit of $39 million in 1998-99. The CPF, which finances
legislative initiatives, closed the fiscal year with a balance of $312 million.

The closing fund balance excludes $2.31 billion that the State deposited
into the tax refund reserve account at the close of 1998-99 to pay for tax
refunds in 1999-2000 of which $521 million was made available as a result of the
Local Government Assistance Corporation (LGAC) financing program and was
required to be on deposit as of March 31, 1999. The tax refund reserve account
transaction has the effect of decreasing reported personal income tax receipts
in 1998-99, while increasing reported receipts in 1999-2000.

General Fund receipts and transfers from other funds (net of tax refund
reserve account activity) for the 1998-99 fiscal year totaled $36.74 billion, an
increase of 6.34 percent from 1997-98 levels. General Fund disbursements and
transfers to other funds totaled $36.49 billion for the 1998-99 fiscal year, an
increase of 6.23 percent from 1997-98 levels.

1997-98 FISCAL YEAR

The State ended its 1997-98 fiscal year in balance on a cash basis, with a
General Fund cash surplus as reported by DOB of approximately $2.04 billion. The
cash surplus was derived primarily from higher-than-anticipated receipts and
lower spending on welfare, Medicaid, and other entitlement programs.

The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The TSRF closing balance was $400
million, following a required deposit of $15 million (repaying a transfer made
in 1991-92) and an additional deposit of $68 million made from the 1997-98
surplus. The CRF closing balance was $68 million, following a $27 million
deposit from the surplus. The CPF closed the fiscal year with a balance of $170
million. The General Fund closing balance did not include $2.39 billion in the
tax refund reserve account, of which $521 million was made available as a result
of the LGAC financing program and was required to be on deposit on March 31,
1998.

General Fund receipt and transfers from other funds (net of tax refund
reserve account activity) for the 1997-98 fiscal year totaled $34.55 billion, an
annual increase of 4.57 percent over 1996-97. General Fund disbursements and
transfers to other funds were $34.35 billion, an annual increase of 4.41
percent.

1996-97 FISCAL YEAR

The State ended its 1996-97 fiscal year on March 31, 1997 in balance on a
cash basis, with a General Fund cash surplus as reported by DOB of approximately
$1.42 billion. The cash surplus was derived primarily from higher-than-expected
receipts and lower-than-expected spending for social services programs.

The General Fund closing fund balance was $433 million, an increase of
$146 million from the 1995-96 fiscal year. The balance included $317 million in
the TSRF, after a required deposit of $15 million and an additional deposit of
$65 million in 1996-97. In addition, $41 million remained on deposit in the CRF.
The remaining $75 million reflected amounts then on deposit in the Community
Projects Fund. The General Fund closing fund balance did not include $1.86
billion in the tax refund reserve account, of which $521 million was made
available as a result of the LGAC financing program and was required to be on
deposit as of March 31, 1997.

General Fund receipts and transfers from other funds (net of tax refund
reserve account activity) for the 1996-97 fiscal year totaled $33.04 billion, an
increase of 0.7 percent from the previous fiscal year. General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.

PUBLIC AUTHORITIES

The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities, meaning public benefit corporations created
pursuant to State law, other than local authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt that apply
to the State itself and may issue bonds and notes within the amounts and
restrictions set forth in legislative authorization. The State's access to the
public credit markets could be impaired, and the market price of its outstanding
debt may be materially and adversely affected, if any of its public authorities
were to default on their respective obligations, particularly those using the
financing techniques referred to as State-supported or State-related debt. As of
December 31, 1998, there were 17 public authorities that had outstanding debt of
$100 million or more, and the aggregate outstanding debt, including refunding
bonds, of these State public authorities was $94 billion, only a portion of
which constitutes State-supported or State related debt.

The State has numerous public authorities with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authorities generally pay their operating expenses and debt
service costs from revenues generated by the projects they finance or operate,
such as tolls charged for the use of highways, bridges or tunnels, charges for
public power, electrical gas utility services, rentals charged for housing
units, and charges for occupancy at medical care facilities.

In addition, State legislation authorizes several financing techniques for
public authorities. Also, there are statutory arrangements providing for State
local assistance payments, otherwise payable to localities, to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements, the
affected localities could seek additional State assistance if local assistance
payments are diverted.

Some authorities also receive moneys from State appropriations to pay for
the operating costs of certain of their programs. As described below, the
Metropolitan Transportation Authority ("MTA") receives the bulk of this money in
order to provide transit and commuter services.

Beginning in 1998, the Long Island Power Authority ("LIPA") assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan. As of August
24, 1999, LIPA has issued over $5 billion in bonds secured solely by ratepayer
charges. LIPA's debt is not considered either State-supported or State-related
debt.

METROPOLITAN TRANSPORTATION AUTHORITY

The MTA oversees the operation of subway and bus lines in New York City by
its affiliates, the New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the "TA"). The MTA operates
certain commuter rail and bus services in the New York Metropolitan area through
MTA's subsidiaries, the Long Island Rail Road Company, the Metro-North Commuter
Railroad Company, and the Metropolitan Suburban Bus Authority. In addition, the
Staten Island Rapid Transit Operating Authority, an MTA subsidiary, operates a
rapid transit line on Staten Island. Through its affiliated agency, the
Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates certain
intrastate toll bridges and tunnels. Because fare revenues are not sufficient to
finance the mass transit portion of these operations, the MTA has depended on,
and will continue to depend on, operating support from the State, local
governments and TBTA, including loans, grants and subsidies. If current revenue
projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.

Since 1980, the State has enacted several taxes -- including a surcharge
on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation Region
served by the MTA and a special one-quarter of 1 percent regional sales and use
tax -- that provide revenues for mass transit purposes, including assistance to
the MTA. Since 1987 State law has required that the proceeds of a one-quarter of
1 percent mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. In 1993, the State dedicated a portion of certain additional
State petroleum business tax receipts to fund operating or capital assistance to
the MTA. The 1999-2000 enacted budget provides State assistance to the MTA
totaling approximately $1.4 billion, an increase of $55 million over the 1998-99
fiscal year.

State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds to finance a
portion of the $12.17 billion MTA capital plan for the 1995 through 1999
calendar years (the "1995-99 Capital Program"). In July 1997, the Capital
Program Review Board ("CPRB") approved the 1995-99 Capital Program and
subsequently amended it in August 1997 and in March 1999. The MTA plan now
totals $12.55 billion. The 1995-99 Capital Program is the fourth capital plan
since the Legislature authorized procedures for the adoption, approval and
amendment of MTA capital programs and is designed to upgrade the performance of
the MTA's transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system into a
state of good repair. The currently approved 1995-99 Capital Program assumes the
issuance of an estimated $5.2 billion in bonds under this $6.5 billion aggregate
bonding authority. The remainder of the plan is projected to be financed with
assistance from the federal government, the State, the City of New York, and
from various other revenues generated from actions taken by the MTA.

The MTA has proposed a $17.5 billion capital program for 2000 through
2004. There can be no assurance that the proposed capital plan will be approved
by the Capital Program Review Board without significant modifications, that the
plan as adopted will be adequate to finance the MTA's capital needs over the
plan period, or that funding sources identified in the approved plan will not be
reduced or eliminated.

LOCALITIES
THE CITY OF NEW YORK

The fiscal health of the State may also be affected by the fiscal health
of New York City (the "City"), which continues to require significant financial
assistance from the State. State aid contributes to the City's ability to
balance its budget and to meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets. The City has achieved balanced operating results for each of its fiscal
years since 1981 as measured by the GAAP standards in force at the time.

FISCAL OVERSIGHT

In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions, the State
established the Municipal Assistance Corporation for the City of New York ("NYC
MAC") to provide financing assistance to the City; the New York State Financial
Control Board (the "Control Board") to oversee the City's financial affairs; and
the Office of the State Deputy Comptroller for the City of New York ("OSDC") to
assist the Control Board in exercising its powers and responsibilities. A
"Control Period" existed from 1975 to 1986 during which the City was subject to
certain statutorily-prescribed fiscal controls. The Control Board terminated the
Control Period in 1986 when certain statutory conditions were met. State law
requires the Control Board to reimpose a Control Period upon the occurrence or
"substantial likelihood and imminence" of the occurrence of certain events,
including (but not limited to) a City operating budget deficit of more than $100
million or impaired access to the public credit markets.

Currently, the City and its Covered Organizations (i.e., those which
receive or may receive moneys from the City directly, indirectly or
contingently) operate under a four-year financial plan (the "Financial Plan")
which the City prepares annually and periodically updates. The City's Financial
Plan summarizes its capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements.

To successfully implement its Financial Plan, the City and certain
entities issuing debt for the benefit of the City must market their securities
successfully. The City issues securities to finance the rehabilitation of its
infrastructure and other capital needs, as well as for seasonal financing needs.
In fiscal year 1998 and again in fiscal year 2000, the State constitutional debt
limit would have prevented the City from entering into new capital contracts. To
prevent these disruptions in the capital program, two entities were created to
issue debt to increase the City's capital financing capacity: (i) the State
Legislature created the Transitional Finance Authority ("TFA") in 1997, and (ii)
the City created the Tobacco Settlement Asset Securitization Corporation in
1999. Despite these actions, the City, in order to continue its capital program,
will need additional financing capacity in fiscal year 2002, which could be
provided through increasing the borrowing authority of the TFA or amending the
State constitutional debt limit.

MONITORING AGENCIES

The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance by the City and its Covered
Organizations with the Financial Plan. According to recent staff reports, while
economic growth in New York City has been slower than in other regions of the
country, a surge in Wall Street profitability resulted in increased tax revenues
and generated a substantial surplus for the City in City fiscal year 1997-98.
Recent staff reports also indicate that the City projects a surplus for City
fiscal year 1998-99. Although several sectors of the City's economy have
expanded over the last several years, especially tourism and business and
professional services, City tax revenues remain heavily dependent on the
continued profitability of the securities industries and the performance of the
national economy. In addition, the size of recent tax reductions has increased
to over $2 billion in City fiscal year 1999-2000 through the expiration of a
personal income tax surcharge, the repeal of the non-resident earnings tax and
the elimination of the sales tax on clothing items costing less than $110. Staff
reports have indicated that recent City budgets have been balanced in part
through the use of non-recurring resources and that the City's Financial Plan
relies in part on actions outside its direct control. These reports have also
indicated that the City has not yet brought its long-term expenditure growth in
line with recurring revenue growth and that the City is likely to continue to
face substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues. In
addition to these monitoring agencies, the Independent Budget Office ("IBO") has
been established pursuant to the City Charter to provide analysis to elected
officials and the public on relevant fiscal and budgetary issues affecting the
City. Copies of the most recent staff reports by the Control Board, OSDC, City
Comptroller, and IBO are available by contacting the Control Board at 270
Broadway, 21st Floor, New York, NY, 10007, Attention: Executive Director; OSDC
at 270 Broadway, 23rd Floor, New York, NY 10007, Attention: Deputy Comptroller;
the City Comptroller at Municipal Building, Room 517, One Centre Street, New
York, NY 10007, Attention: Deputy Comptroller for Public Finance; and the IBO at
110 William Street, 14th Floor, New York, NY 10038, Attention: Director.

OTHER LOCALITIES

Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The potential impact on the State of any future
requests by localities for additional oversight or financial assistance is not
included in the projections of the State's receipts and disbursements for the
State's 1999-2000 fiscal year.

The State has provided extraordinary financial assistance to select
municipalities, primarily cities, since the 1996-97 fiscal year. Funding has
essentially been continued or increased in each subsequent fiscal year. Such
funding in 1999-2000 totals $113.9 million. In 1997-98, the State increased
General Purpose State Aid for local governments by $27 million to $550 million,
and has continued funding at this new level since that date.

While the distribution of General Purpose State Aid for local governments
was originally based on a statutory formula, in recent years both the total
amount appropriated and the shares appropriated to specific localities have been
determined by the Legislature. A State commission established to study the
distribution and amounts of general purpose local government aid failed to agree
on any recommendations for a new formula.

Counties, cities, towns, villages and school districts have engaged in
substantial short-term and long-term borrowings. In 1997, the total indebtedness
of all localities in the State, other than New York City, was approximately
$21.0 billion. A small portion (approximately $80 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling State legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
(other than New York City) authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-two localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1997.

Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs, which in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-
scale potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.

New York Municipal Obligations may also include obligations of the
governments of Puerto Rico and other U.S. territories and their political
subdivisions to the extent that these obligations are exempt from New York State
and New York City personal income taxes. Accordingly, the Fund may be adversely
affected by local political and economic conditions and developments within
Puerto Rico and certain other U.S. territories affecting the issuers for such
obligations. For information concerning the economy of Puerto Rico, please see
Appendix E of this Statement of Additional Information.

YEAR 2000 COMPLIANCE

To date, the State has experienced no significant Year 2000 computer
disruptions. Monitoring will continue over the next few months to identify and
correct any problems that may arise. However, there can be no assurance that
outside parties who provide goods and services to the State will not experience
computer problems related to Year 2000 programming in the future, or that such
disruptions, if they occur, will not have an adverse impact on State operations
or finances.

LITIGATION
GENERAL

The legal proceedings noted below involve State finances, and programs and
miscellaneous civil rights, real property, contract and other tort claims in
which the State is a defendant and the potential monetary claims against the
State are substantial, generally in excess of $100 million. These proceedings
could adversely affect the financial condition of the State in the 1999-2000
fiscal year or thereafter.

Adverse developments in these proceedings, other proceedings for which
there are unanticipated, unfavorable and material judgments, or the initiation
of new proceedings could affect the ability of the State to maintain a balanced
1999-2000 Financial Plan. The State believes that the 1999-2000 Financial Plan
includes sufficient reserves to offset the costs associated with the payment of
judgments that may be required during the 1999-2000 fiscal year. These reserves
include (but are not limited to) amounts, appropriated for court of claims
payments and projected fund balances in the General Fund. In addition, any
amounts ultimately required to be paid by the State may be subject to settlement
or may be paid over a multi-year period. There can be no assurance, however,
that adverse decisions in legal proceedings against the State would not exceed
the amount of all potential 1999-2000 Financial Plan resources available for the
payment of judgments and, could therefore, affect the ability of the State to
maintain a balanced 1999-2000 Financial Plan. In its General Purpose Financial
Statements, the State reports its estimated liability for awarded and
anticipated unfavorable judgments.

STATE FINANCE POLICIES
TAX LAW

In New York Association of Convenience Stores et al. v. Urbach, et al.,
petitioners New York Association of Convenience Stores, National Association of
Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek Stores, Inc. are
seeking to compel respondents, the Commissioner of Taxation and Finance and the
Department of Taxation and Finance, to enforce sales and excise taxes pursuant
to Tax Law Articles 12-A, 20 and 28 on tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations. In orders dated August 13, 1996 and
August 24, 1996, the Supreme Court, Albany County, ordered, inter alia, that
there be equal implementation and enforcement of said taxes for sales to
non-Indian consumers on and off Indian reservations, and further ordered that,
if respondents failed to comply within 120 days, no tobacco products or motor
fuel could be introduced onto Indian reservations other than for Indian
consumption or, alternatively, the collection and enforcement of such taxes
would be suspended statewide. Respondents appealed to the Appellate Division,
Third Department and invoked CPLR 5519(a)(1), which provides that the taking of
the appeal stayed all proceedings to enforce the orders pending the appeal.
Petitioner's motion to vacate the stay was denied. In a decision entered May 8,
1997, the Third Department modified the orders by deleting the portion thereof
that provided for the statewide suspension of the enforcement and collection of
the sales and excise taxes on motor fuel and tobacco products. The Third
Department held, inter alia, that petitioners had not sought such relief in
their petition and that it was an error for the Supreme Court to have awarded
such undemanded relief without adequate notice of its intent to do so. On May
22, 1997, respondents appealed to the Court of Appeals on other grounds, and
again invoked the statutory stay. On October 23, 1997, the Court of Appeals
granted petitioners' motion for leave to cross-appeal from the portion of the
Third Department's decision that deleted the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco. On July 9, 1998, the New York Court of Appeals reversed the order of
the Appellate Division, Third Department, and remanded the matter to the Supreme
Court, Albany County, for further proceedings. The Court held that the
petitioners had standing to assert an equal protection claim, but that their
claim did not implicate racial discrimination. The Court remanded the case to
Supreme Court, Albany County, for resolution of the question of whether there
was a rational basis for the Tax Department's policy of non-enforcement of the
sales and excise taxes on reservation sales of cigarettes and motor fuel to
non-Indians. In a footnote, the Court stated that, in view of its disposition of
the case, petitioners' cross-appeal regarding the statewide suspension of the
taxes is "academic." By decision and judgment dated July 9, 1999, the Supreme
Court, Albany County, granted judgment dismissing the petition. On September 2,
1999, petitioners appealed to the Appellate Division, Third Department, from the
July 9, 1999 decision and order.

LINE ITEM VETO

In an action commenced in June 1998 by the Speaker of the Assembly of the
State of New York against the Governor of the State of New York (Silver v.
Pataki, Supreme Court, New York County), the Speaker challenges the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills adopted by the State Legislature contained in Chapters 56, 57
and 58 of the Laws of 1998. On July 10, 1998, the State filed a motion to
dismiss this action. By order entered January 7, 1999, the Court denied the
State's motion to dismiss. On January 27, 1999, the State appealed that order.
On September 9, 1999, the Appellate Division, Third Department, heard the
appeal.

STATE PROGRAMS
MEDICAID

Several cases challenge provisions of Chapter 81 of the Laws of 1995
which alter the nursing home Medicaid reimbursement methodology on and after
April 1, 1995. Included are New York State Health Facilities Association, et al.
v. DeBuono, et al., St. Luke's Nursing Center, et al. v. DeBuono, et al., New
York Association of Homes and Services for the Aging v. DeBuono et al. (three
cases), Healthcare Association of New York State v. DeBuono and Bayberry Nursing
Home et al. v. Pataki, et al. Plaintiffs allege that the changes in methodology
have been adopted in violation of procedural and substantive requirements of
State and federal law.

In a consolidated action commenced in 1992, Medicaid recipients and home
health care providers and organizations challenge promulgation by the State
Department of Social Services ("DSS") in June 1992 of a home assessment resource
review instrument ("HARRI"), which is to be used by DSS to determine eligibility
for and the nature of home care services for Medicaid recipients, and challenge
the policy of DSS of limiting reimbursable hours of service until a patient is
assessed using the HARRI (Dowd, et al. v. Bane, Supreme Court, New York County).
In a related case, Rodriguez v. DeBuono, on April 19, 1999, the United States
District Court for the Southern District of New York enjoined the State's use of
task based assessment, which is similar to the HARRI, unless the State assesses
safety monitoring as a separate task based assessment, on the grounds that its
use without such additional assessment violated federal Medicaid law and the
Americans with Disabilities Act. The State appealed from the April 19, 1999
order and on July 12, 1999 argued the appeal before the Second Circuit. By order
dated October 6, 1999, the Second Circuit reversed the April 19, 1999 order and
vacated the injunction. On October 20, 1999, petitioners filed a request for
rehearing en banc.

In several cases, plaintiffs seek retroactive claims for reimbursement
for services provided to Medicaid recipients who were also eligible for Medicare
during the period January 1, 1987 to June 2, 1992. Included are Matter of New
York State Radiological Society v. Wing, Appel v. Wing, E.F.S. Medical Supplies
v. Dowling, Kellogg v. Wing, Lifshitz v. Wing, New York State Podiatric Medical
Association v. Wing and New York State Psychiatric Association v. Wing. These
cases were commenced after the State's reimbursement methodology was held
invalid in New York City Health and Hospital Corp. v. Perales. The State
contends that these claims are time-barred. In a judgment dated September 5,
1996, the Supreme Court, Albany County, dismissed Matter of New York State
Radiological Society v. Wing as time-barred. By order dated November 26, 1997,
the Appellate Division, Third Department, affirmed that judgment. By decision
dated June 9, 1998, the Court of Appeals denied leave to appeal. In a decision
entered December 15, 1998, the Appellate Division, First Department, dismissed
the remaining cases in accordance with the result in Matter of New York State
Radiological Society v. Wing. By decision dated July 8, 1999, the Court of
Appeals denied leave to appeal.

Several cases, including Port Jefferson Health Care Facility, et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionality of Public
Health Law ss.2807-d, which imposes a tax on the gross receiptS hospitals and
residential health care facilities receive from all patient care services.
Plaintiffs allege that the tax assessments were not uniformly applied, in
violation of federal regulations. In a decision dated June 30, 1997, the Court
held that the 1.2 percent and 3.8 percent assessments on gross receipts imposed
pursuant to Public Health Law ss.ss. 2807-d(2)(b)(ii) And 2807-d(2)(b)(iii),
respectively, are unconstitutional. An order entered August 27, 1997, enforced
the terms of the decision. The State appealed that order. By decision and order
dated August 31, 1998, the Appellate Division, Second Department, affirmed that
order. On September 30, 1998, the State moved for re-argument or, in the
alternative, for a certified question for the Court of Appeals to review. By
order dated January 7, 1999, the motion was denied. A final order was entered in
Supreme Court on January 26, 1999. On February 23, 1999, the State appealed that
order to the Court of Appeals. In a decision entered December 16, 1999, the
Court of Appeals reversed the decision below and upheld the constitutionality of
the assessments.

In Dental Society, et al. v. Pataki, et al. (United States District
Court, Northern District of New York, commenced February 2, 1999), plaintiffs
challenge the State's reimbursement rates for dental care provided under the
State's dental Medicaid program. Plaintiffs claim that the State's Medicaid fee
schedule violates Title XIX of the Social Security Act (42 U.S.C. ss. 1396A et
seq.) and the federal and State Constitutions. On June 25, 1999, the State filed
its answer.

SHELTER ALLOWANCE

In an action commenced in March 1987 against State and New York City
officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New York County),
plaintiffs allege that the shelter allowance granted to recipients of public
assistance is not adequate for proper housing.

In a decision dated April 16, 1997, the Court held that the shelter
allowance promulgated by the Legislature and enforced through DSS regulations is
not reasonably related to the cost of rental housing in New York City and
results in homelessness to families in New York City. A judgment was entered on
July 25, 1997, directing, inter alia, that the State (i) submit a proposed
schedule of shelter allowances (for the Aid to Dependent Children program and
any successor program) that bears a reasonable relation to the cost of housing
in New York City; and (ii) compel the New York City Department of Social
Services to pay plaintiffs a monthly shelter allowance in the full amount of
their contract rents, provided they continue to meet the eligibility
requirements for public assistance, until such time as a lawful shelter
allowance is implemented, and provide interim relief to other eligible
recipients of Aid to Dependent Children under the interim relief system
established in this case. The State appealed to the Appellate Division, First
Department, from each and every provision of this judgment except that portion
directing the continued provision of interim relief. By decision and order dated
May 6, 1999, the Appellate Division, First Department, affirmed the July 25,
1997 judgment. By order dated July 8, 1999, the Appellate Division denied the
State's motion for leave to appeal to the Court of Appeals from the May 6, 1999
decision and order. By order dated October 14, 1999, the Court of Appeals
dismissed the State's leave to appeal.

CIVIL RIGHTS CLAIMS

In an action commenced in 1980 (United States, et al. v. Yonkers Board of
Education, et al.), the United States District Court for the Southern District
of New York found, in 1985, that Yonkers and its public schools were
intentionally segregated. In 1986, the District Court ordered Yonkers to develop
and comply with a remedial educational improvement plan ("EIP I"). On January
19, 1989, the District Court granted motions by Yonkers and the NAACP to add the
State Education Department, the Yonkers Board of Education, and the State Urban
Development Corporation as defendants, based on allegations that they had
participated in the perpetuation of the segregated school system. On August 30,
1993, the District Court found that vestiges of a dual school system continued
to exist in Yonkers. On March 27, 1995, the District Court made factual findings
regarding the role of the State and the other State defendants (the "State") in
connection with the creation and maintenance of the dual school system, but
found no legal basis for imposing liability. On September 3, 1996, the United
States Court of Appeals for the Second Circuit, based on the District Court's
factual findings, held the State defendants liable under 42 USC ss.1983 and the
Equal EducationaL Opportunity Act, 20 USC ss.ss.1701, et seq., for the unlawful
dual school systEm, because the State, inter alia, had taken no action to force
the school district to desegregate despite its actual or constructive knowledge
of de jure segregation. By order dated October 8, 1997, the District Court held
that vestiges of the prior segregated school system continued to exist and that,
based on the State's conduct in creating and maintaining that system, the State
is liable for eliminating segregation and its vestiges in Yonkers and must fund
a remedy to accomplish that goal. Yonkers presented a proposed educational
improvement plan ("EIP II") to eradicate these vestiges of segregation. The
October 8, 1997 order of the District Court ordered that EIP II be implemented
and directed that, within 10 days of the entry of the Order, the State make
available to Yonkers $450,000 to support planning activities to prepare the EIP
II budget for 1997-98 and the accompanying capital facilities plan. A final
judgment to implement EIP II was entered on October 14, 1997. On November 7,
1997, the State appealed that judgment to the Second Circuit. The appeal is
pending. Additionally, the Court adopted a requirement that the State pay to
Yonkers approximately $9.85 million as its pro rata share of the funding of EIP
I for the 1996-97 school year. The requirement for State funding of EIP I was
reduced to an order on December 2, 1997 and reduced to a judgment on February
10, 1998. The State appealed that order to the Second Circuit on December 31,
1997 and amended the notice of appeal after entry of the judgment. By decision
dated June 22, 1999, as discussed below, the Second Circuit affirmed the
District Court's order requiring the State to pay one-half the cost of EIP I for
the 1996-97 school year and remanded the case to the District Court for further
proceedings consistent with its decision.

On June 15, 1998, the District Court issued an opinion setting forth the
formula for the allocation of the costs of EIP I and EIP II between the State
and the City for the school years 1997-98 through 2005-06. That opinion was
reduced to an order on July 27, 1998. The order directed the State to pay $37.5
million by August 1, 1998 for estimated EIP costs for the 1997-98 school year.
The State made this payment, as directed. On August 24, 1998, the State appealed
that order to the Second Circuit. The city of Yonkers and the Yonkers Board of
Education cross appealed to the Second Circuit from that order. By stipulation
of the parties approved by the Second Circuit on November 19, 1998, the appeals
from the July 27, 1998 order were withdrawn without prejudice to reinstatement
upon determination of the State's appeal of the October 14, 1997 judgment
discussed above.

On April 15, 1999, the District Court issued two additional orders. The
first order directed the State to pay to Yonkers an additional $11.3 million by
May 1, 1999, as the State's remaining share of EIP costs for the 1997-98 school
year. The second order directed the State to pay to Yonkers $69.1 million as its
share of the estimated EIP costs for the 1998-99 school year.
The State made both payments on April 30, 1999.

In a decision dated June 22, 1999, the Second Circuit found no basis for
the District Court's findings that vestiges of a dual system continued to exist
in Yonkers and reversed the order directing the implementation of EIP II. The
Second Circuit also affirmed the District Court's order requiring the State to
pay one-half of the cost of EIP I for the 1996-97 school year and remanded the
case to the District Court for further proceedings consistent with its decision.
On July 2, 1999 the NAACP filed a petition for rehearing of the June 22, 1999
decision before the Second Circuit, en banc. The State has joined in the City of
Yonker's motion to stay further implementation of EIP II pending the decision on
the petition for rehearing. By order dated August 5, 1999, the Second Circuit
granted the motion staying further implementation of EIP II pending appeal.

On July 27, 1999, the City of Yonkers moved in the District Court to
modify the July 27, 1998 order to require the State to make payments for EIP
expenses each month from July 1999 through April 2000 of $9.22 million per month
instead of paying $92.2 million by May 1, 2000. By memorandum and order dated
July 29, 1999, the District Court denied this motion.

In a decision dated November 16, 1999, the Second Circuit vacated its June
22, 1999 decision. In this decision, the Second Circuit again affirmed the
District Court's order requiring the State to pay one-half of the cost of EIP I
for the 1996-97 school year. The Second Circuit also found no basis for the
District Court's findings that vestiges of a dual system continued to exist in
Yonkers, and therefore vacated the District Court's EIP II order. The Second
Circuit, however, remanded to the District Court for the limited purpose of
making further findings on the existing record as to whether any other vestiges
of the dual system remain in the Yonkers public schools.

REAL PROPERTY CLAIMS

On March 4, 1985 in Oneida Indian Nation of New York, et al. v. County of
Oneida, the United States Supreme Court affirmed a judgment of the United States
Court of Appeals for the Second Circuit holding that the Oneida Indians have a
common-law right of action against Madison and Oneida Counties for wrongful
possession of 872 acres of land illegally sold to the State in 1795. At the same
time, however, the Court reversed the Second Circuit by holding that a
third-party claim by the counties against the State for indemnification was not
properly before the federal courts. The case was remanded to the District Court
for an assessment of damages, which action is still pending. The counties may
still seek indemnification in the State courts.

In 1998, the United States filed a complaint in intervention in Oneida
Indian Nation of New York. In December 1998, both the United States and the
tribal plaintiffs moved for leave to amend their complaints to assert claims for
250,000 acres, to add the State as a defendant, and to certify a class made up
of all individuals who currently purport to hold title within said 250,000 acre
area. These motions were argued March 29, 1999 and are still awaiting
determination. The District Court has not yet rendered a decision. By order
dated February 24, 1999, the District Court appointed a federal settlement
master. A conference scheduled by the District Court for May 26, 1999 to address
the administration of this case has been adjourned indefinitely.

Several other actions involving Indian claims to land in upstate New York
are also pending. Included are Cayuga Indian Nation of New York v. Cuomo, et
al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State of New York,
et al., both in the United States District Court for the Northern District of
New York and Seneca Nation of Indians, et al. v. State, et al. in the United
States District Court for the Western District of New York. The Supreme Court's
holding in Oneida Indian Nation of New York may impair or eliminate certain of
the State's defenses to these actions but may enhance others. In the Cayuga
Indian Nation of New York case, by order dated March 29, 1999, the United States
District Court for the Northern District of New York appointed a federal
settlement master. In October 1999, the District Court granted the Federal
Government's motion to have the State held jointly and severally liable for any
damages owed to the plaintiffs. The damages phase of the trial of this case is
underway. In the Canadian St. Regis Band of Mohawk Indians case, the United
States District Court for the Northern District of New York has directed the
parties to rebrief outstanding motions to dismiss brought by the defendants. The
State filed its brief on July 1, 1999. The motions were argued in September
1999. No decision has been rendered on these motions. In Seneca Nation of
Indians, by order dated November 22, 1999, the District Court confirmed the July
12, 1999 magistrate's report, which recommended granting the State's motion to
dismiss the portion of the action relating to the right of way where the New
York State Thruway crosses the Cattaraugus Reservation in Erie and Chatauqua
Counties and denying the State's motion to dismiss the Federal Government's
damage claims. The District Court has set a trial date of October 17, 2000 for
that portion of the case related to the plaintiff's claim of ownership of the
islands of the Niagara River.
<PAGE>
APPENDIX E

ADDITIONAL INFORMATION CONCERNING
PUERTO RICAN MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in Puerto Rican Municipal Obligations. The sources of payment for
such obligations and the marketability thereof may be affected by financial or
other difficulties experienced by Puerto Rico and certain of its municipalities
and public authorities. This information does not purport to be a complete
description and is based on information from statements relating to Puerto
Rico's economy published by the Government of Puerto Rico. Neither CitiFunds
California Tax Free Reserves, CitiFunds Connecticut Tax Free Reserves, nor
CitiFunds New York Tax Free Reserves is responsible for the accuracy or
timeliness of this information.

The economy of Puerto Rico is dominated by the manufacturing and service
sectors (including finance and tourism). Investment in fixed capital, including
public infrastructure, private development and construction, and purchases of
equipment and machinery accounted for approximately 25.1% of Puerto Rico's gross
domestic product in 1998. The economic growth of Puerto Rico was 3.1% in fiscal
year 1998, slightly lower than the average growth of highly developed countries
such as the US, Canada and the UK, which ranged between 3.2% and 3.7%. A key
element in 1998's economic growth was the level of internal investments in fixed
capital (including public infrastructure, private development projects and
purchase of equipment), which increased 5.4%, as well as the manufacturing and
services sectors that have traditionally dominated Puerto Rico's economy. The
economy of Puerto Rico expanded moderately during the early 1990s, with gross
domestic product increasing at rates between 0.8% and 0.9%. Over the past
several years, however, Puerto Rico has experienced more significant annual
increases in gross domestic product, ranging from a 2.5% in fiscal year 1994 to
a record high of 3.4% in fiscal year 1995. Annual increases in Puerto Rico's
gross domestic product for fiscal years 1996, 1997 and 1998 were 3.3%, 3.2% and
3.1%, respectively. The balance of net sales (exports and imports) is negative,
yet exports (tourism included) of goods and services experienced an aggressive
growth rate of 21.6% in the fiscal year 1998. Such growth in exports is
considered an important aspect of Puerto Rico's economic growth. Although Puerto
Rico's unemployment rate increased from 13.1% in fiscal year 1997 to 13.6% in
fiscal year 1998, the unemployment rate was still lower than the 14.5% average
for the last six years.

During the first quarter of the fiscal year 1999, Hurricane George hit
the island of Puerto Rico, causing severe damage. This hurricane is considered
one of most destructive in Puerto Rico's history, damaging almost all of the
country's infrastructure and effecting nearly every sector in the economy. As a
result of the pattern of growth of Puerto Rico's economy over the last six
years, coupled with the substantial federal and international aid received by
the Puerto Rican government, however, authorities project that the hurricane
will not have a large impact on Puerto Rico's trend of economic growth. The
government has made economic-growth projections under three potential scenarios:
minimal growth, base growth and maximum growth. Under the minimal-growth
scenario, Puerto Rico's economy is expected to grow 2.7% in fiscal year 1999 and
2.5% in fiscal year 2000, compared to growth rates of 3.0% and 2.7% under the
base-growth scenario and 3.4% and 3.0% under the maximum growth-scenario in
fiscal years 1999 and 2000, respectively. These growth projections are based on
an increasing rate of personal consumption, stable interest rates, declining oil
prices and policies of the Government of Puerto Rico.
<PAGE>

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