SEMI-ANNUAL REPORT O JUNE 30, 1999
CITIFUNDS(SM)
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NEW YORK TAX FREE
INCOME PORTFOLIO
[picture omitted]
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INVESTMENT PRODUCTS:
NOT FDIC INSURED O NO BANK GUARANTEE O MAY LOSE VALUE
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BONDS
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TABLE OF CONTENTS
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 4
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Portfolio Highlights 4
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Fund Performance 5
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Portfolio of Investments 6
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Statement of Assets and Liabilities 10
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Statement of Operations 11
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Statement of Changes in Net Assets 12
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Financial Highlights 13
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Notes to Financial Statements 15
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from January 1, 1999 through June
30, 1999, for the CitiFundsSM New York Tax Free Income Portfolio. Inside, the
CitiFunds' investment manager, Citibank, N.A., discusses the market conditions
it faced, the strategies it employed, and its outlook for the future.
The past six months have been a study in contrasts for investor sentiment
and the financial markets. When the period began, investors were primarily
concerned that economic weakness overseas might constrain growth in the United
States. As a result, they favored bonds and stocks with predictable earnings
growth. When the period ended, investors were mainly worried that the economy
might be growing too fast, potentially awakening long-dormant inflation
pressures. In this environment, they avoided bonds and favored stocks that are
sensitive to changes in the economic cycle.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip Coolidge
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Philip W. Coolidge
President
July 23, 1999
1
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PORTFOLIO ENVIRONMENT AND OUTLOOK
THE FIRST SIX MONTHS OF 1999 EXPERIENCED STRONGER-THAN-EXPECTED ECONOMIC
GROWTH BOTH IN THE UNITED STATES AND IN KEY OVERSEAS MARKETS, INCLUDING JAPAN,
SOUTHEAST ASIA AND LATIN AMERICA. As a result, fears regarding the potentially
adverse effects of overseas recessions on U.S. economic growth, which prevailed
at the end of 1998, quickly faded. Instead, investors grew concerned that global
economic strength might become unsustainable, triggering a reacceleration of
inflation. To forestall a potential resurgence of inflation, the Federal Reserve
Board ("Fed") modestly increased key short-term interest rates on June 30, 1999,
effectively offsetting a portion of last fall's rate cuts.
WHILE THIS ECONOMIC ENVIRONMENT WAS GENERALLY DIFFICULT FOR MOST
FIXED-INCOME SECURITIES BECAUSE OF RISING INTEREST RATES, MUNICIPAL BOND PRICES
REMAINED RELATIVELY STABLE. This is in stark contrast to U.S. Treasury
securities, which declined sharply. As a result, just as municipal bonds did not
rally as strongly as taxable U.S. Treasury bonds over the second half of 1998,
they did not decline as precipitously during the first six months of 1999.
Why have municipal bond prices remained relatively stable? The Fund's
management believes that it is a matter of supply and demand. On one hand, U.S.
Treasury securities suffered from a sharp fall-off of investor demand as
evidence of economic strength emerged. That's because many investors who had
fled to U.S. Treasuries during last summer's "flight to quality" shifted their
assets back to riskier investments offering potentially higher returns. On the
other hand, municipal bonds benefited from steady demand from individual
investors seeking to manage their income tax liabilities. At the same time, the
strong economy and robust tax revenues reduced states and municipalities' need
to borrow, leading to substantially less issuance of municipal bonds.
IN THIS ENVIRONMENT, MANAGEMENT MAINTAINED THE PORTFOLIO'S AVERAGE MATURITY
TOWARD THE LONG END OF ITS RANGE, MANAGING THE RISKS OF CHANGING INTEREST RATES.
Management also maintained a focus on municipal bonds from New York issuers with
high credit ratings as determined both by independent credit rating agencies and
Citibank's own credit analysts.
Throughout the reporting period, the Fund's management focused on bonds
with maturities of 10 to 15 years, which we consider the long end of the
intermediate range. In addition, attractive values were found in the relatively
high yields provided by "premium structure" bonds as well as general obligation
bonds that are backed by the overall taxation authority of their issuers.
MANAGEMENT'S OUTLOOK FOR NEW YORK'S TAX-EXEMPT BOND MARKET REMAINS
POSITIVE. The persistent strength of the U.S. economy has helped New York and
many of its municipalities put their fiscal houses in order. The state and some
local governments have achieved budget surpluses, and some are using that money
to create reserves against future needs. As a result, several New York municipal
bond issuers have received credit rating upgrades over the past year.
2
<PAGE>
As for the future, the forecast calls for a continuation of positive growth
and low inflation. While it is possible that the Fed may continue to raise
short-term interest rates modestly to prevent inflation pressures from taking
root, the Fund's management believe that the fixed-income markets have already
incorporated an incrementally tighter monetary policy into bond prices. In this
environment, the Fund's manager expects that New York municipal bonds should
continue to provide attractive after-tax returns for state residents seeking
income that is exempt from federal, state and New York City income taxes.
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
To generate high levels of current income exempt from federal, New York State
and New York City personal income taxes+ and to preserve the value of its
shareholders' investment through investing in debt obligations consisting
primarily of municipal bonds and notes.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Declared daily, paid monthly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
September 8, 1986 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/99 BENCHMARKS
Class A shares o Lipper New York State Municipal
$338.2 million Bond Funds Average
Class B shares o Lehman Brothers
$11.1 million Municipal Bond Index*
* The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond markets with maturities of at least one year.
+ A portion of the income may be subject to the Federal Alternative Minimum
Tax.Consult your personal tax advisor.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 1999 (Unaudited)
[Figures below represent pie chart in its printed form]
Short-term 2.0%
General Obligation Bonds 20.0%
Healthcare 7.0%
Housing Revenues 7.0%
Power Revenues 5.0%
State Agencies 21.0%
Transportation REvenue 26.0%
Water/Sewer Revenues 7.0%
Other Revenues 5.0%
4
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FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
ALL PERIODS ENDING JUNE 30, 1999 SIX ONE FIVE TEN
(Unaudited) MONTHS** YEAR YEARS* YEARS*
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<S> <C> <C> <C> <C>
CitiFunds New York Tax Free Income Portfolio
(Class A) without sales charge (2.08)% 1.76% 6.56% 6.66%
Lipper New York State Municipal
Bond Funds Average (1.80)% 1.35% 5.98% 6.72%+
Lehman Brothers Municipal Bond Index (0.89)% 2.76% 7.00% 7.43%+
CitiFunds New York Tax Free Income Portfolio
(Class A) with a maximum
sales charge of 4.50% (6.48)% (2.81)% 5.58% 6.17%
CitiFunds New York Tax Free Income Portfolio
(Class B) without deferred sales charge -- -- -- (2.56)%#**
Lipper New York State Municipal Bond Funds
Average -- -- -- (1.80)%++**
Lehman Brothers Municipal Bond Index -- -- -- (0.89)%++**
CitiFunds New York Tax Free Income Portfolio
(Class B) with a maximum deferred
sales charge of 4.50% -- -- -- (6.95)%#**
* Average Annual Total Return
** Not Annualized
+ From 6/30/93
++ From 12/31/98
# Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.37% 30-Day SEC Yield Class B 3.83%
Income Dividends Per Share Class A $0.222 Income Dividends Per Share
Class B $0.075
</TABLE>
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$18,196 with sales charge (as of 6/30/99). The graph shows how this compares to
its benchmark over the same period.
[Figures below represent line chart in its printed form]
Growth of $10,000 Investment Data
Citifunds New York Tax Free Income Portfolio (A)
Lipper NY State Municipal Bond Funds Avg.
Lehman Municipal Bond Index
6/30/89 9,550.00 10,000.00 10,000.00
7/31/89 9,674.41 10,104.00 10,136.10
8/31/89 9,529.58 10,004.98 10,036.87
9/30/89 9,415.88 9,959.96 10,006.96
10/31/89 9,549.47 10,045.61 10,129.34
11/30/89 9,720.04 10,199.31 10,306.61
12/31/89 9,814.89 10,281.93 10,390.91
1/31/90 9,707.70 10,172.94 10,341.77
2/28/90 9,750.29 10,259.41 10,434.32
3/31/90 9,753.27 10,233.76 10,437.45
4/30/90 9,599.51 10,105.84 10,361.89
5/31/90 9,858.87 10,365.56 10,588.09
6/30/90 9,995.10 10,487.87 10,681.16
7/31/90 10,216.82 10,682.95 10,838.70
8/31/90 9,973.77 10,462.88 10,681.33
9/30/90 9,917.74 10,419.98 10,687.41
10/31/90 10,051.31 10,523.14 10,881.28
11/30/90 10,375.44 10,763.06 11,100.11
12/31/90 10,397.26 10,798.58 11,148.39
1/31/91 10,571.58 10,945.44 11,298.00
2/28/91 10,557.58 11,005.64 11,396.30
3/31/91 10,556.64 11,046.36 11,400.40
4/30/91 10,721.58 11,218.69 11,552.59
5/31/91 10,813.98 11,306.19 11,655.30
6/30/91 10,803.75 11,294.89 11,643.76
7/31/91 10,963.65 11,477.86 11,785.58
8/31/91 11,123.04 11,643.15 11,940.79
9/30/91 11,299.85 11,817.79 12,096.26
10/31/91 11,418.55 11,931.24 12,205.13
11/30/91 11,429.53 11,947.95 12,239.18
12/31/91 11,680.29 12,194.07 12,501.84
1/31/92 11,639.26 12,127.01 12,530.34
2/29/92 11,668.32 12,171.88 12,534.35
3/31/92 11,632.80 12,210.83 12,538.99
4/30/92 11,707.69 12,340.26 12,650.58
5/31/92 11,904.41 12,520.43 12,799.48
6/30/92 12,145.21 12,779.60 13,014.26
7/31/92 12,562.97 13,247.34 13,404.42
8/31/92 12,381.05 13,045.98 13,273.73
9/30/92 12,423.44 13,085.11 13,360.54
10/31/92 12,199.14 12,867.90 13,229.21
11/30/92 12,477.28 13,183.17 13,466.14
12/31/92 12,598.02 13,351.91 13,603.63
1/31/93 12,797.40 13,516.14 13,761.84
2/28/93 13,287.69 14,051.38 14,259.61
3/31/93 13,178.28 13,908.05 14,108.88
4/30/93 13,278.56 14,061.04 14,251.24
5/31/93 13,308.31 14,159.47 14,331.33
6/30/93 13,528.67 14,397.35 14,570.67
7/31/93 13,533.58 14,393.03 14,589.61
8/31/93 13,766.28 14,706.80 14,893.07
9/30/93 13,925.21 14,870.04 15,062.85
10/31/93 13,949.15 14,898.30 15,091.47
11/30/93 13,823.15 14,731.43 14,958.67
12/31/93 14,113.16 15,040.79 15,274.30
1/31/94 14,250.49 15,200.23 15,448.42
2/28/94 13,899.07 14,818.70 15,048.31
3/31/94 13,269.36 14,151.86 14,435.84
4/30/94 13,293.82 14,166.01 14,558.55
5/31/94 13,405.98 14,304.84 14,685.21
6/30/94 13,243.20 14,204.70 14,600.03
7/31/94 13,507.29 14,454.71 14,867.21
8/31/94 13,570.70 14,502.41 14,913.30
9/30/94 13,304.43 14,223.96 14,694.08
10/31/94 13,049.73 13,913.88 14,432.52
11/30/94 12,756.39 13,535.42 14,171.29
12/31/94 13,059.00 13,910.35 14,483.06
1/31/95 13,422.28 14,302.63 14,897.28
2/28/95 13,813.02 14,763.17 15,330.79
3/31/95 13,970.21 14,888.66 15,507.09
4/30/95 13,982.30 14,906.52 15,525.70
5/31/95 14,510.67 15,386.51 16,020.97
6/30/95 14,311.40 15,180.33 15,881.59
7/31/95 14,378.40 15,274.45 16,032.46
8/31/95 14,566.98 15,447.05 16,236.08
9/30/95 14,607.48 15,527.38 16,338.36
10/31/95 14,931.98 15,778.92 16,575.27
11/30/95 15,258.27 16,081.88 16,850.42
12/31/95 15,395.24 16,247.52 17,012.18
1/31/96 15,463.85 16,320.63 17,141.47
2/29/96 15,271.10 16,183.54 17,024.91
3/31/96 15,036.89 15,916.51 16,806.99
4/30/96 14,967.40 15,849.66 16,759.93
5/31/96 14,994.75 15,848.08 16,753.23
6/30/96 15,163.68 16,016.07 16,935.84
7/31/96 15,301.91 16,168.22 17,088.26
8/31/96 15,255.70 16,129.42 17,084.85
9/30/96 15,523.13 16,379.42 17,324.03
10/31/96 15,663.20 16,543.22 17,519.79
11/30/96 15,947.38 16,840.99 17,840.41
12/31/96 15,858.47 16,755.11 17,765.48
1/31/97 15,884.72 16,750.08 17,799.23
2/28/97 16,040.83 16,900.83 17,962.98
3/31/97 15,833.56 16,682.81 17,724.08
4/30/97 15,962.86 16,827.95 17,872.96
5/31/97 16,239.65 17,078.69 18,142.84
6/30/97 16,428.24 17,251.18 18,336.97
7/31/97 16,929.70 17,777.34 18,844.90
8/31/97 16,718.20 17,571.12 18,667.76
9/30/97 16,909.54 17,771.43 18,889.91
10/31/97 17,027.52 17,876.29 19,010.80
11/30/97 17,115.25 17,974.61 19,122.97
12/31/97 17,383.42 18,260.40 19,402.16
1/31/98 17,593.42 18,437.53 19,602.00
2/28/98 17,559.47 18,430.15 19,607.88
3/31/98 17,571.75 18,433.84 19,625.53
4/30/98 17,468.30 18,288.21 19,537.22
5/31/98 17,813.62 18,617.40 19,845.91
6/30/98 17,880.41 18,688.15 19,923.30
7/31/98 17,885.14 18,714.31 19,973.11
8/31/98 18,219.32 19,026.84 20,282.70
9/30/98 18,478.75 19,264.67 20,536.23
10/31/98 18,454.98 19,189.54 20,536.02
11/30/98 18,510.62 19,247.11 20,607.90
12/31/98 18,581.98 19,285.60 20,659.42
1/31/99 18,832.04 19,497.75 20,905.27
2/28/99 18,667.55 19,386.61 20,813.28
3/31/99 18,662.65 19,384.67 20,842.42
4/30/99 18,705.72 19,427.32 20,894.53
5/31/99 18,523.71 19,269.96 20,773.34
6/30/99 18,195.92 18,938.51 20,474.20
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors and reflect
certain voluntary fee waivers which may be terminated at any time. If the
waivers were not in place, the fund's returns would have been lower. The maximum
sales charge of 4.50% went into effect on January 4, 1999. Investors may not
invest directly in an index.
5
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CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
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MUNICIPAL BONDS -- 97.9%
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GENERAL OBLIGATION BONDS -- 19.8%
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Aaa Nassau County, NY,
Series Y,
5.00% due 3/01/11 $ 3,650 $ 3,608,536
Aaa New York City, NY,
5.35% due 8/01/12 7,000 7,081,340
A3 New York City, NY,
5.375% due 8/01/14 7,555 7,543,063
A3 New York City, NY,
5.50% due 8/15/08 4,180 4,337,377
A3 New York City, NY,
5.90% due 8/01/09 4,005 4,239,973
A3 New York City, NY,
6.25% due 5/15/07 2,020 2,205,577
A3 New York City, NY,
Series A, 6.25%
due 8/01/12 3,200 3,431,872
A3 New York City, NY,
Series B, 6.20%
due 8/15/06 6,500 7,122,700
A3 New York City, NY,
Series B, Unrefunded,
6.375% due 8/15/11 1,185 1,275,309
A3 New York City, NY,
Series F, 5.25%
due 8/01/17 10,250 10,004,308
A3 New York City, NY,
Series F, 6.00%
due 8/01/12 2,000 2,115,640
A3 New York City, NY,
Series F, Prerefunded,
7.65% due 2/01/06 2,700 2,959,524
Aaa New York City, NY,
Series F, Prerefunded,
8.40% due 11/15/06 1,825 2,026,608
A2 New York State,
5.25% due 9/15/12 2,000 2,009,940
A2 New York State,
5.25% due 9/15/13 3,000 3,002,280
A2 New York State,
5.25% due 3/01/15 4,866 4,823,696
Aaa Suffolk County, NY,
5.25% due 4/01/12 1,480 1,501,874
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69,289,617
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HEALTHCARE -- 7.3%
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Aaa New York State
Dormitory Authority,
Catholic Healthcare West,
5.125% due 1/15/12 5,000 4,956,650
Aaa New York State
Dormitory Authority,
Hospital, 5.10%
due 2/15/12 5,000 4,944,800
Aaa New York State
Dormitory Authority,
Hospital, 5.20%
due 2/15/13 2,330 2,318,630
Aaa New York State
Dormitory Authority,
Presbyterian Hospital,
5.50% due 2/01/10 4,835 5,007,319
Aaa New York State
Dormitory Authority,
North Shore University,
5.50% due 11/01/12 2,485 2,575,181
Aaa New York State
Dormitory Authority,
North Shore University,
5.50% due 11/01/14 4,000 4,151,080
Aaa New York State
Dormitory Authority,
Sloan Kettering Hospital,
5.50% due 7/01/17 1,600 1,633,072
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25,586,732
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HOUSING REVENUE -- 7.3%
Aaa New York State Housing
Finance Agency, ETM,
5.25% due 9/15/12 2,000 1,981,080
Aaa New York State Housing
Finance Agency, ETM,
5.875% due 9/15/14 4,000 4,079,560
Aaa New York State Housing
Finance Agency, ETM,
7.90% due 11/01/06 5,750 6,594,043
Aa New York State
Mortgage Agency
Revenue, AMT,
5.25% due 10/01/17 2,000 1,942,720
Aa New York State Mortgage
Agency Revenue, AMT,
5.35% due 10/01/18 3,200 3,128,320
6
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CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------
a New York State
Mortgage Agency
Revenue, AMT,
7.25% due 10/01/07 $ 6,075 $ 6,375,166
Aa New York State
Mortgage Agency
Revenue, AMT,
7.75% due 10/01/23 1,290 1,361,905
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25,462,794
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POWER REVENUE -- 5.1%
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Aaa Long Island Power
Authority, NY,
5.00% due 4/01/13 9,655 9,466,341
Aaa Long Island Power
Authority, NY,
5.50% due 12/01/12 4,220 4,394,750
Baa1 Puerto Rico Electric
Power Authority,
Series U, 6.00%
due 7/01/14 2,750 2,955,975
Baa1 Puerto Rico Electric
Power Authority,
Series Z, 5.25%
due 7/01/21 1,000 973,300
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17,790,366
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SALES TAX REVENUE -- 0.1%
- ---------------------------------------------------------------
Aa3 New York City
Transitional, NY, Series A,
5.00% due 8/15/16 300 286,368
-----------
STATE AGENCIES -- 20.5%
- ---------------------------------------------------------------
Aaa New York State
Dormitory Authority,
City University,
5.60% due 7/01/10 10,550 10,808,159
Aaa New York State
Dormitory Authority,
City University,
5.75% due 7/01/18 3,000 3,160,350
Baa1 New York State
Dormitory Authority,
Court Facilities, 5.25%
due 5/15/21 1,000 965,890
A3 New York State
Dormitory Authority,
Mental Health Services,
5.50% due 8/15/17 5,530 5,546,037
A3 New York State
Dormitory Authority,
Mental Health Services,
6.50% due 2/15/11 1,610 1,789,096
Aaa New York State
Dormitory Authority,
New York University,
5.75% due 7/01/27 6,300 6,663,510
Aaa New York State
Dormitory Authority,
Saint Joseph's Hospital,
5.25% due 7/01/18 2,000 1,955,340
A3 New York State
Dormitory Authority,
State University,
5.25% due 5/15/13 2,030 2,033,837
Aaa New York State
Dormitory Authority,
State University,
5.25% due 5/15/14 3,000 2,981,460
A3 New York State
Dormitory Authority,
State University,
5.40% due 5/15/23 1,690 1,678,677
A3 New York State Local
Government Assistance,
Series A, 5.25%
due 4/01/19 4,000 3,927,360
A3 New York State
Local Government
Assistance, Series A,
5.375% due 4/01/12 2,475 2,509,427
A3 New York State
Local Government
Assistance, Series E,
6.00% due 4/01/14 2,000 2,138,860
Baa1 New York State Urban
Development Authority,
5.25% due 1/01/13 2,500 2,510,875
Baa1 New York State Urban
Development Authority,
5.50% due 1/01/09 1,000 1,028,260
Baa1 New York State Urban
Development Authority,
5.75% due 1/01/13 14,500 15,129,010
7
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CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------
Baa1 New York State Urban
Development Authority,
State Facilities,
5.50% due 4/01/07 $ 3,000 $ 3,104,730
Baa1 New York State Urban
Development Authority,
Youth Facilities,
5.875% due 4/01/09 1,245 1,305,096
Aaa St. Lawrence County, NY,
Industrial Development
Authority, 5.625%
due 7/01/13 2,185 2,245,044
-----------
71,481,018
-----------
TRANSPORTATION REVENUE -- 26.1%
- ----------------------------------------------------------------
Baa1 Metropolitan Transportation
Authority, NY,
5.125% due 7/01/12 4,000 3,983,080
Aaa Metropolitan Transportation
Authority, NY,
5.125% due 7/01/17 2,300 2,230,333
Baa1 Metropolitan Transportation
Authority, NY,
5.25% due 7/01/17 3,000 2,918,340
Baa1 Metropolitan Transportation
Authority, NY,
5.50% due 7/01/12 2,380 2,409,345
Baa1 Metropolitan Transportation
Authority, NY,
5.625% due 7/01/25 1,940 1,959,904
Baa1 Metropolitan Transportation
Authority, NY,
5.75% due 7/01/13 1,000 1,046,060
Baa1 Metropolitan Transportation
Authority, NY, Series A,
5.25% due 7/01/07 2,000 2,045,780
Aaa Metropolitan Transportation
Authority, NY, Series C
5.125% due 7/01/14 4,000 3,940,400
Baa1 Metropolitan Transportation
Authority, NY, Series O,
5.75% due 7/01/13 3,000 3,138,180
Aaa Metropolitan Transportation
Authority, NY, Series Q,
5.125% due 7/01/13 2,555 2,531,085
Aaa New York State Thruway
Authority, Series A,
5.125% due 4/01/12 2,000 1,991,520
Aaa New York State Thruway
Authority, Series A,
5.50% due 4/01/07 3,740 3,909,684
Aaa New York State Thruway
Authority, Series B,
5.25% due 4/01/14 3,000 3,002,190
Aaa New York State Thruway
Authority, Series C,
5.25% due 4/01/12 5,000 5,032,200
Aaa New York State Thruway
Authority, Series C,
5.25% due 4/01/15 2,070 2,061,058
Aaa New York State Thruway
Authority, Series E,
5.25% due 1/01/12 2,000 2,003,180
Aaa New York State Thruway
Authority, Series E,
5.25% due 1/01/13 9,500 9,472,640
Aaa New York State Thruway
Authority, Series E,
5.25% due 1/01/15 5,000 4,937,400
Baa1 New York State Thruway
Authority, Local Highway,
5.25% due 4/01/10 2,900 2,923,954
Baa1 New York State Thruway
Authority, Local Highway,
6.00% due 4/01/07 6,750 7,245,180
Baa1 New York State Thruway
Authority, Local Highway,
Series A,
5.25% due 4/01/12 10,000 9,956,800
Baa1 New York State Thruway
Authority, Local Highway,
Series B, 5.375%
due 4/01/13 7,070 7,158,587
Aaa Puerto Rico
Commonwealth
Highway Authority,
5.50% due 7/01/15 1,000 1,040,020
Aaa Puerto Rico
Commonwealth
Highway Authority
6.25% due 7/01/14 2,000 2,243,420
Aaa Triborough Bridge and
Tunnel Authority, NY,
5.25% due 1/01/13 2,000 2,020,880
-----------
91,201,220
-----------
8
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------
WATER AND SEWER REVENUE -- 6.5%
- ----------------------------------------------------------------
A1 New York State
Environmental Facilities,
5.25% due 6/15/13 $ 5,000 $ 5,020,500
A1 New York State
Environmental Facilities,
5.25% due 6/15/14 3,500 3,496,290
Aa New York State
Environmental Facilities,
5.75% due 6/15/11 5,000 5,292,400
Aa New York State
Environmental Facilities,
7.00% due 6/15/12 3,250 3,489,232
A1 New York State
Environmental Facilities,
7.125% due 7/01/12 2,100 2,192,967
Aa New York State
Environmental Facilities,
7.50% due 6/15/12 3,000 3,148,350
-----------
22,639,739
-----------
OTHER REVENUE -- 5.2%
- ----------------------------------------------------------------
A1 New York City Industrial
Development Agency,
6.125% due 1/01/24 5,000 5,135,600
N/R New York City Industrial
Development Agency,
7.00% due 5/01/08 755 812,410
N/R Port Authority of New York
and New Jersey, Special
Obligation, 6.75%
due 10/01/19 11,250 12,132,788
-----------
18,080,798
-----------
TOTAL INVESTMENTS
(Identified Cost
$345,063,286) 97.9% 341,818,652
OTHER ASSETS, LESS
LIABILITIES 2.1% 7,469,631
----- ------------
NET ASSETS 100.0% $349,288,283
===== ============
ETM--Escrow to Maturity for timely payment of principal.
AMT--Subject to Alternative Minimum Tax
See notes to financial statements
9
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (Unaudited)
================================================================================
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $345,063,286) $341,818,652
Cash 231,273
Interest receivable 6,510,171
Receivable for securities sold 2,807,045
Receivable for shares of beneficial interest sold 920,039
- --------------------------------------------------------------------------------
Total assets 352,287,180
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 2,397,693
Dividends payable 299,732
Payable to affiliate-- Management fees (Note 2) 131,045
Accrued expenses and other liabilities------ 170,427
- --------------------------------------------------------------------------------
Total liabilities 2,998,897
- --------------------------------------------------------------------------------
NET ASSETS $349,288,283
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $356,587,486
Accumulated net realized loss on investments and futures
transactions (5,023,585)
Unrealized depreciation of investments (3,244,634)
Undistributed net investment income 969,016
- --------------------------------------------------------------------------------
Total $349,288,283
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($338,225,811/30,124,324
shares outstanding) $11.23
Offering Price per share ($11.23 / 0.955) $11.76*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($11,062,472/986,057 shares outstanding) $11.22**
================================================================================
* Based upon single purchases of less than $25,000
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See notes to financial statements
10
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $10,544,424
EXPENSES:
Management fees (Note 2) $1,562,681
Service Fees Class A (Note 3) 512,670
Service Fees Class B (Note 3) 24,670
Registration fees 97,209
Custody and fund accounting fees 67,010
Shareholder reports 31,036
Audit fees 17,603
Transfer agent fees 17,433
Trustee fees 17,333
Legal fees 10,242
Miscellaneous 29,867
- --------------------------------------------------------------------------------
Total expenses 2,387,754
Less aggregate amounts waived by Manager (Note 2) (701,032)
Less fees paid indirectly (Note 1F) (3,274)
- --------------------------------------------------------------------------------
Net expenses 1,683,448
- --------------------------------------------------------------------------------
Net investment income 8,860,976
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions (159,595)
Net realized loss on futures transactions (41,700)
Unrealized depreciation (16,152,177)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (16,353,472)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(7,492,496)
================================================================================
See notes to financial statements
11
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(Unaudited) DECEMBER 31, 1998
===================================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 8,860,976 $ 9,430,083
Net realized gain (loss) from investments and
futures transactions (201,295) 290,419
Unrealized (depreciation) appreciation of
investments (16,152,177) 6,020,732
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (7,492,496) 15,741,234
- ---------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (7,849,809) (9,457,025)
Net investment income (Class B) (103,269) --
- ---------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (7,953,078) (9,457,025)
- ---------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 29,495,041 438,461,762
Net asset value of shares issued to shareholders from
reinvestment of dividends 7,999,892 8,905,232
Cost of shares repurchased (143,826,658) (70,037,469)
- ---------------------------------------------------------------------------------------------------
Total Class A (106,331,725) 377,329,525
- ---------------------------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 12,312,464 --
Net asset value of shares issued to shareholders from
reinvestment of dividends 83,110 --
Cost of shares repurchased (921,359) --
- ---------------------------------------------------------------------------------------------------
Total Class B 11,474,215 --
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from transactions in
hares of beneficial interest (94,857,510) 377,329,525
- ---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS (110,303,084) 383,613,734
- ---------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 459,591,367 75,977,633
- ---------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $969,016 and $61,118, respectively) $349,288,283 $459,591,367
===================================================================================================
</TABLE>
* January 4, 1999 (Commencement of Operations) to June 30, 1999.
See notes to financial statements
12
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
SIX
MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED DECEMBER 31,
------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
===========================================================================================================
Net Asset Value, beginning of period $ 11.69 $ 11.42 $ 10.98 $ 11.25 $ 10.09 $ 11.54
- -----------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.252 0.487 0.594 0.585 0.607 0.566
Net realized and unrealized gain (loss)
on investments (0.490) 0.282 0.431 (0.267) 1.153 (1.415)
- -----------------------------------------------------------------------------------------------------------
Total from operations (0.238) 0.769 1.025 0.318 1.760 (0.849)
- -----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.222) (0.499) (0.585) (0.588) (0.600) (0.601)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.23 $ 11.69 $ 11.42 $ 10.98 $ 11.25 $ 10.09
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $338,226 $459,591 $75,978 $82,182 $90,264 $86,399
Ratio of expenses to average net assets 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income
to average net assets 4.26%* 4.24% 5.31% 5.34% 5.62% 5.52%
Portfolio turnover 18% 17% 16% 47% 98% 150%
Total return (A) (2.08)%** 6.89% 9.62% 3.01% 17.89% (7.47)%
Note: If Agents of the Fund, had not voluntarily agreed to waive all or a
portion of their fees for the period indicated and the expenses were not reduced
for fees paid indirectly for the years ended after December 31, 1994, the net
investment income per share and the ratios would have been as follows:
Net investment income per share $0.232 $0.454 $0.540 $0.534 $0.555 $0.508
RATIOS:
Expenses to average net assets 1.14%* 1.09% 1.28% 1.27% 1.27% 1.27%
Net investment income to average net assets 3.92%* 3.95% 4.83% 4.87% 5.15% 5.05%
===========================================================================================================
</TABLE>
* Annualized
** Not Annualized
(A) Total return does not include the maximum sales charge of 4.50% effective
January 4, 1999.
See notes to financial statements
13
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS (Continued)
CLASS B
-------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
JUNE 30, 1999
(Unaudited)
================================================================================
Net Asset Value, beginning of period $11.69
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.075
Net realized and unrealized gain (loss)
on investments (0.47)
- --------------------------------------------------------------------------------
Total from operations (0.395)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.075)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $11.22
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $11,062
Ratio of expenses to average net assets 1.30%*
Ratio of net investment income
to average net assets 3.76%*
Portfolio turnover 18%
Total return (2.56)%**
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period indicated and the expenses were not reduced for
fees paid indirectly, the net investment income per share and the ratios would
have been as follows:
Net investment income per share $0.068
RATIOS:
Expenses to average net assets 1.64%*
Net investment income to average net assets 3.42%*
================================================================================
* Annualized
** Not Annualized
See notes to financial statements
14
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds New York Tax Free Income Portfolio
(the "Fund") is a separate non-diversified series of CitiFunds Tax Free Income
Trust (the "Trust"), a Massachusetts business trust. The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Investment Manager of the Fund is Citibank, N.A.
("Citibank"). CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
The Fund offers Class A shares and Class B shares. The Fund commenced its
public offering of Class B shares on January 4, 1999. Fund shares outstanding
prior to January 4, 1999 became Class A shares effective January 4, 1999. Class
A shares have a front-end, or initial, sales charge effective January 4, 1999.
This sales charge may be reduced or eliminated in certain circumstances. Class B
shares have no front-end sales charge, but pay a higher ongoing service fee than
Class A shares, and are subject to a deferred sales charge if sold within five
years of purchase. Class B shares automatically convert into Class A shares
after eight years. Expenses of the Fund are borne pro-rata by the holders of
each class of shares, except that each class bears expenses unique to that class
(including the Rule 12b-1 service and distribution fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 plan.
Shares of each class would receive their pro-rata share of the net assets of the
Fund if the Fund were liquidated. Class A shares have lower expenses than Class
B shares.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are
in conformity with generally accepted accounting principles and are as follows:
A. Investment Security Valuations Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service which takes into account appropriate factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of the
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which approximates market value. Securities, if any, for which
there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
15
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
B. Income Interest income is determined on the basis of interest accrued
and discount earned, adjusted for amortization of premium or discount on
long-term debt securities when required for federal income tax purposes.
C. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. Dividends by the Fund from net interest received on
tax-exempt municipal bonds are not includable by shareholders as gross income
for federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt interest dividends. The
portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item to shareholders. At
December 31, 1998, the Fund, for federal income tax purposes, had a capital loss
carryover of $4,822,290 which will expire on December 31, 2002. Such capital
loss carryover will reduce the Fund's taxable income arising from future net
realized gain on investment transactions, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax.
D. Distributions The Fund distinguishes between distributions on a tax
basis and a financial reporting basis and requires that only distributions in
excess of tax basis earnings and profits be reported in the financial statements
as a return of capital. Differences in the recognition or classification of
income between the financial statements and tax earnings and profits which
result in temporary over-distributions for financial statement purposes, are
classified as distributions in excess of net investment income or accumulated
net realized gains.
E. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
F. Fees Paid Indirectly The Fund's custodian bank calculates its fee based
on the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
G. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund.
16
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
H. Futures Contracts The Fund may engage in futures transactions. The Fund
may use futures contracts in order to protect the Fund from fluctuations in
interest rates without actually buying or selling debt securities, or to manage
the effective maturity or duration of fixed income securities in the Fund's
portfolio in an effort to reduce potential losses or enhance potential gains.
Buying futures contracts tends to increase the Fund's exposure to the underlying
instrument. Selling futures contracts tends to either decrease the Fund's
exposure to the underlying instrument, or to hedge other fund investments.
Upon entering into a futures contract, the Fund is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin". Subsequent
payments ("variation margin") are made or received by the Fund each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains or losses and the
Fund recognizes a realized gain or loss when the contract is closed. Futures
contracts are valued at the settlement price established by the board of trade
or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. Futures contracts involve, to varying
degrees, risk of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp, which in turn is a wholly-owned subsidiary of Citigroup Inc. Citigroup
Inc. was formed as a result of the merger of Citicorp and Travelers Group Inc.
which was completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.75% of the Fund's average
daily net assets. The management fee amounted to $1,562,681 of which $701,032
was voluntarily waived for the six months ended June 30, 1999. The Trust pays no
compensation directly to any Trustee or any other officer who is affiliated with
the Sub-Administrator, all of whom receive remuneration for their services to
the Trust from the Sub-Administrator or its affiliates.
17
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the Class A Service Plan, the
Fund may pay monthly fees at an annual rate not to exceed 0.25% of the average
daily net assets represented by Class A shares of the Fund. The Service fees for
Class A shares amounted to $512,670 for the six months ended June 30, 1999.
Under the Class B Service Plan, the Fund may pay a combined monthly distribution
and service fee at an annual rate not to exceed 0.75% of the average daily net
assets represented by Class B shares of the Fund. The Service fees for Class B
shares amounted to $24,670 for the period ended June 30, 1999. These fees may be
used to make payments to the Distributor for distribution services and to others
as compensation for the sale of shares of the applicable class of the Fund, for
advertising, marketing, or other promotional activity, and for preparation,
printing and distribution of prospectuses, statements of additional information
and reports for recipients other than regulators and existing shareholders. The
Fund also may make payments to the Distributor and others for providing personal
service or the maintenance of shareholder accounts.
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than U.S. Government securities and short-term obligations, aggregated
$73,602,246 and $141,575,949, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value). Transactions in shares of beneficial interest were
as follows:
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(Unaudited) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
CLASS A
Shares sold 2,535,394 37,973,237
Shares reinvested 690,540 771,454
Shares repurchased (12,432,811) (6,064,886)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (9,206,877) 32,679,805
- --------------------------------------------------------------------------------
CLASS B*
Shares sold 1,058,974
Shares reinvested 7,242
Shares repurchased (80,159)
- --------------------------------------------------------------------------------
Class B net increase 986,057
- --------------------------------------------------------------------------------
* January 4, 1999 (Commencement of Operations) to June 30, 1999.
18
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS (Unaudited) (Continued)
This page intentionally left
blank.
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 1999, as
computed on a federal income tax basis, are as follows:
Aggregate cost $345,063,286
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 3,992,171
Gross unrealized depreciation (7,236,805)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (3,244,634)
- --------------------------------------------------------------------------------
7. LINE OF CREDIT The Fund, along with other CitiFunds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. In addition, the committed portion of the line of credit requires a
quarterly payment of a commitment fee based on the average daily unused portion
of the line of credit. For the six months ended June 30, 1999, the commitment
fee allocated to the Fund was $538. Since the line of credit was established
there have been no borrowings.
19
<PAGE>
This page intentionally left blank.
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., CHAIRMAN
Philip W. Coolidge*, PRESIDENT
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF THE INVESTMENT MANAGER
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc. as distributor.
(C)1999 Citicorp [Graphic Omitted) Printed on recycled paper CFS/NYT/699
<PAGE>
SEMI-ANNUAL REPORT O JUNE 30, 1999
CITIFUNDS(SM)
- ------------
National Tax Free
Income Portfolio
[picture omitted]
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED O NO BANK GUARANTEE O MAY LOSE VALUE
- --------------------------------------------------------------------------------
BONDS
<PAGE>
TABLE OF CONTENTS
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
Letter to Our Shareholders 1
- --------------------------------------------------------------------------------
Portfolio Environment and Outlook 2
- --------------------------------------------------------------------------------
Fund Facts 4
- --------------------------------------------------------------------------------
Portfolio Highlights 4
- --------------------------------------------------------------------------------
Fund Performance 5
- --------------------------------------------------------------------------------
Portfolio of Investments 6
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities 9
- --------------------------------------------------------------------------------
Statement of Operations 9
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 10
- --------------------------------------------------------------------------------
Financial Highlights 11
- --------------------------------------------------------------------------------
Notes to Financial Statements 13
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from January 1, 1999 through June
30, 1999, for the CitiFundsSM National Tax Free Income Portfolio. Inside, the
CitiFunds' investment manager, Citibank, N.A., discusses the market conditions
it faced, the strategies it employed and its outlook for the future.
The past six months have been a study in contrasts for investor sentiment
and the financial markets. When the reporting period began, investors were
primarily concerned that economic weakness overseas might constrain growth in
the United States. As a result, they favored bonds and stocks with predictable
earnings growth. By the time the reporting period ended, investors were mainly
worried that the U.S. economy might be growing too fast, potentially awakening
long-dormant inflation pressures. In this environment, many investors avoided
bonds and favored stocks that are sensitive to changes in the economic cycle.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
- ---------------------
Philip W. Coolidge
President
July 23, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
THE FIRST SIX MONTHS OF 1999 EXPERIENCED STRONGER-THAN-EXPECTED ECONOMIC
GROWTH BOTH IN THE UNITED STATES AND IN KEY OVERSEAS MARKETS, INCLUDING JAPAN,
SOUTHEAST ASIA AND LATIN AMERICA. As a result, fears regarding the potentially
adverse effects of overseas recessions on U.S. economic growth, which prevailed
at the end of 1998, quickly faded. Instead, investors grew concerned that global
economic strength might become unsustainable, triggering a re-acceleration of
inflation. To forestall a potential resurgence of inflation, the Federal Reserve
Board ("Fed") increased key short-term interest rates modestly on June 30, 1999,
effectively offsetting a portion of last fall's rate cuts.
WHILE THIS ECONOMIC ENVIRONMENT WAS GENERALLY DIFFICULT FOR MOST
FIXED-INCOME SECURITIES BECAUSE OF RISING INTEREST RATES, MUNICIPAL BOND PRICES
REMAINED RELATIVELY STABLE. This is in stark contrast to U.S. Treasury
securities, which declined sharply. As a result, just as municipal bonds did not
rally as strongly as taxable U.S. Treasury bonds over the second half of 1998,
they did not decline as precipitously during the first six months of 1999.
Why have municipal bond prices remained relatively stable? The Fund's
management believes that supply and demand factors are the reasons why. On one
hand, U.S. Treasury securities suffered a sharp fall-off of investor demand as
evidence of economic strength emerged. That is because many investors who had
fled to U.S. Treasuries during last summer's "flight to quality" shifted their
assets back to riskier investments offering potentially higher returns. On the
other hand, municipal bonds benefited from steady demand from individual
investors seeking to manage their income tax liabilities. At the same time, the
strong economy and robust tax revenues reduced states and municipalities' need
to borrow, leading to substantially less issuance of municipal bonds.
IN THIS ENVIRONMENT, THE FUND'S MANAGEMENT FOLLOWED AN INVESTMENT APPROACH
OF FOCUSING ON PRODUCING COMPETITIVE RATES OF TOTAL RETURN, INCLUDING BOTH
INCOME AND CHANGES IN SHARE PRICE, WHILE MANAGING THE RISKS OF CHANGING INTEREST
RATES. Management also maintained a focus on municipal bonds with high credit
ratings as determined both by independent credit rating agencies and Citibank's
own credit analysts.
Throughout the reporting period, the Fund's management focused on bonds
with maturities of 10 to 15 years, which it considers the long end of the
intermediate range. In addition, attractive values were found in the relatively
high yields provided by "premium structure" bonds as well as general obligation
bonds that are backed by the overall taxation authority of their issuers.
MANAGEMENT'S OUTLOOK FOR THE TAX-EXEMPT BOND MARKET REMAINS POSITIVE. The
persistent strength of the U.S. economy has helped many of the nation's states
and municipalities put their fiscal houses in order. Many have achieved budget
surpluses, and some are using that money to create reserves against future
needs. As a result, many municipal bond issuers have received credit rating
upgrades over the past year.
2
<PAGE>
As for the future, the forecast calls for a continuation of positive growth
and low inflation. While it is possible that the Fed may continue to raise
short-term interest rates, the fixed income markets have already incorporated an
incrementally tighter monetary policy into bond prices. In this environment, the
Fund's management expects that municipal bonds should continue to provide
attractive after-tax returns for investors seeking tax-exempt income.
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
To generate high levels of current income exempt from federal income taxes+ and
to preserve the value of its shareholders' investment. The Fund invests
primarily in municipal obligations that pay interest that is exempt from federal
income taxes.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Declared daily, paid monthly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
August 17, 1995 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/99 BENCHMARKS
Class A Shares Lipper General Municipal
$169.3 million Bond Funds Average
Class B Shares Lehman Brothers Municipal 4 Years Plus
$8.2 million Bond Index*
* The Lehman Brothers Municipal 4 Years Plus Bond Index is a broad measure of
the municipal bond market with maturities of at least four years.
+ A portionof the income may be subject to the Federal Alternative Minimum
Tax. Consult your personal tax advisor.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 1999 (Unaudited)
[Figures below represent pie chart in its printed form]
Short-term 3.0%
General Obligation Bonds 36.0%
Housing 9.0%
Education 7.0%
Healthcare 5.0%
State Agencies 10.0%
Power Revenue 0.07%
Transportation Revenue 18.0%
Water/Sewer Revenue 1.0%
Miscellaneous 4.0%
* Includes cash and net other assets
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
SIX ONE 8/17/95
ALL PERIODS ENDING JUNE 30, 1999 (Unaudited) MONTHS** YEAR (INCEPTION)*
===========================================================================================================
<S> <C> <C> <C>
CitiFunds National Tax Free Income Portfolio (Class A)
without sales charge (2.10)% 2.89% 7.70%
Lipper General Municipal Bond Funds Average (1.82)% 1.13% 4.78%+
Lehman Municipal 4 Years Plus Bond Index (1.27)% 2.52% 6.43%+
CitiFunds National Tax Free Income Portfolio (Class A)
with a maximum sales charge of 4.50% (6.50)% (1.74)% 7.32%
CitiFunds National Tax Free Income Portfolio (Class B)
without deferred sales charge -- -- (2.58)%#**
Lipper General Municipal Bond Funds Average -- -- (1.83)%++**
Lehman Municipal 4 Years Plus Bond Index -- -- (1.27)%++**
CitiFunds National Tax Free Income Portfolio (Class B)
without a maximum deferred sales charge of 4.50% -- -- (6.97)%#**
</TABLE>
* Average Annual Total Return~ ** Not Annualized~ + From 8/31/95
++ From 12/31/98
# Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.21%
30-Day SEC Yield Class B 3.65%
Income Dividends Per Share Class A $0.216
Income Dividends Per Share Class B $0.170
GROWTH OF A $10,000
INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$12,728 with sales charge (as of 6/30/99). The graph shows how this compares to
its benchmark over the same period.
[Figures below represent line chart in its printed form]
CitiFunds
Lipper Lehman Muni National
General Muni 4 Years Plus Tax Free
Bond Bond Income Fund
Date Fund Averages Index (Class A)
Aug-1995 9550
Aug-1995 10000 10000 9731.45
Sep-1995 10059 10065 9786.45
Oct-1995 10215 10223 9985.76
Nov-1995 10412 10405 10157.2
Dec-95 10529 10513 10259.33
Jan-1996 10580 10593 10351.83
Feb-1996 10497 10514 10229.38
Mar-1996 10329 10366 10018.78
Apr-1996 10280 10332 9964.47
May-1996 10284 10326 9929.39
Jun-96 10381 10444 10074.14
Jul-1996 10472 10544 10189.14
Aug-1996 10466 10539 10163.36
Sep-1996 10617 10696 10329.92
Oct-1996 10732 10824 10446.45
Nov-1996 10920 11034 10655.21
Dec-96 10873 10981 10599.17
Jan-1997 10873 10998 10624.93
Feb-1997 10968 11106 10722.42
Mar-1997 10825 10945 10572.09
Apr-1997 10914 11042 10681.45
May-1997 11070 11219 10843.32
Jun-97 11194 11346 11026.35
Jul-1997 11530 11687 11431.73
Aug-1997 11394 11564 11299.57
Sep-1997 11254 11710 11474.63
Oct-1997 11324 11788 11533.68
Nov-1997 11389 11862 11592.62
Dec-97 11570 12051 11813.01
Jan-1998 11679 12183 11991.42
Feb-1998 11672 12183 11985.68
Mar-1998 11674 12192 12067.47
Apr-1998 11602 12129 12039.96
May-1998 11790 12337 12276.59
Jun-98 11829 12386 12370.47
Jul-1998 11846 12415 12387.05
Aug-1998 12030 12622 12626.83
Sep-1998 12173 12795 12878.51
Oct-1998 12128 12782 12883.9
Nov-1998 12164 12829 12934.94
Dec-98 12185 12861 13000.45
Jan-1999 12321 13024 13200.99
Feb-1999 12242 12951 13070.74
Mar-1999 12243 12970 13066.05
Apr-1999 12271 13001 13095.72
May-1999 12174 12911 12964.31
Jun-99 11962 12698 12727.66
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors, and reflect
voluntary fee waivers which may be terminated at any time. If the waivers were
not in place, the Fund's returns would have been lower. The maximum sales charge
of 4.50% went into effect on January 4, 1999. Investors may not invest directly
in an index.
5
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------
MUNICIPAL BONDS-- 96.2%
- ----------------------------------------------------------------
GENERAL OBLIGATION BOND -- 35.9%
- ----------------------------------------------------------------
Aa3 Atlanta, Georgia
5.00% due 12/01/11 $2,695 $2,672,766
Aaa Chicago, Illinois
5.25% due 1/01/15 2,000 1,995,780
Aaa Clackamas &
Washington Counties
5.75% due 6/01/09 2,500 2,667,050
Aaa Clark County, Nevada,
School District
5.50% due 6/15/08 2,075 2,156,029
Aaa Denver County
School District 1
5.375% due 12/01/15 2,000 2,015,200
Aaa Denver County
School District 1
5.25% due 12/01/16 3,000 2,976,180
Aaa Douglas County
School District
5.25% due 12/15/12 2,750 2,774,118
Aaa Essex County,
New Jersey
5.375% due 9/01/10 2,025 2,079,290
Aaa Florida State
5.75% due 7/01/08 2,700 2,887,461
Aaa Florida State
Board of Education
5.25% due 6/01/14 2,185 2,188,234
Aaa Hawaii State
5.50% due 10/01/10 2,500 2,593,175
Aaa Marion County, Oregon,
School District
5.00% due 11/01/13 3,585 3,545,027
Aaa Marion County, Oregon,
School District
5.00% due 11/01/14 3,000 2,949,390
Aaa Miami, Florida, Dade
County School District
5.375% due 8/01/10 1,500 1,556,370
Aaa New Jersey State
5.00% due 6/15/09 3,375 3,397,309
A3 New York, New York
5.125% due 8/01/10 2,500 2,486,350
A3 New York, New York
5.125% due 8/01/12 5,775 5,685,661
A3 New York, New York
5.25% due 8/01/14 2,005 1,976,208
A3 New York, New York
5.30% due 8/01/12 3,000 3,002,370
A2 New York State
5.00% due 7/15/11 2,780 2,742,915
A2 New York State
5.25% due 9/15/13 1,000 1,000,760
Aaa North Slope Boro, Alaska
Zero Coupon
due 6/30/09 1,500 909,930
Aaa Oregon State
Department of
Administration
5.25% due 4/01/13 4,000 4,042,200
Aaa Puerto Rico
Commonwealth
6.50% due 7/01/14 1,000 1,152,280
Aaa Umatilla County, Oregon,
School District
5.375% due 6/15/12 2,310 2,351,765
-----------
63,803,818
-----------
EDUCATION -- 6.7%
- ----------------------------------------------------------------
Aaa Illinois Educational
Facility Authority
5.20% due 10/01/12 1,250 1,245,163
Aaa Illinois Educational
Facility Authority
5.25% due 1/01/13 3,000 2,965,740
Aaa New Hampshire
Higher Education
Authority
5.55% due 6/01/23 5,775 5,807,513
Aaa Pennsylvania State
Higher Education
Authority
5.25% due 4/01/11 1,900 1,924,757
-----------
11,943,173
-----------
HEALTHCARE -- 5.4%
- ----------------------------------------------------------------
Aaa Illinois Development
Finance Authority,
5.75% due 5/15/16 1,500 1,543,830
Aa Indiana Hospital
Facilities Authority,
5.50% due 2/15/11 2,000 2,004,320
Aaa Mesa, Arizona, Industrial
Development Authority
5.25% due 1/01/11 2,000 2,033,860
Aaa Michigan State,
Hospital Facilities
Authority
6.00% due 9/01/06 3,750 3,964,875
-----------
9,546,885
-----------
6
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------
HOUSING--8.9%
- ----------------------------------------------------------------
Aaa Alaska State Housing
Finance Corp., AMT
5.75% due 6/01/24 $2,250 $2,262,105
Aa Georgia State Housing
and Finance Corp.
4.65% due 12/01/20 1,440 1,415,707
Aa Minnesota State Housing
Finance Authority
4.85% due 7/01/21 1,370 1,373,644
Aaa New Jersey State Housing
Finance Authority
4.75% due 10/01/17 1,345 1,334,092
Aa North Carolina Housing
Finance Agency
4.55% due 1/01/24 2,000 1,973,400
Aaa Ohio Housing Finance
Agency, AMT
4.65% due 9/01/20 4,000 3,954,840
Aaa Tennessee Housing
Development Authority
Zero Coupon
due 1/01/07 5,005 3,447,544
-----------
15,761,332
-----------
POWER REVENUE -- 6.5%
- ----------------------------------------------------------------
Aaa Jersey City, New Jersey,
Municipal Utilities
5.25% due 12/01/11 1,480 1,509,704
Aaa Lakeland, Florida,
Electrical and
Water Revenue
6.05% due 10/01/10 5,000 5,469,200
Aaa Puerto Rico
Electrical and Public
Power Authority
5.25% due 7/01/14 2,000 2,024,840
Aaa Washington State
Public Power Supply
5.20% due 7/01/12 1,000 995,330
Aaa Washington Multnomah
& Yamhill
5.25% due 7/01/11 1,575 1,590,671
-----------
11,589,745
-----------
STATE AGENCIES -- 9.7%
- ----------------------------------------------------------------
Aa3 California State Public
Works Board
5.25% due 10/01/11 3,030 3,081,237
Aaa Detroit, Michigan,
Downtown Development
Authority
5.25% due 7/01/11 1,500 1,522,515
Aaa New York State,
Dormitory Authority
5.125% due 1/15/12 2,880 2,855,030
Baa1 New York State,
Dormitory Authority
5.375% due 7/01/14 1,000 993,390
A3 New York State,
Dormitory Authority
5.875% due 5/15/11 2,000 2,125,520
A3 New YorkState,
Dormitory Authority
6.50% due 8/15/09 1,780 1,976,298
Baa1 New York State Urban
Development Corp.
5.50% due 1/01/09 1,000 1,028,260
Baa1 New York State Urban
Development Corp.
5.50% due 1/01/16 1,500 1,503,225
Aaa New York State Urban
Development Corp.
5.75% due 1/01/13 2,000 2,086,760
-----------
17,172,235
-----------
TRANSPORTATION REVENUE -- 18.3%
- ----------------------------------------------------------------
Baa2 Alliance, Texas,
Airport Authority Inc.
6.375% due 4/01/21 1,450 1,516,454
Baa Denver, Colorado, City
& County Airport
Revenue~5.60% due 11/15/20 2,000 2,026,480
Baa Denver, Colorado, City
& County Airport
Revenue~7.75% due 11/15/21 2,000 2,155,420
Baa2 Indianapolis International
Airport Authority
Revenue
6.50% due 11/15/31 1,500 1,572,675
Baa3 Kenton County, Kentucky,
Airport Authority
6.125% due 2/01/22 1,075 1,095,995
Baa3 Kenton County, Kentucky,
Airport Authority
7.125% due 2/01/21 1,000 1,064,470
7
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------
Aaa Massachusetts Bay
Transportation
Authority
5.25% due 3/01/15 $5,000 $5,031,550
Aaa Massachusetts Bay
Transportation
Authority~5.50% due 3/01/14 5,000 5,172,900
Aaa Metropolitan Transit
Authority, New York
5.125% due 7/01/14 3,500 3,447,850
Aaa Metropolitan Transit
Authority, New York
5.25% due 4/01/14 2,000 1,989,680
Aaa Miami Florida Parking
Facilities Revenue
5.00% due 10/01/12 1,570 1,554,897
Aaa New York State Highway
Authority Service
5.25% due 4/01/15 2,000 1,991,360
Aaa New York State Highway
Authority Service
5.375% due 4/01/16 2,680 2,693,882
Aaa Portland, Oregon,
Airport Authority
5.25% due 7/01/17 1,150 1,119,973
-----------
32,433,586
-----------
WATER AND SEWER REVENUE -- 1.2%
- ----------------------------------------------------------------
Aaa Atlanta, Georgia,
Waterworks and
Sewer System
5.50% due 11/01/14 2,000 2,062,660
-----------
MISCELLANEOUS -- 3.6%
- ----------------------------------------------------------------
Aaa Brazos River, Texas,
Authority
Revenue
4.90% due 10/01/15 4,000 3,847,960
Aa2 Lower Neches Valley
Authority, Texas,
Oil Refining Project
6.35% due 4/01/26 1,000 1,088,850
Aaa New York State
Municipal Board,
Series A~5.25% due 3/15/11 1,465 1,487,928
-----------
6,424,738
-----------
TOTAL MUNICIPAL BONDS
(Identified Cost
$176,085,132) $170,738,172
------------
VARIABLE RATE DEMAND NOTES*
at AMORTIZED COST -- 1.1%
- ----------------------------------------------------------------
VMIG-1 Harris County, Texas,
Health Facility Development
3.85% due 2/15/27 1,900 1,900,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$177,985,132) 97.3% 172,638,172
OTHER ASSETS,
LESS LIABILITIES 2.7 4,869,540
----- ------------
NET ASSETS 100.0% $177,507,712
===== ============
* Variable rate demand notes have a demand
feature under which the Fund could tender
them back to the issuer on no more than
7 day's notice.
AMT -- Subject to Alternative Minimum Tax
See notes to financial statements
8
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (Unaudited)
================================================================================
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $177,985,132) $172,638,172
Receivable for investments sold 3,368,880
Receivable for shares of beneficial interest sold 288,209
Interest receivable 2,597,976
- --------------------------------------------------------------------------------
Total assets 178,893,237
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 1,048,647
Dividends payable 137,282
Payable to affiliates--Management fee (Note 2) 49,861
Accrued expenses and other liabilities 149,735
- --------------------------------------------------------------------------------
Total liabilities 1,385,525
- --------------------------------------------------------------------------------
NET ASSETS $177,507,712
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $183,857,494
Unrealized depreciation of investments (5,346,960)
Accumulated net realized loss on investments (1,268,590)
Undistributed net investment income 265,768
- --------------------------------------------------------------------------------
Total $177,507,712
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($169,264,810/15,435,671 shares
outstanding) $10.97
Offering Price per share ($10.97 / 0.955) $11.49*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($8,242,902/751,932 shares outstanding) $10.96**
================================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See notes to financial statements
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $5,487,577
EXPENSES:
Management fees (Note 2) $851,491
Service fees Class A (Note 3) 277,335
Service fees Class B (Note 3) 19,486
Custody and fund accounting fees 79,808
Registration fees 71,054
Audit fees 43,053
Shareholder reports 23,987
Transfer agent fees 9,762
Legal fees 7,415
Trustee fees 6,268
Miscellaneous 6,882
- --------------------------------------------------------------------------------
Total expenses 1,396,541
Less aggregate amounts waived by the
Manager (Note 2) (459,547)
Less fees paid indirectly (Note 1E) (2,081)
Net expenses 934,913
- --------------------------------------------------------------------------------
Net investment income $4,552,664
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (1,268,057)
Unrealized depreciation (7,023,122)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (8,291,179)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,738,515)
================================================================================
See notes to financial statements
9
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
=================================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 4,552,664 $ 2,724,659
Net realized gain (loss) on investment transactions (1,268,057) 592,752
Unrealized appreciation (depreciation) of investments (7,023,122) 1,540,941
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (3,738,515) 4,858,352
- -------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (4,212,944) (2,720,230)
Net investment income (Class B) (81,199) --
Net realized gains (Class A) (145,071) (441,633)
Net realized gains (Class B) (6,581) --
- -------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (4,445,795) (3,161,863)
- -------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 25,257,228 275,004,330
Net asset value of shares issued to shareholders
from reinvestment of dividends 4,440,364 2,928,727
Cost of shares repurchased (112,031,147) (22,098,909)
- -------------------------------------------------------------------------------------------------
Total Class A (82,333,555) 255,834,148
- -------------------------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 8,964,596 --
Net asset value of shares issued to shareholders
from reinvestment of dividends 71,051 --
Cost of shares repurchased (457,350) --
- -------------------------------------------------------------------------------------------------
Total Class B 8,578,297 --
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from transactions
in shares of beneficial interest (73,755,258) 255,834,148
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (81,939,568) 257,530,637
- -------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 259,447,280 1,916,643
- -------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $265,768 and $7,247, respectively) $177,507,712 $259,447,280
=================================================================================================
</TABLE>
* January 4, 1999 (Commencement of Operations) to June 30, 1999
See notes to financial statements
10
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
AUGUST 17, 1995
SIX MONTHS (COMMENCEMENT
ENDED. YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
JUNE 30, 1999 ----------------------------- DECEMBER 31,
(Unaudited) 1998 1997 1996 1995
============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 11.43 $ 10.92 $ 10.34 $ 10.55 $ 10.00
- --------------------------------------------------------------------------------------------==--------------
Income From Operations:
Net investment income 0.232 0.524 0.564 0.562 0.187
Net realized and unrealized
gain (loss) on investments (0.467) 0.549 0.586 (0.232) 0.551
- ------------------------------------------------------------------------------------------------------------
Total from operations (0.235) 1.073 1.150 0.330 0.738
- ------------------------------------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.216) (0.540) (0.570) (0.540) (0.188)
Net realized gain on investments (0.009) (0.023) -- -- --
- ------------------------------------------------------------------------------------------------------------
Total from distributions (0.225) (0.563) (0.570) (0.540) (0.188)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.97 $ 11.43 $ 10.92 $ 10.34 $ 10.55
============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $169,265 $259,447 $ 1,917 $ 2,060 $ 1,306
Ratio of expenses to average
net assets (A) 0.80% *0% 0.14% 0% 0%
Ratio of expenses to average net
assets after fees paid indirectly (A) 0.80%* 0% 0% 0% 0%
Ratio of net investment income to
average net assets 4.02%* 4.49% 5.45% 5.42% 5.20%*
Portfolio turnover 44% 57% 55% 52% 0%
Total return (B) (2.10)%** 10.05% 11.45% 3.31% 7.43%**
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the ~period, the expenses were not reduced for fees paid
indirectly, the Sub-administrator had not voluntarily assumed expenses and had
expenses been limited to that required by certain state securities law in 1995,
the net investment income (loss) per share and the ratios would have been as
follows:
Net investment income (loss)
per share $0.207 $0.364 $(0.229) $(0.291) $0.098
RATIOS:
Expenses to average net assets 1.23%* 1.37% 7.66% 8.23% 2.50%*
Net investment income (loss) to
average net assets 3.59% *3.12% (2.21)% (2.81)% 2.70%*
============================================================================================================
</TABLE>
* Annualized
** Not annualized
(A) The expense ratios for the year ended December 31, 1995 and the periods
thereafter have been adjusted to reflect a change in reporting requirements.
The new reporting guidelines require the Fund to increase its expense ratio
by the effect of any expense offset arrangements with its service providers.
(B) Total return does not include the maximum sales charge of 4.50% effective
January 4, 1999.
See notes to financial statements
11
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS (Continued)
CLASS B
-----------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
JUNE 30, 1999 (Unaudited)
================================================================================
Net Asset Value, beginning of period $11.43
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.182
Net realized and unrealized
gain (loss) on investments (0.473)
- --------------------------------------------------------------------------------
Total from operations (0.291)
- --------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.170)
Net realized gains on investments (0.009)
- --------------------------------------------------------------------------------
Total from distributions (0.179)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $10.96
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $8,243
Ratio of expenses to average
net assets 1.30%*
Ratio of net investment income to
average net assets 3.52%*
Portfolio turnover 44%
Total return (2.58)%**
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the ~period, the expenses were not reduced for fees paid
indirectly, the Sub-administrator had not voluntarily assumed expenses, the net
investment income (loss) per share and the ratios would have been as follows:
Net investment income (loss) per share $0.160
RATIOS:
Expenses to average net assets 1.73%*
Net investment income to average net assets 3.09%*
================================================================================
* Annualized
** Not annualized
See notes to financial statements
12
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES The CitiFunds National Tax Free Income
Portfolio (the "Fund") is a separate non-diversified series of CitiFunds Tax
Free Income Trust (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Investment Manager of the Fund is Citibank,
N.A. ("Citibank"). CFBDS, Inc ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
The Fund offers Class A shares and Class B shares. The Fund commenced its
public offering of Class B shares on January 4, 1999. Fund shares outstanding
prior to January 4, 1999 became Class A shares effective January 4, 1999. Class
A shares have a front-end, or initial, sales charge effective January 4, 1999.
This sales charge may be reduced or eliminated in certain circumstances. Class B
shares have no front-end sales charge, but pay a higher ongoing service fee than
Class A shares and are subject to a deferred sales charge if sold within five
years of purchase. Class B shares automatically convert into Class A shares
after eight years. Expenses of the Fund are borne pro-rata by the holders of
each class of shares, except that each class bears expenses unique to that
class~(including the Rule 12b-1 service and distribution fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 plan.
Shares of each class would receive their pro-rata share of the net assets of the
Fund, if the Fund were liquidated. Class A shares have lower expenses than Class
B shares.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. Investment Security Valuations Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service which takes into account appropriate factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of the
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which approximates market value. Securities, if any, for which
there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
B. Income Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or discount on long-term
debt securities when required for federal income tax purposes.
13
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
C. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. Dividends by the Fund from net interest received on
tax-exempt municipal bonds are not includable by shareholders as gross income
for federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt interest dividends. The
portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item to shareholders.
D. Distributions The Fund distinguishes between distributions on a tax basis
and a financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
E. Fees Paid Indirectly The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expense on the Statement of Operations.
F. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund.
G. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup Inc. Citi-
14
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
group Inc. was formed as a result of the merger of Citicorp and Travelers Group,
Inc. which was completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.75% of the Fund's average
daily net assets. The management fee amounted to $851,491 of which $459,547 was
voluntarily waived for the six months ended June 30, 1999. The Trust pays no
compensation directly to any Trustee or any other officer who is affiliated with
the Sub-Administrator, all of whom receive remuneration for their services to
the Trust from the Sub-Administrator or its affiliates.
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the 1940
Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual
rate not to exceed 0.25% of the average daily net assets represented by Class A
shares of the Fund. The Service fees for Class A shares amounted to $277,335 for
the six months ended June 30, 1999. Under the Class B Service Plan, the Fund may
pay a combined monthly distribution and service fee at an annual rate not to
exceed 0.75% of the average daily net assets represented by Class B shares of
the Fund. The Service fees for Class B shares amounted to $19,486 for the period
ended June 30, 1999. These fees may be used to make payments to the Distributor
for distribution services and to others as compensation for the sale of shares
of the applicable class of the Fund, for advertising, marketing or other
promotional activity, and for preparation, printing and distribution of
prospectuses, statements of additional information and reports for recipients
other than regulators and existing shareholders. The Fund may also make payments
to the Distributor and others for providing personal service or the maintenance
of shareholder accounts.
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than U.S. Government securities and short-term obligations, aggregated
$96,037,579 and $146,038,507, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value). Transactions in shares of beneficial interest were
as follows:
15
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
================================================================================
CLASS A
Shares sold 2,214,741 24,222,960
Shares issued to shareholders from
reinvestment of distributions 391,872 257,479
Shares repurchased (9,875,707) (1,951,231)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (7,269,094) 22,529,208
================================================================================
CLASS B*
Shares sold 786,255 --
Shares issued to shareholders from
reinvestment of distributions 6,334 --
Shares repurchased (40,657) --
- --------------------------------------------------------------------------------
Class B net increase 751,932 --
================================================================================
* January 4, 1999 (Commencement of Operations)~to June 30, 1999
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 1999, as
computed on a federal income tax basis, are as follows:
Aggregate cost $177,985,132
Gross unrealized appreciation $ 4,055
Gross unrealized depreciation (5,351,015)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (5,346,960)
================================================================================
7. LINE OF CREDIT The Fund, along with other CitiFunds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the six months
ended June 30, 1999, the commitment fee allocated to the Fund was $538. Since
the line of credit was established there have been no borrowings.
16
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF THE INVESTMENT MANAGER
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street, Boston MA 02116
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
O CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent
or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc.
as distributor.
(C)1999 Citicorp R Printed on recycled paper CFS/NAT/699
<PAGE>
SEMI-ANNUAL REPORT O JUNE 30, 1999
CITIFUNDS(SM)
- ------------
California Tax Free
Income Portfolio
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
BONDS
<PAGE>
TABLE OF CONTENTS
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Portfolio Highlights 3
................................................................................
Fund Performance 4
................................................................................
Portfolio of Investments 5
................................................................................
Statement of Assets and Liabilities 7
................................................................................
Statement of Operations 8
................................................................................
Statement of Changes in Net Assets 9
................................................................................
Financial Highlights 10
................................................................................
Notes to Financial Statements 12
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from January 1, 1999 through June
30, 1999 for the CitiFundsSM California Tax Free Income Portfolio. Inside, the
CitiFunds' investment manager, Citibank, N.A., discusses the market conditions
it faced, the strategies it employed and its outlook for the future.
The past six months have been a study in contrasts for investor sentiment and
the financial markets. When the period began, investors were primarily concerned
that economic weakness overseas might constrain growth in the United States. As
a result, they favored bonds and stocks with predictable earnings growth. By the
time the period ended, investors were mainly worried that the economy might be
growing too fast, potentially awakening long-dormant inflation pressures. In
this environment, they avoided bonds and favored stocks that are sensitive to
changes in the economic cycle.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
- ---------------------
Philip W. Coolidge
President
July 23, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
THE FIRST SIX MONTHS OF 1999 EXPERIENCED STRONGER-THAN EXPECTED ECONOMIC
GROWTH BOTH IN THE UNITED STATES AND IN KEY OVERSEAS MARKETS, INCLUDING JAPAN,
SOUTHEAST ASIA AND LATIN AMERICA. As a result, fears regarding the potentially
adverse effects of overseas recessions on U.S. economic growth, which prevailed
at the end of 1998, quickly faded. Instead, investors grew concerned that global
economic strength might become unsustainable, triggering a reacceleration of
inflation. To forestall a potential resurgence of inflation, the Federal Reserve
Board ("Fed") modestly increased key short-term interest rates on June 30, 1999,
effectively offsetting a portion of last fall's rate cuts.
WHILE THIS ECONOMIC ENVIRONMENT WAS GENERALLY DIFFICULT FOR MOST FIXED-INCOME
SECURITIES BECAUSE OF RISING INTEREST RATES, MUNICIPAL BOND PRICES REMAINED
RELATIVELY STABLE. This is in stark contrast to U.S. Treasury securities, which
declined sharply. As a result, just as municipal bonds did not rally as strongly
as taxable U.S. Treasury bonds over the second half of 1998, they did not
decline as precipitously during the first six months of 1999.
Why have municipal bond prices remained relatively stable? In the view of the
portfolio managers it may simply be a matter of supply and demand. On one hand,
U.S. Treasury securities suffered a sharp fall-off of investor demand as
evidence of economic strength emerged. That is because many investors who had
fled to U.S. Treasuries during last summer's "flight to quality" shifted their
assets back to riskier investments offering potentially higher returns. On the
other hand, municipal bonds benefited from steady demand from individual
investors seeking to manage their income tax liabilities. At the same time, the
strong economy and robust tax revenues reduced state and municipalities' need to
borrow, leading to substantially less issuance of municipal bonds.
IN THIS ENVIRONMENT, MANAGEMENT MAINTAINED ITS LONGSTANDING INVESTMENT
APPROACH, FOCUSING ON PRODUCING COMPETITIVE RATES OF TOTAL RETURN, INCLUDING
BOTH INCOME AND CHANGES IN SHARE PRICE, WHILE MANAGING THE RISKS OF CHANGING
INTEREST RATES. The portfolio's investment team also maintained its focus on
municipal bonds from California issuers with high credit ratings as determined
both by independent credit rating agencies and Citibank's own credit analysts.
Throughout the six-month reporting period, management focused on bonds with
maturities of 10 to 15 years, which it considers the long end of the
intermediate range. In addition, they found attractive values in the relatively
high yields provided by "premium structure" bonds as well as general obligation
bonds that are backed by the overall taxation authority of their issuers.
MANAGEMENT'S OUTLOOK FOR CALIFORNIA'S TAX-EXEMPT BOND MARKET REMAINS
POSITIVE. The persistent strength of the U.S. economy has helped California and
many of its municipalities put their fiscal houses in order. The state and some
local governments have achieved budget surpluses, and some are using that money
to create reserves against future needs. As a result, several California
municipal bond issuers have received credit rating upgrades over the past year.
As for the future, management's forecast calls for a continuation of positive
growth and low inflation. While it is possible that the Fed may continue to
modestly raise short-term interest rates to prevent inflation pressures from
taking root, they believe that the fixed-income markets have already
incorporated an incrementally tighter monetary policy into bond prices. In this
environment, the managers expect that California state municipal bonds should
continue to provide
2
<PAGE>
attractive after-tax returns for state residents seeking income that is exempt
from federal and state income taxes.
FUND FACTS
FUND OBJECTIVE
To provide its shareholders with high levels of current income exempt from both
Federal and California State personal income taxes+ and preservation of the
value of its shareholders' investment.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A Declared daily, paid monthly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
November 2, 1998 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/99 oBENCHMARKS
Class A Shares oLipper General Municipal
$65.9 million Bond Funds Average
Class B Shares oLehman Brothers Municipal
$1.8 million 4 Years Plus Bond Index*
* The Lehman Brothers Municipal 4 Years Plus Bond Index is a broad measure of
the municipal bond market with maturities of at least four years.
+ A portion of the income may be subject to the Federal Alternative Minimum Tax
(AMT). Consult your personal tax advisor.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 1999 (Unaudited)
[The following table represents a pie chart in the printed material]
*Short-Term ....................... 2.0%
Redevelopment ..................... 7.0%
General Obligation Bonds .......... 15.0%
Housing Revenue 2.0%
Education ......................... 11.0%
Healthcare ........................ 4.0%
State Agencies .................... 11.0%
Transportation Revenue ............ 24.0%
Utilities ......................... 17.0%
Other Revenue ..................... 7.0%
* Includes cash and net other assets
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE 11/2/98
(COMMENCEMENT
SIX OF OPERATIONS)
ALL PERIODS ENDING JUNE 30, 1999 (Unaudited) MONTHS* TO 12/31/98*
================================================================================
CitiFunds California Tax Free Income
Portfolio (Class A) without sales charge (2.01)% (0.82)%
Lipper General Municipal Bond Funds Average (1.82)% (2.04)%+
Lehman Municipal 4
Years Plus Bond Index (1.27)% (0.99)%+
CitiFunds California Tax Free Income
Portfolio (Class A)
with a maximum sales charge of 4.50% (6.42)% (5.28)%
CitiFunds California Tax Free Income
Portfolio (Class B)
without deferred sales charge -- (2.44)%#
Lipper General Municipal Bonds Funds Average -- (1.82)%++
Lehman Municipal 4 Years Plus Bond Index -- (1.27)%++
CitiFunds California Tax Free Income
Portfolio (Class B) with a maximum
deferred sales charge of 4.50% -- (6.83)%#
*Not Annualized
+From 10/31/98
++From 12/31/98
#Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.11%
30-Day SEC Yield Class B 3.57%
Income Dividends Per Share Class A $0.202
Income Dividends Per Share Class B $0.157
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have been $9,472
with sales charge (as of 6/30/99). The graph shows how this compares to its
benchmark over the same period.
[The following table represents a line chart in the printed material]
CitiFunds California
Tax-Free Income Lehman Lipper General
Portfolio Municipal Municipal Bond
(Class A) 4 Yrs Plus Index Funds Avg.
- --------------------------------------------------------------------------------
11/2/98 9550 10000 10000
11/30/98 9655 10030 10037
12/31/98 9666 10047 10062
1/31/99 9817 10160 10189
2/28/99 9740 10095 10132
3/31/99 9762 10096 10147
4/30/99 9758 10119 10171
5/31/99 9641 10039 10101
6/30/99 9472 9864 9935
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions are
reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures are provided in accordance with SEC guidelines for comparative
purposes for prospective investors. Total returns reflect certain voluntary fee
waivers which may be terminated. If the waivers were not in place, total returns
would be lower. The maximum sales charge of 4.50% went into effect on January 4,
1999. Investors may not invest directly in an index.
4
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
MUNICIPAL BONDS -- 98.6%
- --------------------------------------------------------------------------------
CERTIFICATES OF PARTICIPATION -- 7.5%
Aaa Los Angeles County,
California Convention
Center,
6.13% due 8/15/11 $1,300 $1,426,594
Aaa San Diego County,
California, Courthouse,
5.25% due 5/1/12 3,580 3,639,679
------------
5,066,273
------------
GENERAL OBLIGATION BONDS -- 14.9%
- --------------------------------------------------------------------------------
Aa3 California State,
5.25% due 6/1/11 1,645 1,712,528
Aaa California State,
5.20% due 12/1/11 1,500 1,499,925
Aa3 California State,
5.00% due 2/1/17 2,175 2,100,919
Aaa Puerto Rico
Commonwealth,
6.50% due 7/1/10 1,400 1,592,374
Aaa Puerto Rico Municipal
Financial Agency,
6.00% due 7/1/11 2,000 2,191,920
Aaa Santa Margarita,
Dana Point,
5.50% due 8/1/10 950 993,301
------------
10,090,967
------------
EDUCATION -- 11.3%
- --------------------------------------------------------------------------------
Aaa Central Valley, California,
School District,
6.25% due 2/1/11 1,000 1,110,620
Aaa Chico, California,
School District,
5.00% due 8/1/13 1,305 1,291,963
Aaa Fallbrook, California,
School District,
3.75% due 9/1/14 555 572,122
Aaa Los Angeles, CA,
Community College
6.00% due 8/15/20 1,250 1,311,375
Aaa Pomona, California
University School
District,
5.90% due 2/1/10 1,000 1,081,690
Aaa University of California
Revenue,
5.13% due 9/1/13 2,300 2,302,553
------------
7,670,323
------------
HEALTHCARE -- 3.7%
- --------------------------------------------------------------------------------
Aa3 California Statewide
Community
Healthcare System
5.25% due 7/1/10 2,500 2,531,225
------------
HOUSING -- 1.5%
- --------------------------------------------------------------------------------
Aaa California Housing
Finance Agency, AMT,
4.75% due 8/1/08 1,000 991,970
------------
REDEVELOPMENT -- 7.3%
- --------------------------------------------------------------------------------
Aaa Calleguas Las Virg,
California Public
Finance Authority,
5.13% due 7/1/14 1,355 1,350,081
Aaa Coalinga California
Public Finance
Authority,
5.85% due 9/15/13 1,595 1,723,031
Aaa San Diego, California
Redevelopment
Agency,
5.13% due 9/1/16 1,915 1,885,892
------------
4,959,004
------------
STATE AGENCIES -- 11.3%
- --------------------------------------------------------------------------------
Aa California State Public
Works Board,
5.50% due 10/1/10 1,320 1,386,541
A1 California State Public
Works Board,
5.25% due 11/1/11 500 510,670
A1 California State Public
Works Board,
5.13% due 10/1/12 1,050 1,051,155
A1 California State Public
Works Board,
5.25% due 11/1/12 1,500 1,524,225
A1 California State Public
Works Board,
5.13% due 10/1/13 1,110 1,106,026
Aa3 Los Angeles County,
California Public
Works Authority,
5.50% due 10/1/11 1,000 1,039,600
Aa Los Angeles County,
California Sanitation
District,
5.38% due 10/1/13 1,000 1,021,950
------------
7,640,167
------------
5
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
TRANSPORTATION REVENUE -- 24.4%
- --------------------------------------------------------------------------------
Aaa Puerto Rico
Commonwealth
Highway &
Transportation
Authority,
5.50% due 7/1/13 $1,125 $1,177,639
Aa3 San Francisco,
California,
Transportation
Tax Authority,
5.25% due 7/1/13 5,920 5,988,968
Aa3 San Francisco,
California,
Transportation
Tax Authority,
5.25% due 7/1/17 2,000 1,988,480
Aaa San Francisco,
California,
International Airport
Revenue, AMT,
6.50% due 5/1/18 3,240 3,509,730
Aaa San Francisco, California,
International Airport
Revenue, AMT,
6.60% due 5/1/20 1,500 1,631,910
Aaa San Mateo County,
California,
Transportation
District,
5.00% due 6/1/14 2,250 2,219,670
------------
16,516,397
------------
UTILITIES -- 16.7%
- --------------------------------------------------------------------------------
Aa2 California State
Department of
Water Resources,
7.00% due 12/1/11 900 1,065,744
Aa2 California State
Department of
Water Resources,
5.13% due 12/1/12 1,125 1,130,805
Aa2 California State
Department of
Water Resources,
5.13% due 12/1/13 1,840 1,842,116
Aaa Central Valley,
California,
Cogeneration,
5.25% due 7/1/12 2,615 2,656,448
Aaa East Bay California
Municipal Utility
District,
5.25% due 6/1/17 1,055 1,048,891
Aaa Fresno, California,
Sewer Revenue,
6.25% due 9/1/14 1,405 1,577,169
Aaa Northern California
Power Agency
5.25% due 8/1/13 1,000 1,009,460
Aaa Puerto Rico Electrical
Power Authority,
5.25% due 7/1/14 1,000 1,012,420
------------
11,343,053
------------
TOTAL MUNICIPAL BONDS
(Identified Cost $69,063,926) 66,809,379
------------
VARIABLE RATE DEMAND NOTES* AT AMORTIZED COST -- 6.1%
- --------------------------------------------------------------------------------
VMIG-1 California Health Facilities Finance Authority,
2.85% due 7/1/13 900 900,000
VMIG-1 Los Angeles, CA, Regional Airport
Lease
3.85% due 12/1/25 700 700,000
VMIG-1 Newport Beach, CA, Revenue,
3.15% due 10/1/26 2,500 2,500,000
- --------------------------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND
NOTES AT AMORTIZED COST 4,100,000
------------
TOTAL INVESTMENTS
(Identified Cost
$73,163,926) 104.7% 70,909,379
OTHER ASSETS,
LESS LIABILITIES (4.7) (3,178,394)
---- ------------
NET ASSETS 100.0% $ 67,730,985
----- ------------
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 day's notice.
AMT - Subject to Alternative Minimum Tax
See notes to financial statements
6
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $73,163,926) $70,909,379
Receivable for shares of beneficial interest sold 1,093,796
Interest receivable 1,091,545
- --------------------------------------------------------------------------------
Total assets 73,094,720
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 4,408,826
Payable for shares of beneficial interest repurchased 779,233
Dividends payable 175,676
- --------------------------------------------------------------------------------
Total liabilities 5,363,735
- --------------------------------------------------------------------------------
NET ASSETS $67,730,985
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $70,679,412
Unrealized depreciation (2,254,547)
Accumulated net realized loss (699,426)
Undistributed net investment income 5,546
- --------------------------------------------------------------------------------
Total $67,730,985
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($65,883,244/6,809,223
shares outstanding) $9.68
Offering Price per share ($9.68 / 0.955) $10.14*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($1,847,741/190,966 shares outstanding) $9.68**
================================================================================
*Based upon single purchases of less than $25,000.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See notes to financial statements
7
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $2,120,762
EXPENSES:
Management fees (Note 2) $341,114
Service fees (Class A) (Note 3) 112,007
Service fees (Class B) (Note 3) 5,093
Custody and fund accounting fees 60,439
Audit fees 35,053
Shareholder reports 33,031
Registration fees 26,794
Trustee fees 9,275
Legal fees 7,517
Transfer agent fees 5,856
Miscellaneous 25,598
- --------------------------------------------------------------------------------
Total expenses 661,777
Less aggregate amounts waived by the Manager
and Distributor (Notes 2 and 3) (362,200)
- --------------------------------------------------------------------------------
Net expenses 299,577
- --------------------------------------------------------------------------------
Net investment income 1,821,185
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (699,353)
Net unrealized depreciation (2,580,649)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (3,280,002)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,458,817)
================================================================================
See notes to financial statements
8
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
SIX MONTHS NOVEMBER 2, 1998
ENDED (COMMENCEMENT OF
JUNE 30, 1999 OPERATIONS) TO
(Unaudited) DECEMBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $1,821,185 $ 451,689
Net realized loss on investment transactions (699,353) (73)
Net change in unrealized appreciation
(depreciation) of investments (2,580,649) 326,102
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,458,817) 777,718
- --------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (1,793,070) (451,689)
Net investment income (Class B) (22,569) --
- --------------------------------------------------------------------------------
Decrease in net assets from
distribution to shareholders (1,815,639) (451,689)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(Note 5):
CLASS A
Net proceeds from sale of shares 10,533,412 96,250,028
Net asset value of shares issued
to shareholders from
reinvestment of dividends 1,838,612 353,195
Cost of shares repurchased (40,001,619) (223,125)
- --------------------------------------------------------------------------------
Total Class A (27,629,595) 96,380,098
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 1,913,251 --
Net asset value of shares issued to
shareholders from
reinvestment of dividends 15,758 --
Cost of shares repurchased (100) --
- --------------------------------------------------------------------------------
Total Class B 1,928,909 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares
of beneficial interest (25,700,686) 96,380,098
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (28,975,142) 96,706,127
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 96,706,127 --
- --------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $5,546
and $0, respectively) $67,730,985 $96,706,127
================================================================================
* January 4, 1999 (Commencement of Operations) to June 30, 1999.
See notes to financial statements
9
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A
------------------------------------------
SIX MONTHS NOVEMBER 2, 1998
ENDED (COMMENCEMENT
JUNE 30, 1999 OF OPERATIONS) TO
(Unaudited) DECEMBER 31, 1998
================================================================================
Net Asset Value, beginning of period $10.08 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.203 0.069
Net realized and unrealized
gain (loss) on investments (0.401) 0.080
- --------------------------------------------------------------------------------
Total from operations (0.198) 0.149
- --------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.202) (0.069)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.68 $10.08
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $65,883 $96,706
Ratio of expenses to average
net assets 0.65%* 0%*
Ratio of net investment
income to average
net assets 4.01%* 4.16%*
Portfolio turnover 72% 1%
Total return (A) (2.01)%** 1.49%**
Note: If Agents of the Fund had not voluntarily agreed to waive all of their
fees for the period, and the Sub-administrator had not voluntarily assumed
expenses, the net investment income per share and the ratios would have been as
follows:
Net investment income per share $0.163 $0.042
RATIOS:
Expenses to average net assets 1.44%* 1.60%*
Net investment income to
average net assets 3.22%* 2.56%*
================================================================================
*Annualized
**Not annualized
(A)Total Return does not include the maximum sales charge of 4.50% effective
January 4, 1999.
See notes to financial statements
10
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
-----------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
JUNE 30, 1999
(Unaudited)
================================================================================
Net Asset Value, beginning of period $11.43
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.158
Net realized and unrealized
gain (loss) on investments (1.751)
- --------------------------------------------------------------------------------
Total from operations (1.593)
- --------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.157)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.68
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $1,848
Ratio of expenses to average
net assets 1.15%*
Ratio of net investment income to average
net assets 3.51%*
Portfolio Turnover 72%
Total return (2.44)%**
Note: If Agents of the Fund had not voluntarily agreed to waive all of their
fees for the period, and the Sub-administrator had not voluntarily assumed
expenses, the net investment income per share and the ratios would have been as
follows:
Net investment income per share $0.122
RATIOS:
Expenses to average net assets 1.94%*
Net investment income to
average net assets 2.72%*
================================================================================
*Annualized
**Not annualized
See notes to financial statements
11
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES The CitiFunds California Tax Free Income
Portfolio (the "Fund") is a separate non-diversified series of CitiFunds Tax
Free Income Trust (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Investment Manager of the Fund is Citibank,
N.A. ("Citibank"). CFBDS, Inc ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
The Fund offers Class A shares and Class B shares. The Fund commenced its
public offering of Class B shares on January 4, 1999. Fund shares outstanding
prior to January 4, 1999 became Class A shares effective January 4, 1999. Class
A shares have a front-end, or initial sales charge effective January 4, 1999.
This sales charge may be reduced or eliminated in certain circumstances. Class B
shares have no front-end sales charge, but pay higher ongoing service fee than
Class A shares, and are subject to a deferred sales charge if sold within five
years of purchase. Class B shares automatically convert into Class A shares
after eight years. Expenses of the Fund are borne pro-rata by the holders of
each class of shares, except that each class bears expenses unique to that class
(including Rule 12b-1 service and distribution fees applicable to such class),
and votes as a class only with respect to its own Rule 12b-1 plan. Shares of
each class would receive their own pro-rata share of the net assets of the Fund,
if the Fund were liquidated. Class A shares have lower expense ratios than Class
B shares.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. Investment Security Valuations Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service which takes into account appropriate factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of the
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which approximates market value. Securities, if any, for which
there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
B. Income Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or discount on long-term
debt securities when required for federal income tax purposes.
C. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
dis-
12
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
tribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. Dividends by the Fund from net interest received on
tax-exempt municipal bonds are not includable by shareholders as gross income
for federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt interest dividends. The
portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item to shareholders.
D. Distributions The Fund distinguishes between distributions on a tax basis
and a financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
E. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund.
F. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup Inc.
Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers
Group Inc., which was completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.50% of the Fund's average
daily net assets. The management fee amounted to $341,114, all of which was
voluntarily waived for the six months ended June 30, 1999. The Trust pays no
compensation directly to any Trustee or any other officer who is affiliated with
the
13
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
Sub-Administrator, all of whom receive remuneration for their services to the
Trust from the Sub-Administrator or its affiliates.
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the 1940
Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual
rate not to exceed 0.25% of the average daily net assets represented by Class A
shares of the Fund. The Service fees for Class A shares amounted to $112,007 of
which $21,085 was voluntarily waived for the six months ended June 30, 1999.
Under the Class B Service Plan, the Fund may pay a combined monthly distribution
and service fee at an annual rate not to exceed 1.00% of the average daily net
assets represented by Class B shares of the Fund. The Distribution fees for
Class B shares amounted to $5,093 for the period ended June 30, 1999. These fees
may be used to make payments to the Distributor for distribution services and to
others as compensation for the sale of shares of the applicable class of the
Fund, for advertising, marketing or other promotional activity, and for
preparation, printing and distribution of prospectuses, statements of additional
information and reports for recipients other than regulators and existing
shareholders. The Fund may also make payments to the Distributor and others for
providing personal service or the maintenance of shareholder accounts.
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than U.S. Government securities and short-term obligations, aggregated
$41,469,907 and $62,672,645, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value). Transactions in shares of beneficial interest were
as follows:
FOR THE PERIOD
SIX MONTHS NOVEMBER 2, 1998
ENDED (COMMENCEMENT
JUNE 30, 1999 OF OPERATIONS)
(Unaudited) TO DECEMBER 31, 1998
================================================================================
CLASS A
Shares sold 1,040,370 9,580,829
Shares issued to shareholders from
reinvestment of dividends 183,829 34,970
Shares repurchased (4,008,655) (22,120)
- --------------------------------------------------------------------------------
Class A Net increase (decrease) (2,784,456) 9,593,679
================================================================================
CLASS B*
Shares sold 189,386 --
Shares issued to shareholders from
reinvestment of dividends 1,590 --
Shares repurchased (10) --
- --------------------------------------------------------------------------------
Class B Net increase 190,966 --
================================================================================
*January 4, 1999 (Commencement of Operations) to June 30, 1999
14
<PAGE>
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 1999, as
computed on a federal income tax basis, are as follows:
Aggregate cost $73,163,926
================================================================================
Gross unrealized appreciation $ 2,713
Gross unrealized depreciation (2,257,260)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(2,254,547)
================================================================================
`
7. LINE OF CREDIT The Fund, along with other CitiFunds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the six months
ended June 30, 1999, the commitment fee allocated to the Fund was $127. Since
the line of credit was established there have been no borrowings.
15
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF THE INVESTMENT MANAGER
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent
or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc.
as distributor.
(C)1999 Citicorp [LOGO] Printed on recycled paper CFS/CAT/699
