CITIFUNDS TAX FREE RESERVES, 497, 2000-01-05

CITIFUNDS TAX FREE RESERVES
497, 2000-01-05

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

----------
PROSPECTUS
----------

DECEMBER 31, 1999

CitiFunds(SM)
Money Market Funds
CITIBANK, N.A., INVESTMENT ADVISER

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

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.
<PAGE>

Table of Contents

FUNDS AT A GLANCE ...................................................... 3
CITIFUNDS CASH RESERVES ............................................. 4
CITIFUNDS U.S. TREASURY RESERVES .................................... 13
CITIFUNDS TAX FREE RESERVES ......................................... 20
CITIFUNDS CALIFORNIA TAX FREE RESERVES .............................. 29
CITIFUNDS CONNECTICUT TAX FREE RESERVES ............................. 39
CITIFUNDS NEW YORK TAX FREE RESERVES ................................ 49

YOUR CITIFUNDS ACCOUNT ................................................. 59
HOW TO BUY SHARES ................................................... 59
HOW THE PRICE OF YOUR SHARES IS CALCULATED .......................... 60
HOW TO SELL SHARES .................................................. 60
EXCHANGES ........................................................... 61
DIVIDENDS ........................................................... 63
RETIREMENT ACCOUNTS ................................................. 63
CLASSES OF SHARES OF CITIFUNDS CASH RESERVES 63
TAX MATTERS ......................................................... 66

MANAGEMENT OF THE FUNDS ................................................ 70
INVESTMENT ADVISER .................................................. 70
ADVISORY FEES ....................................................... 71
DISTRIBUTION ARRANGEMENTS ........................................... 71

MORE ABOUT THE FUNDS ................................................... 73
THE PRINCIPAL INVESTMENT STRATEGIES ................................. 73

FINANCIAL HIGHLIGHTS ................................................... A-1

APPENDIX ............................................................... B-1
TAXABLE EQUIVALENT YIELD TABLES
<PAGE>

-----------------
FUNDS AT A GLANCE
-----------------

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.
<PAGE>

-----------------------
CITIFUNDS CASH RESERVES
-----------------------

CitiFunds Cash Reserves

This summary briefly describes CitiFunds Cash Reserves and the
principal risks of investing in it. For more information, see
MORE ABOUT THE FUNDS on page 73.

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

CitiFunds 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 CitiFunds
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 U.S. 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. CitiFunds 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.

YEAR 2000 RISK. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers
have not been programmed to process information accurately on
or after January 1, 2000. The Fund, and its service providers,
have made efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund or the
markets on which those securities are traded do not solve
their Year 2000 problems, or if it costs them large amounts of
money to do so.

$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.

You should consider investing in CitiFunds 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.

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 IBC Financial Data 1st Tier Taxable Money
Market Funds Average. 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. For current yield information, please call
800-625-4554 toll free, or contact your account
representative.

The Fund offers three classes of shares -- Class A, Class B
and Class N. The Class A and Class B shares were newly offered
in 1999, and the chart and table show the performance of the
Class N shares only. The chart and the related information do
not take into account any sales charges that you may be
required to pay upon the sale of shares of other classes of
the Fund but do include reinvestment of dividends. Any sales
charges will reduce your return. You should also note that
Class B performance would have been lower than that shown for
Class N shares, because of higher Fund expenses.

The Fund's performance reflects certain fee waivers or
reimbursements. If these are reduced or terminated, the Fund's
performance may go down.
<PAGE>

CITIFUNDS CASH RESERVES
ANNUAL TOTAL RETURNS -- CLASS N

1989 8.83%
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%

As of September 30, 1999, the Class N shares had a year-to-date return of 3.39%

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

................................................................................
Quarter Ending
................................................................................
Highest 2.26% June 30, 1989
................................................................................
Lowest 0.64% March 31, 1993
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
................................................................................
1 Year 5 Years 10 Years
................................................................................
Class N
CitiFunds Cash Reserves 5.05% 4.91% 5.30%
................................................................................
IBC Financial Data 1st Tier Taxable
Money Market Funds Average 4.97% 4.81% 5.26%
- --------------------------------------------------------------------------------

Fund Fees and Expenses

This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
CITIFUNDS CASH RESERVES
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
................................................................................
SHARE CLASS (for class description, see p. 63) Class A Class B Class N
................................................................................
Maximum Sales Charge (Load) Imposed on
Purchases None None None
................................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2) None
................................................................................

(1) Except that if your Class A shares were received in exchange for Class A
shares of another CitiFund that were subject to a deferred sales charge, you
may be subject to that deferred sales charge.

(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within five
years of your original purchase. Your actual CDSC will be the highest CDSC
applicable to any CitiFund from which you have exchanged. The maximum
applicable CDSC, as a percentage of offering price, is shown below:

CDSC ON SHARES
SALE DURING BEING SOLD
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 2%
5th year since purchase 1%
6th year since purchase None
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
................................................................................
CLASS A CLASS B CLASS N
................................................................................
Management Fees 0.15% 0.15% 0.15%
................................................................................
Distribution and Service (12b-1) Fees 0.20% 0.75% 0.20%
................................................................................
Other Expenses (administrative, shareholder
servicing and other expenses) 0.69% 0.69% 0.69%
................................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.04% 1.59% 1.04%
- --------------------------------------------------------------------------------

* Because some of the Fund's expenses were waived or
reimbursed, actual total operating expenses for the
prior fiscal year were:
0.70% 1.45% 0.70%
These 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.
- --------------------------------------------------------------------------------
<PAGE>

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 (for
Class B shares, two numbers are given, one showing your expenses if
you sold (redeemed) all your shares at the end of each time period
and one if you held onto your shares);

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 without waivers
remain the same.

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

- --------------------------------------------------------------------------------
CITIFUNDS CASH RESERVES
................................................................................
1 Year 3 Years 5 Years 10 Years
................................................................................
Class A $106 $331 $628 $1,271
................................................................................
Class N $106 $331 $628 $1,271
................................................................................
Class B
Assuming redemption
at end of period $662 $802 $966 $1,889
Assuming no redemption $162 $502 $866 $1,889
- --------------------------------------------------------------------------------
<PAGE>

--------------------------------
CITIFUNDS U.S. TREASURY RESERVES
--------------------------------

CitiFunds U.S. Treasury Reserves

This summary briefly describes CitiFunds U.S. Treasury
Reserves and the principal risks of investing in it. For more
information, see MORE ABOUT THE FUNDS on page 73.

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

CitiFunds 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 CitiFunds
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.

WHO MAY WANT TO INVEST

You should keep in mind that an investment in a money market
fund is not a complete investment program.

You should consider investing in CitiFunds 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>

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 IBC Financial Data 100% U.S. Treasury Rated
Money Market Funds Average. 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 800-625-4554 toll free, or
contact your account representative.

CITIFUNDS 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%

As of September 30, 1999. the Fund had a year-to-date return of 2.95%

- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
................................................................................
Quarter Ending
................................................................................
Highest 1.31% June 30, 1995
................................................................................
Lowest 0.61% June 30, 1993
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
................................................................................
Life of Fund
Since
1 Year 5 Years May 3, 1991
................................................................................
4.50% 4.45% 4.10%
CITIFUNDS U.S. TREASURY
RESERVES
................................................................................
IBC Financial Data 100% U.S. Treasury Rated 4.66% 4.57% *
Money Market Funds Average
................................................................................

* Information regarding performance for this period is not available.
- --------------------------------------------------------------------------------
<PAGE>

Fund Fees and Expenses

This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
CITIFUNDS 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
- --------------------------------------------------------------------------------

Other Expenses (administrative, shareholder
servicing and other expenses) 0.72%
................................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.07%
- --------------------------------------------------------------------------------

* Because some of the Fund's expenses were waived or reimbursed,
actual total operating expenses for the prior fiscal year were: 0.70%

These 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.
<PAGE>

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 without waivers
remain the same.

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

- --------------------------------------------------------------------------------
CITIFUNDS U.S. TREASURY RESERVES
................................................................................
1 Year 3 Years 5 Years 10 Years
................................................................................
$109 $340 $590 $1,306
- --------------------------------------------------------------------------------
<PAGE>

---------------------------
CITIFUNDS TAX FREE RESERVES
---------------------------

CitiFunds Tax Free Reserves

This summary briefly describes CitiFunds Tax Free Reserves and
the principal risks of investing in it. For more information,
see MORE ABOUT THE FUNDS on page 73.

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 CitiFunds
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. CitiFunds Tax Free Reserves 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. CitiFunds 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.

WHO MAY WANT TO INVEST

You should keep in mind that an investment in a money market
fund is not a complete investment program.

You should consider investing in CitiFunds 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 IBC Financial Data General Purpose Tax Free
Money Market Funds Average. 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 800-625-4554 toll free, or contact your account
representative.

CITIFUNDS TAX FREE RESERVES
ANNUAL TOTAL RETURNS

1989 5.95%
1990 5.39%
1991 4.24%
1992 2.60%
1993 1.92%
1994 2.35%
1995 3.34%
1996 2.91%
1997 3.12%
1998 2.96%

As of September 30, 1999, the Fund had a year-to-date return of 1.94%

- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
................................................................................
Quarter Ending
................................................................................
Highest 1.54% June 30, 1989
................................................................................
Lowest 0.43% March 31, 1994
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
................................................................................
1 Year 5 Years 10 Years
................................................................................
CITIFUNDS TAX FREE RESERVES 2.96% 2.94% 3.49%
................................................................................
IBC Financial Data General Purpose Tax Free
Money Market Funds Average 2.94% 2.97% 3.49%
- --------------------------------------------------------------------------------
<PAGE>

Fund Fees and Expenses

This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
CITIFUNDS 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 FUND OPERATING EXPENSES(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
................................................................................
Management Fees 0.20%
................................................................................
Distribution (12b-1) Fees 0.20%
................................................................................
Other Expenses (administrative, shareholder
servicing and other expenses) 0.61%
................................................................................
Total Annual Fund Operating Expenses* 1.01%
- --------------------------------------------------------------------------------

* Because some of the Fund's expenses were waived or
reimbursed, actual total operating expenses for the prior
fiscal year were: 0.65%

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

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

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 without waivers
remain the same.

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

- --------------------------------------------------------------------------------
CITIFUNDS TAX FREE RESERVES
................................................................................
1 Year 3 Years 5 Years 10 Years
................................................................................
$103 $322 $558 $1,236
- --------------------------------------------------------------------------------
<PAGE>
--------------------------------------
CITIFUNDS CALIFORNIA TAX FREE RESERVES
--------------------------------------

CitiFunds California Tax Free Reserves

This summary briefly describes CitiFunds California Tax Free
Reserves and the principal risks of investing in it. For more
information, see MORE ABOUT THE FUNDS on page 73.

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 CitiFunds
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. CitiFunds California Tax Free Reserves
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. CitiFunds 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.

WHO MAY WANT TO INVEST

You should keep in mind that an investment in a money market
fund is not a complete investment program.

You should consider investing in CitiFunds 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>

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 IBC Financial Data California Tax Free
Money Market Funds Average. 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 800-625-4554 toll free, or contact your account
representative.

CITIFUNDS 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%
<PAGE>

- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
................................................................................
Quarter Ending
................................................................................
Highest 0.93% June 30, 1995
................................................................................
Lowest 0.53% March 31, 1994
- --------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
................................................................................
Life of Fund
Since
1 Year 5 Years March 10, 1992
................................................................................
CITIFUNDS CALIFORNIA
TAX FREE RESERVES 2.82% 3.00% 2.87%
................................................................................
IBC Financial Data California Tax Free
Money Market Funds Average 2.78% 2.89% *
................................................................................

*Information regarding performance for this period is not available.
- --------------------------------------------------------------------------------
<PAGE>

Fund Fees and Expenses

This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
CITIFUNDS 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 FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
................................................................................
Management Fees 0.20%
................................................................................
Distribution (12b-1) Fees 0.20%
................................................................................
Other Expenses (administrative, shareholder
servicing and other expenses) 0.58%
................................................................................
Total Annual Fund Operating Expenses* 0.98%
- --------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed,
actual total operating expenses for the prior fiscal year were: 0.65%

These fee waivers and reimbursements may be reduced or terminated
at any time.
- --------------------------------------------------------------------------------
<PAGE>

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 without waivers
remain the same.

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

- --------------------------------------------------------------------------------
CITIFUNDS CALIFORNIA TAX FREE RESERVES
................................................................................
1 Year 3 Years 5 Years 10 Years
................................................................................
$100 $312 $542 $1,201
- --------------------------------------------------------------------------------
<PAGE>

---------------------------------------
CitiFunds Connecticut Tax Free Reserves
---------------------------------------

CitiFunds Connecticut Tax Free Reserves

This summary briefly describes CitiFunds Connecticut Tax Free
Reserves and the principal risks of investing in it. For more
information, see MORE ABOUT THE FUNDS on page 73.

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 CitiFunds
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. CitiFunds Connecticut Tax Free
Reserves 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. CitiFunds 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.

WHO MAY WANT TO INVEST

You should keep in mind that an investment in a money market
fund is not a complete investment program.

You should consider investing in CitiFunds 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.

----------
* Some income may be subject to tax. Consult your personal tax
adviser.

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.
<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 IBC Financial Data Connecticut Tax Free
Money Market Funds Average. 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 800-625-4554 toll free, or contact your account
representative.

CITIFUNDS CONNECTICUT TAX FREE RESERVES
ANNUAL TOTAL RETURNS

1994 2.80%
1995 3.63%
1996 2.97%
1997 3.00%
1998 2.92%

As of September 30, 1999, the fund had a year-to-date return of 1.87%

FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 0.94% June 30, 1995
..............................................................................
Lowest 0.49% March 31, 1994
- --------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
................................................................................
Life of Fund
Since
1 Year 5 Years December 1, 1993
................................................................................
CITIFUNDS CONNECTICUT TAX FREE
RESERVES 2.92% 3.07% 3.04%
................................................................................
IBC Financial Data Connecticut Tax Free
Money Market Funds Average 2.74% 2.80% *
................................................................................

* Information regarding performance for this period is not available.
- --------------------------------------------------------------------------------
<PAGE>

Fund Fees and Expenses

This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
CITIFUNDS 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 FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
................................................................................
Management Fees 0.20%
................................................................................
Distribution (12b-1) Fees 0.20%
................................................................................
Other Expenses (administrative, shareholder
servicing and other expenses) 0.16%
................................................................................
Total Annual Fund Operating Expenses* 1.01%
- --------------------------------------------------------------------------------

* Because some of the Fund's expenses were waived or reimbursed,
actual total operating expenses for the prior fiscal year were: 0.65%

These fee waivers and reimbursements may be reduced or terminated
at any time.
- --------------------------------------------------------------------------------
<PAGE>

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 without waivers
remain the same.

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

- --------------------------------------------------------------------------------
CITIFUNDS CONNECTICUT TAX FREE RESERVES
................................................................................
1 Year 3 Years 5 Years 10 Years
................................................................................
$103 $322 $558 $1,236
- --------------------------------------------------------------------------------
<PAGE>

------------------------------------
CITIFUNDS NEW YORK TAX FREE RESERVES
------------------------------------

CitiFunds New York Tax Free Reserves

This summary briefly describes CitiFunds New York Tax Free
Reserves and the principal risks of investing in it. For more
information, see MORE ABOUT THE FUNDS on page 73.

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 CitiFunds
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. CitiFunds New York Tax Free Reserves
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. CitiFunds 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.

WHO MAY WANT TO INVEST

You should keep in mind that an investment in a money market
fund is not a complete investment program.

You should consider investing in CitiFunds 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.

----------
* Some income may be subject to tax. Consult your personal tax
adviser.

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.
<PAGE>

Fund Performance

The following bar chart and table can help you evaluate the
risks and performance of investing in 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 IBC Financial Data New York
Tax Free Money Market Funds Average. 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 800-625-4554 toll free, or contact your account
representative.
CITIFUNDS NEW YORK TAX FREE RESERVES
ANNUAL TOTAL RETURNS

1989 5.48%
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%

As of September 30, 1999, the Fund had a year-to-date return of 1.89%

- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 1.41% June 30, 1989
..............................................................................
Lowest 0.42% June 30, 1993
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
1 Year 5 Years 10 Years
..............................................................................
CITIFUNDS NEW YORK TAX FREE RESERVES 2.91% 2.89% 3.31%
..............................................................................
IBC Financial Data New York Tax Free
Money Market Funds Average 2.85% 2.86% 3.33%
- --------------------------------------------------------------------------------
<PAGE>

Fund Fees and Expenses

This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
CITIFUNDS 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
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
................................................................................
Management Fees 0.20%
................................................................................
Distribution (12b-1) Fees 0.20%
................................................................................
Other Expenses (administrative, shareholder 0.54%
servicing and other expenses)
................................................................................
Total Annual Fund Operating Expenses* 0.94%
- --------------------------------------------------------------------------------

* Because some of the Fund's expenses were waived or reimbursed,
actual total operating expenses for the prior fiscal year were: 0.65%

These fee waivers and reimbursements may be reduced or terminated
at any time.
<PAGE>

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 without waivers
remain the same.

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

- --------------------------------------------------------------------------------
CITIFUNDS NEW YORK TAX FREE RESERVES
................................................................................
1 Year 3 Years 5 Years 10 Years
................................................................................
$96 $300 $520 $1,155
- --------------------------------------------------------------------------------
<PAGE>

----------------------
Your CitiFunds Account
----------------------

Your CitiFunds Account

HOW TO BUY SHARES

Shares of the Funds are offered continuously and purchases may
be made Monday through Friday, except on certain holidays.
Shares may be purchased from the Funds' distributor or a
broker-dealer or financial institution that has an agreement
with the distributor. You must be a customer of a Shareholder
Servicing Agent to purchase shares. Shareholder Servicing
Agents are financial institutions that have entered into
shareholder servicing agreements concerning the Funds. You pay
no sales charge (load) to invest in the Funds except that, as
described below, certain holders of Class A and Class B shares
of Cash Reserves may pay a sales charge when they sell their
shares. Each Fund and its distributor have the right to reject
any purchase order or cease offering Fund shares at any time.

Shares are purchased at net asset value (normally $1.00 per
share) the next time it is calculated after your order is
received and accepted by the distributor.

Your Shareholder Servicing Agent will not transmit your
purchase order for Fund shares until it receives the purchase
price in federal or other immediately available funds. If you
pay by check, the Shareholder Servicing Agent transmits the
order when the check clears, usually within two business days.

If you hold your shares through a Shareholder Servicing Agent,
your Shareholder Servicing Agent will establish and maintain
your account and be the shareholder of record. If you wish to
transfer your account, you may only transfer it to another
financial institution that acts as a Shareholder Servicing
Agent, or you may set up an account directly with the Fund's
transfer agent.

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

You may sell (redeem) your shares on any business day. The
price will be the NAV (normally $1.00 per share) the next time
it is calculated after your redemption request has been
received by your Shareholder Servicing Agent. Shares are
redeemed without a sales charge, except that, as described
below, certain shareholders in Cash Reserves may pay a sales
charge when they sell their shares. You may contact your
Shareholder Servicing Agent in writing or, if your Shareholder
Servicing Agent permits, by telephone. All redemption requests
must be in proper form, as determined by your Shareholder
Servicing Agent.

You will receive 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 for up to ten days if your purchase was made by
check. Your redemption proceeds may also 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.

Your account balance may be subject to a $500 minimum. If so,
the Fund reserves the right to close your account if it falls
below $500. You will have 60 days to make an additional
investment. If you do not increase your balance, the Fund may
close your account and send the proceeds to you. Your shares
will be sold at NAV (normally $1.00 per share) on the day your
account was closed.

EXCHANGES

Shares of the Funds may be exchanged for shares of certain
CitiFunds or other funds managed by Citibank. (However, your
Class A or Class B shares of Cash Reserves may generally only
be exchanged 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.) Your Shareholder
Servicing Agent can provide you with more information,
including a prospectus for any fund to be acquired through an
exchange. If your account application allows, you may arrange
the exchange by telephone.

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.

When you exchange Class B shares of Cash Reserves for Class B
shares of another fund, you do not have to pay a contingent
deferred sales charge. You may have to pay a contingent
deferred sales charge when you redeem the Class B shares of
the other fund.

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:

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

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

o 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.

Class A or Class B shareholders of Cash Reserves who obtained
their shares as a result of a previous exchange from funds in
the Concert Investment Series may only exchange their shares
for shares of the same class of another Concert fund.

Shareholders exchanging into another fund should read the
current prospectus of that fund describing the shares being
acquired for more information.

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.

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 they are purchased. You will not receive dividends
for the day on which you redeem your shares. Dividends are
distributed once a month, on or before the last business day
of the month. Unless you choose to receive your dividends in
cash, you will receive them as full and fractional additional
Fund shares.

RETIREMENT ACCOUNTS

Your Shareholder Servicing Agent can advise you about how
investments in Cash Reserves and U.S. Treasury Reserves may be
incorporated into your retirement plan.

CLASSES OF SHARES OF CITIFUNDS CASH RESERVES

Cash Reserves offers three classes of shares, Class A, Class B
and Class N. Each class has different eligibility requirements
and its own combination of charges and fees. Class N, which
has no sales charge, is the share class generally available
for new investments. Class A and Class B shares are available
only by exchange from the Class A or Class B shares of another
CitiFund. Class A and Class B shares may be convenient for
shareholders seeking a temporary investment before investing
in another fund in the CitiFunds family.

CLASS A SHARES

o If you own Class A shares of another CitiFund and are
exchanging those shares for shares of Cash Reserves, you
must exchange those shares for Class A shares of Cash
Reserves. Class A shares may only be purchased by exchange
of Class A shares of another CitiFund.

o There is no fee or sales charge when you purchase Class A
shares, and usually there is no fee or charge when you
sell your shares. However, under certain limited
circumstances, if you exchanged Class A shares of another
CitiFund into Class A shares of Cash Reserves and those
other Class A shares were subject to a deferred sales
charge, you may be required to pay that charge when you
sell your shares of Cash Reserves.

o If you own Class A shares, your fund expenses will include
an annual distribution fee of up to .20%. This fee
compensates the distributor for its marketing activities
and expenses.

CLASS B SHARES

o If you own Class B shares of another CitiFund and want to
exchange those shares for shares of Cash Reserves, you
must exchange them for Class B shares of Cash Reserves.
Class B shares may only be purchased by exchange of Class
B shares of another CitiFund.

o There is no fee when you purchase Class B shares, but if
you sell your shares within five years of purchase, you
may pay a deferred sales charge when you sell your shares.
This contingent deferred sales charge, called a CDSC, is
based on the CDSC applicable to the Class B shares of the
CitiFund that you owned before exchanging into Cash
Reserves. If you have exchanged your Class B shares more
than once, you will be charged the highest CDSC applicable
to your shares. The CDSC is based on either the original
purchase price or what you sell your shares for, whichever
is less. The CDSC is a maximum of 5% if you sell your
shares within the first year of purchase, and then goes
down over time. There is no CDSC if you sell your shares
after five years. The amount of time that you owned Class
B shares of another CitiFund before you exchanged them for
Class B shares of Cash Reserves will be counted to
determine the amount of sales charge that you owe. You do
not pay a CDSC on any Class B shares you receive by
reinvesting dividends. To ensure that you pay the lowest
CDSC possible, the Fund will always use the Class B shares
with the lowest CDSC possible to fill your sell requests.
You may be eligible for a waiver of the CDSC when you sell
your shares. For more information about waivers, contact
your account representative or request a copy of the
Funds' Statement of Additional Information.

o If you own Class B shares, your fund expenses include an
annual distribution and service fee of up to .75%. The
distribution fee compensates the distributor for paying
your financial adviser an up-front sales commission on
your original purchase of Class B shares, that could be as
high as 4.50%. The service fee compensates your financial
adviser for providing ongoing services to you.

o Your Class B shares of Cash Reserves will convert
automatically into Class A shares of Cash Reserves
approximately 8 years after your original purchase of the
Class B shares, reducing future annual expenses. Class A
shares have lower distribution fees than Class B shares.

CLASS N SHARES

o Class N shares are available to all investors purchasing
shares directly and not through exchange.

o If you purchased shares of Cash Reserves prior to January
4, 1999, those shares have become Class N shares.

o There is no fee or sales charge when you purchase Class N
shares, and there is no fee or charge when you sell your
shares. If you own Class N shares, your fund expenses will
include a maximum annual distribution fee of .20%. This
fee compensates the distributor for its marketing
activities and expenses.

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

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.
"CitiFunds" is a service mark 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 fees:

- --------------------------------------------------------------------------------
Fee, as percentage of average
Fund daily net 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, except for Class A and Class B shares of Cash
Reserves, do not charge any sales loads, deferred sales loads
or other fees in connection with the purchase of shares. See
"Classes of Shares of Cash Reserves" for a description of the
deferred sales loads applicable to those shares.

The Funds have adopted distribution plans under rule 12b-1
under the Investment Company Act of 1940. For the Funds other
than Cash Reserves, and for Class N shares of Cash Reserves,
these plans allow each Fund to use up to 0.10% per year of its
average daily net assets to compensate the Funds' distributor
for its distribution activities. The distributor currently
waives a portion of these fees on a voluntary basis. This fee
waiver may be terminated or reduced at any time. The plans
also allow each Fund to pay up to an additional 0.10% per year
of its average daily net assets in anticipation of or as
reimbursement for certain advertising expenses. The Funds did
not pay any of these additional advertising expenses during
their last fiscal year, and do not anticipate doing so during
the current fiscal year. 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 Distribution Plan for Class A shares of Cash Reserves
provides that Class A shares pay a distribution and service
fee at an annual rate not to exceed 0.20% per year of the
average daily net assets represented by Class A shares. The
Distribution Plan for Class B shares of Cash Reserves provides
that Class B shares pay a distribution fee at an annual rate
of up to 0.75% of the average net assets of the class. These
fees are used to compensate the distributor for marketing
costs and activities, and your financial adviser for providing
ongoing services to you.

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 vary. Citibank may make similar payments
under similar arrangements.
<PAGE>

--------------------
More About the Funds
--------------------

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.

THE 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.
- --------------------------------------------------------------------------------
CitiFunds 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.

CitiFunds 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.

CitiFunds 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 -- CitiFunds Tax Free Reserves,
CitiFunds California Tax Free Reserves, CitiFunds Connecticut
Tax Free Reserves and CitiFunds 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.

- --------------------------------------------------------------------------------
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 Fund 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.

CitiFunds 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>

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

--------------------
Financial Highlights
--------------------

Financial Highlights

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years with respect to Class N shares, and
for the period January 4, 1999 (commencement of operations) through August 31,
1999 for Class A and Class B shares. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned on an investment in 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

CITIFUNDS CASH RESERVES
Class A Class B
--------------------------- ---------------------------
For the period For the period
January 4, 1999 January 4, 1999
(Commencement of Operations) (Commencement of Operations)
to August 31, 1999 to August 31, 1999
...............................................................................

Net asset value,
beginning of period $1.00000 $1.00000
Net investment income 0.02897 0.02406
Less dividends from
net investment income (0.02897) (0.02406)
...............................................................................
Net asset value, end
of period $1.00000 $1.00000
...............................................................................
Total return 2.89%** 2.41%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands) $8,335 $160
Ratio of expenses to
average net assets+ 0.70%* 1.45%*
Ratio of net
investment income to
average net assets+ 4.49%* 3.71%*

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 $0.02746 $0.02258
RATIOS:
Expenses to average
net assets+ 0.94%* 1.69%*
Net investment income
to average net assets+ 4.25%* 3.47%*

* Annualized.
** Not annualized.
+ Includes the Fund's share of the allocated expenses of Cash Reserves
Portfolio, the underlying fund in which the Fund invests its assets.
<PAGE>

Financial Highlights -- Continued

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 Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in 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>
<CAPTION>
CITIFUNDS U.S. TREASURY RESERVES
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

<TABLE>
<CAPTION>
CITIFUNDS TAX FREE RESERVES
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

<TABLE>
<CAPTION>
CITIFUNDS CALIFORNIA TAX FREE RESERVES
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

<TABLE>
<CAPTION>
CITIFUNDS CONNECTICUT TAX FREE RESERVES
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

<TABLE>
<CAPTION>
CITIFUNDS NEW YORK TAX FREE RESERVES
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>

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

--------
APPENDIX
--------

Appendix
TAXABLE EQUIVALENT YIELD TABLES

RATES FOR 1999 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 1999 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>
<CAPTION>
FEDERAL TAX RATES
Taxable Income* Income Federal 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 - $ 25,350 $0 - $ 42,350 0.15% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 0.28% 2.78% 3.47% 4.17% 4.88% 5.58% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 61,401 - $128,100 $102,301 - $155,950 0.31% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$128,101 - $278,450 $155,951 - $278,450 0.36% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$278,451 & Over $278,451 & Over 0.396% 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 personal income tax after deductions and exemptions.
</TABLE>

Appendix

<TABLE>
<CAPTION>
FEDERAL AND CALIFORNIA TAX RATES

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 - $ 25,350 17.88% 2.44% 3.04% 3.65% 4.26% 4.87% 5.48% 6.09% 6.70% 7.31% 7.92%
$0 - $ 42,350 17.44% 2.42% 3.03% 3.63% 4.24% 4.84% 5.45% 6.06% 6.66% 7.27% 7.87%
$ 25,351 - $ 61,400 34.47% 3.05% 3.82% 4.58% 5.34% 6.10% 6.87% 7.63% 8.39% 9.16% 9.92%
$ 42,351 - $102,300 34.10% 3.03% 3.79% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.10% 9.86%
$ 61,401 - $128,100 $102,301 - $155,950 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
$128,101 - $278,450 $155,951 - $278,450 41.95% 3.45% 4.31% 5.17% 6.03% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20%
$278,451 & Over $278,451 & 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.

</TABLE>

<TABLE>
<CAPTION>
FEDERAL AND CONNECTICUT TAX RATES

Taxable Income* Income Connecticut 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 - $ 25,350 18.45% 2.45% 3.07% 3.68% 4.29% 4.90% 5.52% 6.13% 6.74% 7.36% 7.97%
$0 - $ 42,350 18.37% 2.45% 3.06% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.96%
$ 25,351 - $ 61,400 $42,351 - $102,300 31.24% 2.91% 3.64% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45%
$ 61,401 - $128,100 $102,301 - $155,950 34.11% 3.04% 3.79% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86%
$128,101 - $278,450 $155,951 - $278,450 38.88% 3.27% 4.09% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63%
$278,451 & Over $278,451 & 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.

</TABLE>
<PAGE>

Appendix

<TABLE>
<CAPTION>
FEDERAL AND NEW YORK STATE TAX RATES

Taxable Income* Income New York 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 - $ 25,350 19.49% 2.48% 3.11% 3.73% 4.35% 4.97% 5.59% 6.21% 6.83% 7.45% 8.07%
$0 - $ 42,350 19.23% 2.48% 3.10% 3.71% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05%
$ 25,351 - $ 61,400 $42,351 - $102,300 32.93% 2.98% 3.73% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$ 61,401 - $128,100 $102,301 - $155,950 35.73% 3.11% 3.89% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.34% 10.11%
$128,101 - $278,450 $155,951 - $278,450 40.38% 3.35% 4.19% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.06% 10.90%
$278,451 & Over $278,451 & 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.

</TABLE>

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

Taxable Income* Income New York City 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 - $ 25,350 22.76% 2.59% 3.24% 3.88% 4.53% 5.18% 5.83% 6.47% 7.12% 7.77% 8.42%
$0 - $ 42,350 22.47% 2.58% 3.22% 3.87% 4.51% 5.16% 5.80% 6.45% 7.09% 7.74% 8.38%
$ 25,351 - $ 61,400 36.11% 3.13% 3.91% 4.70% 5.48% 6.26% 7.04% 7.83% 8.61% 9.39% 10.17%
$42,351 - $102,300 36.11% 3.13% 3.91% 4.70% 5.48% 6.26% 7.04% 7.83% 8.61% 9.39% 10.17%
$ 61,401 - $128,100 $102,301 - $155,950 38.80% 3.27% 4.08% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80% 10.62%
$128,101 - $278,450 $155,951 - $278,450 43.24% 3.52% 4.40% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57% 11.45%
$278,451 & Over $278,451 & Over 46.43% 3.73% 4.67% 5.80% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20% 12.13%

* 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>

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
1-800-625-4554 toll-free, or your account representative.

The SAI is also available from the Securities and Exchange
Commission. You can find it 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:
1-800-SEC-0330. 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 20549-6009.

- -----------------------
SEC File Numbers 811-4052
811-3893
811-4596 RET1299
<PAGE>
Rule 497(c) File Nos. 2-87509 and 811-3893

Statement of
Additional Information
December 31, 1999

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(SM) Cash Reserves,
CitiFunds(SM) U.S. Treasury Reserves, CitiFunds(SM) Tax Free Reserves,
CitiFunds(SM) California Tax Free Reserves, CitiFunds(SM) Connecticut Tax Free
Reserves and CitiFunds(SM) New York Tax Free Reserves (the foregoing,
collectively, the "Funds"). This Statement of Additional Information should be
read in conjunction with the Prospectus. This Statement of Additional
Information incorporates by reference the financial statements described on
page 43 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
(SM) Trust III. California Tax Free Reserves, Connecticut Tax Free Reserves
and New York Tax Free Reserves are separate series of CitiFunds(SM) 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 ............................................. 25
4. Determination of Net Asset Value ................................... 28
5. Management .......................................................... 30
6. Additional Information on the Purchase and Sale of Cash Reserves
Shares .............................................................. 38
7. Dealer Commissions and Concessions .................................. 40
8. Portfolio Transactions ............................................. 40
9. Description of Shares, Voting Rights and Liabilities ................ 41
10. Certain Additional Tax Matters ...................................... 42
11. Independent Accountants and Financial Statements .................... 43
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 Prospectus are
to the Prospectus, dated December 31, 1999, 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"), 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"). 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 ("IDBs") are issued
by or on behalf of public authorities to provide funding for various privately
operated industrial facilities, such as warehouse, office, plant and store
facilities and environmental and pollution control facilities. IDBs are, in
most cases, revenue bonds. The payment of the principal and interest on IDBs
usually depends solely on the ability of the user of the facilities financed
by the bonds or other guarantor to meet its financial obligations and, in
certain instances, the pledge of real and personal property as security for
payment. Many IDBs may not be readily marketable; however, it is expected that
the IDBs or the participation certificates in IDBs purchased by a Fund will
have liquidity because they generally will be supported by demand features to
"high quality" banks, insurance companies or other financial institutions.

Municipal 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. BANSs 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 the 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, IBC Donaghue'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 and B shares of Cash Reserves were newly offered
in 1999. Performance results for the Class A and Class B 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). 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
PERIOD RATE OF RETURN THE 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

CLASS B
Ten years ended August 31, 1999 ............. 4.22% $1,512.27
Five years ended August 31, 1999 ............ 4.28% $1,233.07
One year ended August 31, 1999 .............. 3.85% $1,038.53

U.S. TREASURY RESERVES
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
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
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
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
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 (using the Class N shares of Cash Reserves) 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%
Cash Reserves, Class B ................ 3.94% 4.01%
U.S. Treasury Reserves ................ 3.99% 4.07%
Tax Free Reserves ..................... 2.65% 2.69%
California Tax Free Reserves .......... 2.41% 2.44%
Connecticut Tax Free Reserves ......... 2.53% 2.56%
New York Tax Free Reserves ............ 2.58% 2.61%

The annualized tax equivalent yields for the seven-day period ended August
31, 1999 were as follows: 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, Cash Reserves will generally use the
performance of Class N shares. All outstanding Cash Reserves shares were
designated Class N shares on January 4, 1999. If the performance of Class A or
Class B shares is used for advertising and sales purposes, performance after
class inception on January 4, 1999 will be actual performance, while performance
prior to that date will be Class N performance, adjusted to reflect the
differences in sales charges (but not the differences in fees and expenses)
among the classes. For these purposes, it will be assumed that the maximum
contingent deferred sales charge applicable to the Class B shares is deducted at
the times, in the amount, and under the terms stated in the Prospectus. Class B
share performance generally will be lower than Class A or Class N performance
because the expenses attributable to Class B shares are higher than the expenses
attributable to the Class A and 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 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 Cash Reserves 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 Cash Reserves Portfolio, 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. Net asset value is
determined for each other Fund by dividing the value of the Fund's net assets
by the number of shares of the Fund 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.

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.

Shareholders may redeem Fund shares by sending written instructions in
proper form (as determined by a shareholder's Shareholder Servicing Agent) to
their Shareholder Servicing Agents. Shareholders are responsible for ensuring
that a request for redemption is in proper form.

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

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.

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.; 64 -- Chairman of the Boards of Trustees of the Trusts;
Managing Director, Morong Capital Management (since February, 1993); Director,
Indonesia Fund (since 1990); Director, MAS Funds (since 1993). His address is
1385 Outlook Drive West, Mountainside, New Jersey.

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). His address is 35 Farm Road, Sherborn,
Massachusetts.

E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.

TRUSTEES OF CITIFUNDS MULTI-STATE TAX FREE TRUST

ELLIOTT J. BERV; 56 -- President and Chief Executive Officer, Catalyst, Inc.
(Management Consultants) (since June, 1992); President and Director, Elliott
J. Berv & Associates (Management Consultants) (since May, 1984). His address
is 24 Atlantic Drive, Scarborough, Maine.

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). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.

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). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.

DIANA R. HARRINGTON; 59 -- Professor, Babson College (since 1994); Trustee,
The Highland Family of Funds (March, 1997 to March, 1998). Her address is 120
Goulding Street, Holliston, Massachusetts.

SUSAN B. KERLEY; 48 -- President, Global Research Associates, Inc. (Investment
Research) (since September, 1990); Trustee, Mainstay Institutional Funds
(since December, 1990). Her address is P.O. Box 9572, New Haven, Connecticut.

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.

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* -- Assistant 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.

LINDA T. GIBSON; 34* -- Secretary of the Trusts and the Portfolios; Senior
Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.

SUSAN JAKUBOSKI; 35* -- 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.
<TABLE>

TRUSTEES COMPENSATION TABLE
<CAPTION>

TOTAL
COMPEN-
SATION
PENSION OR FROM THE
AGGREGATE AGGREGATE AGGREGATE AGGREGATE RETIREMENT TRUSTS AND
AGGREGATE COMPEN- AGGREGATE COMPEN- COMPEN- COMPEN- BENEFITS ESTIMATED FUND
COMPEN- SATION FROM COMPEN- SATION FROM SATION FROM SATION FROM ACCRUED ANNUAL COMPLEX
SATION FROM U.S. SATION FROM CALIFORNIA CONNECTICUT NEW YORK AS PART BENEFITS PAID TO
CASH TREASURY TAX FREE TAX FREE TAX FREE TAX FREE OF FUND UPON TRUSTEES
TRUSTEE RESERVES(1) RESERVES(1) RESERVES(1) RESERVES(1) RESERVES(1) RESERVES(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

- ----------
(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.
</TABLE>

As of December 13, 1999, 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 a Distribution Plan ("Distribution Plan")
in accordance with Rule 12b-1 under the 1940 Act after having concluded that
there is a reasonable likelihood such Distribution Plan will benefit the
applicable Funds and their shareholders. Each Distribution Plan (other than
the Plans adopted by CitiFunds(SM) Trust III with respect to Class A and Class B
shares of Cash Reserves) 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 (other than the Plans adopted by CitiFunds(SM) Trust
III with respect to Class A and Class B shares of Cash Reserves) 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 and Class B shares of Cash Reserves
provide that the Class A and Class B shares shall pay a distribution and/or
service fee at an annual rate not to exceed 0.20% and 0.75%, respectively, of
the average daily net assets Cash Reserves represented by Class A and Class B
shares. The Class N shares of Cash Reserves pay the same distribution fees as
the other Funds (see above).

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 Fund or, in the case of the Distribution Plans in effect for
Cash Reserves, the Distribution Plan with respect to a class may be terminated
by a vote of a majority of the outstanding voting securities of such class. A
Distribution Plan may not be amended to increase materially the amount of a
Fund's or class' permitted expenses thereunder without the approval of a
majority of the outstanding voting securities of that Fund or class as the
case may be, 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"). 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 the distribution fees to CFBDS until either its Distribution Plan or
Distribution Agreement is terminated or not renewed. In that event, CFBDS's
expenses in excess of distribution fees received or accrued through the
termination date will be CFBDS's sole responsibility and not obligations of
the Fund. 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.

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 and Class B 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, 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, 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, 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, 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, after waivers, were $470,746, $536,134 and $620,394,
respectively, none of which was applicable to print or electronic media
advertising.

SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN

The Trusts have each adopted an Administrative Services Plan
("Administrative Plan") 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 U.S. Treasury Reserves' average daily net
assets, 0.60% of each Tax Free Fund's average daily net assets or 0.70% of the
average daily net assets attributable to Class N shares of Cash Reserves, in
each case on an annualized basis for the Fund's then-current fiscal year; and
such fees with respect to the Class A and Class B 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 the appropriate 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 Fund at an annual rate of 0.25% of the
average daily net assets of the Fund represented by shares owned by investors
for whom such Shareholder Servicing Agent maintains a servicing relationship.
Some Shareholder Servicing Agents may impose certain conditions on their
customers in addition to or different from those imposed by the Funds, such as
requiring a minimum initial investment or charging their customers a direct
fee for their services. Each Shareholder Servicing Agent has agreed to
transmit to its customers who are shareholders of a Fund appropriate prior
written disclosure of any fees that it may charge them directly and to provide
written notice at least 30 days prior to imposition of any transaction fees.
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 $848,485, $797,572 and $816,578,
respectively; Tax Free Reserves $1,008,233, $1,194,360 and $1,291,979,
respectively; California Tax Free Reserves $459,224, $619,577 and $769,975,
respectively; Connecticut Tax Free Reserves $77,265, $377,316 and $410,689,
respectively; and New York Tax Free Reserves $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. Class B fees were voluntarily waived.

Each Trust and Portfolio has entered into a Transfer Agency and Service
Agreement and a Custodian Agreement with State Street Bank and Trust Company
("State Street") pursuant to which State Street (or its affiliate State Street
Canada, Inc.) acts as transfer agent and custodian and performs fund
accounting services. State Street (or its affiliate State Street Canada, Inc.)
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 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
CASH RESERVES SHARES

CLASSES OF SHARES. Cash Reserves offers three classes of shares, Class A,
Class B and Class N shares. The main features of the classes are summarized in
this paragraph. More detailed information appears below. Please determine
which class of shares you are eligible for. Each class is offered only to
investors who meet certain requirements. Class A shares are available only to
holders of Class A shares of other CitiFunds that wish to exchange their
shares for shares of Cash Reserves. Class B shares are available only to
holders of Class B shares of other CitiFunds that wish to exchange their Class
B shares for shares of Cash Reserves. These classes 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. 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. Class N shares have no sales
charge. Class A shares have no front-end sales charge or deferred sales
charge, except that if your Class A shares were received in exchange for Class
A shares of another CitiFund that were subject to a deferred sales charge, you
may be subject to a deferred sales charge on your Class A shares of Cash
Reserves. Class A and Class N shares have lower annual expenses than Class B
shares. Class B shares have no front-end sales charge, but are subject to a
deferred sales charge if you sell within five years of purchase. Class B
shares have higher annual expenses than Class A and Class N shares. Class B
shares automatically convert into Class A shares after eight years. Each class
of shares is sold at net asset value for that class.

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 Class A shares,
and then Class B shares.

CLASS A SHARES:

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

CLASS B SHARES:

o Class B shares are sold at net asset value without a front-end sales
charge, but they are subject to a contingent deferred sales charge when
you sell your shares.

o Class B shares pay distribution and service fees of up to 0.75% of the
average daily net assets represented by the Class B shares.

o Class B shares have a contingent deferred sales charge (CDSC) that goes
down the longer you hold your Class B shares. Your CDSC is based on the
CDSC applicable to the Class B shares of the CitiFund that you owned
before exchanging into Cash Reserves. If you have exchanged your Class B
shares more than once, you will be charged the highest CDSC applicable to
your shares. See the chart below for the maximum amount of the sales
charge. The sales charge is deducted from your sale proceeds if you sell
your Class B shares within five years of purchasing them.

REDEMPTION DURING CDSC ON SHARES BEING SOLD
----------------- -------------------------

1st year since purchase ................ 5%
2nd year since purchase ................ 4%
3rd year since purchase ................ 3%
4th year since purchase ................ 2%
5th year since purchase ................ 1%
6th year since purchase ................ None

o The CDSC is based on the original purchase price or the current market
value of the shares being sold, whichever is less.

o There is no CDSC on Class B shares representing capital appreciation or on
Class B shares acquired through reinvestment of dividends or capital gains
distributions.

o When you sell your Class B shares, shares on which the CDSC is not
payable, i.e.

[] shares representing capital appreciation and

[] shares representing the reinvestment of dividends and capital gains
distributi ons will be sold first followed by shares held for the
longest period of time, in order to minimize your CDSC.

o The holding period of your Class B shares acquired through an exchange
with another CitiFund will be calculated from the date that the Class B
shares were initially acquired in the other CitiFund, and Class B shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in
the other fund.

o Class B shares automatically convert to Class A shares of the Fund
approximately eight years after issuance, together with a pro rata portion
of all Class B shares representing dividends and other distributions paid
in additional Class B shares. Shares are converted based on the relative
net asset values per share of the two classes on the first business day of
the month in which the eighth anniversary of the issuance of the Class B
shares occurs.

CLASS B SHARES - CDSC ELIMINATION:

o Reinvestment. There is no CDSC on shares representing capital appreciation
or on shares acquired through reinvestment of dividends or capital gains
distributions.

o Waivers. The CDSC will be waived in connection with:

[] exchanges into certain CitiFunds

[] a total or partial redemption made within one year of the death of the
shareholder; this waiver is available where the deceased shareholde r
is either the sole shareholde r or owns the shares with his or her
spouse as a joint tenant with right of survivorsh ip, and applies only
to redemption of shares held at the time of death

[] a lump sum or other distributi on in the case of an Individual
Retirement Account (IRA), a self- employed individual retirement plan
(Keogh Plan) or a custodian account under Section 403(b) of the Internal
Revenue Code, in each case following attainment of age 59 1/2

[] a total or partial redemption resulting from any distribution following
retirement in the case of a tax-qualified retirement plan

[] a redemption resulting from a tax-free return of an excess contribution
to an IRA

EXCHANGES

o You may exchange your Class A or Class B 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. Shares of the Funds other than Cash
Reserves, and Class N shares of Cash Reserves, may be exchanged for shares
of certain CitiFunds or other funds managed by Citibank.

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 When you exchange Class B shares of Cash Reserves for Class B shares of
another fund, you do not have to pay a contingent deferred sales charge.
You may have to pay a contingent deferred sales charge when you redeem the
Class B shares of the other fund.

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.

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.
Currently, the Funds are the only series of shares of each of the Trusts. Cash
Reserves has also issued three classes of shares. Each share of each class of
Cash Reserves represents an equal proportionate interest in the Fund with each
other share of that class. Each share of each other Fund represents an equal
proportionate interest in that Fund with each other share of the Fund. 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 generally are referred to as
"gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.

A -- Bonds which are rated A posses 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 maturing in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment:

-- Amortization schedule -- the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note.

-- Source of payment -- the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.

Note rating symbols and definitions are as follows:

SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO HIGHEST COMMERCIAL PAPER
RATINGS:

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.

A-1 -- A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2 -- A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S RATINGS OF TAX-EXEMPT DEMAND
BONDS:

Standard & Poor's assigns "dual" ratings to all debt issues that have a put
option or demand feature as part of their structure.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, Standard & Poor's rating
symbols are used with the commercial paper rating symbols (for example,
"SP-1+/A-1+").

DESCRIPTION OF FITCH IBCA, INC.'S TWO HIGHEST INTERNATIONAL LONG-TERM CREDIT
RATINGS:

When assigning ratings, Fitch IBCA considers the historical and prospective
financial condition, quality of management, and the operating performance of
the issuer and of any 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 the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.

AA -- Very high credit quality. "AA" ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

Plus (+) or Minus (-): "+" or "-" may be appended to a rating of "AA" to
denote relative status within the rating category.

DESCRIPTION OF FITCH IBCA, INC.'S TWO HIGHEST INTERNATIONAL SHORT-TERM CREDIT
RATINGS:

A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.

F1 -- Highest credit quality. Indicates the strongest 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 8, 1999, and the May Revision
to the 1999-2000 Governor's Budget, released May 14, 1999, the Department of
Finance projected that the California economy will continue to show robust
growth through 1999, although at a slightly slower pace than in 1998. The
economic expansion has been marked by strong growth in high technology
business services (including computer software, internet applications,
biotechnology and other engineering and management consulting), construction,
computers and electronic components. The Asian economic crisis, which began in
late 1997, had some dampening effects on the State's economy in 1998, adding to
weak demand for several key export industries, including electronics and
aerospace manufacturing, agriculture, apparel manufacturing, and motion picture
production. Several elements have partially off-set California's Asia-related
problems, including the high demand for computer related services and a surging
construction industry (both residential and commercial), which has boosted
activity in such manufacturing-related industries as lumber, stone-clay-glass,
fabricated metals and furniture and in the financial-services sector.

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. 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 recent recession, 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 1998-99 have resulted or will
result 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 44 percent from the
level in place from 1991-92 through 1993-94, and is estimated at about $6,025
per ADA in 1999-00. A significant amount of the "extra" Proposition 98 monies
in the last few years have been allocated to special programs, most
particularly an initiative to allow each classroom from grades K-3 to have no
more than 20 pupils by the end of the 1997-98 school year. Furthermore, since
General Fund revenue growth is expected to continue in 1999-00, there are also
new initiatives to increase school safety, improve schools' accountability for
pupil performance, provide additional textbooks to schools, fund deferred
maintenance projects, increase beginning teacher's salaries and provide
performance incentives to teachers.

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 1997-98 contributed about 51
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.

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 1997-98. 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.

BANK AND CORPORATION TAX

Bank and corporation tax revenues, which comprised about 11 percent of
General Fund revenue in
1997-98, are derived from the following taxes:

1. The franchise tax and the corporate income tax are levied at a 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 frachise 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 2.2
percent of General Fund revenues in 1997-98.

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 2.4 percent of General Fund revenues in the 1997-98 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 58 percent of all
Special Fund revenue in 1997-98. Principal sources of this income are motor
vehicle fuel taxes, registration and weight fees and vehicle license fees.
During the 1997-98 Fiscal Year, $8.4 billion was derived from the ownership or
operation of motor vehicles. About $4.8 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, reduced vehicle license fees by 25 percent
beginning January 1, 1999, and the 1999-2000 Budget cut the fees by an
additional 10 percent for the calendar year 2000 only. In addition, the
1999-2000 Budget provided a one-year reduction in vehicle license fees for
certain commercial motor vehicles. 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 will
replace 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 fee may be increased to assure that local governments are
not disadvantaged. Therefore, the amount of revenue going to local governments
will remain the same as under prior law.

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.

PRIOR FISCAL YEARS' FINANCIAL RESULTS

Beginning January 1, 1999, after voters approved a constitutional
amendment (Proposition 10 of 1998), the excise tax imposed on distributors
selling cigarettes in California was increased from 37 to 87 cents per
package. At the same time, this amendment imposed a new excise tax on cigars,
chewing tobacco, pipe tobacco, and snuff that was implemented at a rate
"equivalent" to a 50 cent per pack tax on cigarettes. Proceeds of this new
state excise tax are to be allocated primarily for early childhood development
programs. Under current law, any increase in the tax on cigarettes
automatically triggers an increase in the tax on other tobacco products. Thus,
this amendment increased the excise tax on other tobacco products in total by
the equivalent of a $1 per pack increase in the tax on cigarettes.

TOBACCO LITIGATION

In late 1998, the State signed a settlement agreement with the four major
cigarette manufacturers, which was later ratified by a State court judge
having jurisdiction over a pending lawsuit brought by the State against these
companies. The settlement became final in late September, 1999. 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 these 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 1999-2000 Budget includes receipt of
about $560 million of these settlement moneys to the General Fund by June 30,
2000.

The specific amount to be received by the State and local governments is,
however, subject to adjustment for a number of reasons. Various details in the
settlement allow reduction of the companies' payments because of events such
as certain federal government actions, or reductions in cigarette sales. 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.

PRIOR YEARS' FINANCIAL RESULTS

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 external deficit borrowing has occurred over the
end of the last four fiscal years. The last borrowing to spread out the
repayment of a budget deficit over the end of a fiscal year was $4.0 billion
of revenue participation warrants issued in July, 1994 and which matured in
April, 1996.

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 $1.0 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 accumulated budget deficit from
the recession years was finally eliminated.

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.

The May Revision to the 1999-2000 Governor's Budget (hereafter shortened
to "1999-00"), released on May 14, 1999 (the "1999 May Revision"), reported
that stronger than expected economic conditions in the State for the latter
part of 1998 and into 1999 would produce total 1998-99 General Fund revenues
of about $57.9 billion, almost $1.0 billion above the 1998 Budget Act
estimates and $1.6 billion above the initial estimates in the January
1999-2000 Governor's Budget. The 1999 May Revision projects 1998-99 General
Fund expenditures of $58.6 billion, about $400 million higher than the January
1999-2000 Governor's Budget estimate. Some of this additional revenue will be
directed to K-14 schools pursuant to Proposition 98. The 1999 May Revision
projected a balance in the SFEU at June 30, 1999, of approximately $1.9
billion, $1.3 billion higher than estimated in January.

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 totalling $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 reliance on information technology in every aspect of its
operations has made Year 2000-related ("Y2K") information technology ("IT")
issues a high priority for the State. The Department of Information Technology
("DOIT"), an independent office reporting directly to the Governor, is
responsible for ensuring the State's information technology processes are
fully functional before the year 2000. The DOIT has created a Year 2000 Task
Force and a California 2000 Office to establish statewide policy requirements;
to gather, coordinate, and share information; and to monitor statewide
progress. In December 1996, the DOIT began requiring departments to report on
Y2K activities and currently requires departmental monthly reporting of Y2K
status. The DOIT has emphasized to departments that efforts should be focused
on applications that support mission-critical business practices.

The risks posed by Y2K information technology related issues are not
confined to computer systems, but also include problems presented by embedded
microchips (products or systems that contain microchips to perform functions
such as traffic control, instruments used in hospitals or medical
laboratories, and California Aqueduct monitoring). To address these problems,
Governor Davis issued Executive Order D-3-99, broadening the responsibilities
of the DOIT to resolve these issues as well as legal questions associated with
Y2K issues.

In its quarterly report for the period ending July 15, 1999 (the "July
Quarterly Report"), the DOIT discusses the new administration's progress in
addressing Y2K issues under a new action-based strategy and management model.
The key components of this strategy include centralization and coordination of
the State's Y2K efforts, delivery of essential services and emergency
preparedness, elimination of obstacles and barriers in an effort to streamline
the current funding request process, and broad-based collaboration across
public and private sectors through a comprehensive communication plan.
Departments, programs and systems will be categorized by tier according to the
amount of assistance required to become Y2K compliant. The first tier, which
consists of departments that are of no specific cause of concern, have been
required to report their status and may be subject to independent review. The
second tier consists of departments that require targeted assistance. The
California 2000 Project Office will deploy an Action team to provide the
necessary assistance. The third tier consists of seriously troubled
departments where the California Year 2000 Project Office will assume Y2K
management responsibility.

An ongoing survey of State departments reports over 500 mission critical
IT systems, approximately 97% of which have completed remediation.

The DOIT estimates total Y2K costs identified by the departments under its
supervision about $357 million. These costs are part of much larger overall IT
costs incurred annually by the State, including costs incurred by certain
independent State entities, such as the judiciary, the Legislature, the
University of California and California State University System. Furthermore,
cost estimates for embedded systems only apply to the subset of embedded
systems posing the highest risk to essential programs. For fiscal year
1999-00, the Legislature created a fund of $33.5 million ($13.5 million
General Fund) for unanticipated Y2K costs, which can be increased if
necessary.

The State Treasurer's Office has reported that its systems for bond
payments are fully Y2K compliant. The State Controller's Office has reported
that it has completed the necessary Y2K remediation projects for the State
fiscal and accounting system, consistent with the Govenor's Executive Order.
The final steps of testing will be completed during 1999. Both offices are
actively working with the outside entities with whom they interface to ensure
that they are also compliant.

In sum, although substantial progress has been made toward the goal of
Y2K compliance, the task is very large and will likely encounter some
unexpected difficulties. The State cannot guarantee that all mission critical
systems will be ready and tested by late 1999 or what the impact failure of
any particular IT system(s) or of outside interfaces with IT systems might
have. However, all mission critical systems will have a contingency business
plan in place to mitigate potential system failures.

LITIGATION

The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. Following are some of the more significant
lawsuits against the State:

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 March, 1999, Sonoma County filed suit in the
Superior Court to overturn the Commission's decision. The State is contesting
this lawsuit. Should the courts find in favor of the counties, the impact to
the State General Fund could be as high as $10.0 billion with an annual
Proposition 98 General Fund cost of at least $3.6 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 a defendant in Ceridian Corporation v. Franchise Tax Board, a
suit which challenges the validity of two sections of the California Tax laws.
The first relates to deduction from corporate taxes for dividends received
from insurance companies to the extent the insurance companies have California
activities. The second relates to corporate deduction of dividends to the
extent the earnings of the dividend paying corporation have already been
included in the measure of their California tax. If both sections of the
California Tax law are invalidated, and all dividends become deductible, then
in the future General Fund collections would be reduced annually in the
$200-$250 million range for all taxpayers.

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; the issuance of a final consolidated decision is anticipated
sometime in late 1998. To date, the Legislature has not appropriated funds.
The liability to the State, if all potentially eligible school districts
pursue timely claims, has been estimated by the Department of Finance at more
than $1 billion. The Commission on State Mandates issued a decision in
December 1998 determining that a portion, but not all, of the claims
constituted state mandated local costs. The Commission is now developing
parameters and guidelines for claims for reimbursement. The Department of
Finance has not yet determined whether to seek judicial review of the
Commission's decision.

In Capitola Land v. Anderson and other related state and federal cases,
plaintiffs sought payments from the State under the AFDC-Foster Care program.
Judgment was rendered against the State in Capitola, which the State appealed
and lost. The State then filed a state plan amendment with the federal
Department of Health and Human Services to enable the State to comply with the
Capitola ruling and receive federal funding. The DHHS denied the state plan
amendment, and the State has filed suit against DHHS. The Legislature also
enacted a statute which required federal funding in order to comply with the
Capitola judgment. The State then refused to implement the Capitola judgment
based on the new statute. Certain plaintiffs moved for an order of contempt
against the State, which was granted by the trial court, but was stayed and
annulled by the Court of Appeal. The plaintiffs are petitioning the California
Supreme Court for review. If, as a result of this litigation, compliance with
the Capitola judgment is requried and the judgment is applied retroactively,
liability to the State could exceed $200 million.

In January of 1997, California experienced major flooding in six different
areas with preliminary estimates of property damage of approximately $1.6 to
$2.0 billion. A substantial number of plaintiffs have joined suit against the
State, local agencies, and private companies and contractors seeking
compensation for the damanges they suffered as a result of the 1997 flooding.
The State is vigorously defending the action.

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. Present estimates of the cleanup range from $400 million to
$600 million.

The State is a defendant in a coordinated action involving 3,000
plaintiffs seeking recovery for damages caused by the Yuba River flood of
February 1986. The trial court has 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 State is a defendant in an action, Emily Q., et al. v. Belshe, et
al., to compel a change in early screening procedures for children with mental
health needs. The lawsuit is limited to Los Angeles County. The State has
filed an answer in this case. An adverse outcome is possible with the potential
liability of $500 million per year.

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 a defendant in Just Say No To Tobacco Dough Campaign v. State
of California, where the petitioners challenge the appropriation of
approximately $166 million of Proposition 99 funds in the Cigarette and
Tobacco Products Surtax Fund for years ended June 30, 1990, through June 30,
1995, for related disease research. If the State loses, the General Fund and
funds from other sources would be used to reimburse the Cigarette and Tobacco
Products Surtax Fund, an agency fund, for approximately $166 million. However,
the superior court issued an order in December 1998 granting the State's
demurrer to the entire action and dismissing the case. The superior court
thereafter reconsidered its ruling and allowed plaintiffs to amend their
complaint. The State demurred to the amended complaint. In July, 1999, the
court again sustained the State's demurrer to the amended complaint, and
issued a judgment dismissing the case. Plaintiffs appealed. The matter will be
briefed and will be scheduled for oral argument before the court.
<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's economy is diverse. Manufacturing employment in the State
has been on a downward trend since the mid-1980s, while non-manufacturing
employment has recovered most of its losses from its peak in the late 1980s.
Manufacturing is diversified, with transportation equipment the dominant
industry. Connecticut is a leading producer of aircraft engines and parts,
submarines and helicopters. The largest employers in these industries are
United Technologies Corporation, including its Pratt and Whitney Aircraft
Division, with headquarters in East Hartford, and Sikorsky Aircraft Division
in Stratford as well as General Dynamics Corporation's Electric Boat Division
in Groton.

During the past ten years, Connecticut's manufacturing employment was at
its highest in 1988 at over 372,230 workers. Since that year, employment in
manufacturing has been on a downward trend, declining 25.8%, or a loss of
96,030 jobs by 1997 from 1988 levels. 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. However, in
1997, total manufacturing jobs in Connecticut registered a gain of 1,400 jobs,
or 0.5%, over 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 1997. This trend has decreased the
State's dependence on manufacturing. The State's non-manufacturing sector
expanded by 2.4% in 1997 as compared to 2.0% in 1996 and 1.9% in 1995. This
trend, which began in 1993, reversed three years of decline starting in 1990.
During the 1990s, however, Connecticut's growth in non-manufacturing
employment has lagged that of the New England region and the nation as a
whole.

The non-manufacturing sector is comprised of industries that typically
provide a service. The four major industries in terms of employment are:
services, retail and wholesale trade, state and local government, as well as
finance, insurance and real estate ("FIRE"), which collectively comprise about
90% of employment in the non-manufacturing sector.

After enjoying an extraordinary boom during the mid-1980s, Connecticut, as
well as the rest of the Northeast, experienced an economic slowdown before the
onset of the national recession which occurred at the beginning of the 1990s.
Reflecting the downturn, the unemployment rate in the State rose from a low of
3% in 1988 to just above the national average of 7.5% during 1992.

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. As of August
31, 1999, this report estimates 1999-2000 fiscal year General Fund revenues of
$10,700.8 million. General Fund expenditures of $10,689.6 million and an
estimated operating surplus of $11.2 million. Estimated revenues have been
revised upward by $54.8 million from the enacted budget plan and estimated
expenditures have been revised upward by $108.0 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 current $350 per filer to $425 per filer in income year 1999 and $500 per
filer in income 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.

Beginning with the income year commencing on or after January 1, 1991, the
State imposed 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. For tax years commencing or after January 1, 1992, the tax
imposed is at the rate of 4.5% on Connecticut taxable income. Depending on
federal income tax filing status 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 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% on the first $4,500 of taxable income for joint
filers and the first $2,250 for single filers. For tax year 1997, the 3% rate
is expanded to the first $9,000 of taxable income for joint filers and the
first $4,500 for single filers. Legislation enacted during the 1997 session
expands 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, the maximum $100 income tax credit for property taxes will be
expanded to a maximum of $350 per filer. Taxpayers are also subject to a
Connecticut minimum tax based on their liability, if any, for payment of the
federal alternative minimum tax. Legislation enacted in 1998 provided for
rebates ranging from $50 to $150 to certain taxpayers filing income tax
returns for the taxable year commencing January 1, 1997, and who have paid
property tax which first came due and was paid in such income year.

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. Effective October 1, 1991, the tax
rate for the Sales and Use Taxes was reduced from eight percent to 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. Section 12-214, as
amended, provides for certain financial services companies to be exempt from
this tax. For income 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 income year
commencing on or after January 1, 2000 the corporate rate will be 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 1998 were made for the purposes of providing
medical assistance payments to the indigent and Aid to Families with Dependent
Children. 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; and other
miscellaneous revenue sources.

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 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 certain 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 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 (excluding short-term and certain other 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 December 1, 1998 of
$2,390,431,253.

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

The State has coordinated a review of its Year 2000 exposures through its
Department of Information Technology ("DOIT"). To date, DOIT has assessed
approximately 1500 computer systems of which 603 have been categorized as
mission critical. As of September 30, 1999, 97% of the programs in mission
critical systems requiring remediation had been converted, and 97% of the
testing cycles required to validate compliance in mission critical systems had
been completed. Some agency project plans anticipate completion dates as late
as December 1, 1999.

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.

The State presently believes that, with modifications to existing software
and converting to new software, the Year 2000 problem will not pose
significant operations problems for the State's computer systems as so
modified or converted. While the State expects its Year 2000 plan to be enough
time to adequately test all computer systems for Year 2000 problems. There is
a related risk that testing does 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 will be completed in a timely fashion. If the necessary remediations
are not completed in a timely fashion, 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.

Connecticut Criminal Defense Lawyers Association v. Forst is an action
brought in 1989 in Federal District Court alleging a pervasive campaign by the
State and various State Police officials of illegal electronic surveillance,
wiretapping and bugging for a number of years at Connecticut State Police
facilities. The plaintiffs seek compensatory damages, punitive damages, as
well as other damages and costs and attorneys fees, as well as temporary and
permanent injunctive relief. In November 1991, the court issued an order which
will allow the plaintiffs to represent a class of all persons who participated
in wire or oral communications to, from, or within State Police facilities
between January 1, 1978 and November 9, 1989 and whose communications were
intercepted, recorded and/or used by the defendants in violation of the law.
This class includes a sub-class of the Connecticut State Police Union, current
and former Connecticut State Police officers who are not defendants in this or
any consolidated case, and other persons acting on behalf of the State Police
who participated in oral or wire communications to, from or within State
Police facilities between such dates. The State has negotiated a settlement in
this case and funds for the settlement have been appropriated by the
Legislature. The settlement was approved by the District Court on October 8,
1999.

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. 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.

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, Trumball, 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.

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 each of
the other hospitals in the State will bring similar suits.
<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.

The forecast of the State's economy shows continued expansion during the
1999 calendar year, with employment growth gradually slowing as the year
progresses. The financial and business service sectors are expected to continue
to do well, while employment in the manufacturing sector is expected to post a
modest decline. On an average annual basis, the employment growth rate in the
State is expected to be somewhat lower than in 1998 and the unemployment rate is
expected to drop further to 5.1 percent. Personal income is expected to record
moderate gains in 1999. Wage growth in 1999 is expected to be slower than in the
previous year as the recent robust growth in bonus payments moderates.

The forecast for continued growth, and any resultant impact on the State's
1999-2000 Financial Plan, contains some uncertainties. Stronger-than-expected
gains in employment and wages or in stock market prices could lead to
unanticipated strong growth in consumer spending. Inventory investment due to
Y2K may be significantly stronger than expected towards the end of this year
possibly followed by significant weakness early next year. Also, improvements
in foreign economies may be weaker than expected and therefore, may have
unanticipated effects on the domestic economy. The inflation rate may differ
significantly from expectations due to the conflicting impacts of a tight
labor market and improved productivity growth as well as to the future
direction and magnitude of fluctuations of oil prices. In addition, the State
economic forecast could over- or underestimate the level of future bonus
payments, financial sector profits or inflation growth, resulting in
unexpected economic impacts. Similarly, the State forecast could fail to
correctly estimate the amount of employment change in the banking, financial
and other business service sectors as well as the direction of employment
change that is likely to accompany telecommunications and energy deregulation.

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 for the 1997-98 fiscal
year (including net tax refund reserve account activity) totaled $34.55
billion, an annual increase of $1.51 billion, or 4.57 percent over
1996-97. General Fund disbursements and transfers to other funds were $34.35
billion, an annual increase of $1.45 billion or 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 for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the
previous fiscal year (net of tax refund reserve account activity). 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 which 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 all
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 so 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 is expected to submit a proposed capital plan for 2000 through
2004 by October 1, 1999 for consideration by the CPRB (the "2000-04 Capital
Program"). There can be no assurance that the proposed capital plan will be
approved by the CPRB 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.

There can be no assurance that all the necessary governmental actions for
future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 and
2000-04 Capital Programs, or parts thereof, will not be delayed or reduced.
Should funding levels fall below current projections, the MTA would have to
revise its 1995-99 and 2000-04 Capital Programs accordingly. If the 1995-99
and 2000-04 Capital Programs are delayed or reduced, ridership and fare
revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional assistance.

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 reported in accordance with the then-
applicable GAAP standards.

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.
Although 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 to market their securities
successfully. The City issues securities to finance, refinance and
rehabilitate infrastructure and other capital needs, as well as for seasonal
financing needs. In 1997 the State created the New York City Transitional
Finance Authority to finance a portion of the City's capital program because
the City was approaching its State Constitutional general debt limit. Without
the additional financing capacity of the Transitional Finance Authority,
projected contracts for City capital projects would have exceeded the City's
debt limit during City fiscal year 1997-98. Despite this additional financing
mechanism, the City currently projects that if no further action is taken, it
will reach its debt limit in City fiscal year 1999-2000. To continue its
capital plan without interruption, the City is proposing an amendment to the
State Constitution to change the methodology use to calculate the debt limit.
Since an amendment to the Constitution to raise the debt limit could not take
effect until City fiscal year 2001-02 at the earliest, the City has decided to
securitize a portion of its share of the proceeds from the settlement with the
nation's tobacco companies. However, a number of potential developments may
affect both the availability and level of funding that the City will receive
from the tobacco settlement. City officials have indicated that, should their
efforts to securitize a portion of City tobacco settlement proceeds fail or
not be accomplished in a timely manner, the City will request that the State
increase the borrowing authority of the TFA.

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
substantial surplus for City fiscal year 1998-99. Although several sectors of
the City's economy have expanded recently, especially tourism and business and
professional services, City tax revenues remain heavily dependent on the
continued profitability of the securities industries and the course 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 tends to rely 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
therefore 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 Control Board, OSDC and City Comptroller, and IBO staff reports 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, 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 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 or this Statement of Additional Information.

YEAR 2000 COMPLIANCE

New York State is currently addressing Year 2000 ("Y2K") data processing
compliance issues. The Year 2000 issue not only affects computer programs, but
also the hardware, software and networks on which they operate. In addition, any
system or equipment that is dependent on an embedded chip, such as
telecommunication equipment and security systems, may also be adversely
affected.

In April 1999 the State Comptroller released an audit on the State's Year
2000 compliance. The audit, which reviewed the State's Y2K compliance
activities through October 1998, found that the State had made progress in
achieving Y2K compliance, but needed to improve its activities in several
areas, including data interchanges and contingency planning.

The Office for Technology (OFT) will continue to monitor compliance
progress for the State's mission-critical and high-priority systems and is
reporting compliance progress to the Governor's Office on a quarterly basis.
The 1999-2000 enacted budget allocates $19 million for priority embedded
systems and $20 million for unanticipated expenses related to bringing
technology into Y2K compliance. OFT reports that as of June 1999, the State
had completed over 98 percent of the overall compliance effort for its
mission-critical systems; 55 of the 56 systems are now Year 2000 compliant. As
of June 1999, the State had completed 87 percent of the overall compliance
effort on the high-priority systems; 236 systems are now Year 2000 compliant.
The State has also procured independent validation and verification services
from a qualified vendor to perform an automated review of code that has been
fixed and a testing review process for all mission-critical systems which is
scheduled to be completed by September 1999.

The State is also addressing a number of issues related to bringing its
mission critical systems into compliance, including: testing throughout 1999
of over 800 data exchange interfaces with federal, state, local and private
data partners; completion of an inventory of priority equipment and systems
that may depend on embedded chips and may therefore need remediation in 1999;
and contacting critical vendors and supply partners to obtain Year 2000
compliance status information and assurances. Since problems could be
identified during the compliance testing phase that could produce compliance
delays, the State agencies were required to complete contingency plans for
priority systems and business processes by the first quarter of calendar year
1999. These plans have been completed and tested as of June 1999 and are being
integrated into the State Emergency Response Plan under the direction of the
State Emergency Management Office. In addition, the State Public Service
Commission has ordered that all State regulated utilities complete Year 2000
activities for mission-critical systems, including contingency plans, by July
1, 1999. The Public Service Commission is currently reviewing these plans as
part of their Y2K regulatory and oversight role. The State has also been
working with local governments since December 1996 to raise awareness, promote
action and provide assistance with Year 2000 compliance.

While the State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the
State's systems and equipment will be Year 2000 compliant and that there will
not be an adverse impact upon State operations or finances as a result. Since
Year 2000 compliance by outside parties is beyond the State's control to
remediate, the failure of outside parties to achieve Year 2000 compliance
could have an adverse impact on State operations or finances as well.

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.
seek 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 dismission the petition. The time in which to appeal the July 9, 1999
decision and judgment has not yet expired.

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. 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 April 27, 1999, the Appellate Division, First Department, held that
the State's automatic stay of litigation pending the resolution of the appeal
would be vacated unless the State perfected its appeal for the Court's
September 1999 appellate term. The State perfected its appeal on July 12,
1999.

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.

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 (S)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 (S)(S) 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. The case is
scheduled to be argued on October 20, 1999.

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. (S)
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 has 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. The State's motion for leave to
appeal to the Court of Appeals is pending in that court.

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 (S)1983 and the Equal Educational Opportunity Act, 20 USC
(S)(S)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 decisions.

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.

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. 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 June
1999, the federal government moved to have the State held jointly and
severally liable for any damages owed to the plaintiffs. This motion was
argued before the District Court on July 8, 1999. The damages phase of the
trial of this case is scheduled to begin on December 1, 1999. 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 are scheduled for argument on September 21,
1999.
<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'a 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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