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CITIFUNDS(R)
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CitiFunds
TAX FREE RESERVES
ANNUAL REPORT
AUGUST 31, 2000
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INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Fund Performance 4
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CITIFUNDS TAX FREE RESERVES
Statement of Assets and Liabilities 5
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Statement of Operations 6
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Statement of Changes in Net Assets 7
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Financial Highlights 8
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Notes to Financial Statements 9
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Independent Auditors' Report 12
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TAX FREE RESERVES PORTFOLIO
Portfolio of Investments 13
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Statement of Assets and Liabilities 20
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Statement of Operations 20
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Statement of Changes in Net Assets 21
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Financial Highlights 21
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Notes to Financial Statements 22
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Independent Auditors' Report 24
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
Robust economic growth, inflation concerns and rising interest rates helped
produce generally higher yields for tax-exempt money market instruments during
the reporting period. However, a closer look suggests that most of the
improvement in short-term tax-exempt yields took place during the first six
months of the period. Between March and August 2000, tax-exempt yields actually
declined modestly, primarily in response to supply-and-demand forces that were
unique to the municipal marketplace.
In this environment, the CitiFunds' investment adviser, Citibank, N.A.,
continued to manage Tax Free Reserves Portfolio, the portfolio in which the Fund
invests all of its investable assets, with the goal of achieving its investment
objective: providing high levels of current income that are exempt from federal
income taxes, preservation of capital and liquidity.
This annual report reviews the Fund's investment activities and performance
during the twelve months ended August 31, 2000, and provides a summary of
Citibank's perspective on and outlook for the tax-exempt money market securities
marketplace.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip Coolidge
-------------------
Philip W. Coolidge
President
September 15, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
TAX-EXEMPT MONEY MARKET INSTRUMENTS PROVIDED COMPETITIVE RETURNS AND A SAFE
HARBOR FOR MANY INVESTORS DURING THE REPORTING PERIOD. These benefits were
particularly valuable during the second half of the period, when heightened
volatility in the stock market and rising interest rates produced flat or
negative returns for some investment classes, including many stocks and
longer-term bonds. However, tax-exempt yields ended the reporting period at
fairly low levels relative to taxable money market yields. This was due mainly
to a reduction in the issuance of short-term tax-exempt securities by
municipalities during the first eight months of 2000 compared to the same period
one year ago.
The U.S. economy during most of the reporting period was characterized by
strong growth, rising prices for some important commodities, including oil, and
the lowest levels of unemployment in recent memory. During the first half of the
reporting period, these economic conditions were enhanced by a rapidly rising
stock market, especially within market sectors expected to benefit from strong
demand for technology and telecommunications services.
BECAUSE THIS COMBINATION OF POSITIVE ECONOMIC FORCES HAS HISTORICALLY LED TO
HIGHER RATES OF INFLATION, THE FED CONTINUED TO MOVE TOWARD A MORE RESTRICTIVE
MONETARY POLICY DURING THE PERIOD. In fact, the Fed raised short-term interest
rates four times during the reporting period, for a total increase of 1.25%, in
an effort to relieve inflationary pressures that might threaten to derail U.S.
economic prosperity.
The Fed's actions strongly influenced tax-exempt money markets during the
first half of the reporting period, causing tax-exempt yields to rise along with
yields in other sectors of the bond markets. DURING THE SECOND HALF OF THE
PERIOD, HOWEVER, TECHNICAL MARKET FORCES ECLIPSED INTEREST-RATE TRENDS, CAUSING
TAX-EXEMPT YIELDS TO FALL MODESTLY BETWEEN MARCH AND AUGUST. More specifically,
because many municipal issuers enjoyed higher-than-expected tax revenues during
this period of economic strength, they had less need to borrow in the short-term
bond market. Accordingly, issuance of short-term tax-exempt securities fell. At
the same time, demand for money market instruments rose when the stock market
began to falter in March and April, and individuals sought to protect some of
their gains during a time of heightened market volatility.
IN THIS ENVIRONMENT, MANAGEMENT MAINTAINED A RELATIVELY SHORT AVERAGE
MATURITY FROM SEPTEMBER 1999 THROUGH MAY 2000. This strategy was designed to
keep assets available for higher yielding securities if interest rates rose.
When it became apparent in May that tax-exempt rates had peaked, management then
extended the Fund's average maturity in order to lock in prevailing yields for
as long as practical.
FROM A SECURITY SELECTION PERSPECTIVE, MANAGEMENT CONTINUED TO FOCUS
PRIMARILY ON VARIABLE RATE DEMAND NOTES (VRDNS), WHICH ARE SHORT-TERM
INSTRUMENTS THAT ARE SECURITIZED AND ISSUED BY INVESTMENT BANKS. This emphasis
on floating-rate securities enabled the Fund to capture higher yields more
quickly as they became available. The managers' focus on VRDNs was also partly
the result of the lack of new municipal notes in the marketplace. As of August
31, 2000,
2
<PAGE>
weekly VRDNs comprised about 76% of the Fund's portfolio, and municipal notes
and bonds accounted for 24%.
AS FOR THE FORESEEABLE FUTURE, MANAGEMENT EXPECTS THAT THE FED MOST LIKELY
WILL NOT MAKE POLICY DECISIONS UNTIL AFTER THE NOVEMBER PRESIDENTIAL ELECTION.
Recent economic statistics indicate that the Fed's previous rate hikes may have
been effective in slowing the rate of economic growth and forestalling an
acceleration of inflation. Accordingly, management expects to maintain the
current maturity strategy and security selection approach over the next few
months. Of course, management may adjust its strategies as economic and market
conditions change.
FUND FACTS
FUND OBJECTIVE
Provide high levels of current income which is exempt from Federal income
taxes*, preservation of capital and liquidity.
INVESTMENT ADVISER, DIVIDENDS
TAX FREE RESERVES PORTFOLIO Declared daily, paid monthly
Citibank, N.A.
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
August 31, 1984 Distributed annually, if any
NET ASSETS AS OF 8/31/00 BENCHMARK**
Class N shares $497.6 million o Lipper Tax Exempt Money Market
Cititrade(R) shares $7,057 Funds Average
o iMoneyNet, Inc. (formerly IBC
Financial Data) General Tax
Free Money Market Funds Average
* A portion of the income may be subject to the Federal Alternative Minimum Tax
(AMT). Consult your personal tax adviser.
** The Lipper Funds Average and iMoneyNet, Inc. Funds Average reflect the
performance (excluding sales charges) of mutual funds with similar
objectives.
Cititrade is a registered service mark of Citicorp.
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
ONE FIVE TEN
ALL PERIODS ENDED AUGUST 31, 2000 YEAR YEARS* YEARS*
================================================================================
CitiFunds Tax Free Reserves Class N 3.33% 3.03% 3.03%
Lipper Tax Exempt Money Market Funds Average 3.27% 3.03% 3.03%
iMoneyNet, Inc. (formerly IBC Financial Data)
General Tax Free Money Market Funds Average 3.29% 3.05% 3.04%
Cititrade Tax Free Reserves -- -- 0.13%**#
* Average Annual Total Return
** Not Annualized
# Commencement of Operations 8/18/00
7-DAY YIELDS CLASS N CITITRADE
------- ---------
Annualized Current 3.65% 3.30%
Effective 3.70% 3.35%
The ANNUALIZED CURRENT 7-DAY YIELD reflects the amount of income generated by
the investment during that seven-day period and assumes that the income is
generated each week over a 365-day period. The yield is shown as a percentage of
the investment.
The EFFECTIVE 7-DAY YIELD is calculated similarly, but when annualized, the
income earned by the investment during that seven-day period is assumed to be
reinvested. The effective yield is slightly higher than the current yield
because of the compounding effect of this assumed reinvestment.
Note: A money market fund's yield more closely reflects the current earnings of
the fund than does the total return.
IMPORTANT TAX INFORMATION--For the fiscal year ended August 31, 2000, CitiFunds
Tax Free Reserves Class N shares paid $0.03279 per share and Cititrade Tax Free
Reserves paid $0.00126 per share, respectively, to shareholders from net
investment income. For such period, the Fund designated all dividends paid as
exempt-interest dividends. Thus, 100% of these distributions were exempt from
Federal income tax. In addition, 14.8% of the dividends were derived from income
earned from certain government obligations which may be subject to the Federal
Alternative Minimum Tax (AMT).
COMPARISON OF 7-DAY YIELDS FOR CITIFUNDS TAX FREE RESERVES CLASS N VS.
iMONEYNET, INC. (FORMERLY IBC FINANCIAL DATA) GENERAL TAX FREE MONEY
MARKET FUNDS AVERAGE
As illustrated, CitiFunds Tax Free Reserves Class N generally provided a similar
annualized seven-day yield to that-of a comparable iMoneyNet, Inc. Money Market
Funds-Average, as published in iMoneyNet, Inc. Money Fund Report(TM), for the
one-year period.
[Table below represents line chart in its printed piece]
iMoneyNet, Inc.
General Tax Free
CitiFunds Tax Free Money Market Tax Free
Reserves Class N Funds Average
8/31/99 0.0265 0.0265
9/7/99 0.026 0.0262
9/14/99 0.0262 0.0264
9/21/99 0.0281 0.0282
9/28/99 0.0303 0.0301
10/5/99 0.0302 0.03
10/12/99 0.0275 0.0275
10/19/99 0.0278 0.0278
10/26/99 0.0278 0.028
11/2/99 0.0284 0.0286
11/9/99 0.0282 0.0281
11/16/99 0.0297 0.0296
11/23/99 0.0307 0.0308
11/30/99 0.0313 0.0315
12/7/99 0.0295 0.0296
12/14/99 0.0277 0.0282
12/21/99 0.0311 0.0309
12/28/99 0.0367 0.0357
1/4/00 0.0409 0.0397
1/11/00 0.0285 0.0288
1/18/00 0.0261 0.0266
1/25/00 0.0271 0.0273
2/1/00 0.028 0.028
2/8/00 0.027 0.0268
2/15/00 0.0296 0.0293
2/22/00 0.0317 0.031
2/29/00 0.0323 0.0319
3/7/00 0.0318 0.0314
3/14/00 0.0315 0.0311
3/21/00 0.0315 0.0311
3/28/00 0.0318 0.0314
4/4/00 0.0323 0.0321
4/11/00 0.0294 0.0291
4/18/00 0.0327 0.0322
4/25/00 0.0371 0.0361
5/2/00 0.0416 0.0402
5/9/00 0.0456 0.044
5/16/00 0.0467 0.045
5/23/00 0.0383 0.0375
5/30/00 0.0368 0.036
6/6/00 0.0351 0.0347
6/13/00 0.0336 0.0337
6/20/00 0.0363 0.0365
6/27/00 0.0389 0.0386
7/4/00 0.0395 0.039
7/11/00 0.0311 0.0315
7/18/00 0.0324 0.0328
7/25/00 0.036 0.0355
8/1/00 0.0366 0.0361
8/8/00 0.0345 0.0341
8/15/00 0.0357 0.0356
8/22/00 0.0362 0.0356
8/29/00 0.0362 0.0357
Note: Although money market funds seek to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the Fund.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. Yields and total returns
will fluctuate and past performance is no guarantee of future results. Total
return figures include reinvestment of dividends. Returns and yields reflect
certain voluntary fee waivers. If the waivers were not in place, the Fund's
returns and yields would have been lower.
4
<PAGE>
CITIFUNDS TAX FREE RESERVES
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
================================================================================
ASSETS:
Investment in Tax Free Reserves Portfolio, at value (Note 1) $499,102,497
Receivable for shares of beneficial interest sold 41,882
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Total assets 499,144,379
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LIABILITIES:
Dividends payable 1,321,215
Payable to affiliate-Shareholder servicing agents' fees (Note 3B) 103,381
Payable for shares of beneficial interest repurchased 25,866
Accrued expenses and other liabilities 126,991
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Total liabilities 1,577,453
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NET ASSETS $497,566,926
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $497,586,861
Accumulated net realized loss on investments (19,935)
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Total $497,566,926
================================================================================
CLASS N SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($497,559,869/497,579,804 shares outstanding) $1.00
================================================================================
CITITRADE SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($7,057/7,057 shares outstanding) $1.00
================================================================================
See notes to financial statements
5
<PAGE>
CITIFUNDS TAX FREE RESERVES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
================================================================================
INTEREST INCOME (Note 1A)
Income from Tax Free Reserves Portfolio $19,697,213
Allocated expenses from Tax Free Reserves Portfolio (754,567)
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$18,942,646
EXPENSES:
Administrative fees (Note 3A) 1,254,912
Shareholder Servicing Agents' fees Class N (Note 3B) 1,254,912
Distribution fees Class N (Note 4) 502,369
Distribution fees Cititrade (Note 4) 1
Shareholder reports 30,151
Legal fees 23,777
Custody and fund accounting fees 18,892
Audit fees 18,692
Transfer agent fees 13,521
Trustees' fees 12,056
Registration 2,087
Miscellaneous 21,075
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Total expenses 3,152,445
Less aggregate amounts waived by Administrator and
Distributor (Notes 3A and 4) (642,156)
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Net expenses 2,510,289
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Net investment income 16,432,357
NET REALIZED LOSS ON INVESTMENTS FROM TAX FREE RESERVES PORTFOLIO (17,545)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,414,812
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS TAX FREE RESERVES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
----------------------------
2000 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 16,432,357 $ 13,543,126
Net realized gain (loss) on investments (17,545) 11,496
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Net increase in net assets from operations 16,414,812 13,554,622
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DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income Class N shares (16,432,347) (13,543,126)
Net investment income Cititrade shares (10) --
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Decrease in net assets from distribution
to shareholders (16,432,357) (13,543,126)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT
NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
CLASS N SHARES
Proceeds from sale of shares 1,057,083,608 771,192,000
Net asset value of shares issued to
shareholders from reinvestment of dividends 2,224,510 2,080,452
Cost of shares repurchased (1,051,611,170) (798,174,036)
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Total Class N shares 7,696,948 (24,901,584)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT
NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
CITITRADE SHARES*
Proceeds from sale of shares 11,000 --
Net asset value of shares issued to shareholders
from reinvestment of dividends 10 --
Cost of shares repurchased (3,953) --
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Total Cititrade shares 7,057 --
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Total increase (decrease) in net assets from
transactions in shares of beneficial interest 7,704,005 (24,901,584)
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NET INCREASE (DECREASE) IN NET ASSETS 7,686,460 (24,890,088)
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NET ASSETS:
Beginning of period 489,880,466 514,770,554
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End of period $497,566,926 $489,880,466
================================================================================
* August 18, 2000 (Commencement of Operations)
See notes to financial statements
7
<PAGE>
CitiFunds Tax Free Reserves
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS N
--------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------
2000 1999 1998 1997 1996
================================================================================================
<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 0.03279 0.02626 0.03042 0.03004 0.02973
Less dividends from net
investment income (0.03279) (0.02626) (0.03042) (0.03004) (0.02973)
------------------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $497,560 $489,880 $514,771 $422,483 $371,349
Ratio of expenses to average
net assets+ 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income
to average net assets+ 3.27% 2.62% 3.04% 3.01% 2.97%
Total return 3.33% 2.66% 3.08% 3.05% 3.01%
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 $0.03015 $0.02365 $0.02782 $0.02715 $0.02693
RATIOS:
Expenses to average net assets+ 0.91% 0.91% 0.92% 0.94% 0.93%
Net investment income to
average net assets+ 3.01% 2.36% 2.77% 2.72% 2.69%
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CITITRADE SHARES
------------------------------
FOR THE PERIOD AUGUST 18, 2000
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 2000
================================================================================================
<S> <C>
Net Asset Value, beginning of period $1.00000
Net investment income 0.00126
Less dividends from net investment income (0.00126)
------------------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000
================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $7,057
Ratio of expenses to average net assets+ 1.00%*
Ratio of net investment income to average net assets+ 2.92%*
Total return 0.13%**
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 $0.00126
RATIOS:
Expenses to average net assets+ 1.26%*
Net investment income to average net assets+ 2.66%*
================================================================================================
</TABLE>
+ Includes the Fund's share of Tax Free Reserves Portfolio's allocated
expenses.
* Annualized
** Not Annualized
See notes to financial statements
8
<PAGE>
CITIFUNDS TAX FREE RESERVES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Tax Free Reserves (the "Fund") is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end,
management investment company. The Fund invests all of its investable assets in
Tax Free Reserves Portfolio (the "Portfolio"), a management investment company
for which Citibank, N.A. ("Citibank") serves as Investment Adviser. The value of
such investment reflects the Fund's proportionate interest (approximately 73.9%
at August 31, 2000) in the net assets of the Portfolio. CFBDS, Inc. ("CFBDS")
acts as the Fund's Administrator and Distributor. Citibank also serves as
Sub-Administrator and makes Fund shares available to customers as Shareholder
Servicing Agent. Citibank is a wholly-owned subsidiary of Citigroup Inc.
The Fund, as of August 31, 2000, offers Class N shares and Cititrade shares.
The Fund commenced its public offering of Cititrade shares on August 18, 2000.
Expenses of the Fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro-rata share of the net assets of the Fund if the Fund was
liquidated. Class N shares have lower expenses than Cititrade shares. Cititrade
shares pay a higher ongoing service fee than Class N shares.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The significant accounting policies consistently followed by the Fund are as
follows:
A. INVESTMENT INCOME The Fund earns income, net of Portfolio expenses, daily
on its investment in the Portfolio.
B. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders all of its net investment income. Accordingly, no
provision for federal income or excise tax is necessary. At August 31, 2000, the
Fund, for federal income tax purposes, had a capital loss carryover of $19,935,
of which $2,390 will expire on August 31, 2005 and $17,545 which will expire on
August 31, 2006. Such capital loss carryover will reduce the Fund's taxable
income arising from future net realized gain on investment transactions, if any,
to the extent permitted by the Internal Revenue Code, and thus will reduce the
amount of distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Dividends paid by the
Fund from net interest received on tax-exempt money
9
<PAGE>
CITIFUNDS TAX FREE RESERVES
NOTES TO FINANCIAL STATEMENTS (Continued)
market instruments are not includeable by shareholders as gross income for
federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt-interest dividends. The
portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item to shareholders.
C. EXPENSES The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS.
2. DIVIDENDS The net income of the Fund is determined once daily, as of 12:00
noon Eastern Standard Time, and all of the net income of the Fund so determined
is declared as a dividend to shareholders of record at the time of such
determination. Dividends are distributed in the form of additional shares of the
Fund or, at the election of the shareholder, in cash (subject to the policies of
the shareholder's Shareholder Servicing Agent) on or prior to the last business
day of the month.
3. ADMINISTRATIVE SERVICES PLAN The Fund has adopted an Administrative Services
Plan which provides that the Fund may obtain the services of an Administrator,
one or more Shareholder Servicing Agents, and other Servicing Agents, and may
enter into agreements providing for the payment of fees for such services. Under
the Fund's Administrative Services Plan, the aggregate of the fee paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund under such plan and the Basic Distribution Fee paid from the Fund
to the Distributor under the Distribution Plan may not exceed 0.60% of the
Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year. For the year ended August 31, 2000, management agreed
to voluntarily limit Class N expenses to 0.65% and for the period from August
18, 2000 (Commencement of Operations) to August 31, 2000, management agreed to
voluntarily limit Cititrade expenses to 1.00%.
A. ADMINISTRATIVE FEES Under the terms of an Administrative Services
Agreement, CFBDS is entitled to an administrative fee, as compensation for
overall administrative services and general office facilities, which is computed
at the annual rate of 0.25% of the Fund's average daily net assets.
Administrative fees amounted to $1,254,912, of which $427,927 was voluntarily
waived for the year ended August 31, 2000. Citibank acts as Sub-Administrator
and performs such duties and receives such compensation from CFBDS as from time
to time is agreed to by CFBDS and Citibank. The Fund pays no compensation
directly to any Trustee or any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Fund from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Fund are officers and a director of the Administrator or its affiliates.
B. SHAREHOLDER SERVICING AGENT FEES The Fund has entered into shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which
that Shareholder Servicing Agent acts as an agent for its customers and provides
other
10
<PAGE>
CITIFUNDS TAX FREE RESERVES
NOTES TO FINANCIAL STATEMENTS
related services. For their services, each Shareholder Servicing Agent receives
a fee from the Fund, which may be paid periodically, but may not exceed, on an
annualized basis, an amount equal to 0.25% of the average daily net assets of
the Fund represented by shares owned during the period for which payment is
being made by investors for whom such Shareholder Servicing Agent maintains a
servicing relationship. Shareholder Servicing Agent fees amounted to $1,254,912
for Class N, for the year ended August 31, 2000.
4. DISTRIBUTION FEE The Fund has adopted a Plan of Distribution pursuant to
Rule-12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund compensates the Distributor at an annual rate not to exceed 0.10% of Class
N average daily net assets and 0.60% of Cititrade average daily net assets.
Distribution fees for Class N amounted to $502,369, of which $214,229 was
voluntarily waived for the year ended August 31, 2000, and $1 for Cititrade for
the period August 18, 2000 (Commencement of Operations) to August 31, 2000. The
Distributor may also receive an additional fee from the Fund at an annual rate
not to exceed 0.10% of the Fund's average daily net assets in anticipation of,
or as reimbursement for, advertising expenses incurred by the Distributor in
connection with the sale of shares of the Fund. No payments of such additional
fees have been made during the period.
5. SHARE OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional Shares of Beneficial Interest
(without par value).
6. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio aggregated $1,333,125,279 and $1,343,986,981 respectively, for the
year ended August 31, 2000.
11
<PAGE>
CITIFUNDS TAX FREE RESERVES
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
CITIFUNDS TAX FREE RESERVES:
We have audited the accompanying statement of assets and liabilities of
CitiFunds Tax Free Reserves (a Massachusetts business trust) as of August 31,
2000, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended August 31, 2000 and 1999, and the
financial highlights for each of the years in the five-year period ended August
31, 2000. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CitiFunds Tax Free
Reserves at August 31, 2000, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 4, 2000
12
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
TAX-EXEMPT COMMERCIAL PAPER -- 1.8%
--------------------------------------------------------------------------------
Phoenix City, Alabama,
Environmental
Revenue, AMT,
4.15% due 9/05/00 $ 7,000 $ 7,000,000
Sullivan Pollution Control
Revenue, Indiana,
4.20% due 9/11/00 5,000 5,000,000
------------
12,000,000
------------
GENERAL OBLIGATION BONDS
AND NOTES -- 2.9%
--------------------------------------------------------------------------------
Dallas, Texas,
5.60% due 2/15/01 4,000 4,023,719
Minneapolis, Minnesota,
4.15% due 1/24/01 2,000 2,000,000
South Carolina State,
5.75% due 3/01/01 1,000 1,007,792
South Carolina State,
6.00% due 5/01/01 1,000 1,010,376
Utah State,
5.00% due 7/01/01 4,900 4,926,716
Washington State,
5.50% due 1/01/01 6,315 6,343,547
------------
19,312,150
------------
ANNUAL AND SEMI-ANNUAL TENDER REVENUE
BONDS AND NOTES (PUTS) -- 18.0%
--------------------------------------------------------------------------------
Anchorage, Alaska,
Telephone Utility
Revenue,
4.25% due 12/01/00 2,000 2,001,681
Baltimore, Maryland,
7.00% due 10/15/00 1,000 1,003,115
Bayonne, New Jersey,
5.00% due 7/12/01 7,000 7,028,803
Brazos, Texas, Higher
Education
Authority, AMT,
5.85% due 6/01/01 2,000 2,013,628
California Student
Loan, AMT,
4.70% due 6/01/01 3,000 3,000,000
Chicago, Illinois,
4.00% due 10/26/00 1,000 1,000,000
Cobb County, Georgia,
School District,
4.38% due 12/29/00 5,000 5,006,390
Douglas County Colorado,
School District No 1,
5.00% due 6/29/01 3,000 3,016,224
Everett, Massachusetts,
6.00% due 12/15/00 1,130 1,135,749
Grand Prairie, Texas,
6.90% due 2/15/01 355 358,982
Gulf Coast Waste Disposal
Authority, Texas, AMT,
4.20% due 10/01/00 4,000 4,000,000
Indianapolis, Indiana, Public
Improvement,
5.00% due 1/08/01 7,475 7,493,036
Iowa School Corporation,
5.50% due 6/22/01 12,000 12,093,371
Memphis, Tennessee,
Electric System,
5.50% due 1/01/01 1,000 1,003,227
Mercer County, North
Dakota, Solid Waste
Disposal Authority, AMT,
4.80% due 12/01/00 3,400 3,400,000
Michigan Municipal Bond
Authority,
4.75% due 4/26/01 4,000 4,012,449
Michigan Municipal Bond
Authority,
4.30% due 8/23/01 2,500 2,516,361
Michigan Municipal Bond
Authority,
5.00% due 7/02/01 2,600 2,613,485
Milwaukee, Wisconsin,
Metropolitan Sewer
District,
4.25% due 10/01/00 1,510 1,510,173
New Hampshire State,
4.50% due 10/01/00 2,000 2,000,711
Ohio Housing Finance
Agency Mortgage
Revenue, AMT,
4.05% due 9/01/00 3,000 3,000,000
Oklahoma State Water
Resource Board State
Loan Revenue,
4.05% due 9/01/00 8,500 8,500,000
Panhandle Plains, Texas,
Higher Education Loan,
4.80% due 9/01/00 845 845,000
Pennsylvania State,
5.70% due 11/15/00 1,000 1,003,084
Putnam County, Florida,
4.35% due 12/15/00 2,500 2,500,000
Salt Lake County, Utah,
5.00% due 1/01/01 600 600,952
Texas State,
5.25% due 8/31/01 15,000 15,141,987
13
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
ANNUAL AND SEMI-ANNUAL TENDER REVENUE
BONDS AND NOTES (PUTS) -- (CONT'D)
--------------------------------------------------------------------------------
University, Michigan,
University Revenue,
5.25% due 6/29/01 $ 2,000 $ 2,014,225
Washington State Public
Power Supply,
5.25% due 7/01/01 2,000 2,014,916
Washington State Single
Family Mortgage,
4.88% due 9/01/00 5,815 5,815,000
Western, Michigan,
University Revenue,
6.50% due 7/15/01 2,475 2,568,505
Yoakum County, Texas,
4.30% due 11/01/00 3,000 3,000,000
York County, South
Carolina, Pollution
Control Revenue,
4.05% due 9/15/00 8,645 8,645,000
------------
121,856,054
------------
BOND, REVENUE, TAX AND TAX AND
REVENUE ANTICIPATION NOTES -- 1.6%
--------------------------------------------------------------------------------
De Kalb County, Georgia,
TANs,
4.40% due 8/01/01 1,500 1,500,000
Spokane Washington,
TRANS,
4.75% due 4/02/01 2,000 2,005,594
West Jordan, Utah, TRANs,
4.75% due 6/29/01 6,950 6,963,700
------------
10,469,294
------------
VARIABLE RATE DEMAND NOTES* -- 75.8%
--------------------------------------------------------------------------------
ABN -- Amro Leasetops
Certificates Trust,
due 10/01/04 3,609 3,609,000
ABN -- Amro Munitops
Certificates Trust,
due 3/07/07 4,000 4,000,000
ABN -- Amro Munitops
Certificates Trust, AMT,
due 4/05/06 5,000 5,000,000
ABN -- Amro Munitops
Certificates Trust, AMT,
due 7/05/06 9,000 9,000,000
ABN -- Amro Munitops
Certificates Trust, AMT,
due 5/07/08 15,000 15,000,000
Adams County, Colorado,
Industrial Development
Revenue,
due 12/01/15 2,000 2,000,000
Alaska State Housing
Finance Corp., AMT,
due 6/01/07 5,795 5,795,000
Arapahoe County,
Colorado, Revenue
Authority,
due 7/01/07 1,585 1,585,000
Ascension, Louisiana,
Revenue, AMT,
due 12/01/27 2,000 2,000,000
Ashe County, North
Carolina, Industrial
Facilities and Pollution,
due 7/01/10 2,100 2,100,000
Beloit, Kansas, Industrial
Development
Authority, AMT,
due 12/01/16 1,100 1,100,000
Beaver County,
Pennsylvania, Pollution
Control Revenue,
due 12/01/20 1,500 1,500,000
Bexar County, Texas,
Housing Finance
Authority,
due 9/15/26 1,900 1,900,000
Brazos River, Texas, Utility
Authority,
due 4/01/30 300 300,000
Brooks County, Georgia,
Development
Authority Revenue,
due 3/01/18 2,000 2,000,000
California State,
due 12/01/23 1,200 1,200,000
Carrollton, Georgia, Payroll
Development Authority,
due 3/01/15 1,550 1,550,000
Carthage, Missouri,
Industrial Development
Authority Revenue,
due 4/01/07 2,000 2,000,000
Carthage, Missouri,
Industrial Development
Authority Revenue, AMT,
due 9/01/30 2,000 2,000,000
Castle Pines, North Metro
District, Colorado,
due 12/01/28 5,195 5,195,000
14
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- (CONT'D)
--------------------------------------------------------------------------------
Chesterfield County, Virginia,
Industrial Development,
due 2/01/03 $ 1,400 $ 1,400,000
Chicago, Illinois,
due 1/01/23 15,847 15,847,000
Chicago, Illinois, Board
of Education,
due 6/01/21 3,000 3,000,000
Chicago, Illinois, Gas
Supply Revenue,
due 3/01/30 5,000 5,000,000
Chicago, Illinois, O'Hare
International Airport
Revenue,
due 7/01/10 500 500,000
Chicago, Illinois, Water
Revenue,
due 11/01/30 2,300 2,300,000
Clarksville, Arizona,
Industrial Development
Revenue, AMT,
due 8/01/13 1,500 1,500,000
Clarksville, Tennessee, Public
Building Authority,
due 6/01/29 1,700 1,700,000
Clipper Tax Exempt Trust,
AMT,
due 3/01/15 765 765,000
Clipper Tax Exempt Trust,
AMT,
due 3/01/16 6,430 6,430,000
Coastal Bend, Texas, Health
Facilities Development,
due 8/15/28 1,000 1,000,000
Cobb County, Georgia,
Housing Authority,
due 9/15/26 2,800 2,800,000
Colorado Health Facilities
Authority Revenue,
due 6/01/21 9,865 9,865,000
Colorado Springs Utility
Revenue,
due 11/15/26 6,520 6,520,000
Columbus, Georgia, Housing
Authority Revenue,
due 11/01/17 750 750,000
Connecticut State, Housing
Finance Authority,
due 5/15/18 3,545 3,545,000
Connecticut State, Health
and Education Facilities,
due 7/01/27 1,500 1,500,000
Davidson County, North
Carolina, Industrial
Facilities,
due 7/01/20 2,140 2,140,000
De Kalb County, Georgia,
Industrial Development
Revenue,
due 2/01/18 1,100 1,100,000
De Kalb County, Georgia,
Multi-Family Housing
Revenue,
due 6/15/25 2,400 2,400,000
Denver, Colorado, City and
County Airport Revenue,
due 12/01/20 2,300 2,300,000
Detroit, Michigan, Economic
Development Corp.,
due 5/01/09 3,000 3,000,000
Director State, Nevada,
Department of Business,
AMT,
due 8/01/20 820 820,000
District of Columbia,
Revenue,
due 10/01/15 500 500,000
Emmaus, Pennsylvania,
General Authority
Revenue,
due 3/01/24 13,000 13,000,000
Facilities Municipal Trust,
due 12/15/14 8,315 8,315,000
Fayetteville, Arkansas,
Industrial Development,
AMT,
due 12/01/04 1,100 1,100,000
Fayetteville, Arkansas, Public
Facilities Board,
due 9/01/27 100 100,000
Floyd County, Georgia,
Development Authority,
due 9/01/26 1,080 1,080,000
Forsyth County, Georgia,
Industrial Development
Revenue,
due 1/01/07 2,000 2,000,000
Fulton County, Georgia,
Development Authority
Revenue,
due 12/01/12 2,000 2,000,000
Fulton County, Georgia,
Development Authority
Revenue,
due 2/01/18 2,000 2,000,000
15
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- (CONT'D)
--------------------------------------------------------------------------------
Gila County, Arizona,
Industrial Development
Authority,
due 11/01/25 $ 1,585 $ 1,585,000
Gordon County, Georgia,
Industrial Development
Authority Revenue,
due 8/01/17 1,000 1,000,000
Gulf Breeze, Florida,
Revenue,
due 3/31/21 1,445 1,445,000
Gulf Coast, Texas, Waste
Disposal Authority,
due 6/01/20 890 890,000
Gwinett County, Georgia,
Industrial Development
Revenue,
due 3/01/17 310 310,000
Harris County, Texas,
due 8/01/15 2,700 2,700,000
Harris County, Texas, Health
Facilities Development,
due 2/15/27 1,500 1,500,000
Harris County, Texas, Health
Facilities Development,
due 10/01/29 3,000 3,000,000
Hawaii State, Housing
Financial &
Development Corp.,
due 7/01/29 9,945 9,945,000
Hawkins County,
Tennessee, Industrial
Development Board,
due 10/01/27 1,450 1,450,000
Hays, Texas, Mental Health
Development Facilities,
due 11/15/14 1,000 1,000,000
Henrico County, Virginia,
Industrial Development
Authority,
due 8/01/23 180 180,000
Hillsborough County,
Florida, School Board,
due 1/01/12 7,000 7,000,000
Huntington, Tennessee,
Industrial
Development, AMT,
due 5/01/20 4,000 4,000,000
Illinois Educational Facilities
Authority Revenue,
due 12/01/25 700 700,000
Illinois Health Facilities
Authority Revenue,
due 1/01/20 100 100,000
Illinois Health Facilities
Authority Revenue,
due 1/01/16 3,000 3,000,000
Irvine Ranch, California,
Water District,
due 9/01/06 800 800,000
Jackson County, Mississippi,
Industrial Development
Revenue,
due 12/01/15 2,650 2,650,000
Jacksonville, Florida, Health
Facilities Revenue,
due 12/01/23 1,900 1,900,000
Jefferson Parish, Louisiana,
Home Mortgage,
due 12/01/26 1,690 1,690,000
Jefferson Parish, Louisiana,
Industrial
Development, AMT,
due 6/01/24 1,600 1,600,000
Kansas City, Missouri,
Industrial Development
Authority,
due 4/01/27 800 800,000
Knox County, Tennessee,
Health Educational
Hospital Facilities,
due 12/01/27 8,000 8,000,000
Knox County, Tennessee,
Industrial Development
Board Revenue, AMT,
due 10/01/00 500 500,000
Koch Certificates Trust,
due 12/13/02 4,636 4,636,000
Lone Star Texas Airport
Authority,
due 12/01/14 900 900,000
Long Island Power
Authority,
due 4/01/25 4,200 4,200,000
Long Island Power
Authority,
due 5/01/33 1,000 1,000,000
Los Angeles County,
California, Housing
Authority,
due 6/15/28 5,000 5,000,000
Lower County River
Authority,
due 9/14/00 3,000 3,000,000
16
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- (CONT'D)
--------------------------------------------------------------------------------
Macon Trust Pooled Variable
Rate Certificates
due 3/03/07 $13,825 $ 13,825,000
Madison, Wisconsin,
Community
Development Authority,
due 6/01/22 1,055 1,055,000
Maine Health and Higher
Educational Facilities,
due 7/01/19 3,000 3,000,000
Maricopa County, Arizona,
Pollution Control,
due 5/01/29 4,100 4,100,000
Marshfield, Wisconsin,
Industrial Development
Revenue,
due 12/01/14 2,500 2,500,000
Maryland State Community
Development,
due 4/01/25 465 465,000
Mason County, Kentucky,
Pollution Control,
due 10/15/14 2,800 2,800,000
Massachusetts Municipal
WHSL Electric Co.,
due 7/01/19 6,600 6,600,000
Massachusetts State
Industrial Finance Agency,
due 11/01/25 2,000 2,000,000
Mecklenburg County, North
Carolina, Industrial
Facilities,
due 9/01/14 2,000 2,000,000
Metro Atlanta, Rapid
Transportation,
due 7/01/20 5,000 5,000,000
Metropolitan Pier &
Exposition Authority,
Illinois,
due 6/15/21 165 165,000
Miami Dade County, Florida,
Aviation,
due 10/01/29 9,500 9,500,000
Michigan State Strategic
Funding,
due 2/15/34 3,000 3,000,000
Minneapolis, Minnesota,
due 3/01/12 2,000 2,000,000
Missouri State Health and
Educational Facilities
Revenue,
due 7/01/18 3,700 3,700,000
Missouri State Health and
Educational Facilities
Revenue,
due 6/01/26 15 15,000
Missouri State Housing and
Development Common
Mortgage,
due 3/01/30 5,995 5,995,000
Moorhead, Minnesota, Solid
Waste Disposal, AMT,
due 4/01/12 3,000 3,000,000
Montana State, Health
Facility Authority
Revenue,
due 12/01/15 1,150 1,150,000
Montgomery County,
Tennessee, Public Building
Authority,
due 9/01/29 1,400 1,400,000
Morristown, Tennessee,
Industrial Development
Board,
due 2/01/15 4,250 4,250,000
Municipal Securities Trust
Certificates,
due 8/01/03 4,100 4,100,000
Nash County, North
Carolina,
due 12/01/14 1,000 1,000,000
New Hampshire Higher
Educational and Health,
due 6/01/23 1,300 1,300,000
New Hanover County,
North Carolina,
due 3/01/14 2,250 2,250,000
New Hanover County,
North Carolina,
due 3/01/15 2,250 2,250,000
New Hanover County,
North Carolina,
due 3/01/16 2,250 2,250,000
New York, New York,
due 8/01/03 10,200 10,200,000
New York Pooled
Puttable Trust,
due 12/05/30 7,410 7,410,000
New York State Energy
Research and
Development,
due 10/01/29 500 500,000
New York State Local
Government Assistance,
due 4/01/19 500 500,000
17
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- (CONT'D)
--------------------------------------------------------------------------------
New York State Local
Government Assistance,
due 4/01/25 $ 7,450 $ 7,450,000
North Carolina Educational
Facilities,
due 9/01/26 200 200,000
North Cent. Texas, Health
Facility Development,
due 12/01/15 4,130 4,130,000
Ohio State, Air Quality
Development Authority,
due 12/01/15 900 900,000
Oklahoma Finance
Authority Revenue,
due 1/01/30 4,000 4,000,000
Orange County, Florida,
Industrial Development
Authority,
due 1/01/11 375 375,000
Orlando, Florida, Special
Assessment Revenue,
due 10/01/21 3,200 3,200,000
Peoria, Illinois, Health Care
Facilities Revenue,
due 5/01/17 1,120 1,120,000
Piedmont, South Carolina,
Municipal Power Agency,
due 1/01/22 1,000 1,000,000
Pima County, Arizona,
Industrial Development
Authority,
due 12/01/22 10,000 10,000,000
Pinal County, Arizona,
Pollution Control
Revenue,
due 12/01/11 2,500 2,500,000
Pitney Bowes Credit
Corp. Leasetops,
due 11/13/02 1,013 1,013,459
Pitney Bowes Credit
Corp. Leasetops,
due 3/15/05 4,060 4,059,718
Pitney Bowes Credit
Corp. Leasetops,
due 3/16/05 11,625 11,624,764
Port Arthur, Texas,
Navigation District,
due 10/01/24 600 600,000
Port Vancouver,
Washington, Revenue,
due 12/01/09 6,100 6,100,000
Puerto Rico Public
Finance Corp.,
due 6/01/12 1,115 1,115,000
Puerto Rico
Commonwealth,
due 7/01/27 2,750 2,750,000
Puerto Rico Electric
Power Authority,
due 7/01/22 1,900 1,900,000
Red Bay, Alabama,
Industrial Development
Board Revenue,
due 11/01/10 3,400 3,400,000
Rhode Island Health and
Educational Building,
due 12/01/29 1,000 1,000,000
Rhode Island Health and
Educational Building,
due 3/01/30 1,500 1,500,000
Rhode Island State
Industrial Facilities Corp.,
due 5/01/05 1,250 1,250,000
Rhode Island State
Industrial Facilities Corp.,
due 11/01/05 3,180 3,180,000
Roswell, Georgia,
Multi-Family Housing
Authority,
due 8/01/27 2,500 2,500,000
Saint Charles Parish,
Louisiana, Pollution
Control Revenue,
due 3/01/24 7,500 7,500,000
San Antonio Texas,
Water Revenue,
due 5/15/26 7,000 7,000,000
Savannah, Illinois, Industrial
Development Revenue,
due 6/01/04 600 600,000
Seattle, Washington,
Municipal Lighting &
Power Revenue,
due 11/01/10 4,995 4,995,000
Seattle, Washington,
Municipal Lighting &
Power Revenue,
due 11/01/18 900 900,000
Sevier County, Tennessee,
Public Building Authority,
due 6/01/17 2,940 2,940,000
Sevier County, Tennessee,
Public Building Authority,
due 6/01/19 10,000 10,000,000
18
<PAGE>
TAX FREE RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- (CONT'D)
--------------------------------------------------------------------------------
Southeastern Oklahoma
Industrial Development
Authority,
due 6/01/16 $3,400 $ 3,400,000
Syracuse Industrial
Economic Development
Revenue,
due 12/01/05 585 585,000
Tarrant County, Texas,
Health Facilities
Development,
due 11/15/26 945 945,000
Texas State Department
of Housing and
Community,
due 3/01/17 1,995 1,995,000
Tipton, Indiana, Economic
Development Revenue,
due 7/01/22 1,000 1,000,000
Traill County, North
Dakota, Industrial
Development, AMT,
due 12/01/11 1,000 1,000,000
Traill County, North
Dakota, Industrial
Development, AMT,
due 12/11/11 1,000 1,000,000
University Michigan,
University Revenue,
due 12/01/24 2,300 2,300,000
Utah State Board of
Regents,
due 11/01/25 900 900,000
Valdez, Alaska, Marine
Terminal Revenue,
due 8/01/25 4,000 4,000,000
Valdez, Alaska, Marine
Terminal Revenue,
due 10/01/25 900 900,000
Valley, California, Health &
Hospital System
Revenue,
due 5/15/25 1,600 1,600,000
Vermont Industrial
Development Authority
Revenue, AMT,
due 12/01/11 700 700,000
Volusia County, Florida,
Health Facilities
Authority,
due 11/01/15 990 990,000
Walton County, Georgia,
Industrial Building
Authority,
due 10/01/17 700 700,000
Washington State Health
Care Facilities Revenue,
due 10/01/05 2,000 2,000,000
Watertown, South Dakota,
Industrial Development
Revenue,
due 8/01/14 1,145 1,145,000
Winchester, Kentucky,
Industrial Building,
AMT,
due 10/01/18 2,400 2,400,000
Wyoming Community
Development Authority
Housing Revenue, AMT,
due 12/01/15 7,120 7,120,000
Yolo County, California,
Multi-Family Revenue,
due 11/01/27 6,000 6,000,000
------------
512,354,941
------------
TOTAL INVESTMENTS,
AT AMORTIZED COST 100.1% 675,992,439
OTHER ASSETS,
LESS LIABILITIES (0.1) (500,139)
----- ------------
NET ASSETS 100.0% $675,492,300
===== ============
AMT -- Subject to Alternative Minimum Tax
* Variable rate demand notes have a demand
feature under which the Fund could tender
them back to the issuer on no more than
7 days notice.
See notes to financial statements
19
<PAGE>
TAX FREE RESERVES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
================================================================================
ASSETS:
Investments, at amortized cost and value (Note 1A) $675,992,439
Cash 33,133
Interest receivable 4,639,778
--------------------------------------------------------------------------------
Total assets 680,665,350
--------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 5,047,069
Payable to affiliate - Investment advisory fees (Note 2A) 72,735
Accrued expenses and other liabilities 53,246
--------------------------------------------------------------------------------
Total liabilities 5,173,050
--------------------------------------------------------------------------------
NET ASSETS $675,492,300
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $675,492,300
================================================================================
TAX FREE RESERVES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
================================================================================
INTEREST INCOME (Note 1B): $25,214,816
EXPENSES
Investment Advisory fees (Note 2A) $1,285,870
Administrative fees (Note 2B) 321,468
Custody and fund accounting fees 182,490
Legal fees 22,051
Audit fees 21,500
Trustees' fees 13,064
Miscellaneous 2,212
--------------------------------------------------------------------------------
Total expenses 1,848,655
Less aggregate amounts waived by Investment
Adviser and Administrator (Notes 2A and 2B) (860,853)
Less fees paid indirectly (Note 1D) (23,492)
--------------------------------------------------------------------------------
Net expenses 964,310
--------------------------------------------------------------------------------
Net investment income 24,250,506
NET REALIZED LOSS ON INVESTMENTS (23,055)
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $24,227,451
================================================================================
See notes to financial statements
20
<PAGE>
TAX FREE RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
----------------------------
2000 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 24,250,506 $ 22,768,275
Net realized gain (loss) on investments (23,055) 16,677
--------------------------------------------------------------------------------
Increase in net assets from operations 24,227,451 22,784,952
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 2,196,552,821 3,367,197,193
Value of withdrawals (2,202,408,291) (3,456,720,231)
--------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions (5,855,470) (89,523,038)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 18,371,981 (66,738,086)
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 657,120,319 723,858,405
--------------------------------------------------------------------------------
End of period $ 675,492,300 $ 657,120,319
================================================================================
TAX FREE RESERVES PORTFOLIO
FINANCIAL HIGHLIGHTS
YEAR ENDED AUGUST 31,
----------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $675,492 $657,120 $723,858 $483,630 $372,171
Ratio of expenses to
average net assets 0.15% 0.15% 0.15% 0.19% 0.30%
Ratio of net investment
income to average
net assets 3.77% 3.11% 3.53% 3.46% 3.31%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their
fees during the periods indicated and the expenses were not reduced for fees
paid indirectly, the ratios would have been as follows:
RATIOS:
Expenses to average net assets 0.29% 0.29% 0.29% 0.31% 0.32%
Net investment income to
average net assets 3.63% 2.98% 3.39% 3.35% 3.29%
--------------------------------------------------------------------------------
See notes to financial statements
21
<PAGE>
TAX FREE RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Tax Free Reserves Portfolio (the "Portfolio")
is registered under the Investment Company Act of 1940, as amended, as a
no-load, nondiversified, open-end management investment company which was
organized as a trust under the laws of the State of New York. The Declaration of
Trust permits the Trustees to issue beneficial interests in the Portfolio.
CFBDS, Inc. ("CFBDS"), acts as the Portfolio's Administrator. Citibank, N.A.
("Citibank") acts as the Investment Adviser. Citibank is a wholly-owned
subsidiary of Citigroup Inc.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. VALUATION OF INVESTMENTS Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair value.
The Portfolio's use of amortized cost is subject to the Portfolio's compliance
with certain conditions as specified under Rule 2a-7 of the Investment Company
Act of 1940.
B. INVESTMENT INCOME AND EXPENSES Investment income consists of interest
accrued and discount earned (including both original issue and market discount),
adjusted for amortization of premium, on the investments of the Portfolio.
Expenses of the Portfolio are accrued daily.
C. FEDERAL INCOME TAXES The Portfolio's policy is to comply with the
applicable provisions of the Internal Revenue Code. Accordingly, no provision
for federal income taxes is necessary.
D. FEES PAID INDIRECTLY The Portfolio's custodian calculates its fees based
on the Portfolio's average daily net assets. The fee is reduced according to a
fee arrangement, which provides for custody fees to be reduced based on a
formula developed to measure the value of cash deposited with the custodian by
the Portfolio. This amount is shown as a reduction of expenses on the Statement
of Operations.
E. OTHER Purchases, maturities and sales, of money market instruments are
accounted for on the date of the transaction.
2. INVESTMENT ADVISORY FEE AND ADMINISTRATIVE FEE
A. INVESTMENT ADVISORY FEE The investment advisory fee paid to Citibank, as
compensation for overall investment management services, amounted to $1,285,870,
of which $539,386 was voluntarily waived for the year ended August 31, 2000. The
investment advisory fee is computed at the annual rate of 0.20% of the
Portfolio's average daily net assets.
B. ADMINISTRATIVE FEE Under the terms of an Administrative Services
Agreement, the administrative fee payable to the Administrator, as compensation
for overall administrative services and general office facilities, is computed
at the annual rate of 0.05% of the Portfolio's average daily net assets and
amounted to $321,467, all of which was voluntarily waived for the year ended
August 31, 2000. The Portfolio pays
22
<PAGE>
TAX FREE RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
no compensation directly to any Trustee or any officer who is affiliated with
the Administrator, all of whom receive remuneration for their services to the
Portfolio from the Administrator or its affiliates. Certain of the officers and
a Trustee of the Portfolio are officers and a director of the Administrator or
its affiliates.
3. INVESTMENT TRANSACTIONS Purchases, and maturities and sales of money market
instruments, exclusive of securities purchased subject to repurchase agreements,
aggregated $2,521,124,431 and $2,509,477,347, respectively, for the year ended
August 31, 2000.
4. FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES The cost of investment
securities owned at August 31, 2000, for federal income tax purposes, amounted
to $675,992,439.
5. LINE OF CREDIT The Portfolio, along with other funds in the fund family,
entered into an agreement with a bank which allows the Funds collectively to
borrow up to $75 million for temporary or emergency purposes. Interest on
borrowings, if any, is charged to the specific fund executing the borrowing at
the base rate of the bank. The line of credit requires a quarterly payment of a
commitment fee based on the average daily unused portion of the line of credit.
For the year ended August 31, 2000, the commitment fee allocated to the
Portfolio was $1,833. Since the line of credit was established, there have been
no borrowings.
23
<PAGE>
TAX FREE RESERVES PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF
TAX FREE RESERVES PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Tax Free Reserves Portfolio (a New
York Trust) as of August 31, 2000, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
August 31, 2000 and 1999, and the financial highlights for each of the years in
the five-year period ended August 31, 2000. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of August 31, 2000, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Tax Free Reserves
Portfolio at August 31, 2000, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 4, 2000
24
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Walter E. Robb, III
E. Kirby Warren
SECRETARY
Robert Frenkel**
TREASURER
Linwood Downs*
*AFFILIATED PERSON OF ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF INVESTMENT ADVISER
INVESTMENT ADVISER
(OF TAX FREE RESERVES PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor, Boston, MA 02109
(617) 423-1679
TRANSFER AGENT
CitiFiduciary Trust Company
125 Broad Street, New York, NY 10004
SUB-TRANSFER AGENT
PFPC
4400 Computer Drive
West Boro, MA 01581
SUB-TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street, Boston, MA02116
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
This report is prepared for the information of shareholders of CitiFunds Tax
Free Reserves. It is authorized for distribution to prospective investors only
when preceded or accompanied by an effective prospectus of CitiFunds Tax Free
Reserves.
(C)2000 Citicorp [recycle logo] Printed on recycled paper CFA/RTF/800
