CITIFUNDS TRUST III, 497, 2000-08-18

CITIFUNDS TRUST III
497, 2000-08-18

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Rule 497(c) File Nos. 33-39538 and 811-4052
PROSPECTUS
JULY 14, 2000

CITITRADE(R)
MONEY MARKET FUNDS

CITIBANK, N.A., INVESTMENT ADVISER

CITITRADE(R)CASH RESERVES
a class of CitiFunds(R)Cash Reserves
CITITRADE(R)U.S. TREASURY RESERVES
a class of CitiFunds(R)U.S. Treasury Reserves
CITITRADE(R)TAX FREE RESERVES
a class of CitiFunds(R)Tax Free Reserves
CITITRADE(R)CALIFORNIA TAX FREE RESERVes
a class of CitiFunds(R)California Tax Free Reserves
CITITRADE(R)CONNECTICUT TAX FREE RESERVES
a class of CitiFunds(R)Connecticut Tax Free Reserves
CITITRADE(R)NEW YORK TAX FREE RESERVES
a class of CitiFunds(R)New York Tax Free Reserves

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
CITITRADE CASH RESERVES................................................4
CITITRADE U.S. TREASURY RESERVES.......................................9
CITITRADE TAX FREE RESERVES...........................................14
CITITRADE CALIFORNIA TAX FREE RESERVES................................19
CITITRADE CONNECTICUT TAX FREE RESERVES...............................24
CITITRADE NEW YORK TAX FREE RESERVES..................................29

YOUR CITITRADE ACCOUNT.....................................................34
HOW TO BUY SHARES.....................................................34
HOW THE PRICE OF YOUR SHARES IS CALCULATED............................34
HOW TO SELL SHARES....................................................34
DIVIDENDS.............................................................35
TAX MATTERS...........................................................35

MANAGEMENT OF THE FUNDS....................................................36
INVESTMENT ADVISER....................................................36
ADVISORY FEES.........................................................37
DISTRIBUTION ARRANGEMENTS.............................................37

MORE ABOUT THE FUNDS.......................................................37
PRINCIPAL INVESTMENT STRATEGIES.......................................37

FINANCIAL HIGHLIGHTS.......................................................40

APPENDIX...................................................................46
TAXABLE EQUIVALENT YIELD TABLES

<PAGE>

FUNDS AT A GLANCE

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

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

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

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

<PAGE>

CITITRADE CASH RESERVES

This summary briefly describes Cititrade Cash Reserves and the principal risks
of investing in it. For more information, see MORE ABOUT THE FUNDS on page 37.

FUND GOAL

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

MAIN INVESTMENT STRATEGIES

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

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

o commercial paper and asset backed securities;

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

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

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

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

MAIN RISKS

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

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

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

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

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

FOREIGN SECURITIES. You should be aware that investments in foreign securities
involve risks relating to political, social and economic developments abroad,
as well as risks resulting from the differences between the regulations to
which U.S. and non-U.S. issuers and markets are subject. These risks may

<PAGE>

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

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

WHO MAY WANT TO INVEST

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

You should consider investing in Cash Reserves if:

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

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

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

Don't invest in the Fund if:

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

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

<PAGE>

FUND PERFORMANCE

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

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

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

CASH RESERVES

ANNUAL TOTAL RETURNS*

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

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

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

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

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

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
1 Year 5 Years 10 Years

Cash Reserves-Class N 4.68% 5.09% 4.89%

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

<PAGE>

FUND FEES AND EXPENSES

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

CITITRADE CASH RESERVES

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT

Maximum Sales Charge (Load) Imposed on
Purchases None
Maximum Deferred Sales Charge (Load) None

ANNUAL FUND OPERATING EXPENSES(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

Management Fees 0.15%

Distribution and Service (12b-1) Fees 0.60%

Other Expenses (administrative and other expenses) 0.44%

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.19%

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

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

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

<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 remain the same -
the example does not include voluntary waivers and fee reimbursements.

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

CITITRADE CASH RESERVES

1 Year 3 Years 5 Years 10 Years

$121 $378 $654 $1,443

<PAGE>

CITITRADE U.S. TREASURY RESERVES

This summary briefly describes Cititrade U.S. Treasury Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 37.

FUND GOAL

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

MAIN INVESTMENT STRATEGIES

U.S. Treasury Reserves may invest in:

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

o Treasury receipts; and

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

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

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

MAIN RISKS

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

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

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.

<PAGE>

WHO MAY WANT TO INVEST

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

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

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

U.S. TREASURY RESERVES
ANNUAL TOTAL RETURNS*

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

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

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

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

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

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

Life of Fund
Since
1 Year 5 Years May 3, 1991

U.S. Treasury Reserves-Class N 4.06% 4.58% 4.09%

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

______________
* Information regarding performance for this period is unavailable.

<PAGE>

FUND FEES AND EXPENSES

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

CITITRADE U.S. TREASURY RESERVES

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT

Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL FUND OPERATING EXPENSES(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

Management Fees 0.15%

Distribution (12b-1) Fees 0.60%

Other Expenses (administrative and other expenses) 0.47%

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.22%

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

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

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

<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 remain the same -
the example does not include voluntary waivers and fee
reimbursements.

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

CITITRADE U.S. TREASURY RESERVES

1 Year 3 Years 5 Years 10 Years

$124 $387 $670 $1,477
<PAGE>

CITITRADE TAX FREE RESERVES

This summary briefly describes Cititrade Tax Free Reserves and the principal
risks of investing in it. For more information, see MORE ABOUT THE FUNDS on
page 37.

FUND GOALS

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

MAIN INVESTMENT STRATEGIES

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

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

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

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

MAIN RISKS

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

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

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

<PAGE>

consider the risk inherent in this policy when you compare the Fund with a more
diversified mutual fund.

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

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

WHO MAY WANT TO INVEST

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

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

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

TAX FREE RESERVES
ANNUAL TOTAL RETURNS*

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

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

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

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

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

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

1 Year 5 Years 10 Years

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

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

<PAGE>

FUND FEES AND EXPENSES

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

CITITRADE TAX FREE RESERVES

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT

Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL FUND OPERATING EXPENSES(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

Management Fees 0.20%

Distribution (12b-1) Fees 0.60%

Other Expenses (administrative and other expenses) 0.36%

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.16%

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

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

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

<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 remain the same-
the example does not include voluntary waivers and fee
reimbursements.

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

CITITRADE TAX FREE RESERVES

1 Year 3 Years 5 Years 10 Years

$118 $368 $638 $1,409

<PAGE>

CITITRADE CALIFORNIA TAX FREE RESERVES

This summary briefly describes Cititrade California Tax Free Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 37.

FUND GOALS

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

MAIN INVESTMENT STRATEGIES

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

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

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

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

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

MAIN RISKS

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

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.

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

<PAGE>

event could cause the value of your investment in the Fund, or its yield, to
decline.

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

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

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

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

WHO MAY WANT TO INVEST

You should consider investing in California Tax Free Reserves if:

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

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

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

o Your income is subject to California personal income tax.

Don't invest in the Fund if:

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

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

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

<PAGE>

FUND PERFORMANCE

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

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

CALIFORNIA TAX FREE RESERVES
ANNUAL TOTAL RETURNS*

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

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

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

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

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

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

Life of Fund
Since
1 Year 5 Years March 10, 1992

California Tax Free Reserves-Class N 2.52% 2.97% 2.82%

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

______________
*Information regarding performance for this period is unavailable.

<PAGE>

FUND FEES AND EXPENSES

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

CITITRADE CALIFORNIA TAX FREE RESERVES

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT

Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

Management Fees 0.20%

Distribution (12b-1) Fees 0.60%

Other Expenses (administrative and other expenses) 0.33%

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.13%

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

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

<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 remain the same -
the example does not include voluntary waivers and fee
reimbursements.

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

CITITRADE CALIFORNIA TAX FREE RESERVES

1 Year 3 Years 5 Years 10 Years

$115 $359 $622 $1,375
<PAGE>
CITITRADE CONNECTICUT TAX FREE RESERVES

This summary briefly describes Cititrade Connecticut Tax Free Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 37.

FUND GOALS

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

MAIN INVESTMENT STRATEGIES

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

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

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

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

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

MAIN RISKS

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

<PAGE>

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

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

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

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

WHO MAY WANT TO INVEST

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

You should consider investing in Connecticut Tax Free Reserves if:

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

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

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

o Your income is subject to Connecticut personal income tax.

Don't invest in the Fund if:

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

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

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

<PAGE>

FUND PERFORMANCE

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

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

CONNECTICUT TAX FREE RESERVES
ANNUAL TOTAL RETURNS*

1994 2.80%
1995 3.63%
1996 2.97%
1997 3.00%
1998 2.92%
1999 2.60%

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

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

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

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

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

Life of Fund
Since
1 Year 5 Years December 1, 1993

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

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

___________
*Information regarding performance for this period is unavailable.

<PAGE>

FUND FEES AND EXPENSES

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

CITITRADE CONNECTICUT TAX FREE RESERVES

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT

Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

Management Fees 0.20%

Distribution (12b-1) Fees 0.60%

Other Expenses (administrative and other expenses) 0.36%

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.16%

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

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

<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 remain the same -
the example does not include voluntary waivers and fee
reimbursements.

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

CITITRADE CONNECTICUT TAX FREE RESERVES

1 Year 3 Years 5 Years 10 Years

$118 $368 $638 $1,409

<PAGE>

CITITRADE NEW YORK TAX FREE RESERVES

This summary briefly describes Cititrade New York Tax Free Reserves and the
principal risks of investing in it. For more information, see MORE ABOUT THE
FUNDS on page 37.

FUND GOALS

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

MAIN INVESTMENT STRATEGIES

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

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

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

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

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

MAIN RISKS

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

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

<PAGE>

event could cause the value of your investment in the Fund, or its yield, to
decline.

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

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

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

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

WHO MAY WANT TO INVEST

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

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

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

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

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

Don't invest in the Fund if:

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

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

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

<PAGE>

FUND PERFORMANCE

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

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

NEW YORK TAX FREE RESERVES
ANNUAL TOTAL RETURNS*

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

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

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

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

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

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

1 Year 5 Years 10 Years

New York Tax Free Reserves-Class N 2.64% 2.96% 3.03%

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

<PAGE>

FUND FEES AND EXPENSES

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

CITITRADE NEW YORK TAX FREE RESERVES

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT

Maximum Sales Charge (Load) Imposed on Purchases None

Maximum Deferred Sales Charge (Load) None

ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

Management Fees 0.20%

Distribution (12b-1) Fees 0.60%

Other Expenses (administrative and other expenses) 0.36%

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.16%

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

These voluntary 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 remain the same -
the example does not include voluntary waivers and fee
reimbursements.

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

CITITRADE NEW YORK TAX FREE RESERVES

1 Year 3 Years 5 Years 10 Years

$118 $368 $638 $1,409
<PAGE>
YOUR CITITRADE ACCOUNT

HOW TO BUY SHARES

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

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

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

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

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

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

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

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

HOW THE PRICE OF YOUR SHARES IS CALCULATED

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

HOW TO SELL SHARES

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

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

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

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

DIVIDENDS

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

TAX MATTERS

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

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

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

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

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

<PAGE>

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.

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

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

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

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

<PAGE>

ADVISORY FEES

For the Funds' fiscal year ended August 31, 1999 Citibank received the
following investment advisory 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 (other than Cash Reserves) offer two classes of shares, Class N
shares and Cititrade shares, and Cash Reserves offers three classes of shares,
Class A shares, Class N shares and Cititrade shares. These classes have
different expense levels. Only Cititrade shares are offered in this prospectus.
The Funds do not charge any sales loads, deferred sales loads or other fees in
connection with the purchase of Cititrade shares.

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

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

MORE ABOUT THE FUNDS

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

PRINCIPAL INVESTMENT STRATEGIES

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

Each Fund has specific investment policies and procedures designed to maintain
a constant net asset value of $1.00 per share. Each Fund also complies with
industry regulations that apply to money market funds. These regulations
require that each Fund's investments mature or be deemed to mature within 397
days from the date purchased and that the average maturity of each Fund's

<PAGE>

investments (on a dollar-weighted basis) be 90 days or less. In addition, all
of the Funds' investments must be in U.S. dollar-denominated high quality
securities which have been determined by Citibank to present minimal credit
risks. To be high quality, a security (or its issuer) must be rated in one of
the two highest short-term rating categories by nationally recognized rating
agencies, such as Moody's or Standard & Poor's, or, in Citibank's opinion, be
of comparable quality. Investors should note that within these two rating
categories there may be sub-categories or gradations indicating relative
quality. If the credit quality of a security deteriorates after a Fund buys it,
Citibank will decide whether the security should be held or sold.

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

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

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

U.S. Treasury Reserves invests in U.S. Treasury bills, bonds, notes and
receipts. Treasury receipts are interest coupons on other U.S. Treasury
obligations. This Fund may also invest in short-term obligations of U.S.
government agencies and instrumentalities, but only if the obligations are
backed by the full faith and credit of the United States. The Fund's investment
goals and policies may be changed without a shareholder vote. ALTHOUGH THE FUND
INVESTS IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN THE FUND IS NEITHEr
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.

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

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

-------------------------------------------------------------------------------
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.

<PAGE>

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

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

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

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

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

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

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

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

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

<PAGE>

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.

FINANCIAL HIGHLIGHTS

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

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

CITIFUNDS CASH RESERVES
Class N
Year Ended August 31,

<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995

Net asset value, beginning of
period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.04536 0.05050 0.04940 0.05039 0.05174
Less dividends from net
investment income (0.04536) (0.05050) (0.04940) (0.05039) (0.05174)

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

Total return 4.63% 5.17% 5.05% 5.16% 5.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $2,586,388 $2,198,443 $1,827,181 $1,468,177 $931,886
Ratio of expenses to average
net assets+ 0.70% 0.70% 0.70% 0.69% 0.69%
Ratio of net investment income
to average net assets+ 4.53% 5.05% 4.96% 5.02% 5.17%

Note: If agents of the Fund and agents of Cash Reserves Portfolio had not
waived all or a portion of their fees during the periods indicated, the net
investment income per share and the ratios would have been as follows:

Net investment income per share $0.04301 $0.04814 $0.04697 $0.04766 $0.04895
RATIOS:
Expenses to average net assets+ 0.94% 0.94% 0.95% 0.96% 0.97%
Net investment income to
average net assets+ 4.29% 4.81% 4.71% 4.75% 4.89%

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

<PAGE>

FINANCIAL HIGHLIGHTS -- CONTINUED

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

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

CITIFUNDS U.S. TREASURY RESERVES Class N
Year Ended August 31,

<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995

Net asset value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.03947 0.04552 0.04547 0.04602 0.04751
Less dividends from net investment
income (0.03947) (0.04552) (0.04547) (0.04602) (0.04751)

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

Total return 4.02% 4.65% 4.64% 4.70% 4.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $343,496 $319,930 $360,717 $317,996 $256,452
Ratio of expenses to average net
assets+ 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income to
average net assets+ 3.96% 4.55% 4.57% 4.61% 4.77%

Note: If agents of the Fund and agents of U.S. Treasury Reserves Portfolio had
not waived all or a portion of their fees during the periods indicated, the net
investment income per share and the ratios would have been as follows:

Net investment income per share $0.03678 $0.04292 $0.04278 $0.04313 $0.04452
RATIOS:
Expenses to average net assets+ 0.97% 0.96% 0.97% 1.00% 1.00%
Net investment income to average net
assets+ 3.69% 4.29% 4.30% 4.32% 4.47%

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

<PAGE>

FINANCIAL HIGHLIGHTS -- CONTINUED

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

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

CITIFUNDS TAX FREE RESERVES Class N
Year Ended August 31,

<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995

Net asset value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.02626 0.03042 0.03004 0.02973 0.03197
Less dividends from net investment
income (0.02626) (0.03042) (0.03004) (0.02973) (0.03197)

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

Total return 2.66% 3.08% 3.05% 3.01% 3.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $489,880 $514,771 $422,483 $371,349 $392,172
Ratio of expenses to average net
assets+ 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets+ 2.62% 3.04% 3.01% 2.97% 3.22%

Note: If agents of the Fund and agents of Tax Free Reserves Portfolio had not
waived all or a portion of their fees during the periods indicated, the net
investment income per share and the ratios would have been as follows:

Net investment income per share $0.02365 $0.02782 $0.02715 $0.02693 $0.02929
RATIOS:
Expenses to average net assets+ 0.91% 0.92% 0.94% 0.93% 0.92%
Net investment income to average net
assets+ 2.36% 2.77% 2.72% 2.69% 2.95%

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

<PAGE>

FINANCIAL HIGHLIGHTS -- CONTINUED

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

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

CITIFUNDS CALIFORNIA TAX FREE RESERVES Class N
Year Ended August 31,

<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995

Net asset value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.02473 0.02928 0.02899 0.03089 0.03434
Less dividends from net investment
income (0.02473) (0.02928) (0.02899) (0.03089) (0.03434)

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

Total return 2.50% 2.97% 2.94% 3.13% 3.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $306,033 $285,628 $207,345 $150,557 $51,832
Ratio of expenses to average net
assets 0.65% 0.65% 0.65% 0.42% 0.30%
Ratio of net investment income to
average net assets 2.47% 2.92% 2.91% 3.05% 3.43%

Note: If agents of the Fund had not waived all or a portion of their fees from
the Fund for the periods indicated and the Administrator had not voluntarily
assumed expenses for the periods before August 31, 1996, and the expenses were
not reduced for the fees paid indirectly for the years after August 31, 1995,
the ratios and net investment income per share would have been as follows:

Net investment income per share $0.02243 $0.02687 $0.02630 $0.02481 $0.02513
RATIOS:
Expenses to average net assets 0.88% 0.90% 0.92% 1.01% 1.21%
Net investment income to average net
assets 2.24% 2.67% 2.64% 2.45% 2.51%
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS -- CONTINUED

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

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

CITIFUNDS CONNECTICUT TAX FREE RESERVES Class N
Year Ended August 31,

<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995

Net asset value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.02550 0.02971 0.02914 0.03135 0.03564
Less dividends from net investment
income (0.02550) (0.02971) (0.02914) (0.03135) (0.03564)

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

Total return 2.58% 3.01% 2.95% 3.18% 3.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $162,053 $156,552 $169,322 $116,025 $46,556
Ratio of expenses to average net
assets(A) 0.65% 0.66% 0.65% 0.42% 0.22%
Ratio of expenses to average net
assets after fees paid indirectly(A) 0.65% 0.65% 0.65% 0.42% 0.22%
Ratio of net investment income to
average net assets 2.54% 2.98% 2.92% 3.08% 3.60%

Note: If agents of the Fund had not voluntarily waived all or a portion of
their fees from the Fund for the periods indicated and the Administrator had
not voluntarily assumed expenses for the periods before August 31, 1996, and
the expenses were not reduced for the fees paid indirectly for the years after
August 31, 1995, the ratios and net investment income per share would
have been as follows:

Net investment income per share $0.02289 $0.02712 $0.02615 $0.02504 $0.02732
RATIOS:
Expenses to average net assets 0.91% 0.91% 0.95% 1.04% 1.06%
Net investment income to average net
assets 2.28% 2.72% 2.62% 2.46% 2.76%

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

<PAGE>

FINANCIAL HIGHLIGHTS -- CONTINUED

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

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

CITIFUNDS NEW YORK TAX FREE RESERVES Class N
Year Ended August 31,
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Net asset value, beginning of
period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.02572 0.02991 0.02949 0.02936 0.03136
Less dividends from net
investment income (0.02572) (0.02991) (0.02949) (0.02936) (0.03136)

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

Total return 2.60% 3.03% 2.99% 2.98% 3.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $1,181,524 $1,094,732 $976,959 $941,691 $767,129
Ratio of expenses to average net
assets 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets 2.56% 2.99% 2.95% 2.92% 3.15%

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

Net investment income per share $0.02391 $0.02791 $0.02739 $0.02725 $0.02917
RATIOS:
Expenses to average net assets 0.84% 0.85% 0.86% 0.86% 0.87%
Net investment income to average
net assets 2.38% 2.79% 2.74% 2.71% 2.93%
</TABLE>

<PAGE>

APPENDIX
TAXABLE EQUIVALENT YIELD TABLES

RATES FOR 2000 UNDER FEDERAL PERSONAL, STATE AND LOCAL INCOME TAX LAW FOR THE
JURISDICTIONS INDICATED

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

FEDERAL TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income* Income Federal Tax-Exempt Yield
Tax
Single 2000 Joint 2000 Bracket 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
----------- ---------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

$0 - $26,250 $0 - $43,850 15.0% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$26,251 -$63,550 $43,851 - $105,950 28.0% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$63,551 - $132,600 $105,951 - $161,450 31.0% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$132,601 - $288,350 $161,451 - $288,350 36.0% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$288,351 & Over $288,351 & Over 39.6% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%

* Net amount subject to Federal personal income tax after deductions and
exemptions.
</TABLE>

FEDERAL AND CALIFORNIA TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
-------------- ------------- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

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

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

<PAGE>

FEDERAL AND CONNECTICUT TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income* Income Connecticut Tax-Exempt Yield
Tax
Single 2000*** Joint 2000*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
-------------- ------------- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

$0 - $26,250 18.34% 2.45% 3.06% 3.67% 4.29% 4.90% 5.51% 6.12% 6.74% 7.35% 7.96%
$0 - $43,850 18.24% 2.45% 3.06% 3.67% 4.28% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95%
$26,251 - $63,550 $43,851 - $105,950 31.24% 2.91% 3.64% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45%
$63,551 - $132,600 $105,951 - $161,450 34.11% 3.04% 3.79% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86%
$132,601 - $288,350 $161,451 - $288,350 38.88% 3.27% 4.09% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63%
$288,351 & Over $288,351 & Over 42.32% 3.47% 4.33% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54% 10.40% 11.27%

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

FEDERAL AND NEW YORK STATE TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income* Income New York Tax-Exempt Yield
Tax
Single 2000** Joint 2000*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
------------- ------------- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

$0 - $26,250 19.54% 2.49% 3.11% 3.73% 4.35% 4.97% 5.59% 6.21% 6.84% 7.46% 8.08%
$0 - $43,850 19.28% 2.48% 3.10% 3.72% 4.34% 4.96% 5.57% 6.19% 6.81% 7.43% 8.05%
$26,251 -$63,550 $43,851 - $105,950 32.93% 2.98% 3.73% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$63,551 - $132,600 $105,951 - $161,450 35.73% 3.11% 3.89% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.34% 10.11%
$132,601 - $288,350 $161,451 - $288,350 40.38% 3.35% 4.19% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.06% 10.90%
$288,351 & Over $288,351 & Over 43.74% 3.55% 4.44% 5.33% 6.22% 7.11% 8.00% 8.89% 9.78% 10.66% 11.55%

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

FEDERAL, NEW YORK STATE AND CITY TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income* Income New York City Tax-Exempt Yield
Tax
Single 2000*** Joint 2000*** Bracket** 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
-------------- ------------- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

$0 - $26,250 22.40% 2.58% 3.22% 3.87% 4.51% 5.15% 5.80% 6.44% 7.09% 7.73% 8.38%
$0 - $43,850 22.13% 2.57% 3.21% 3.85% 4.49% 5.14% 5.78% 6.42% 7.06% 7.71% 8.35%
$26,251 - $63,550 35.63% 3.11% 3.88% 4.66% 5.44% 6.21% 6.99% 7.77% 8.54% 9.32% 10.10%
$43,851 - $105,950 35.62% 3.11% 3.88% 4.66% 5.44% 6.21% 6.99% 7.77% 8.54% 9.32% 10.10%
$63,551 - $132,600 $105,951 - $161,450 38.37% 3.25% 4.06% 4.87% 5.68% 6.49% 7.30% 8.11% 8.92% 9.74% 10.55%
$132,601 - $288,350 $161,451 - $288,350 42.83% 3.50% 4.37% 5.25% 6.12% 7.00% 7.87% 8.75% 9.62% 10.50% 11.37%
$288,351 & Over $288,351 & Over 46.05% 3.71% 4.63% 5.56% 6.49% 7.41% 8.34% 9.27% 10.19% 11.12% 12.05%

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

<PAGE>

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

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

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

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

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

<PAGE>
Rule 497(c) File Nos. 33-39538 and 811-4052

Statement of Additional Information
July 14, 2000

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

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

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

CitiFunds Trust III invests all of the investable assets of Cash
Reserves and U.S. Treasury Reserves in Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio, respectively. Tax Free Reserves invests all of its
investable assets in Tax Free Reserves Portfolio (collectively, with Cash
Reserves Portfolio and U.S. Treasury Reserves Portfolio, the "Portfolios"). The
address and telephone number of Cash Reserves Portfolio are Elizabethan Square,
George Town, Grand Cayman, British West Indies, (345) 945-1824. The address and
telephone number of U.S. Treasury Reserves Portfolio and Tax Free Reserves
Portfolio are 21 Milk Street, Boston, Massachusetts 02109, (617) 423-1679.

FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<TABLE>
<CAPTION>

<S> <C>
TABLE OF CONTENTS PAGE

1. The Funds........................................................................ 2
2. Investment Objectives, Policies and Restrictions................................. 3
3. Performance Information.......................................................... 24
4. Determination of Net Asset Value................................................. 27
5. Management....................................................................... 28
6. Additional Information on the Purchase and Sale of Shares........................ 36
7. Dealer Commissions and Concessions............................................... 38
8. Portfolio Transactions........................................................... 38
9. Description of Shares, Voting Rights and Liabilities............................. 39
10. Certain Additional Tax Matters.................................................. 40
11. Independent Accountants and Financial Statements................................ 41
Appendix A -- Ratings of Municipal Obligations...................................... A-1
Appendix B -- Additional Information Concerning California Municipal Obligations.... B-1
Appendix C -- Additional Information Concerning Connecticut Municipal Obligations... C-1
Appendix D -- Additional Information Concerning New York Municipal Obligations...... D-1
Appendix E -- Additional Information Concerning Puerto Rico Municipal Obligations... E-1
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.

<PAGE>

1. THE FUNDS

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

Tax Free Reserves is a no-load, non-diversified, open-end management
investment company which was organized as a business trust under the laws of
the Commonwealth of Massachusetts on June 21, 1985 and is the successor to the
business of The Landmark Funds Tax Free Reserves, Inc., which was incorporated
under the laws of the State of Maryland in 1983. Prior to January 2, 1998, Tax
Free Reserves was called Landmark Tax Free Reserves.

CitiFunds Multi-State Tax Free Trust is a no-load, non-diversified,
open-end management investment company which was organized as a business trust
under the laws of the Commonwealth of Massachusetts on August 30, 1985. Shares
of CitiFunds Multi-State Tax Free Trust are divided into three separate series,
California Tax Free Reserves, Connecticut Tax Free Reserves and New York Tax
Free Reserves. Prior to January 2, 1998 CitiFunds Multi-State Tax Free Trust
was called Landmark Multi-State Tax Free Funds, and California Tax Free
Reserves, Connecticut Tax Free Reserves and New York Tax Free Reserves were
called Landmark California Tax Free Reserves, Landmark Connecticut Tax Free
Reserves and Landmark New York Tax Free Reserves, respectively.

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

Each of the Funds is a type of mutual fund called a "money market
fund." Tax Free Reserves is referred to as a "tax-exempt money market fund."
Each of California Tax Free Reserves and Connecticut Tax Free Reserves is a
type of fund commonly referred to as a "double tax-exempt money market fund,"
and New York Tax Free Reserves is a type of fund commonly referred to as a
"triple tax-exempt money market fund." The net asset value of each Fund's
shares is expected to remain constant at $1.00, although there can be no
assurance that this will be so on a continuing basis. (See "Determination of
Net Asset Value.")

Each of Tax Free Reserves, California Tax Free Reserves, Connecticut
Tax Free Reserves and New York Tax Free Reserves is referred to as a "Tax Free
Fund." Each Tax Free Fund is non-diversified.

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

The Trustees of CitiFunds Trust III and Tax Free Reserves believe that
the aggregate per share expenses of Cash Reserves, U.S. Treasury Reserves and
Tax Free Reserves and their corresponding Portfolios will be less than or
approximately equal to the expenses that each Fund would incur if the assets of
the Fund were invested directly in the types of securities held by its
Portfolio. Each Fund may withdraw its investment in its Portfolio at any time,
and will do so if the Fund's Trustees believe it to be in the best interest of
the Fund's shareholders. If a Fund were to withdraw its investment in its
Portfolio, the Fund could either invest directly in securities in accordance
with the investment policies described below or invest in another mutual fund
or pooled investment vehicle having the same investment objectives and
policies. If a Fund were to withdraw, the Fund could receive securities from
the Portfolio instead of cash, causing the Fund to incur brokerage, tax and
other charges or leaving it with securities which may or may not be readily
marketable or widely diversified.

<PAGE>

Each Portfolio may change its investment objective and certain of its
investment policies and restrictions without approval by its investors, but a
Portfolio will notify its corresponding Fund (which in turn will notify its
shareholders) and its other investors at least 30 days before implementing any
change in its investment objective. A change in investment objective, policies
or restrictions may cause a Fund to withdraw its investment in its Portfolio.

The Portfolios, as New York trusts, are not required to hold and have
no intention of holding annual meetings of investors. However, when a Portfolio
is required to do so by law, or in the judgment of Trustees it is necessary or
desirable to do so, the Portfolio will submit matters to its investors for a
vote. When a Fund is asked to vote on matters concerning its corresponding
Portfolio (other than a vote to continue the Portfolio following the withdrawal
of an investor), the Fund will hold a shareholder meeting and vote in
accordance with shareholder instructions, or otherwise act in accordance with
applicable law. Of course, the Fund could be outvoted, or otherwise adversely
affected, by other investors in the Portfolio.

The Portfolios may sell interests to investors in addition to the
Funds. These investors may be mutual funds which offer shares to their
shareholders with different costs and expenses than the Funds. Therefore, the
investment returns for all investors in funds investing in a Portfolio may not
be the same. These differences in returns are also present in other mutual fund
structures.

Information about other holders of interests in the Portfolios is
available from the Funds' distributor, CFBDS, Inc. ("CFBDS"), 21 Milk Street,
Boston, Massachusetts 02109, (617) 423-1679.

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

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

Shares of each Fund are continuously sold by CFBDS, each Fund's
distributor (the "Distributor"). Class N shares of each Fund and Class A shares
of Cash Reserves are available only to investors who are customers of a
financial institution, such as a federal or state-chartered bank, trust
company, savings and loan association or savings bank, or a securities broker,
that has entered into a shareholder servicing agreement with the appropriate
Trust with respect to that Fund (collectively, "Shareholder Servicing Agents").
Cititrade shares are available only to investors that have established a
customer account with the Cititrade Program. CFBDS may receive fees from the
Funds pursuant to Distribution Plans adopted in accordance with Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act").

2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES

The investment objective of CASH RESERVES is to provide shareholders
with liquidity and as high a level of current income as is consistent with
preservation of capital.

The investment objective of U.S. TREASURY RESERVES is to provide its
shareholders with liquidity and as high a level of current income from U.S.
government obligations as is consistent with the preservation of capital.

The investment objectives of TAX FREE RESERVES are to provide its
shareholders with high levels of current income exempt from federal income
taxes, preservation of capital and liquidity.

The investment objectives of CALIFORNIA TAX FREE RESERVES are to
provide shareholders with high levels of current income exempt from both
federal and California personal income taxes, preservation of capital and
liquidity.

The investment objectives of CONNECTICUT TAX FREE RESERVES are to
provide its shareholders with high levels of current income exempt from both
federal and Connecticut personal income taxes, preservation of capital and
liquidity.

The investment objectives of NEW YORK TAX FREE RESERVES are to provide
its shareholders with high levels of current income exempt from federal, New
York State and New York City personal income taxes, preservation of capital and
liquidity.

<PAGE>

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

<PAGE>

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.

<PAGE>

(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.

<PAGE>

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).

<PAGE>

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").

<PAGE>

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

<PAGE>

Adviser. The principal kinds of municipal notes are tax and revenue
anticipation notes, tax anticipation notes, bond anticipation notes and
revenue anticipation notes. Notes sold in anticipation of collection of
taxes, a bond sale or receipt of other revenues are usually general
obligations of the issuing municipality or agency.

(3) Municipal commercial paper that is rated Prime-1 or Prime-2
by Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1 or F-2 by
Fitch (and, for Connecticut Tax Free Reserves, present a minimal credit
risk as determined by the Adviser) or, if not rated by these rating
agencies, is of comparable quality as determined by the Adviser. Issues
of municipal commercial paper typically represent very short-term,
unsecured, negotiable promissory notes. These obligations are often
issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general
revenues of municipalities or are refinanced with long-term debt. In
most cases municipal commercial paper is backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions which may be called
upon in the event of default by the issuer of the commercial paper.

Subsequent to its purchase by a Tax Free Fund, a rated Municipal
Obligation may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event requires sale
of such Municipal Obligation by the Fund (other than variable rate
instruments which must be sold if they are not "high quality"), but the
Adviser considers such event in determining whether the Fund should
continue to hold the Municipal Obligation. To the extent that the
ratings given to the Municipal Obligations or other securities held by
a Tax Free Fund are altered due to changes in any of the Moody's,
Standard & Poor's or Fitch ratings systems (see Appendix A to this
Statement of Additional Information for an explanation of these rating
systems), the Adviser adopts such changed ratings as standards for its
future investments in accordance with the investment policies contained
above and in the Prospectus. Certain Municipal Obligations issued by
instrumentalities of the U.S. government are not backed by the full
faith and credit of the U.S. Treasury but only by the creditworthiness
of the instrumentality. CitiFunds Multi-State Tax Free Trust's and Tax
Free Reserves Portfolio's Boards of Trustees have determined that any
Municipal Obligation that depends directly, or indirectly through a
government insurance program or other guarantee, on the full faith and
credit of the U.S. government is considered to have a rating in the
highest category. Where necessary to ensure that the Municipal
Obligations are "eligible securities" (e.g., within the two highest
ratings assigned by Moody's, Standard & Poor's or Fitch or, if not
rated, are of comparable quality as determined by the Adviser), or
where the obligations are not freely transferable, a Tax Free Fund will
require that the obligation to pay the principal and accrued interest
be backed by an unconditional irrevocable bank letter of credit, a
guarantee, insurance policy or other comparable undertaking of an
approved financial institution.

MUNICIPAL BONDS. Municipal bonds are debt obligations of states,
cities, municipalities and municipal agencies and authorities which
generally have a maturity at the time of issuance of one year or more
and which are issued to raise funds for various public purposes, such
as construction of a wide range of public facilities, refunding
outstanding obligations or obtaining funds for institutions and
facilities. The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. The principal of and
interest on revenue bonds are payable from the income of specific
projects or authorities and generally are not supported by the issuer's
general power to levy taxes. In some cases, revenues derived from
specific taxes are pledged to support payments on a revenue bond.

In addition, certain kinds of private activity bonds ("PABs") are
issued by or on behalf of public authorities to provide funding for
various privately operated industrial facilities, such as warehouse,
office, plant and store facilities and environmental and pollution
control facilities. PABs are, in most cases, revenue bonds. The payment
of the principal and interest on PABs usually depends solely on the
ability of the user of the facilities financed by the bonds or other
guarantor to meet its financial obligations and, in certain instances,
the pledge of real and personal property as security for payment. Many
PABs may not be readily marketable; however, it is expected that the
PABs or the participation certificates in PABs purchased by a Fund will
have liquidity because they generally will be supported by demand
features to "high quality" banks, insurance companies or other
financial institutions.

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

<PAGE>

MUNICIPAL NOTES. There are four major varieties of state and municipal
notes: Tax and Revenue Anticipation Notes ("TRANs"); Tax Anticipation Notes
("TANs"); Revenue Anticipation Notes ("RANs"); and Bond Anticipation Notes
("BANs"). TRANs, TANs and RANs are issued by states, municipalities and other
tax-exempt issuers to finance short-term cash needs or, occasionally, to
finance construction. Many TRANs, TANs and RANs are general obligations of the
issuing entity payable from taxes or designated revenues, respectively,
expected to be received within the related fiscal period. BANs are issued with
the expectation that their principal and interest will be paid out of proceeds
from renewal notes or bonds to be issued prior to the maturity of the BANs.
BANs are issued most frequently by both general obligation and revenue bond
issuers usually to finance such items as land acquisition, facility acquisition
and/or construction and capital improvement projects.

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

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

VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS

Each of the Tax Free Funds may purchase variable rate instruments and
participation interests. Variable rate instruments that the Tax Free Funds may
purchase are tax-exempt Municipal Obligations (including municipal notes and
municipal commercial paper) that provide for a periodic adjustment in the
interest rate paid on the instrument and permit the holder to receive payment
upon a specified number of days' notice of the unpaid principal balance plus
accrued interest either from the issuer or by drawing on a bank letter of
credit, a guarantee or an insurance policy issued with respect to such
instrument or by tendering or "putting" such instrument to a third party.

The variable rate instruments in which Tax Free Funds' assets may be
invested are payable upon a specified period of notice which may range from one
day up to one year. The terms of the instruments provide that interest rates
are adjustable at intervals ranging from daily to up to one year and the
adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. An
unrated variable rate instrument may be determined to meet a Fund's high
quality criteria if it is backed by a letter of credit or guarantee or a right
to tender or put the instrument to a third party or is insured by an insurer
that meets the high quality criteria for the Fund discussed above or on the
basis of a credit evaluation of the underlying obligor. If the credit of the
obligor is of "high quality," no credit support from a bank or other financial
institution will be necessary. Each unrated variable rate instrument will be
evaluated on a quarterly basis to determine that it continues to meet a Tax
Free Fund's high quality criteria.

Variable rate instruments in which the Tax Free Funds may invest
include participation interests in variable rate, tax-exempt Municipal
Obligations owned by a bank, insurance company or other financial institution
or affiliated organizations. Although the rate of the underlying Municipal
Obligations may be fixed, the terms of the participation interest may result in
the Fund receiving a variable rate on its investment. A participation interest
gives a Tax Free Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund's participation bears to the total principal amount of
the Municipal Obligation and provides the liquidity feature. Each participation
may be backed by an irrevocable letter of credit or guarantee of, or a right to
put to, a bank (which may be the bank issuing the participation interest, a
bank issuing a confirming letter of credit to that of the issuing bank, or a
bank serving as agent of the issuing bank with respect to the possible
repurchase of the participation interest) or insurance policy of an insurance
company that has been determined by the Adviser to meet the prescribed quality
standards of a Tax Free Fund. Each Tax Free Fund has the right to sell the
participation interest back to the institution or draw on the letter of credit
or insurance after a specified period of notice, for all or any part of the

<PAGE>

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.

<PAGE>

"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

<PAGE>

investment in the type of securities described above; (b) to maintain liquidity
for the purpose of meeting anticipated withdrawals; and (c) when, in the
opinion of the Fund's investment adviser, it is advisable to do so because of
adverse market conditions affecting the market for Municipal Obligations. The
kinds of taxable securities in which the Tax Free Funds' assets may be invested
are limited to the following short-term, fixed-income securities (maturing in
397 days or less from the time of purchase): (1) obligations of the U.S.
government or its agencies, instrumentalities or authorities; (2) commercial
paper rated Prime-1 or Prime-2 by Moody's, A-1+, A-1 or A-2 by Standard &
Poor's or F-1+, F-1 or F-2 by Fitch; (3) certificates of deposit of U.S. banks
with assets of $1 billion or more; and (4) repurchase agreements with respect
to any Municipal Obligations or obligations of the U.S. government or its
agencies, instrumentalities, or authorities. Each Tax Free Fund's assets may
also be invested in Municipal Obligations which are subject to an alternative
minimum tax.

REPURCHASE AGREEMENTS

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

RISK FACTORS AFFECTING INVESTMENT IN CALIFORNIA MUNICIPAL OBLIGATIONS

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

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

RISK FACTORS AFFECTING INVESTMENT IN CONNECTICUT MUNICIPAL OBLIGATIONS

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

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

RISK FACTORS AFFECTING INVESTMENT IN NEW YORK MUNICIPAL OBLIGATIONS

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

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

<PAGE>

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

<PAGE>

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

<PAGE>

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

<PAGE>

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;

<PAGE>

(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;

<PAGE>

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

<PAGE>

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.

<PAGE>

(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.

<PAGE>

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.

<PAGE>

(11) Invest in securities of other investment companies, except
the Trust may purchase on behalf of the Fund unit investment trust
securities (i.e., securities issued by an investment company which (i)
is organized under a trust indenture or contract of custodianship or
similar instrument, (ii) does not have a board of directors, and (iii)
issues only redeemable securities, each of which represents an
undivided interest in a unit of specified securities) where such unit
trusts meet the investment objectives and policies of the Fund and then
only up to 5% of the Fund's net assets, except as they may be acquired
as part of a merger, consolidation or acquisition of assets. As of the
date of this Statement of Additional Information, the Trust has no
intention of investing in unit investment trust securities on behalf of
the Fund.

For purposes of the investment restrictions described above, the issuer
of a tax-exempt security is deemed to be the entity (public or private)
ultimately responsible for the payment of principal of and interest on the
security. If, however, the creating government or some other entity, such as an
insurance company or other corporate obligor, guarantees a security or a bank
issues a Letter of Credit, such a guarantee or Letter of Credit may, in
accordance with applicable SEC rules, be considered a separate security and
treated as an issue of such government, other entity or bank.

If a percentage restriction or a rating restriction (other than a
restriction as to borrowing) on investment or utilization of assets set forth
above or referred to in the Prospectus is adhered to at the time an investment
is made or assets are so utilized, a later change in percentage resulting from
changes in the value of the securities held by a Fund or a Portfolio or a later
change in the rating of a security held by a Fund or a Portfolio is not
considered a violation of policy.

3. PERFORMANCE INFORMATION

Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of yield, effective yield, tax equivalent yield,
total rate of return or tax equivalent total rate of return. All performance
information is historical and is not intended to indicate future performance.
Yields and total rates of return fluctuate in response to market conditions and
other factors.

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

Each Fund may provide annualized yield and effective yield quotations.
The yield of a Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period is stated in any such advertisement or
communication). This income is then annualized; that is, the amount of income
generated by the investment over that period is assumed to be generated each
week over a 365-day period and is shown as a percentage of the investment. Any
current yield quotation of a Fund which is used in such a manner as to be
subject to the provisions of Rule 482(d) under the Securities Act of 1933, as
amended, consists of an annualized historical yield, carried at least to the
nearest hundredth of one percent, based on a specific seven calendar day period
and is calculated by dividing the net change in the value of an account having
a balance of one share at the beginning of the period by the value of the
account at the beginning of the period and multiplying the quotient by 365/7.
For this purpose the net change in account value would reflect the value of
additional shares purchased with dividends declared on the original share and
dividends declared on both the original share and any such additional shares,
but would not reflect any realized gains or losses as a result of a Fund's
investment in a Portfolio or from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. The effective yield is
calculated similarly, but when annualized the income earned by the investment
during that seven-day period is assumed to be reinvested. The effective yield
is slightly higher than the yield because of the compounding effect of this
assumed reinvestment. Any effective yield quotation of a Fund so used shall be
calculated by compounding the current yield quotation for such period by
multiplying such quotation by 7/365, adding 1 to the product, raising the sum
to a power equal to 365/7, and subtracting 1 from the result.

<PAGE>

U.S. Treasury Reserves and each Tax Free Fund may provide tax
equivalent yield quotations. The tax equivalent yield refers to the yield that
a fully taxable money market fund would have to generate in order to produce an
after-tax yield equivalent to that of a Fund. The use of a tax equivalent yield
allows investors to compare the yield of the Fund, the dividends from which may
be exempt from federal or state personal income tax, with yields of funds the
dividends from which are not tax exempt. Any tax equivalent yield quotation of
a Fund is calculated as follows: If the entire current yield quotation for such
period is tax-exempt, the tax equivalent yield will be the current yield
quotation divided by 1 minus a stated income tax rate or rates. If a portion of
the current yield quotation is not tax-exempt, the tax equivalent yield will be
the sum of (a) that portion of the yield which is tax-exempt divided by 1 minus
a stated income tax rate or rates and (b) the portion of the yield which is not
tax-exempt. A Fund also may provide yield, effective yield and tax equivalent
yield quotations for longer periods.

Each Fund may provide its period and average annualized total rates of
return. The total rate of return refers to the change in the value of an
investment in a Fund over a stated period and is compounded to include the
value of any shares purchased with any dividends or capital gains declared
during such period. A total rate of return quotation for a Fund is calculated
for any period by (a) dividing (i) the sum of the net asset value per share on
the last day of the period and the net asset value per share on the last day of
the period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and
capital gains distributions, by (ii) the public offering price on the first day
of such period, and (b) subtracting 1 from the result. Period total rate of
return may be annualized. An annualized total rate of return assumes that the
period total rate of return is generated over a one-year period. Any annualized
total rate of return quotation is calculated by (x) adding 1 to the period
total rate of return quotation calculated above, (y) raising such sum to a
power which is equal to 365 divided by the number of days in such period, and
(z) subtracting 1 from the result.

U.S. Treasury Reserves and each Tax Free Fund may provide tax
equivalent total rates of return. The tax equivalent total rate of return
refers to the total rate of return that a fully taxable money market fund would
have to generate in order to produce an after-tax total rate of return
equivalent to that of a Fund. The use of a tax equivalent total rate of return
allows investors to compare the total rates of return of a Fund, the dividends
from which may be exempt from federal or state personal income taxes, with the
total rates of return of funds the dividends from which are not tax exempt. Any
tax equivalent total rate of return quotation of a Fund is calculated as
follows: If the entire current total rate of return quotation for such period
is tax-exempt, the tax equivalent total rate of return will be the current
total rate of return quotation divided by 1 minus a stated income tax rate or
rates. If a portion of the current total rate of return quotation is not
tax-exempt, the tax equivalent total rate of return will be the sum of (a) that
portion of the total rate of return which is tax-exempt divided by 1 minus a
stated income tax rate or rates and (b) the portion of the total rate of return
which is not tax-exempt.

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

<TABLE>
<CAPTION>
<S> <C> <C>
REDEEMABLE VALUE
ANNUALIZED OF A HYPOTHETICAL
TOTAL $1,000 INVESTMENT
PERIOD RATE OF RETURN AT THE END OF 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

<PAGE>

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

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

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

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

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

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

<TABLE>
<CAPTION>
<S> <C> <C>
COMPOUND
ANNUALIZED YIELD ANNUALIZED YIELD

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

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

<PAGE>

and federal tax bracket of 42.32% and (ii) that 77.43% of the Fund's assets
were invested in Connecticut Municipal Obligations); and New York Tax Free
Reserves 3.83% (assuming (i) a combined New York State, New York City and
federal tax bracket of 46.43% and (ii) that 79.45% of the Fund's assets were
invested in New York Municipal Obligations).

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

4. DETERMINATION OF NET ASSET VALUE

The net asset value of each share of each class of the Funds is
determined on each day on which the New York Stock Exchange is open for
trading. This determination is normally made once during each such day as of
3:00 p.m., Eastern time, for Cash Reserves and 12:00 noon, Eastern time, for
the other Funds. Net asset value is calculated for each class of a Fund by
dividing the value of the Fund's net assets (i.e., the value of its assets
attributable to a class, including its investment in its underlying Portfolio,
if any, less its liabilities, including expenses payable or accrued) by the
number of the shares of the class outstanding at the time the determination is
made. On days when the financial markets in which the Funds invest close early,
each Fund's net asset value is determined as of the close of these markets if
such time is earlier than the time at which the net asset value is normally
calculated. As of the date of this Statement of Additional Information, the
Exchange is open for trading every weekday except for the following holidays
(or the days on which they are observed): New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It is anticipated that the net asset
value of each share of each Fund will remain constant at $1.00 and, although no
assurance can be given that they will be able to do so on a continuing basis,
as described below, the Funds and Portfolios employ specific investment
policies and procedures to accomplish this result.

The value of a Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the corresponding Fund is determined. The net asset value of
a Fund's investment in the corresponding Portfolio is equal to the Fund's pro
rata share of the total investment of the Fund and of other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities.

The securities held by a Fund or Portfolio are valued at their
amortized cost. Amortized cost valuation involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any
discount or premium. If fluctuating interest rates cause the market value of
the securities held by the Fund or Portfolio to deviate more than 1/2 of 1%
from their value determined on the basis of amortized cost, the applicable
Trust's or Portfolio's Board of Trustees will consider whether any action
should be initiated, as described in the following paragraph. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the stated value of an instrument is higher or lower than the
price the Fund or Portfolio would receive if the instrument were sold.

Pursuant to the rules of the SEC, the Trusts' and the Portfolios'
Boards of Trustees have established procedures to stabilize the value of the
Funds' and Portfolios' net assets within 1/2 of 1% of the value determined on
the basis of amortized cost. These procedures include a review of the extent of
any such deviation of net asset value, based on available market rates. Should
that deviation exceed 1/2 of 1% for a Fund or Portfolio, the applicable Trust's
or Portfolio's Board of Trustees will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
investors in the Fund or Portfolio. Such action may include withdrawal in kind,
selling securities prior to maturity and utilizing a net asset value as
determined by using available market quotations. The Funds and Portfolios
maintain a dollar-weighted average maturity of 90 days or less, do not purchase
any instrument with a remaining maturity greater than 397 days or (in the case
of all Funds and Portfolios other than U.S. Treasury Reserves and U.S. Treasury
Reserves Portfolio which may not invest in repurchase agreements) subject to a
repurchase agreement having a duration of greater than 397 days, limit their
investments, including repurchase agreements, to those U.S. dollar-denominated
instruments that are determined by the Adviser to present minimal credit risks
and comply with certain reporting and recordkeeping procedures. The Trusts and
Portfolios also have established procedures to ensure that securities purchased
by the Funds and Portfolios meet high quality criteria. (See "Investment
Objectives, Policies and Restrictions -- Investment Policies.")

Because of the short-term maturities of the portfolio investments of
each Fund, the Funds do not expect to realize any material long-term capital
gains or losses. Any net realized short-term capital gains will be declared and

<PAGE>

distributed to the Funds' shareholders annually after the close of each Fund's
fiscal year. Distributions of short-term capital gains are taxable to
shareholders as described in "Certain Additional Tax Matters." Any realized
short-term capital losses will be offset against short-term capital gains or,
to the extent possible, utilized as capital loss carryover. Each Fund may
distribute short-term capital gains more frequently then annually, reduce
shares to reflect capital losses or make distributions of capital if necessary
in order to maintain the Fund's net asset value of $1.00 per share.

It is expected that each Fund (and each class of a Fund) will have a
positive net income at the time of each determination thereof. If for any
reason a Fund's or a class' net income is a negative amount, which could occur,
for instance, upon default by an issuer of a portfolio security, the Fund would
first offset the negative amount with respect to each shareholder account in
that Fund or class from the dividends declared during the month with respect to
those accounts. If and to the extent that negative net income exceeds declared
dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares of that Fund or class by treating each shareholder as
having contributed to the capital of the Fund that number of full and
fractional shares in the shareholder's account which represents the
shareholder's share of the amount of such excess. Each shareholder would be
deemed to have agreed to such contribution in these circumstances by investment
in the Fund.

5. MANAGEMENT

Each Fund and Portfolio is supervised by a Board of Trustees. In each
case, a majority of the Trustees are not affiliated with the Adviser. In
addition, a majority of the disinterested Trustees of Cash Reserves, U.S.
Treasury Reserves and Tax Free Reserves are different from a majority of the
disinterested Trustees of their corresponding Portfolios.

The Trustees and officers of the Trusts and the Portfolios, their ages
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
a Trust or a Portfolio. Unless otherwise indicated below, the address of each
Trustee and officer is 21 Milk Street, Boston, Massachusetts. The address of
Cash Reserves Portfolio is Elizabethan Square, George Town, Grand Cayman,
British West Indies. The address of U.S. Treasury Reserves Portfolio and Tax
Free Reserves Portfolio is 21 Milk Street, Boston, Massachusetts.

TRUSTEES OF CITIFUNDS TRUST III AND TAX FREE RESERVES

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

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

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

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

TRUSTEES OF CITIFUNDS MULTI-STATE TAX FREE TRUST

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

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

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

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

<PAGE>

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

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

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

TRUSTEES OF ThE PORTFOLIOS

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

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

OFFICERS OF THE TRUSTS AND PORTFOLIOS

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

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

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

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

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

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

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

The Trustees and officers of the Trusts and the Portfolios also hold comparable
positions with certain other funds for which CFBDS or an affiliate serves as
the distributor or administrator.

TRUSTEES COMPENSATION TABLE

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL
COMPENS-
AGGREGATE AGGREGATE AGGREGATE PENSION OR ATION FROM
AGGREGATE COMPENS- AGGREGATE COMPENS- AGGREGATE COMPENS- RETIREMENT THE TRUSTS
COMPENS- ATION FROM COMPENS- ATION FROM COMPENS- ATION FROM BENEFITS ESTIMATED AND FUND
ATION FROM U.S. ATION FROM CALIFORNIA ATION FROM NEW YORK ACCRUED AS ANNUAL COMPLEX
CASH TREASURY TAX FREE TAX FREE CONNECTICUT TAX FREE PART OF BENEFITS PAID TO
RESERVES RESERVES RESERVES RESERVES TAX FREE RESERVES FUND UPON TRUSTEES
TRUSTEE (1) (1) (1) (1) RESERVES (1) (1) EXPENSES RETIREMENT (1)(2)
----------------------------------------------------------------------------------------------------------------------------------

Elliott J. Berv......... N/A N/A N/A $1,313 $1,011 $4,242 None None $69,500
Philip W. Coolidge...... $0 $0 $0 $0 $0 $0 None None $0
Mark T. Finn............ N/A N/A N/A $2,472 $1,647 $8,788 None None $63,250
Riley C. Gilley......... N/A N/A N/A $1,121 $905 $3,480 None None $65,250
Diana R. Harrington..... N/A N/A N/A $1,904 $1,325 $6,479 None None $71,250
Susan B. Kerley......... N/A N/A N/A $1,853 $1,299 $6,292 None None $69,750
C. Oscar Morong, Jr..... $16,133 $3,303 $5,094 $2,506 $1,644 $8,763 None None $92,000
Walter E. Robb, III (3). $3,344 $1,299 $1,978 $1,175 $936 $3,706 None None $67,500
E. Kirby Warren......... $7,997 $2,225 $3,398 $1,498 $1,107 $4,925 None None $62,750
William S. Woods, Jr.(4) $3,588 $793 $1,211 $2,420 $1,609 $3,508 None None $66,000
</TABLE>

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

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

The Declaration of Trust of each of the Trusts and the Portfolios
provides that such Trust or Portfolio, as the case may be, will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
such Trust or Portfolio, as the case may be, unless, as to liability to such
Trust or Portfolio or its respective investors, it is finally adjudicated that
they engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to
any other matter it is finally adjudicated that they did not act in good faith
in the reasonable belief that their actions were in the best interests of such
Trust or Portfolio, as the case may be. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court
or other body approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees of such Trust or Portfolio, or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.

ADVISER

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

<PAGE>

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.

<PAGE>

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.

<PAGE>

DISTRIBUTOR

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

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

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

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

Each Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
applicable Trust's Trustees and a majority of the Trust's Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreement related to the Plan ("Qualified Trustees"). Each
Distribution Plan requires that the applicable Trust and the Distributor shall
provide to the Board of Trustees, and the Board of Trustees shall review, at
least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Distribution Plan. Each Distribution Plan further provides
that the selection and nomination of the Qualified Trustees is committed to the
discretion of the Qualified Trustees then in office who are not interested
Trustees of the Trust. Each Distribution Plan may be terminated with respect to
any Fund at any time by a vote of a majority of the applicable Trust's
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the applicable class. A Distribution Plan may not be amended to
increase materially the amount of a class' permitted expenses thereunder
without the approval of a majority of the outstanding voting securities of that
class, and may not be materially amended in any case without a vote of the
majority of both the Trustees and the Qualified Trustees. The Distributor will
preserve copies of any plan, agreement or report made pursuant to a
Distribution Plan for a period of not less than six years from the date of the
Plan, and for the first two years the Distributor will preserve such copies in
an easily accessible place.

As contemplated by each Distribution Plan, CFBDS acts as the agent of
the Funds in connection with the offering of shares of the Funds pursuant to a
Distribution Agreement (the "Distribution Agreement"). Under the Distribution
Agreements, CFBDS is obligated to use its best efforts to sell shares of each
class of each Fund. After the prospectus and periodic reports have been
prepared, set in type and mailed to existing shareholders, the Distributor pays
for the printing and distribution of copies of the prospectuses and periodic
reports which are used in connection with the offering of shares of the each of
the Funds to prospective investors. The Prospectus contains a description of
fees payable to the Distributor under the Distribution Agreements. During the
period they are in effect, each Distribution Plan and Distribution Agreement
obligates the applicable Funds to pay distribution fees to CFBDS as
compensation for its distribution activities, not as reimbursement for specific
expenses incurred. Thus, even if CFBDS's expenses exceed its distribution fees
for any Fund, the Fund will not be obligated to pay more than those fees and,
if CFBDS's expenses are less than such fees, it will retain its full fees and
realize a profit. Each Fund will pay distribution fees to CFBDS until either
its applicable Distribution Plan or Distribution Agreement is terminated or not
renewed. In that event, CFBDS's expenses in excess of distribution fees
received or accrued through the termination date will be CFBDS's sole
responsibility and not obligations of the Fund. The Distributor has voluntarily
agreed to waive a portion of the fees payable to it by Connecticut Tax Free
Reserves and New York Tax Free Reserves on a month-to-month basis.

Fees paid under the Distribution Plans with respect to Cititrade shares
may be used to make payments to the Distributor for distribution services, to a
broker-dealer or financial institution that has entered into a service
agreement with the Distributor concerning the Funds, or others in respect of

<PAGE>

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

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

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

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

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

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

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

CODE OF ETHICS

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

SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN

The Trusts have each adopted an Administrative Services Plan
("Administrative Plan") relating to each class of the Funds other than the
Cititrade class which provides that the applicable Trust may obtain the
services of an administrator, a transfer agent, a custodian, a fund accountant
and one or more Shareholder Servicing Agents, and may enter into agreements
providing for the payment of fees for such services. Under the Administrative
Services Plans, the total of the fees paid to each Administrator and
Shareholder Servicing Agent and the distribution fee paid to the Distributor
(other than any fee concerning electronic or other media advertising) may not
exceed 0.70% of the average daily net assets attributable to Class N shares of
Cash Reserves and U.S. Treasury Reserves or 0.60% of the average daily net
assets attributable to Class N shares of a Tax Free Fund, in each case on an
annualized basis for the Fund's then-current fiscal year; and such fees with
respect to the Class A shares of Cash Reserves, excluding any distribution or
service fees, may not exceed 0.70% of the Fund's average daily net assets
attributable to that class on an annualized basis for the Fund's then-current

<PAGE>

fiscal year. Within this overall limitation, individual fees may vary. Each
Administrative Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the applicable
Trust's Trustees and a majority of the Trust's Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Administrative Plan or in any agreement related to such
Plan ("Qualified Trustees"). Each Administrative Plan requires that at least
quarterly the applicable Trust provide to its Board of Trustees and the Board
of Trustees review a written report of the amounts expended (and the purposes
therefor) under the Administrative Plan. Each Administrative Plan may be
terminated with respect to a Fund or a class at any time by a vote of a
majority of the applicable Trust's Qualified Trustees or by a vote of a
majority of the outstanding voting securities of the Fund or the class, as the
case may be. An Administrative Plan may not be amended to increase materially
the amount of a Fund's or a class' permitted expenses thereunder without the
approval of a majority of the outstanding voting securities of the Fund or the
class, as the case may be, and may not be materially amended in any case
without a vote of the majority of both the applicable Trust's Trustees and
Qualified Trustees.

Each Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") with each Shareholder Servicing Agent pursuant to which
that Shareholder Servicing Agent provides shareholder services, including
answering customer inquiries, assisting in processing purchase, exchange and
redemption transactions and furnishing Fund communications to shareholders. For
services provided under each Servicing Agreement, each Shareholder Servicing
Agent receives fees from each class of the Funds other than the Cititrade class
at an annual rate of 0.25% of the average daily net assets of the Fund
attributable to that class represented by shares owned by investors for whom
such Shareholder Servicing Agent maintains a servicing relationship. Some
Shareholder Servicing Agents may impose certain conditions on their customers
in addition to or different from those imposed by the Funds, such as requiring
a minimum initial investment or charging their customers a direct fee for their
services. Each Shareholder Servicing Agent has agreed to transmit to its
customers who are shareholders of a Fund appropriate prior written disclosure
of any fees that it may charge them directly and to provide written notice at
least 30 days prior to imposition of any transaction fees. For the fiscal years
ended August 31, 1997, 1998 and 1999, aggregate fees paid to Shareholder
Servicing Agents under the Servicing Agreements, after waivers, were as
follows: Cash Reserves Class N $4,065,240, $5,026,036 and $6,231,978,
respectively; U.S. Treasury Reserves Class N $848,485, $797,572 and $816,578,
respectively; Tax Free Reserves Class N $1,008,233, $1,194,360 and $1,291,979,
respectively; California Tax Free Reserves Class N $459,224, $619,577 and
$769,975, respectively; Connecticut Tax Free Reserves Class N $77,265, $377,316
and $410,689, respectively; and New York Tax Free Reserves Class N $2,405,573,
$2,634,965 and $2,937,943, respectively. For the period from January 4, 1999
(commencement of operations) to August 31, 1999, Cash Reserves Class A paid
$8,629 to the Shareholder Servicing Agents.

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

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

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

The Portfolios also have adopted Administrative Services Plans (the
"Portfolio Administrative Plans") which provide that the Portfolios may obtain
the services of an administrator, a transfer agent, a custodian and a fund
accountant, and may enter into agreements providing for the payment of fees for
such services. Under the Portfolio Administrative Plans, the administrative
services fee payable to either CFBDS or SFG, as the case may be, may not exceed
0.05% of a Portfolio's average daily net assets on an annualized basis for its
then-current fiscal year. Each Portfolio Administrative Plan continues in
effect if such continuance is specifically approved at least annually by a vote
of both a majority of the applicable Portfolio's Trustees and a majority of the
Portfolio's Trustees who are not "interested persons" of the Portfolio and who

<PAGE>

have no direct or indirect financial interest in the operation of the Portfolio
Administrative Plan or in any agreement related to such Plan ("Qualified
Trustees"). Each Portfolio Administrative Plan requires that the applicable
Portfolio provide to its Board of Trustees and the Board of Trustees review, at
least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Portfolio Administrative Plan. Each Portfolio
Administrative Plan may be terminated at any time by a vote of a majority of
the Portfolio's Qualified Trustees or by a vote of a majority of the
outstanding voting securities of the applicable Portfolio. Neither Portfolio
Administrative Plan may be amended to increase materially the amount of
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the applicable Portfolio and may not be
materially amended in any case without a vote of the majority of both the
Portfolio's Trustees and the Portfolio's Qualified Trustees.

6. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE OF SHARES

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

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

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

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

CLASS N SHARES

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

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

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

CITITRADE SHARES

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

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

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

<PAGE>

CLASS A SHARES OF CASH RESERVES

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

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

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

EXCHANGES

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

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

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

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

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

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

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

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

ADDITIONAL PURCHASE AND SALE INFORMATION

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

During periods of drastic economic or market changes or severe weather
or other emergencies, shareholders may experience difficulties implementing a
telephone or Internet exchange or redemption. In such an event, another method
of instruction, if available, such as a written request sent via an overnight
delivery service, in the case of Class A or Class N shares, should be
considered. The Funds, each Shareholder Servicing Agent, and the Cititrade
Program will employ reasonable procedures to confirm that instructions

<PAGE>

communicated by telephone or Internet are genuine. These procedures may include
recording of the telephone or Internet instructions and verification of a
shareholder's identity by asking for the shareholder's name, address, telephone
number, Social Security number, account number, or password identification
number. If these or other reasonable procedures are not followed, the Fund, the
Shareholder Servicing Agent, or the Cititrade Program may be liable for any
losses to a shareholder due to unauthorized or fraudulent instructions.
Otherwise, the shareholders will bear all risk of loss relating to a redemption
or exchange by telephone or Internet.

Subject to compliance with applicable regulations, the Trust and the
Portfolios have each reserved the right to pay the redemption price of shares
of the Funds or beneficial interests in the Portfolios, either totally or
partially, by a distribution in kind of securities (instead of cash). The
securities so distributed would be valued at the same amount as that assigned
to them in calculating the net asset value for the shares or beneficial
interests being sold. If a holder of shares or beneficial interests received a
distribution in kind, such holder could incur brokerage or other charges in
converting the securities to cash.

The Trusts and the Portfolios may suspend the right of redemption or
postpone the date of payment for shares of a Fund or beneficial interests in a
Portfolio more than seven days during any period when (a) trading in the
markets the Fund or Portfolio normally utilizes is restricted, or an emergency,
as defined by the rules and regulations of the SEC, exists making disposal of
the Fund's or Portfolio's investments or determination of its net asset value
not reasonably practicable; (b) the New York Stock Exchange is closed (other
than customary weekend and holiday closings); or (c) the SEC has by order
permitted such suspension.

7. DEALER COMMISSIONS AND CONCESSIONS

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

8. PORTFOLIO TRANSACTIONS

The Portfolios' and CitiFunds Multi-State Tax Free Trust's purchases
and sales of portfolio securities usually are principal transactions. Portfolio
securities normally are purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases. The Portfolios and CitiFunds Multi-State
Tax Free Trust do not anticipate paying brokerage commissions. Any transaction
for which a Portfolio or a Fund pays a brokerage commission will be effected at
the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include
the spread between the bid and asked price.

Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner
deemed to be in the best interest of investors in the applicable Portfolio or
Fund rather than by any formula. The primary consideration is prompt execution
of orders in an effective manner at the most favorable price.

Investment decisions for each Portfolio and for CitiFunds Multi-State
Tax Free Trust will be made independently from those for any other account,
series or investment company that is or may in the future become managed by the
Adviser or its affiliates. If, however, a Portfolio or Fund and other
investment companies, series or accounts managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by the Portfolio or Fund or the size of the position obtainable for
the Portfolio or Fund. In addition, when purchases or sales of the same
security for a Portfolio or Fund and for other investment companies or series
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.

Portfolio transactions may be executed with the Adviser, or with any
affiliate of the Adviser, acting either as principal or as broker, subject to
applicable law. No commissions on portfolio transactions were paid by any
Portfolio or by CitiFunds Multi-State Tax Free Trust during the fiscal year
ended August 31, 1999 to the Adviser or any affiliate of the Adviser.

<PAGE>

9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES

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

Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of a Trust may elect all of the Trustees of that Trust if
they choose to do so and in such event the other shareholders in the Trust
would not be able to elect any Trustee. The Trusts are not required and have no
current intention to hold annual meetings of shareholders, but the Trusts will
hold special meetings of a Fund's shareholders when in the judgment of the
Trust's Trustees it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees. Shareholders also have the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. No material amendment may be made to a
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of its outstanding shares.

Each Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Trust or of any series of the Trust, a Shareholder
Servicing Agent may vote any shares of which it is the holder of record and for
which it does not receive voting instructions proportionately in accordance
with the instructions it receives for all other shares of which it is the
holder of record. Shares have no preference, pre-emptive, conversion or similar
rights. Shares, when issued, are fully paid and non-assessable, except as set
forth below.

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

Share certificates will not be issued.

Each Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, each Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
applicable Trust and provides for indemnification and reimbursement of expenses
out of Trust property for any shareholder held personally liable for the
obligations of the Trust. Each Declaration of Trust also provides that the
applicable Trust shall maintain appropriate insurance (e.g., fidelity bonding
and errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the applicable Trust itself was unable to meet
its obligations.

Each Trust's Declaration of Trust further provides that obligations of
the Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action
or failure to act, but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office.

<PAGE>

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

<PAGE>

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

<PAGE>

period ended August 31, 1999, Notes to Financial Statements and Independent
Auditors' Report), which are included in the Annual Report to Shareholders of
California Tax Free Reserves, are incorporated by reference into this Statement
of Additional Information and have been so incorporated in reliance upon the
report of Deloitte & Touche LLP, independent accountants, as experts in
accounting and auditing.

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

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

A copy of each of the Annual Reports accompanies this Statement of
Additional Information.

<PAGE>

APPENDIX A

RATINGS OF MUNICIPAL OBLIGATIONS*

The ratings of Moody's Investors Service, Inc., Standard & Poor's
Ratings Group and Fitch IBCA, Inc. represent their opinions as to the quality
of various debt obligations. It should be emphasized, however, that ratings are
not absolute standards of quality. Consequently, Municipal Obligations with the
same maturity, coupon and rating may have different yields while Municipal
Obligations of the same maturity and coupon with different ratings may have the
same yield.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S THREE HIGHEST LONG-TERM DEBT
RATINGS:

Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

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

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

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

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST RATINGS OF STATE
AND MUNICIPAL NOTES:

Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade ("MIG"). Issues or the features associated
with MIG or VMIG ratings are identified by date of issue, date of maturity or
maturities or rating expiration date and description to distinguish each rating
from other ratings. Each rating designation is unique with no implication as to
any other similar issue of the same obligor. MIG ratings terminate at the
retirement of the obligation while VMIG rating expiration will be a function of
each issue's specific structural or credit features.

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

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

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.

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

<PAGE>

Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO HIGHEST LONG-TERM DEBT
RATINGS:

AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitments on
the obligation is extremely strong.

AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial obligations
is very strong.

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

Plus (+) or Minus (-): The AA and A ratings may be modified by the
addition of a plus or minus sign to show relative standing within the
applicable rating category.

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO HIGHEST RATINGS OF STATE
AND MUNICIPAL NOTES:

A Standard & Poor's note rating reflects the liquidity factors and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment:

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

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

Note rating symbols and definitions are as follows:

SP-1 -- Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt service is
given a plus (+) designation.

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

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

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

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

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

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

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

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

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

When assigning ratings, Fitch IBCA considers the historical and
prospective financial condition, quality of management, and the operating
performance of the issuer and of any guarantor, any special features of a
specific issue or guarantee, the issue's relationship to other obligations of
the issuer, as well as developments in the economic and political environment
that might affect the issuer's financial strength and credit quality.

Variable rate demand obligations and other securities which contain a
demand feature will have a dual rating, such as "AAA/ F1+". The first rating
denotes long-term ability to make principal and interest payments. The second
rating denotes ability to meet a demand feature in full and on time.

AAA -- Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.

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

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

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

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

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

F2 -- Good Credit Quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.

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APPENDIX B

ADDITIONAL INFORMATION CONCERNING

CALIFORNIA MUNICIPAL OBLIGATIONS

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

RECENT DEVELOPMENTS

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

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

CONSTITUTIONAL LIMITS ON SPENDING AND TAXES

STATE APPROPRIATIONS LIMIT

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

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

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

The State's Appropriations Limit in each year is based on the limit for
the prior year, adjusted annually for changes in State per capita personal

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

PROPOSITION 98

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

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

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

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

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

<PAGE>

SOURCES OF TAX REVENUE

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

PERSONAL INCOME TAX

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

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

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

SALES TAX

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

BANK AND CORPORATION TAX

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

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

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

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

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

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

INSURANCE TAX

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

OTHER TAXES

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

<PAGE>

SPECIAL FUND REVENUES

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

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

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

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

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

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

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

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

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

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

TOBACCO LITIGATION

In late 1998, the State signed a settlement agreement with the four
major cigarette manufacturers. The State agreed to drop its lawsuit and not to
sue in the future. Tobacco manufacturers agreed to billions of dollars in
payments and restrictions in marketing activities. Under the settlement, the
companies will pay California governments a total of approximately $25 billion

<PAGE>

over a period of 25 years. In addition, payments of approximately $1 billion
per year will continue in perpetuity. Under the settlement, half of the moneys
will be paid to the State and half to local governments (all counties and the
cities of San Diego, Los Angeles, San Francisco and San Jose). The State's
revised 1999-2000 Budget includes receipt of $517 million of settlement money
to the General Fund. The Governor's Budget for 2000-01 projects receipt of $388
million of settlement money to the General Fund.

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

PRIOR YEARS' FINANCIAL RESULTS

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

CURRENT STATE BUDGET

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

1999-00 FISCAl YEAR BUDGET

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

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

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

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

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

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

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

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

5. The Legislature enacted a one-year additional reduction of 10
percent of the VLF for calendar year 2000, at a General Fund cost of

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

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

ADDITIONAL CONSIDERATIONS

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

YEAR 2000

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

LITIGATION

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

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

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

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

The State is involved in a lawsuit, Thomas Hayes v. Commission on State
Mandates, related to State-mandated costs. The action involves an appeal by the
Director of Finance from a 1984 decision by the State Board of Control (now
succeeded by the Commission on State Mandates ("Commission")). The Board of
Control decided in favor of local school districts' claims for reimbursement
for special education programs for handicapped students. The case was then

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brought to the trial court by the State and later remanded to the Commission
for redetermination. The Commission has since expanded the claim to include
supplemental claims filed by seven other educational institutions. To date, the
Legislature has not appropriated funds. The Commission issued a decision in
December 1998 determining that a small number of components of the State's
special education program are state mandated local costs. The administrative
proceeding is in the "parameters and guidelines" stage where the Commission is
considering whether and to what extent the costs associated with the state
mandated components of the special education program are offset by funds that
the State already allocates to that program. The State's position is that all
costs are offset by existing funding. The State has the option to seek judicial
review of the mandate findings. Potential liability of the State, if all
potentially eligible school districts pursue timely claims, has been estimated
by the Department of Finance to be in excess of $1.5 billion, if the State is
not credited for its existing funding of the program.

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

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

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

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

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

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

The State is involved in two refund actions, Cigarettes Cheaper!, et al
v. Board of Equalization, et al. and California Assn. Of Retail Tobacconists
(CART) et al v. Board of Equalization, et al., that challenge the
constitutionality of Proposition 10, approved by the voters in 1998. Plaintiffs
allege that Proposition 10, which increases the excise tax on tobacco products,
violates 11 sections of the California Constitution and related provisions of

<PAGE>

law. Plaintiffs Cigarettes Cheaper! seek declaratory and injunctive relief and
a refund over $4 million. The CART case filed by retail tobacconists in San
Diego seeks a refund of $5million. The State is vigorously contesting these
cases. If the statute is declared unconstitutional, exposure may include the
entire $750 million collected annually with interest.

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

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

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

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

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

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

Arnett v. California Public Employees Retirement System, et. al. was
filed by seven former employees of the State of California and local agencies,
seeking back wages, damages and injunctive relief. Plaintiffs are former public

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

<PAGE>

APPENDIX C

ADDITIONAL INFORMATION CONCERNING

CONNECTICUT MUNICIPAL OBLIGATIONS

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

CERTAIN ECONOMIC CONSIDERATIONS

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

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

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

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

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

FISCAL CONDITION IN RECENT YEARS

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

The adopted budget for 1998-99 anticipated General Fund revenues of
$9,992.0 million and General Fund expenditures of $9,972.1 million, resulting
in a projected surplus of $19.9 million. The adopted budget for the 1999-2000
fiscal year anticipated General Fund revenues of $10,646.0 million and General
Fund expenditures of $10,581.6 million resulting in a projected surplus of
$64.4 million. By statute, the State's fiscal position is reported monthly by

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

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

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

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

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

The Sales Tax is imposed, subject to certain limitations, on the gross
receipts from certain transactions within the State of persons engaged in
business in the State, including (a) sales at retail of tangible personal
property, (b) the rendering of certain services, (c) the leasing or rental of
tangible personal property, (d) the producing, fabricating, processing,
printing, or imprinting of tangible personal property to special order or with
materials furnished by the consumer, (e) the furnishing, preparing or serving
of food, meals, or drinks, and (f) the transfer of occupancy of hotel or

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lodging house rooms for a period not exceeding thirty consecutive calendar
days. The Use Tax is imposed on the consideration paid for certain services or
purchases or rentals of tangible personal property used within the State
pursuant to a transaction not subject to the Sales Tax. A separate rate of 12%
is charged on the occupancy of hotel rooms. The tax rate for the Sales and Use
Taxes is six percent. Various exemptions from the Sales and Use Taxes are
provided, based on the nature, use or price of the property or services
involved or the identity of the purchaser. Tax returns and accompanying
payments with respect to revenues from these taxes are generally due monthly on
or before the last day of the month next succeeding the taxable month.

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

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

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

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

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

By statute, no bonds, notes or other evidences of indebtedness for
borrowed money payable from General Fund tax receipts of the State shall be
authorized by the General Assembly except as shall not cause the aggregate
amount of (1) the total amount of bonds, notes or other evidences of
indebtedness payable from General Fund tax receipts authorized by the General
Assembly but which have not been issued and (2) the total amount of such
indebtedness which has been issued and remains outstanding, to exceed 1.6 times

<PAGE>

the total estimated General Fund tax receipts of the State for the fiscal year
in which any such authorization will become effective or in which such
indebtedness is issued, as estimated for such fiscal year by the joint standing
committee of the General Assembly having cognizance of finance, revenue and
bonding. As a result, the State had a debt incurring margin as of January 1,
2000 of $2,441,000,792.

ADDITIONAL CONSIDERATIONS

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

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

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

YEAR 2000

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

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

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

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

RECENT RATINGS OF CERTAIN GENERAL OBLIGATION BONDS

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

<PAGE>

LITIGATION

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

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

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

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

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

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

PTI, Inc. v. Philip Morris et al. was filed in the Federal Court for
the Central District of California in 1999 against the State of Connecticut and
the Attorney General in his official and individual capacities. The plaintiffs
reimport and distribute cigarettes that have previously been sold by their

<PAGE>

manufacturers to foreign markets. The plaintiffs challenge certain provisions
of the 1998 Master Settlement Agreement (MSA) entered into by virtually all
states and territories to resolve litigation by the respective states against
the major domestic tobacco companies. The plaintiffs further challenge certain
state statutes, including those banning the sale of re-imported cigarettes,
so-called Non Participating Manufacturer statutes, that would decrease the
price advantage that re-imported cigarettes enjoy over other cigarettes. The
plaintiffs claim that various provisions of the MSA and these state statutes
violate the federal constitution, antitrust and civil rights laws. The
plaintiffs seek declaratory and injunctive relief, compensatory, special and
punitive damages, plus attorneys fees and costs.

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

<PAGE>

APPENDIX D

ADDITIONAL INFORMATION CONCERNING

NEW YORK MUNICIPAL OBLIGATIONS

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

NEW YORK STATE

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

CURRENT ECONOMIC OUTLOOK

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

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

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

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

1998-99 FISCAL YEAR

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

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

The closing fund balance excludes $2.31 billion that the State
deposited into the tax refund reserve account at the close of 1998-99 to pay
for tax refunds in 1999-2000 of which $521 million was made available as a
result of the Local Government Assistance Corporation (LGAC) financing program

<PAGE>

and was required to be on deposit as of March 31, 1999. The tax refund reserve
account transaction has the effect of decreasing reported personal income tax
receipts in 1998-99, while increasing reported receipts in 1999-2000.

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

1997-98 FISCAL YEAR

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

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

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

1996-97 FISCAL YEAR

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

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

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

PUBLIC AUTHORITIES

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

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

<PAGE>

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

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

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

METROPOLITAN TRANSPORTATION AUTHORITY

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

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

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

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

LOCALITIES
THE CITY OF NEW YORK

The fiscal health of the State may also be affected by the fiscal
health of New York City (the "City"), which continues to require significant

<PAGE>

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

FISCAL OVERSIGHT

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

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

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

MONITORING AGENCIES

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

<PAGE>

OTHER LOCALITIES

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

The State has provided extraordinary financial assistance to select
municipalities, primarily cities, since the 1996-97 fiscal year. Funding has
essentially been continued or increased in each subsequent fiscal year. Such
funding in 1999-2000 totals $113.9 million. In 1997-98, the State increased
General Purpose State Aid for local governments by $27 million to $550 million,
and has continued funding at this new level since that date.

While the distribution of General Purpose State Aid for local
governments was originally based on a statutory formula, in recent years both
the total amount appropriated and the shares appropriated to specific
localities have been determined by the Legislature. A State commission
established to study the distribution and amounts of general purpose local
government aid failed to agree on any recommendations for a new formula.

Counties, cities, towns, villages and school districts have engaged in
substantial short-term and long-term borrowings. In 1997, the total
indebtedness of all localities in the State, other than New York City, was
approximately $21.0 billion. A small portion (approximately $80 million) of
that indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to enabling State legislation. State law requires the
Comptroller to review and make recommendations concerning the budgets of those
local government units (other than New York City) authorized by State law to
issue debt to finance deficits during the period that such deficit financing is
outstanding. Twenty-two localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1997.

Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs, which in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-
scale potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.

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

YEAR 2000 COMPLIANCE

To date, the State has experienced no significant Year 2000 computer
disruptions. Monitoring will continue over the next few months to identify and
correct any problems that may arise. However, there can be no assurance that
outside parties who provide goods and services to the State will not experience
computer problems related to Year 2000 programming in the future, or that such
disruptions, if they occur, will not have an adverse impact on State operations
or finances.

LITIGATION
GENERAL

The legal proceedings noted below involve State finances, and programs
and miscellaneous civil rights, real property, contract and other tort claims
in which the State is a defendant and the potential monetary claims against the
State are substantial, generally in excess of $100 million. These proceedings
could adversely affect the financial condition of the State in the 1999-2000
fiscal year or thereafter.

Adverse developments in these proceedings, other proceedings for which
there are unanticipated, unfavorable and material judgments, or the initiation
of new proceedings could affect the ability of the State to maintain a balanced

<PAGE>

1999-2000 Financial Plan. The State believes that the 1999-2000 Financial Plan
includes sufficient reserves to offset the costs associated with the payment of
judgments that may be required during the 1999-2000 fiscal year. These reserves
include (but are not limited to) amounts, appropriated for court of claims
payments and projected fund balances in the General Fund. In addition, any
amounts ultimately required to be paid by the State may be subject to
settlement or may be paid over a multi-year period. There can be no assurance,
however, that adverse decisions in legal proceedings against the State would
not exceed the amount of all potential 1999-2000 Financial Plan resources
available for the payment of judgments and, could therefore, affect the ability
of the State to maintain a balanced 1999-2000 Financial Plan. In its General
Purpose Financial Statements, the State reports its estimated liability for
awarded and anticipated unfavorable judgments.

STATE FINANCE POLICIES
TAX LAW

In New York Association of Convenience Stores et al. v. Urbach, et al.,
petitioners New York Association of Convenience Stores, National Association of
Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek Stores, Inc. are
seeking to compel respondents, the Commissioner of Taxation and Finance and the
Department of Taxation and Finance, to enforce sales and excise taxes pursuant
to Tax Law Articles 12-A, 20 and 28 on tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations. In orders dated August 13, 1996
and August 24, 1996, the Supreme Court, Albany County, ordered, inter alia,
that there be equal implementation and enforcement of said taxes for sales to
non-Indian consumers on and off Indian reservations, and further ordered that,
if respondents failed to comply within 120 days, no tobacco products or motor
fuel could be introduced onto Indian reservations other than for Indian
consumption or, alternatively, the collection and enforcement of such taxes
would be suspended statewide. Respondents appealed to the Appellate Division,
Third Department and invoked CPLR 5519(a)(1), which provides that the taking of
the appeal stayed all proceedings to enforce the orders pending the appeal.
Petitioner's motion to vacate the stay was denied. In a decision entered May 8,
1997, the Third Department modified the orders by deleting the portion thereof
that provided for the statewide suspension of the enforcement and collection of
the sales and excise taxes on motor fuel and tobacco products. The Third
Department held, inter alia, that petitioners had not sought such relief in
their petition and that it was an error for the Supreme Court to have awarded
such undemanded relief without adequate notice of its intent to do so. On May
22, 1997, respondents appealed to the Court of Appeals on other grounds, and
again invoked the statutory stay. On October 23, 1997, the Court of Appeals
granted petitioners' motion for leave to cross-appeal from the portion of the
Third Department's decision that deleted the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco. On July 9, 1998, the New York Court of Appeals reversed the order of
the Appellate Division, Third Department, and remanded the matter to the
Supreme Court, Albany County, for further proceedings. The Court held that the
petitioners had standing to assert an equal protection claim, but that their
claim did not implicate racial discrimination. The Court remanded the case to
Supreme Court, Albany County, for resolution of the question of whether there
was a rational basis for the Tax Department's policy of non-enforcement of the
sales and excise taxes on reservation sales of cigarettes and motor fuel to
non-Indians. In a footnote, the Court stated that, in view of its disposition
of the case, petitioners' cross-appeal regarding the statewide suspension of
the taxes is "academic." By decision and judgment dated July 9, 1999, the
Supreme Court, Albany County, granted judgment dismissing the petition. On
September 2, 1999, petitioners appealed to the Appellate Division, Third
Department, from the July 9, 1999 decision and order.

LINE ITEM VETO

In an action commenced in June 1998 by the Speaker of the Assembly of
the State of New York against the Governor of the State of New York (Silver v.
Pataki, Supreme Court, New York County), the Speaker challenges the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills adopted by the State Legislature contained in Chapters 56, 57
and 58 of the Laws of 1998. On July 10, 1998, the State filed a motion to
dismiss this action. By order entered January 7, 1999, the Court denied the
State's motion to dismiss. On January 27, 1999, the State appealed that order.
On September 9, 1999, the Appellate Division, Third Department, heard the
appeal.

STATE PROGRAMS
MEDICAID

Several cases challenge provisions of Chapter 81 of the Laws of 1995
which alter the nursing home Medicaid reimbursement methodology on and after
April 1, 1995. Included are New York State Health Facilities Association, et
al. v. DeBuono, et al., St. Luke's Nursing Center, et al. v. DeBuono, et al.,
New York Association of Homes and Services for the Aging v. DeBuono et al.
(three cases), Healthcare Association of New York State v. DeBuono and Bayberry
Nursing Home et al. v. Pataki, et al. Plaintiffs allege that the changes in
methodology have been adopted in violation of procedural and substantive
requirements of State and federal law.

In a consolidated action commenced in 1992, Medicaid recipients and
home health care providers and organizations challenge promulgation by the

<PAGE>

State Department of Social Services ("DSS") in June 1992 of a home assessment
resource review instrument ("HARRI"), which is to be used by DSS to determine
eligibility for and the nature of home care services for Medicaid recipients,
and challenge the policy of DSS of limiting reimbursable hours of service until
a patient is assessed using the HARRI (Dowd, et al. v. Bane, Supreme Court, New
York County). In a related case, Rodriguez v. DeBuono, on April 19, 1999, the
United States District Court for the Southern District of New York enjoined the
State's use of task based assessment, which is similar to the HARRI, unless the
State assesses safety monitoring as a separate task based assessment, on the
grounds that its use without such additional assessment violated federal
Medicaid law and the Americans with Disabilities Act. The State appealed from
the April 19, 1999 order and on July 12, 1999 argued the appeal before the
Second Circuit. By order dated October 6, 1999, the Second Circuit reversed the
April 19, 1999 order and vacated the injunction. On October 20, 1999,
petitioners filed a request for rehearing en banc.

In several cases, plaintiffs seek retroactive claims for reimbursement
for services provided to Medicaid recipients who were also eligible for
Medicare during the period January 1, 1987 to June 2, 1992. Included are Matter
of New York State Radiological Society v. Wing, Appel v. Wing, E.F.S. Medical
Supplies v. Dowling, Kellogg v. Wing, Lifshitz v. Wing, New York State
Podiatric Medical Association v. Wing and New York State Psychiatric
Association v. Wing. These cases were commenced after the State's reimbursement
methodology was held invalid in New York City Health and Hospital Corp. v.
Perales. The State contends that these claims are time-barred. In a judgment
dated September 5, 1996, the Supreme Court, Albany County, dismissed Matter of
New York State Radiological Society v. Wing as time-barred. By order dated
November 26, 1997, the Appellate Division, Third Department, affirmed that
judgment. By decision dated June 9, 1998, the Court of Appeals denied leave to
appeal. In a decision entered December 15, 1998, the Appellate Division, First
Department, dismissed the remaining cases in accordance with the result in
Matter of New York State Radiological Society v. Wing. By decision dated July
8, 1999, the Court of Appeals denied leave to appeal.

Several cases, including Port Jefferson Health Care Facility, et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionality of Public
Health Law ss.2807-d, which imposes a tax on the gross receipts hospitals and
residential health care facilities receive from all patient care services.
Plaintiffs allege that the tax assessments were not uniformly applied, in
violation of federal regulations. In a decision dated June 30, 1997, the Court
held that the 1.2 percent and 3.8 percent assessments on gross receipts imposed
pursuant to Public Health Law ss.ss. 2807-d(2)(b)(ii) and 2807-d(2)(b)(iii),
respectively, are unconstitutional. An order entered August 27, 1997, enforced
the terms of the decision. The State appealed that order. By decision and order
dated August 31, 1998, the Appellate Division, Second Department, affirmed that
order. On September 30, 1998, the State moved for re-argument or, in the
alternative, for a certified question for the Court of Appeals to review. By
order dated January 7, 1999, the motion was denied. A final order was entered
in Supreme Court on January 26, 1999. On February 23, 1999, the State appealed
that order to the Court of Appeals. In a decision entered December 16, 1999,
the Court of Appeals reversed the decision below and upheld the
constitutionality of the assessments.

In Dental Society, et al. v. Pataki, et al. (United States District
Court, Northern District of New York, commenced February 2, 1999), plaintiffs
challenge the State's reimbursement rates for dental care provided under the
State's dental Medicaid program. Plaintiffs claim that the State's Medicaid fee
schedule violates Title XIX of the Social Security Act (42 U.S.C. ss. 1396a et
seq.) and the federal and State Constitutions. On June 25, 1999, the State
filed its answer.

SHELTER ALLOWANCE

In an action commenced in March 1987 against State and New York City
officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New York County),
plaintiffs allege that the shelter allowance granted to recipients of public
assistance is not adequate for proper housing.

In a decision dated April 16, 1997, the Court held that the shelter
allowance promulgated by the Legislature and enforced through DSS regulations
is not reasonably related to the cost of rental housing in New York City and
results in homelessness to families in New York City. A judgment was entered on
July 25, 1997, directing, inter alia, that the State (i) submit a proposed
schedule of shelter allowances (for the Aid to Dependent Children program and
any successor program) that bears a reasonable relation to the cost of housing
in New York City; and (ii) compel the New York City Department of Social
Services to pay plaintiffs a monthly shelter allowance in the full amount of
their contract rents, provided they continue to meet the eligibility
requirements for public assistance, until such time as a lawful shelter
allowance is implemented, and provide interim relief to other eligible
recipients of Aid to Dependent Children under the interim relief system
established in this case. The State appealed to the Appellate Division, First
Department, from each and every provision of this judgment except that portion
directing the continued provision of interim relief. By decision and order
dated May 6, 1999, the Appellate Division, First Department, affirmed the July
25, 1997 judgment. By order dated July 8, 1999, the Appellate Division denied
the State's motion for leave to appeal to the Court of Appeals from the May 6,
1999 decision and order. By order dated October 14, 1999, the Court of Appeals
dismissed the State's leave to appeal.

<PAGE>

CIVIL RIGHTS CLAIMS

In an action commenced in 1980 (United States, et al. v. Yonkers Board
of Education, et al.), the United States District Court for the Southern
District of New York found, in 1985, that Yonkers and its public schools were
intentionally segregated. In 1986, the District Court ordered Yonkers to
develop and comply with a remedial educational improvement plan ("EIP I"). On
January 19, 1989, the District Court granted motions by Yonkers and the NAACP
to add the State Education Department, the Yonkers Board of Education, and the
State Urban Development Corporation as defendants, based on allegations that
they had participated in the perpetuation of the segregated school system. On
August 30, 1993, the District Court found that vestiges of a dual school system
continued to exist in Yonkers. On March 27, 1995, the District Court made
factual findings regarding the role of the State and the other State defendants
(the "State") in connection with the creation and maintenance of the dual
school system, but found no legal basis for imposing liability. On September 3,
1996, the United States Court of Appeals for the Second Circuit, based on the
District Court's factual findings, held the State defendants liable under 42
USC ss.1983 and the Equal Educational Opportunity Act, 20 USC ss.ss.1701, et
seq., for the unlawful dual school system, because the State, inter alia, had
taken no action to force the school district to desegregate despite its actual
or constructive knowledge of de jure segregation. By order dated October 8,
1997, the District Court held that vestiges of the prior segregated school
system continued to exist and that, based on the State's conduct in creating
and maintaining that system, the State is liable for eliminating segregation
and its vestiges in Yonkers and must fund a remedy to accomplish that goal.
Yonkers presented a proposed educational improvement plan ("EIP II") to
eradicate these vestiges of segregation. The October 8, 1997 order of the
District Court ordered that EIP II be implemented and directed that, within 10
days of the entry of the Order, the State make available to Yonkers $450,000 to
support planning activities to prepare the EIP II budget for 1997-98 and the
accompanying capital facilities plan. A final judgment to implement EIP II was
entered on October 14, 1997. On November 7, 1997, the State appealed that
judgment to the Second Circuit. The appeal is pending. Additionally, the Court
adopted a requirement that the State pay to Yonkers approximately $9.85 million
as its pro rata share of the funding of EIP I for the 1996-97 school year. The
requirement for State funding of EIP I was reduced to an order on December 2,
1997 and reduced to a judgment on February 10, 1998. The State appealed that
order to the Second Circuit on December 31, 1997 and amended the notice of
appeal after entry of the judgment. By decision dated June 22, 1999, as
discussed below, the Second Circuit affirmed the District Court's order
requiring the State to pay one-half the cost of EIP I for the 1996-97 school
year and remanded the case to the District Court for further proceedings
consistent with its decision.

On June 15, 1998, the District Court issued an opinion setting forth
the formula for the allocation of the costs of EIP I and EIP II between the
State and the City for the school years 1997-98 through 2005-06. That opinion
was reduced to an order on July 27, 1998. The order directed the State to pay
$37.5 million by August 1, 1998 for estimated EIP costs for the 1997-98 school
year. The State made this payment, as directed. On August 24, 1998, the State
appealed that order to the Second Circuit. The city of Yonkers and the Yonkers
Board of Education cross appealed to the Second Circuit from that order. By
stipulation of the parties approved by the Second Circuit on November 19, 1998,
the appeals from the July 27, 1998 order were withdrawn without prejudice to
reinstatement upon determination of the State's appeal of the October 14, 1997
judgment discussed above.

On April 15, 1999, the District Court issued two additional orders. The
first order directed the State to pay to Yonkers an additional $11.3 million by
May 1, 1999, as the State's remaining share of EIP costs for the 1997-98 school
year. The second order directed the State to pay to Yonkers $69.1 million as
its share of the estimated EIP costs for the 1998-99 school year. The State
made both payments on April 30, 1999.

In a decision dated June 22, 1999, the Second Circuit found no basis
for the District Court's findings that vestiges of a dual system continued to
exist in Yonkers and reversed the order directing the implementation of EIP II.
The Second Circuit also affirmed the District Court's order requiring the State
to pay one-half of the cost of EIP I for the 1996-97 school year and remanded
the case to the District Court for further proceedings consistent with its
decision. On July 2, 1999 the NAACP filed a petition for rehearing of the June
22, 1999 decision before the Second Circuit, en banc. The State has joined in
the City of Yonker's motion to stay further implementation of EIP II pending
the decision on the petition for rehearing. By order dated August 5, 1999, the
Second Circuit granted the motion staying further implementation of EIP II
pending appeal.

On July 27, 1999, the City of Yonkers moved in the District Court to
modify the July 27, 1998 order to require the State to make payments for EIP
expenses each month from July 1999 through April 2000 of $9.22 million per
month instead of paying $92.2 million by May 1, 2000. By memorandum and order
dated July 29, 1999, the District Court denied this motion.

In a decision dated November 16, 1999, the Second Circuit vacated its
June 22, 1999 decision. In this decision, the Second Circuit again affirmed the
District Court's order requiring the State to pay one-half of the cost of EIP I
for the 1996-97 school year. The Second Circuit also found no basis for the
District Court's findings that vestiges of a dual system continued to exist in

<PAGE>

Yonkers, and therefore vacated the District Court's EIP II order. The Second
Circuit, however, remanded to the District Court for the limited purpose of
making further findings on the existing record as to whether any other vestiges
of the dual system remain in the Yonkers public schools.

REAL PROPERTY CLAIMS

On March 4, 1985 in Oneida Indian Nation of New York, et al. v. County
of Oneida, the United States Supreme Court affirmed a judgment of the United
States Court of Appeals for the Second Circuit holding that the Oneida Indians
have a common-law right of action against Madison and Oneida Counties for
wrongful possession of 872 acres of land illegally sold to the State in 1795.
At the same time, however, the Court reversed the Second Circuit by holding
that a third-party claim by the counties against the State for indemnification
was not properly before the federal courts. The case was remanded to the
District Court for an assessment of damages, which action is still pending. The
counties may still seek indemnification in the State courts.

In 1998, the United States filed a complaint in intervention in Oneida
Indian Nation of New York. In December 1998, both the United States and the
tribal plaintiffs moved for leave to amend their complaints to assert claims
for 250,000 acres, to add the State as a defendant, and to certify a class made
up of all individuals who currently purport to hold title within said 250,000
acre area. These motions were argued March 29, 1999 and are still awaiting
determination. The District Court has not yet rendered a decision. By order
dated February 24, 1999, the District Court appointed a federal settlement
master. A conference scheduled by the District Court for May 26, 1999 to
address the administration of this case has been adjourned indefinitely.

Several other actions involving Indian claims to land in upstate New
York are also pending. Included are Cayuga Indian Nation of New York v. Cuomo,
et al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State of New
York, et al., both in the United States District Court for the Northern
District of New York and Seneca Nation of Indians, et al. v. State, et al. in
the United States District Court for the Western District of New York. The
Supreme Court's holding in Oneida Indian Nation of New York may impair or
eliminate certain of the State's defenses to these actions but may enhance
others. In the Cayuga Indian Nation of New York case, by order dated March 29,
1999, the United States District Court for the Northern District of New York
appointed a federal settlement master. In October 1999, the District Court
granted the Federal Government's motion to have the State held jointly and
severally liable for any damages owed to the plaintiffs. The damages phase of
the trial of this case is underway. In the Canadian St. Regis Band of Mohawk
Indians case, the United States District Court for the Northern District of New
York has directed the parties to rebrief outstanding motions to dismiss brought
by the defendants. The State filed its brief on July 1, 1999. The motions were
argued in September 1999. No decision has been rendered on these motions. In
Seneca Nation of Indians, by order dated November 22, 1999, the District Court
confirmed the July 12, 1999 magistrate's report, which recommended granting the
State's motion to dismiss the portion of the action relating to the right of
way where the New York State Thruway crosses the Cattaraugus Reservation in
Erie and Chatauqua Counties and denying the State's motion to dismiss the
Federal Government's damage claims. The District Court has set a trial date of
October 17, 2000 for that portion of the case related to the plaintiff's claim
of ownership of the islands of the Niagara River.

<PAGE>

APPENDIX E

ADDITIONAL INFORMATION CONCERNING
PUERTO RICAN MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in Puerto Rican Municipal Obligations. The sources of payment for
such obligations and the marketability thereof may be affected by financial or
other difficulties experienced by Puerto Rico and certain of its municipalities
and public authorities. This information does not purport to be a complete
description and is based on information from statements relating to Puerto
Rico's economy published by the Government of Puerto Rico. Neither CitiFunds
California Tax Free Reserves, CitiFunds Connecticut Tax Free Reserves, nor
CitiFunds New York Tax Free Reserves is responsible for the accuracy or
timeliness of this information.

The economy of Puerto Rico is dominated by the manufacturing and
service sectors (including finance and tourism). Investment in fixed capital,
including public infrastructure, private development and construction, and
purchases of equipment and machinery accounted for approximately 25.1% of
Puerto Rico's gross domestic product in 1998. The economic growth of Puerto
Rico was 3.1% in fiscal year 1998, slightly lower than the average growth of
highly developed countries such as the US, Canada and the UK, which ranged
between 3.2% and 3.7%. A key element in 1998's economic growth was the level of
internal investments in fixed capital (including public infrastructure, private
development projects and purchase of equipment), which increased 5.4%, as well
as the manufacturing and services sectors that have traditionally dominated
Puerto Rico's economy. The economy of Puerto Rico expanded moderately during
the early 1990s, with gross domestic product increasing at rates between 0.8%
and 0.9%. Over the past several years, however, Puerto Rico has experienced
more significant annual increases in gross domestic product, ranging from a
2.5% in fiscal year 1994 to a record high of 3.4% in fiscal year 1995. Annual
increases in Puerto Rico's gross domestic product for fiscal years 1996, 1997
and 1998 were 3.3%, 3.2% and 3.1%, respectively. The balance of net sales
(exports and imports) is negative, yet exports (tourism included) of goods and
services experienced an aggressive growth rate of 21.6% in the fiscal year
1998. Such growth in exports is considered an important aspect of Puerto Rico's
economic growth. Although Puerto Rico's unemployment rate increased from 13.1%
in fiscal year 1997 to 13.6% in fiscal year 1998, the unemployment rate was
still lower than the 14.5% average for the last six years.

During the first quarter of the fiscal year 1999, Hurricane George hit
the island of Puerto Rico, causing severe damage. This hurricane is considered
one of most destructive in Puerto Rico's history, damaging almost all of the
country's infrastructure and effecting nearly every sector in the economy. As a
result of the pattern of growth of Puerto Rico's economy over the last six
years, coupled with the substantial federal and international aid received by
the Puerto Rican government, however, authorities project that the hurricane
will not have a large impact on Puerto Rico's trend of economic growth. The
government has made economic-growth projections under three potential
scenarios: minimal growth, base growth and maximum growth. Under the minimal-
growth scenario, Puerto Rico's economy is expected to grow 2.7% in fiscal year
1999 and 2.5% in fiscal year 2000, compared to growth rates of 3.0% and 2.7%
under the base-growth scenario and 3.4% and 3.0% under the maximum growth-
scenario in fiscal years 1999 and 2000, respectively. These growth projections
are based on an increasing rate of personal consumption, stable interest rates,
declining oil prices and policies of the Government of Puerto Rico.

<PAGE>

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