Annual Report o December 31, 1999
CITIFUNDS(SM)
- -------------
NEW YORK TAX FREE
INCOME PORTFOLIO
- -----------------------------------------------
B O N D S
-----------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
-----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
CITIFUNDS NEW YORK 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 10
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS 11
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS 12
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 15
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 20
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
1999 was a challenging year for New York's municipal bond market.
Faster-than-expected economic growth in the United States coupled with rapid
global economic recovery contributed to sharply higher interest rates and price
erosion for most U.S. bonds. These negative economic influences were accompanied
by adverse supply-and-demand factors, where a lack of institutional and
corporate demand offset the positive effects of reduced supply. Yet municipal
bonds ended the year providing investors with attractive yields on an after-tax
basis when contrasted with comparable taxable investments.
Throughout the period, the CitiFunds' investment adviser, Citibank, N.A.,
continued to manage CitiFunds(SM) new york tax free income portfolio according
to its investment objective, which is to generate high levels of current income
exempt from federal, New York State and New York City personal income taxes and
preserve the value of its shareholders' investment.
This report reviews the Fund's investment activities and performance for
the year ended December 31, 1999, and provides a summary of Citibank's
perspective on and outlook for New York's tax-exempt bond market.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------
Philip W. Coolidge
President
January 17, 2000
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
AFTER SEVERAL YEARS OF SOLID RETURNS, NEW YORK'S MUNICIPAL BOND MARKET
DECLINED IN 1999. While the favorable economic and market conditions--low
inflation, robust consumer spending and rising demand for U.S. exports--in New
York and the rest of the U.S. over the past several years have remained largely
intact, many investors became increasingly concerned in 1999 that inflationary
pressures might resurface. In an attempt to forestall a potential reacceleration
of inflation, the Federal Reserve Board (the "Fed") raised interest rates three
times during 1999.
These economic conditions contrast with factors that prevailed just before
the reporting period began. In November 1998, the Fed completed a series of
interest rate cuts intended to stimulate global economic growth, which was then
threatened by the spread of an international currency and credit crisis.
Moreover, the Fed wanted to help insulate the U.S. economy from the adverse
effects of a global economic slowdown. The Fed's strategy apparently worked
because many overseas economies began to recover in 1999 and the U.S. economy
continued its strong growth.
A GROWING GLOBAL ECONOMY HAS RAISED INFLATION CONCERNS AMONG BOND INVESTORS.
Uncertainty regarding the direction and magnitude of interest rates created
higher levels of volatility in the bond market early in 1999. When it became
clear that the U.S. and international economies were growing strongly, the Fed
raised short-term interest rates in an attempt to prevent inflation.
Higher interest rates adversely affected the prices of both taxable and
tax-exempt securities. YET, THE TAX-EXEMPT BOND MARKET WAS ALSO NEGATIVELY
AFFECTED BY UNIQUE SUPPLY-AND-DEMAND FACTORS. Although demand for municipal
bonds remained strong among many individual investors, most institutions and
corporations did not participate in the municipal market at the level they had
in previous years. In Fund management's view, this is because yields on taxable
corporate bonds rose enough to exceed the after-tax yields provided to taxable
investors by municipal bonds. Despite the potentially positive effects of a 20%
reduction in the issuance of municipal bonds nationally in 1999 compared to the
previous year, this lack of institutional demand caused tax-exempt bond prices
to further decline.
The Fund's average duration (i.e., a measure of sensitivity to changing
interest rates) was within the neutral range during the first half of 1999 and
toward the short end of the neutral range during the second half of the year. By
reducing the Fund's average duration, the investment team had more cash
available to purchase higher yielding securities as they became available.
2
<PAGE>
THE FUND'S MANAGEMENT FOUND ATTRACTIVE OPPORTUNITIES PRIMARILY AMONG
INTERMEDIATE-TERM BONDS SELLING AT A MODEST PREMIUM TO FACE VALUE. According to
management, bonds in the 10- to 15-year maturity range provided highly
competitive returns at relatively lower levels of price risk than the 20-30 year
sector. More importantly, premium coupon bonds tend to have a level of price
volatility that is lower than discount or par coupon.
WHILE NO GUARANTEES CAN BE MADE, LOOKING AHEAD, THE FUND'S MANAGEMENT
BELIEVES THAT MUNICIPAL BONDS SHOULD DELIVER BETTER RETURNS IN 2000, IF, AS THEY
EXPECT, NATIONAL SUPPLY-AND-DEMAND FACTORS RETURN TO A MORE FAVORABLE BALANCE.
Also, if the U.S. economy begins to moderate and inflation remains low over the
next several months, the municipal bond market may rally.
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 12/31/99 BENCHMARKS
Class A shares o Lipper New York State Municipal
$224.1 million Bond Funds Average
Class B shares o Lehman Brothers
$10.7 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 DECEMBER 31, 1999
[PIE CHART OMITTED]
Transportation Revenue..... 29%
State Agencies............. 24%
General Obligation Bonds... 10%
Housing Revenue............ 10%
Healthcare................. 8%
Other Revenues............. 8%
Water/Sewer Revenue........ 7%
Power Revenue.............. 3%
*Short-Term................ 1%
* Includes cash and other assets.
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
ONE FIVE TEN
ALL PERIODS ENDING DECEMBER 31, 1999 YEAR YEARS* YEARS*
- --------------------------------------------------------------------------------
CitiFunds New York Tax Free Income Portfolio
(Class A) without sales charge (3.73)% 6.50% 6.19%
Lipper New York State Municipal Bond
Funds Average (4.89)% 5.68% 6.09%
Lehman Brothers Municipal Bond Index (2.06)% 6.91% 6.89%
CitiFunds New York Tax Free Income Portfolio
(Class A) with a maximum sales charge of 4.50% (8.07)% 5.52% 5.70%
CitiFunds New York Tax Free Income Portfolio
(Class B) without deferred sales charge -- -- (4.45)%++**
Lipper New York State Municipal Bond
Funds Average -- -- (4.89)%+**
Lehman Brothers Municipal Bond Index -- -- (2.06)%+**
CitiFunds New York Tax Free Income Portfolio
(Class B) with a maximum deferred
sales charge of 4.50% -- -- (8.75)%++**
* Average Annual Total Return
** Not Annualized
+ From 12/31/98
++ Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.73% Income Dividends Per Share Class A $0.474
30-Day SEC Yield Class B 4.22% Income Dividends Per Share Class B $0.399
GROWTH OF A $10,000 INVESTMENT
A $10,000 INVESTMENT IN THE FUND MADE ON 12/31/89 WOULD HAVE GROWN TO $17,405,
INCLUDING THE MAXIMUM SALES CHARGE (AS OF 12/31/99). THE GRAPH SHOWS HOW THIS
COMPARES TO ITS BENCHMARK OVER THE SAME PERIOD.
CitiFunds Lipper Lehman Brothers
New York Tax New York State Municipal Bond
Free Income Fund Municipal Bond Index
Date Portfolio (Class A) Funds Average (unmanaged)
- ---- ------------------- -------------- ---------------
12/31/89 9550 10000 10000
9446 9894 9953
9487 9978 10042
9490 9953 10045
9340 9829 9972
9593 10081 10190
9725 10200 10279
9941 10390 10431
9705 10176 10279
9650 10134 10285
9780 10235 10472
10095 10468 10683
12/31/90 10117 10502 10729
10286 10645 10873
10273 10704 10968
10272 10743 10972
10432 10911 11118
10522 10996 11217
10512 10985 11206
10668 11163 11342
10823 11324 11492
10995 11494 11641
11110 11604 11746
11121 11620 11779
12/31/91 11365 11860 12032
11325 11794 12059
11353 11838 12063
11319 11876 12067
11392 12002 12175
11583 12177 12318
11817 12429 12525
12224 12884 12900
12047 12688 12774
12088 12726 12858
11870 12515 12732
12141 12822 12960
12/31/92 12258 12986 13092
12452 13146 13244
12929 13666 13723
12823 13527 13578
12920 13675 13715
12949 13771 13792
13164 14003 14023
13168 13998 14041
13395 14304 14333
13549 14462 14496
13573 14490 14524
13450 14328 14396
12/31/93 13732 14628 14700
13866 14783 14867
13524 14412 14482
12911 13764 13893
12935 13778 14011
13044 13913 14133
12886 13815 14051
13143 14058 14308
13204 14105 14352
12945 13834 14141
12698 13532 13890
12412 13164 13638
12/31/94 12707 13529 13938
13060 13910 14337
13440 14358 14754
13593 14480 14924
13605 14498 14942
14119 14965 15418
13925 14764 15284
13990 14856 15429
14174 15024 15625
14213 15102 15724
14529 15346 15952
14846 15641 16216
12/31/95 14980 15802 16372
15046 15873 16497
14859 15740 16384
14631 15480 16175
14563 15415 16129
14590 15414 16123
14754 15577 16299
14889 15725 16445
14844 15687 16442
15104 15930 16672
15240 16090 16861
15517 16379 17169
12/31/96 15430 16296 17097
15456 16291 17130
15608 16437 17287
15406 16225 17057
15532 16367 17201
15801 16610 17460
15985 16778 17647
16473 17290 18136
16267 17089 17965
16453 17284 18179
16568 17386 18296
16653 17482 18404
12/31/97 16914 17760 18672
17119 17932 18865
17086 17925 18870
17098 17928 18887
16997 17787 18802
17333 18107 19099
17398 18176 19174
17402 18201 19222
17728 18505 19520
17980 18736 19764
17957 18663 19763
18011 18719 19833
12/31/98 18080 18757 19882
18324 18963 20119
18164 18855 20030
18159 18853 20058
18201 18895 20108
18024 18742 19992
17705 18419 19704
17750 18438 19775
17591 18194 19617
17589 18129 19625
17310 17830 19413
17558 18015 19618
12/31/99 17405 17839 19471
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
<PAGE>
CITIFUNDS NEW YORK TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS December 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--98.3%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS--8.6%
- --------------------------------------------------------------------------------
A3 New York City, NY,
Series A,
6.25% due 8/01/12 $ 3,200 $ 3,359,904
A3 New York City, NY,
Series B, Unrefunded,
6.375% due 8/15/11 1,185 1,253,114
A3 New York City, NY,
Series F,
5.25% due 8/01/17 7,000 6,356,560
A3 New York City, NY,
Series F,
6.00% due 8/01/12 2,000 2,066,140
A3 New York City, NY,
Series F, Prerefunded,
7.65% due 2/01/06 2,700 2,896,614
Aaa New York City, NY,
Series F, Prerefunded,
8.40% due 11/15/06 1,825 1,976,767
A2 New York State,
5.25% due 9/15/13 2,500 2,403,000
----------
20,312,099
----------
HEALTHCARE--7.5%
- --------------------------------------------------------------------------------
Aaa New York State
Dormitory Authority, Hospital,
5.10% due 2/15/12 5,000 4,786,200
Aaa New York State
Dormitory Authority,
North Shore University,
5.50% due 11/01/12 2,485 2,505,278
Aaa New York State
Dormitory Authority,
North Shore University,
5.50% due 11/01/14 4,000 3,955,760
Aaa New York State
Dormitory Authority,
Presbyterian Hospital,
5.50% due 2/01/10 4,835 4,894,471
Aaa New York State
Dormitory Authority,
Sloan Kettering Hospital,
5.50% due 7/01/17 1,600 1,545,968
----------
17,687,677
----------
HOUSING REVENUE--9.9%
- --------------------------------------------------------------------------------
Aaa New York State
Housing Finance Agency, ETM,
5.25% due 9/15/12 $ 2,000 $ 1,912,320
Aaa New York State
Housing Finance Agency, ETM,
5.875% due 9/15/14 4,000 4,002,480
Aaa New York State
Housing Finance Agency, ETM,
7.90% due 11/01/06 5,750 6,442,300
Aa New York State
Mortgage Agency
Revenue, AMT,
5.35% due 10/01/18 3,200 2,950,624
Aa New York State
Mortgage Agency
Revenue, AMT,
5.45% due 4/01/18 1,735 1,646,463
Aa New York State
Mortgage Agency
Revenue, AMT,
7.25% due 10/01/07 6,075 6,308,462
----------
23,262,649
----------
POWER REVENUE--3.4%
- --------------------------------------------------------------------------------
Aaa Long Island Power
Authority, NY,
5.50% due 12/01/12 4,220 4,250,806
Aaa Puerto Rico Electric
Power
Authority,
5.25% due 7/01/21 1,000 901,170
Aaa Puerto Rico Electric
Power
Authority,
6.00% due 7/01/14 2,750 2,840,805
----------
7,992,781
----------
SALES TAX REVENUE--2.2%
- --------------------------------------------------------------------------------
Aa3 New York City
Transitional, NY,
Series A,
6.00% due 8/15/15 5,000 5,091,750
----------
STATE AGENCIES--23.8%
- --------------------------------------------------------------------------------
Aaa New York State
Dormitory Authority,
City University,
5.60% due 7/01/10 10,550 10,693,902
6
<PAGE>
CITIFUNDS NEW YORK TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Aaa New York State
Dormitory Authority,
City University,
5.75% due 7/01/18 $ 3,000 $ 2,979,750
Baa1 New York State
Dormitory Authority,
Court Facilities,
5.25% due 5/15/21 1,000 874,370
A3 New York State
Dormitory Authority,
Mental Health Services,
6.50% due 2/15/11 1,610 1,742,406
Aaa New York State
Dormitory Authority,
New York University,
5.75% due 7/01/27 6,300 6,122,151
Aaa New York State
Dormitory Authority,
Saint Joseph's Hospital,
5.25% due 7/01/18 2,000 1,815,100
A3 New York State
Dormitory Authority,
State University,
5.25% due 5/15/13 2,030 1,947,054
Aaa New York State
Dormitory Authority,
State University,
5.25% due 5/15/14 3,000 2,829,300
A3 New York State
Dormitory Authority,
State University,
5.40% due 5/15/23 1,690 1,493,842
A3 New York State Local
Government Assistance,
Series A,
5.25% due 4/01/19 4,000 3,580,160
A3 New York State Local
Government Assistance,
Series A,
5.375% due 4/01/12 2,475 2,445,325
A3 New York State
Local Government
Assistance, Series E,
6.00% due 4/01/14 2,000 2,073,700
Baa1 New York State
Urban Development
Authority, Correc-
tional Cap,
5.25% due 1/01/13 1,500 1,434,660
Baa1 New York State
Urban Development
Authority, Correc-
tional Cap,
5.75% due 1/01/13 $14,500 $14,574,675
Baa1 New York State Urban
Development Authority,
Youth Facilities,
5.875% due 4/01/09 1,245 1,284,491
-----------
55,890,886
-----------
TRANSPORTATION REVENUE--27.8%
- --------------------------------------------------------------------------------
Baa1 Metropolitan Transportation
Authority, NY,
5.50% due 7/01/12 2,380 2,356,700
Baa1 Metropolitan Transportation
Authority, NY,
5.75% due 7/01/13 1,000 1,011,230
Baa1 Metropolitan Transportation
Authority, NY, Series O,
5.75% due 7/01/13 3,000 3,033,690
Aaa Metropolitan Transportation
Authority, NY, Series Q,
5.125% due 7/01/13 2,555 2,411,102
Aaa Metropolitan Transportation
Authority, NY,
5.125% due 7/01/17 2,300 2,074,623
Baa1 Metropolitan Transportation
Authority, NY,
5.625% due 7/01/25 1,940 1,816,829
Aaa New York City Transportation
Authority,
5.625% due 1/01/14 2,500 2,474,950
Aaa New York State Thruway
Authority,
6.00% due 4/01/11 2,580 2,666,533
Aaa New York State Thruway
Authority, Series A,
5.125% due 4/01/12 2,000 1,918,180
7
<PAGE>
CITIFUNDS NEW YORK TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Aaa New York State
Thruway Authority,
Series B, 5.25% due 4/01/14 $ 3,000 $ 2,874,930
Aaa New York State
Thruway Authority,
Series C, 5.25% due 4/01/15 2,070 1,959,648
Aaa New York State
Thruway Authority,
Series E, 5.25% due 1/01/12 2,000 1,958,220
Aaa New York State
Thruway Authority,
Series E, 5.25% due 1/01/13 9,500 9,187,450
Aaa New York State
Thruway Authority,
Series E, 5.25% due 1/01/15 4,550 4,292,925
Baa1 New York State
Thruway Authority,
Local Highway,
6.00% due 4/01/07 2,000 2,089,180
Baa1 New York State
Thruway Authority,
Local Highway, Series A,
5.25% due 4/01/12 6,000 5,903,820
Baa1 New York State
Thruway Authority,
Local Highway, Series B,
5.25% due 4/01/12 8,135 7,701,323
Baa1 New York State
Thruway Authority,
Local Highway, Series B,
5.375% due 4/01/13 6,570 6,414,488
Aaa Puerto Rico Commonwealth
Highway Authority,
5.50% due 7/01/15 1,000 990,750
Aaa Puerto Rico Commonwealth
Highway Authority,
6.25% due 7/01/14 2,000 2,150,520
-----------
65,287,091
-----------
WATER AND SEWER REVENUE--7.2%
- --------------------------------------------------------------------------------
Aa New York State
Environmental Facilities,
7.00% due 6/15/12 3,250 3,424,655
Aa New York State
Environmental Facilities,
7.50% due 6/15/12 $ 3,000 $ 3,098,340
A1 New York State
Environmental Facilities,
5.25% due 6/15/13 5,000 4,822,300
A1 New York State
Environmental Facilities,
5.25% due 6/15/14 3,500 3,329,725
A1 New York State
Environmental Facilities,
7.125% due 7/01/12 2,100 2,162,055
-----------
16,837,075
-----------
OTHER REVENUE--7.9%
- --------------------------------------------------------------------------------
N/R New York City
Housing Development Corp.
6.10% due 11/01/19 1,645 1,647,402
N/R New York City Industrial
Development Agency,
College Mount Saint Vincent
7.00% due 5/01/08 755 788,915
A1 New York City Industrial
Development Agency,
Terminal Group One, AMT,
6.125% due 1/01/24 5,000 4,856,350
N/R Port Authority of New York
and New Jersey,
Special Obligation,
6.75% due 10/01/19 11,250 11,322,113
-----------
18,614,780
-----------
TOTAL MUNICIPAL BONDS
(Identified Cost
$240,113,984) 230,976,788
-----------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST--2.00%
- --------------------------------------------------------------------------------
Aaa Long Island Power
Authority, NY,
4.70% due 5/01/33 1,600 1,600,000
A3 New York City, NY,
4.75% due 8/01/20 3,100 3,100,000
-----------
TOTAL VARIABLE RATE
DEMAND NOTES
AT AMORTIZED COST 4,700,000
-----------
8
<PAGE>
CITIFUNDS NEW YORK TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Identified Cost 100.3% $235,676,788
$244,813,984)
OTHER ASSETS,
LESS LIABILITIES (0.3) (819,345)
----- ------------
NET ASSETS 100.0% $234,857,443
----- ------------
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 days notice.
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
DECEMBER 31, 1999
==============================================================================
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $244,813,984) $ 235,676,788
Cash 176,181
Interest receivable 4,476,269
Receivable for shares of beneficial interest sold 64,442
- ------------------------------------------------------------------------------
Total assets 240,393,680
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 3,300,478
Payable for investments purchased 1,652,805
Dividends payable 340,812
Payable to affiliate-- Management fees (Note 2) 86,108
Accrued expenses and other liabilities 156,034
- ------------------------------------------------------------------------------
Total liabilities 5,536,237
- ------------------------------------------------------------------------------
NET ASSETS $ 234,857,443
==============================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 253,614,589
Accumulated net realized loss on investments
and futures transactions (10,499,900)
Unrealized depreciation of investments (9,137,196)
Undistributed net investment income 879,950
- ------------------------------------------------------------------------------
Total $ 234,857,443
==============================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($224,144,186/20,772,950
shares outstanding) $10.79
Offering Price per share ($10.79 / 0.955) $11.30*
==============================================================================
CLASS B SHARES:
Net Asset Value and offering price per share
($10,713,257/993,397 shares outstanding) $10.78**
==============================================================================
* 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 YEAR ENDED DECEMBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $ 18,355,512
EXPENSES:
Management fees (Note 2) $ 2,653,050
Service Fees Class A (Note 3) 862,089
Service Fees Class B (Note 3) 66,782
Custody and fund accounting fees 148,534
Registration fees 97,209
Transfer agent fees 50,364
Legal fees 49,609
Shareholder reports 44,388
Audit fees 32,865
Trustee fees 32,500
Miscellaneous 38,881
- --------------------------------------------------------------------------------
Total expenses 4,076,271
Less aggregate amounts waived by Manager (Note 2) (1,196,903)
Less fees paid indirectly (Note 1F) (4,250)
- --------------------------------------------------------------------------------
Net expenses 2,875,118
- --------------------------------------------------------------------------------
Net investment income 15,480,394
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from investment transactions (5,635,910)
Net realized loss on futures transactions (41,700)
Unrealized depreciation (22,044,739)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (27,722,349)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(12,241,955)
================================================================================
See notes to financial statements
11
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 15,480,394 $ 9,430,083
Net realized gain (loss) from investments
and futures transactions (5,677,610) 290,419
Unrealized appreciation (depreciation)
of investments (22,044,739) 6,020,732
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (12,241,955) 15,741,234
- --------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (14,326,411) (9,457,025)
Net investment income (Class B) (335,151) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (14,661,562) (9,457,025)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 34,112,225 438,461,762
Net asset value of shares issued to
shareholders from reinvestment of dividends 14,423,120 8,905,232
Cost of shares repurchased (257,931,562) (70,037,469)
- --------------------------------------------------------------------------------
Total Class A (209,396,217) 377,329,525
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 13,958,726 --
Net asset value of shares issued to
shareholders from reinvestment of dividends 268,729 --
Cost of shares repurchased (2,661,645) --
- --------------------------------------------------------------------------------
Total Class B 11,565,810 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares of
beneficial interest (197,830,407) 377,329,525
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (224,733,924) 383,613,734
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 459,591,367 75,977,633
- --------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $879,950 and
$61,118, respectively) $234,857,443 $459,591,367
================================================================================
* January 4, 1999 (Commencement of Operations) to December 31, 1999.
See notes to financial statements
12
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
=================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 11.69 $ 11.42 $ 10.98 $ 11.25 $ 10.09
- -------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.514 0.487 0.594 0.585 0.607
Net realized and unrealized gain (loss)
on investments (0.940) 0.282 0.431 (0.267) 1.153
-------
- -------------------------------------------------------------------------------------------------
Total from operations (0.426) 0.769 1.025 0.318 1.760
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.474) (0.499) (0.585) (0.588) (0.600)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.79 $ 11.69 $ 11.42 $ 10.98 $ 11.25
=================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $224,144 $459,591 $75,978 $82,182 $90,264
Ratio of expenses to average net assets 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income
to average net assets 4.40% 4.24% 5.31% 5.34% 5.62%
Portfolio turnover 30% 17% 16% 47% 98%
Total return (A) (3.73)% 6.89% 9.62% 3.01% 17.89%
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 $ 0.465 $ 0.454 $ 0.540 $ 0.534 $ 0.555
RATIOS:
Expenses to average net assets 1.13% 1.09% 1.28% 1.27% 1.27%
Net investment income to average net assets 4.07% 3.95% 4.83% 4.87% 5.15%
=================================================================================================
</TABLE>
(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
DECEMBER 31, 1999
================================================================================
Net Asset Value, beginning of period $ 11.69
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.412
Net realized and unrealized gain (loss) on investments (0.923)
- --------------------------------------------------------------------------------
Total from operations (0.511)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.399)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.78
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $10,713
Ratio of expenses to average net assets 1.30%*
Ratio of net investment income to average net assets 3.90%*
Portfolio turnover 30%
Total return (4.45)%
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 $0.375
RATIOS:
Expenses to average net assets 1.63%*
Net investment income to average net assets 3.57%*
================================================================================
* Annualized
See notes to financial statements
14
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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. 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. For the period ended
December 31, 1999, CFBDS, acting as the distributor, received net commissions
paid by investors of $26,004 from sales of Class A shares and $71,020 in
deferred sales charges from redemptions of 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.
15
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1999, the Fund, for federal income tax purposes, had a capital loss
carryover of $9,528,555, $4,822,290 which will expire on December 31, 2002 and
$4,706,265 which will expire on December 31, 2007. 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.
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
16
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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.
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 $2,653,050 of
which $1,196,903 was voluntarily waived for the year ended December 31, 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
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
17
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
amounted to $862,089 for the year ended December 31, 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 $66,782 for the period ended December 31, 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
$104,143,465 and $271,321,156, 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:
Year Ended December 31,
---------------------------------
1999 1998
================================================================================
CLASS A
Shares sold 2,954,505 37,973,237
Shares reinvested 1,274,608 771,454
Shares repurchased (22,787,364) (6,064,886)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (18,558,251) 32,679,805
================================================================================
CLASS B*
Shares sold 1,207,708 --
Shares reinvested 24,156 --
Shares repurchased (238,467) --
- --------------------------------------------------------------------------------
Class B net increase 993,397 --
================================================================================
* January 4, 1999 (Commencement of Operations) to December 31, 1999.
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at December 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $245,785,329
================================================================================
Gross unrealized appreciation $ 1,941,694
Gross unrealized depreciation (12,050,235)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(10,108,541)
================================================================================
18
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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 year ended December 31, 1999, the commitment fee
allocated to the Fund was $988. Since the line of credit was established there
have been no borrowings.
19
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES OF CITIFUNDS TAX FREE INCOME TRUST AND SHAREHOLDERS OF CITIFUNDS
NEW YORK TAX FREE INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of CitiFunds New York Tax Free Income
Portfolio, a separate series of CitiFunds Tax Free Income Trust (the "Trust") (a
Massachusetts business trust), as of December 31, 1999, the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years and the period then ended, and the financial highlights
for each of the years in the five-year period ended December 31, 1999. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly in all material respects, the financial position of CitiFunds New York
Tax Free Income Portfolio at December 31, 1999, the results of its operation,
the changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 2000
20
<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
Linwood Downs*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF THE INVESTMENT MANAGER
***TRUSTEE EMERITUS
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 California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds New
York Tax Free Income Portfolio. It is authorized for distribution to prospective
investors only when preceded or accompanied by an effective prospectus of
CitiFunds New York Tax Free Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds New York Tax Free Income Portfolio, which
preceded or accompanies this report) containing more complete information,
including all sales charges (if any), fees and expenses. Please read the
prospectus carefully before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. Investments in non-U.S.
securities and small company stocks are subject to additional risks.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)2000 Citicorp [Recycle Logo] Printed on recycled paper CFA/NYI/1299
<PAGE>
Annual Report o December 31, 1999
CITIFUNDS(SM)
- -------------
NATIONAL TAX FREE
INCOME PORTFOLIO
- -----------------------------------------------
B O N D S
-----------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
-----------------------------------------------------
<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 10
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 14
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 18
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
The national municipal bond market faced a challenging year in 1999.
Faster-than-expected economic growth in the United States coupled with global
economic recovery contributed to higher interest rates and eroded prices of most
municipal securities. Moreover, adverse supply-and-demand factors, including a
lack of demand from institutional and corporate buyers, offset the positive
effects generally accompanied by a reduced supply of municipal bonds. Despite
these challenging conditions, municipal bonds ended the year providing
attractive yields on an after-tax basis when contrasted with comparable taxable
investments.
Throughout the reporting period, the Fund's management team continued to
manage CitiFunds(SM) National Tax Free Income Portfolio by seeking to generate
high levels of current income exempt from federal income taxes and preserve the
value of its shareholders' investment.
This report reviews the Fund's investment activities and performance for
the year ended December 31, 1999, and provides a summary of Citibank's
perspective on and outlook for the tax-exempt bond market.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------
Philip W. Coolidge
President
January 17, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
AFTER SEVERAL YEARS OF GENERATING STRONG RETURNS, THE MUNICIPAL BOND
MARKET DECLINED OVER THE PAST YEAR. While positive economic and market
conditions in the U.S. continued in 1999--including strong economic growth, low
inflation, robust consumer spending and rising demand for exports--many
investors became increasingly concerned that inflationary pressures might
resurface. To ward off any potential reacceleration of inflation, the Federal
Reserve Board (the "Fed") raised interest rates three times during 1999.
These economic conditions are a stark contrast to those that existed just
before the reporting period began. In November 1998, the Fed completed a series
of interest rate cuts intended to stimulate global economic growth, which was
threatened by the spread of an international currency and credit crisis. Also,
the Fed wanted to help insulate the U.S. economy from the adverse effects of any
global economic slowdown. The Fed's strategy was apparently successful because
many overseas economies began to recover in 1999 and the U.S. economy continued
its strong growth.
A GROWING GLOBAL ECONOMY RAISED INFLATION CONCERNS AMONG BOND INVESTORS.
Uncertainty regarding the direction and magnitude of interest rates created
higher levels of volatility early in the year. When it became clear that the
U.S. and international economies were continuing to grow strongly, the Fed
signaled its intention to raise short-term interest rates to fight inflation
before it became a problem.
HIGHER INTEREST RATES ADVERSELY AFFECTED THE PRICES OF BOTH TAXABLE AND
TAX-EXEMPT SECURITIES. The tax-exempt bond market, however, was also negatively
affected by unique supply-and-demand factors. Although demand for municipal
bonds remained strong among many individual investors, most institutions and
corporations did not invest in the municipal market as much as they had in
previous years. In Fund management's view, this is due largely to underwriting
losses that reduced the need for the tax advantages provided by municipal bonds.
Despite the potentially positive effects of a 20% reduction in the issuance of
municipal bonds in 1999 compared to 1998, the lack of institutional demand
caused municipal bond prices to further decline.
During the period, the investment team generally maintained the Fund's
average duration (i.e., a measure of sensitivity to changing interest rates) in
the neutral range during the first half of 1999 and toward the short end of the
neutral range during the second half. By reducing the Fund's average duration,
management was able to have more cash available for the purchase of higher
yielding securities as they became available.
2
<PAGE>
FOR THOSE NEW PURCHASES, THE FUND'S MANAGEMENT TEAM FOUND ATTRACTIVE
OPPORTUNITIES PRIMARILY AMONG INTERMEDIATE-TERM BONDS SELLING AT A MODEST
PREMIUM TO FACE VALUE. In their view, bonds in the 10- to 15-year maturity range
provided highly competitive returns at relatively low levels of price risk as
compared to the 20-30 year sector. More importantly, premium coupon bonds tend
to have a level of price volatility that is lower than discount or par coupon.
The Fund's management focused primarily on bonds with very good credit ratings
in order to maintain the Fund's liquidity.
LOOKING AHEAD, MANAGEMENT BELIEVES THAT MUNICIPAL BONDS SHOULD DELIVER
BETTER RETURNS IN 2000 AS SUPPLY-AND-DEMAND FORCES RETURN TO A MORE FAVORABLE
BALANCE. In addition, municipal bonds ended 1999 providing more than 90% of the
yield of comparable U.S. Treasuries, making tax-exempt bonds relatively
attractive values. And while no guarantees can be given, if the U.S. economy
begins to moderate and inflation remains low over the next several months, the
municipal bond market may rally.
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 12/31/99 BENCHMARKS
Class A Shares o Lipper General Municipal
$106.5 million Bond Funds Average
Class B Shares o Lehman Brothers Municipal 4 Years Plus
$7.0 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 portion of the income may be subject to the Federal Alternative Minimum
Tax. Consult your personal tax advisor.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF DECEMBER 31, 1999
[PIE CHART OMITTED]
Transportation Revenue..... 36%
General Obligation Bonds... 14%
Housing ................... 12%
Water/Sewer Revenue........ 11%
Education.................. 9%
Healthcare................. 7%
State Agencies............. 7%
Power Revenue.............. 3%
Miscellaneous.............. 1%
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ONE 8/17/95
ALL PERIODS ENDING DECEMBER 31, 1999 YEAR (INCEPTION)*
- --------------------------------------------------------------------------------
CitiFunds National Tax Free Income Portfolio (Class A)
without sales charge (3.86)% 6.34%
Lipper General Municipal Bond Funds Average (4.63)% 3.51%+
Lehman Brothers Municipal 4 Years Plus Bond Index (2.92)% 5.25%+
CitiFunds National Tax Free Income Portfolio (Class A)
with a maximum sales charge of 4.50% (8.19)% 5.23%
CitiFunds National Tax Free Income Portfolio (Class B)
without deferred sales charge -- (4.49)%#**
Lipper General Municipal Bond Funds Average -- (4.63)%++
Lehman Brothers Municipal 4 Years Plus Bond Index -- (2.92)%++
CitiFunds National Tax Free Income Portfolio (Class B)
with a maximum deferred sales charge of 4.50% -- (8.79)%#**
* 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 4.66% Income Dividends Per Share Class A $0.450
30-Day SEC Yield Class B 4.14% Income Dividends Per Share Class B $0.377
GROWTH OF A $10,000 INVESTMENT
A $10,000 INVESTMENT IN THE FUND MADE ON INCEPTION DATE WOULD HAVE GROWN TO
$12,499, INCLUDING THE MAXIMUM SALES CHARGE (AS OF 12/31/99). THE GRAPH SHOWS
HOW THIS COMPARES TO ITS BENCHMARK OVER THE SAME PERIOD.
[PIE CHART OMITTED]
CITIFUNDS LIPPER LEHMAN BROTHERS
NATIONAL TAX FREE GENERAL MUNICIPAL MUNICIPAL 4 YEARS
INCOME PORTFOLIO BOND FUNDS PLUS BOND INDEX
DATE (CLASS A) AVERAGE (UNMANAGED)
- --------------------------------------------------------------------------------
8/17/95 9550
8/31/95 9731 10000 10000
9/30/95 9786 10059 10065
10/31/95 9986 10215 10223
11/30/95 10158 10412 10405
12/31/95 10260 10529 10513
1/31/96 10352 10580 10593
2/29/96 10230 10497 10514
3/31/96 10019 10329 10366
4/30/96 9965 10280 10332
5/31/96 9930 10284 10326
6/30/96 10075 10381 10444
7/31/96 10190 10472 10544
8/31/96 10164 10466 10539
9/30/96 10330 10617 10696
10/31/96 10447 10732 10824
11/30/96 10656 10920 11034
12/31/96 10600 10873 10981
1/31/97 10625 10873 10998
2/28/97 10723 10968 11106
3/31/97 10573 10825 10945
4/30/97 10682 10914 11042
5/31/97 10844 11070 11219
6/30/97 11027 11194 11346
7/31/97 11432 11530 11687
8/31/97 11300 11394 11564
9/30/97 11475 11254 11710
10/31/97 11534 11324 11788
11/30/97 11593 11389 11862
12/31/97 11814 11570 12051
1/31/98 11992 11679 12183
2/28/98 11986 11672 12183
3/31/98 12068 11674 12192
4/30/98 12041 11602 12129
5/31/98 12277 11790 12337
6/30/98 12371 11829 12386
7/31/98 12388 11846 12415
8/31/98 12627 12030 12622
9/30/98 12879 12173 12795
10/31/98 12885 12128 12782
11/30/98 12936 12164 12829
12/31/98 13001 12185 12861
1/31/99 13202 12321 13024
2/28/99 13071 12242 12951
3/31/99 13067 12243 12970
4/30/99 13096 12271 13001
5/31/99 12965 12174 12911
6/30/99 12728 11962 12698
7/31/99 12758 11980 12742
8/31/99 12637 11830 12622
9/30/99 12621 11798 12618
10/31/99 12436 11617 12448
11/30/99 12603 11732 12600
12/31/99 12499 11614 12486
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
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--101.3%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS--14.0%
- --------------------------------------------------------------------------------
Aaa Georgia State,
5.75% due 9/01/11 $2,510 $2,620,415
Aaa Georgia State,
5.80% due 11/01/16 1,605 1,627,277
Aaa Jefferson County, CO,
School District,
5.50% due 12/15/13 1,500 1,494,165
Aaa Johnson County, KS,
School District,
5.25% due 9/01/12 1,250 1,216,125
Aaa Los Angeles, CA, Union
School District,
5.50% due 7/01/17 1,000 969,430
A3 New York, New York,
5.25% due 3/15/13 1,225 1,167,695
Aaa North Slope Boro,
Alaska, Zero
Coupon 6/30/09 1,500 904,845
Aaa Pomona, CA, Union
School District,
6.50% due 8/01/19 1,475 1,563,603
Aaa St. Louis, MO,
5.50% due 4/01/11 2,500 2,537,475
Aaa Umatilla County, Oregon,
School District,
5.375% due 6/15/12 1,810 1,796,172
-----------
15,897,202
-----------
EDUCATION--8.6%
- -------------------------------------------------------------------------------
Aaa Illinois Educational Facility
Authority Revenue,
5.80% due 8/15/16 1,500 1,454,820
Aaa New Hampshire Higher
Education Authority,
5.55% due 6/01/23 2,500 2,347,400
Aa Private Colleges and
Universities Authority,
5.75% due 11/01/14 2,035 2,051,117
Aa1 University of Texas
Revenue,
5.375% due 8/15/17 3,000 2,819,340
Aa1 University of Texas
Revenue,
5.75% due 8/15/15 1,045 1,041,729
-----------
9,714,406
-----------
HEALTHCARE-- 7.0%
- --------------------------------------------------------------------------------
Aaa Harris County, Texas,
Health Facility
Development
5.75% due 7/01/13 $1,750 $1,714,668
Aa Indiana Hospital
Facilities Authority,
5.50% due 2/15/11 2,000 1,943,260
Aaa Michigan State,
Hospital Facilities
Authority,
5.50% due 11/15/07 3,000 3,032,190
Baa1 Montgomery County,
OH, Hospital
Revenue,
6.75% due 4/01/18 1,250 1,204,225
-----------
7,894,343
-----------
HOUSING--12.1%
- --------------------------------------------------------------------------------
Aa2 Connecticut State
Housing and Finance
Corp.,
5.95% due 5/15/17 2,000 2,008,980
Aa2 Connecticut State
Housing and Finance
Corp.,
5.65% due 11/15/10 2,785 2,827,137
Aa Georgia State Housing
and Finance Corp.,
4.65% due 12/01/20 1,440 1,396,541
Aaa New Jersey State
Housing Finance
Authority,
4.75% due 10/01/17 1,195 1,172,164
Aa2 New York State,
Mortgage Agency
Revenue,
5.15% due 4/01/17 2,000 1,981,940
Aaa Ohio Housing Finance
Agency, AMT,
4.65% due 9/01/20 3,430 3,357,010
Aaa Tennessee Housing
Development
Authority, Zero
Coupon 1/01/07 1,500 1,018,275
-----------
13,762,047
-----------
6
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
POWER REVENUE--2.9%
- --------------------------------------------------------------------------------
Aaa Puerto Rico Electrical
and Public Power
Authority,
5.25% due 7/01/14 $1,300 $1,256,489
Aaa Sikeston, MO, Electrical
Revenue,
6.00% due 6/01/14 2,000 2,082,280
-----------
3,338,769
-----------
STATE AGENCIES-- 7.3%
- --------------------------------------------------------------------------------
Baa1 New York State,
Dormitory Authority,
5.375% due 7/01/14 1,000 957,770
A3 New York State,
Dormitory Authority,
5.625% due 5/15/13 3,020 2,973,824
Baa1 New York State Urban
Development Corp.,
5.50% due 1/01/16 1,500 1,413,270
Aaa New York State Urban
Development Corp.,
5.75% due 1/01/13 2,000 2,010,300
Aaa Puerto Rico Public
Financial Corp.,
5.375% due 6/01/17 1,000 968,650
-----------
8,323,814
-----------
TRANSPORTATION REVENUE-- 36.2%
- --------------------------------------------------------------------------------
Baa2 Alliance, Texas, Airport
Authority Inc.,
6.375% due 4/01/21 2,750 2,649,157
Baa1 Dallas, Fort Worth Texas,
International Airport
Revenue,
6.00% due 11/01/14 2,000 1,955,700
Baa Denver, Colorado,
City & County Airport
Revenue,
7.75% due 11/15/21 2,000 2,114,540
Aaa Hawaii State Airports
Systems Revenue,
5.75% due 7/01/09 2,250 2,312,415
Baa3 Kenton County,
Kentucky, Airport
Authority,
6.125% due 2/01/22 1,075 994,913
Baa3 Kenton County,
Kentucky, Airport
Authority,
7.125% due 2/01/21 1,000 1,042,430
Aaa Massachusetts Bay
Transportation
Authority,
5.50% due 3/01/13 $2,685 $2,694,773
Aaa Massachusetts Bay
Transportation
Authority,
5.50% due 3/01/14 5,000 4,975,300
Aaa Massachusetts Bay
Transportation
Authority,
5.50% due 3/01/15 2,500 2,444,550
Aaa Metropolitan Transit
Authority, New York,
5.25% due 4/01/14 2,000 1,907,220
Aaa New Jersey Economic
Development
Authority,
5.75% due 5/01/11 1,000 1,039,590
Aaa New Jersey Economic
Development
Authority,
5.75% due 5/01/13 3,000 3,049,500
A3 New York, NY, City
Industrial Development
Agencies,
6.00% due 1/01/07 2,000 2,056,580
Aaa New York State Highway
Authority Service,
5.25% due 4/01/15 1,750 1,656,708
Aaa New York State Highway
Authority Service,
5.375% due 4/01/13 2,000 1,952,660
Aaa New York State Highway
Authority Service,
5.375% due 4/01/16 2,180 2,074,379
Baa3 Port Authority of New
York and New Jersey,
6.95% due 6/01/08 2,000 2,093,020
Aaa Regional Transportation
Authority of Illinois,
5.75% due 6/01/14 2,010 2,033,456
Aaa Regional Transportation
Authority of Illinois,
5.75% due 6/01/15 2,000 2,008,000
-----------
41,054,891
-----------
WATER AND SEWER REVENUE-- 10.7%
- --------------------------------------------------------------------------------
Baa1 Ashland, KY, Pollution
Control Revenue,
5.70% due 11/01/09 1,500 1,477,740
7
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Aaa Atlanta, Georgia,
Waterworks and
Sewer System,
5.50% due 11/01/14 $2,000 $ 1,983,840
Aa2 Charlotte, NC,
Waterworks and Sewer
System Revenue,
5.75% due 6/01/17 2,000 1,995,519
Aaa Lower Colorado River
Authority, Texas,
Revenue,
5.75% due 4/15/12 1,550 1,580,179
Aaa Lower Colorado River
Authority, Texas,
Revenue,
6.00% due 5/15/13 3,000 3,064,740
Aaa Richmond, CA,
Wastewater Revenue,
5.375% due 8/01/12 1,965 2,014,498
------------
12,116,516
------------
MISCELLANEOUS--2.5%
- --------------------------------------------------------------------------------
Aaa Brazos River, Texas,
Authority Revenue,
4.90% due 10/01/15 2,000 1,785,260
Aa2 Lower Neches Valley
Authority, Texas, Oil
Refining Project,
6.35% due 4/01/26 1,000 1,004,960
------------
2,790,220
------------
TOTAL MUNICIPAL BONDS
(Identified Cost
$119,083,873) $114,892,208
------------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST-- 0.1%
- --------------------------------------------------------------------------------
VMIG-1 Illinois Health Facility
Authority Revenue,
4.75% due 11/01/20 100 100,000
------------
TOTAL INVESTMENTS
(Identified Cost
$119,183,873) 101.4% 114,992,208
OTHER ASSETS,
LESS LIABILITIES (1.4) (1,590,183)
------------
NET ASSETS 100.0% $113,402,025
============
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 days notice.
AMT -- Subject to Alternative Minimum Tax
See notes to financial statements
8
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(Identified Cost, $119,183,873) $114,992,208
Cash 184,200
Receivable for shares of beneficial interest sold 367,602
Interest receivable 1,657,752
- --------------------------------------------------------------------------------
Total assets 117,201,762
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 3,487,863
Dividends payable 160,573
Payable to affiliates--Management fee (Note 2) 31,603
Accrued expenses and other liabilities 119,698
- --------------------------------------------------------------------------------
Total liabilities 3,799,737
- --------------------------------------------------------------------------------
NET ASSETS $113,402,025
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $125,597,876
Unrealized depreciation of investments (4,191,665)
Accumulated net realized loss on investments (8,208,079)
Undistributed net investment income 203,893
- --------------------------------------------------------------------------------
Total $113,402,025
================================================================================
COMPUTATION OF CLASS A SHARES:
Net Asset Value per share
($106,449,483/10,095,983 shares outstanding) $10.54
Offering Price per share ($10.54 / 0.955) $11.04*
================================================================================
CLASS B SHARES:
Net Asset Value and offering price per share
($6,952,542/659,929 shares outstanding) $10.54**
================================================================================
* 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
9
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1B):
Interest $9,330,291
EXPENSES:
Management fees (Note 2) $1,413,619
Service fees Class A (Note 3) 455,060
Service fees Class B (Note 3) 48,439
Custody and fund accounting fees 116,249
Registration fees 71,054
Transfer agent fees 41,388
Legal fees 40,894
Shareholder reports 35,573
Audit fees 31,465
Trustee fees 16,429
Miscellaneous 16,729
- --------------------------------------------------------------------------------
Total expenses 2,286,899
Less aggregate amounts waived by
the Manager (Note 2) (728,722)
Less fees paid indirectly (Note 1E) (4,880)
- --------------------------------------------------------------------------------
Net expenses 1,553,297
- --------------------------------------------------------------------------------
Net investment income 7,776,994
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investment transactions (8,208,079)
Unrealized depreciation (5,867,827)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (14,075,906)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(6,298,912)
================================================================================
See notes to financial statements
10
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 7,776,994 $ 2,724,659
Net realized gain (loss)
on investment transactions (8,208,079) 592,752
Unrealized appreciation (depreciation)
of investments (5,867,827) 1,540,941
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (6,298,912) 4,858,352
- --------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (7,347,895) (2,720,230)
Net investment income (Class B) (231,920) --
Net realized gains (Class A) (145,071) (441,633)
Net realized gains (Class B) (6,581) --
- --------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (7,731,467) (3,161,863)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 31,526,984 275,004,330
Net asset value of shares issued to shareholders
from reinvestment of dividends 7,492,966 2,928,727
Cost of shares repurchased (178,624,173) (22,098,909)
- --------------------------------------------------------------------------------
Total Class A (139,604,223) 255,834,148
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 9,488,937 --
Net asset value of shares issued to shareholders
from reinvestment of dividends 188,257 --
Cost of shares repurchased (2,087,847) --
- --------------------------------------------------------------------------------
Total Class B 7,589,347 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions
in shares of beneficial interest (132,014,876) 255,834,148
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (146,045,255) 257,530,637
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 259,447,280 1,916,643
- --------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $203,893
and $7,247, respectively) $113,402,025 $259,447,280
================================================================================
* January 4, 1999 (Commencement of Operations) to December 31, 1999
See notes to financial statements
11
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
AUGUST 17, 1995
(COMMENCEMENT
OF OPERATIONS) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------------- -----------------
1999 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 0.469 0.524 0.564 0.562 0.187
Net realized and unrealized
gain (loss) on investments (0.900) 0.549 0.586 (0.232) 0.551
- ------------------------------------------------------------------------------------------------------------------------------------
Total from operations (0.431) 1.073 1.150 0.330 0.738
- ------------------------------------------------------------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.450) (0.540) (0.570) (0.540) (0.188)
Net realized gain on investments (0.009) (0.023) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.459) (0.563) (0.570) (0.540) (0.188)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.54 $ 11.43 $ 10.92 $ 10.34 $ 10.55
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $106,449 $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) 0.81% 0% 0% 0% 0%
Ratio of net investment income to
average net assets 4.14% 4.49% 5.45% 5.42% 5.20%*
Portfolio turnover 112% 57% 55% 52% 0%
Total return (B) (3.86)% 10.05% 11.45% 3.31% 7.43%**
====================================================================================================================================
</TABLE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income (loss)
per share $ 0.424 $ 0.364 $ (0.229) $ (0.291) $ 0.098
RATIOS:
Expenses to average net assets 1.20% 1.37% 7.66% 8.23% 2.50%*
Net investment income (loss) to
average net assets 4.55% 3.12% (2.21)% (2.81)% 2.70%*
====================================================================================================================================
</TABLE>
* Annualized
** Not annualized
(A) The expense ratios for the period ended December 31, 1995 and the years
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
12
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
-----------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Net Asset Value, beginning of period $ 11.43
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.385
Net realized and unrealized
gain (loss) on investments (0.889)
- --------------------------------------------------------------------------------
Total from operations (0.504)
- --------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.377)
Net realized gains on investments (0.009)
- --------------------------------------------------------------------------------
Total from distributions (0.386)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.54
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $ 6,953
Ratio of expenses to average
net assets 1.30%*
Ratio of net investment income to
average net assets 3.64%*
Portfolio turnover 112%
Total return (4.49)%**
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 per share and the ratios would have been as follows:
Net investment income per share $ 0.343
RATIOS:
Expenses to average net assets 1.70%*
Net investment income to average net assets 3.24%*
================================================================================
* Annualized
** Not annualized
See notes to financial statements
13
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES 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. 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. For the period ended
December 31, 1999, CFBDS, acting as the distributor, received net commissions
paid by investors of $20,791 from sales of Class A shares and $53,899 in
deferred sales charges from redemptions of 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.
14
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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. At
December 31, 1999, the Fund, for federal income tax purposes, had a capital loss
carryover of $7,307,332 which will expire on December 31, 2007.
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.
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
15
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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.
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 $1,413,619, of
which $728,722 was voluntarily waived for the year ended December 31, 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 $455,060 for
the year ended December 31, 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 $48,439 for the year
ended December 31, 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 infor-
16
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
mation 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
$204,448,057 and $304,460,162, 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:
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
- --------------------------------------------------------------------------------
CLASS A
Shares sold 2,787,001 24,222,960
Shares issued to shareholders from
reinvestment of distributions 682,352 257,479
Shares repurchased (16,078,135) (1,951,231)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (12,608,782) 22,529,208
================================================================================
CLASS B*
Shares sold 835,142 --
Shares issued to shareholders from
reinvestment of distributions 17,284 --
Shares repurchased (192,497) --
- --------------------------------------------------------------------------------
Class B net increase 659,929 --
================================================================================
* January 4, 1999 (Commencement of Operations) to December 31, 1999
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at December 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $120,084,620
================================================================================
Gross unrealized appreciation $ 33,542
Gross unrealized depreciation (5,125,954)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (5,092,412)
================================================================================
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 year ended
December 31, 1999, the commitment fee allocated to the Fund was $533. Since the
line of credit was established there have been no borrowings.
17
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES OF CITIFUNDS TAX FREE INCOME TRUST AND SHAREHOLDERS OF
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of CitiFunds National Tax Free Income
Portfolio, a separate series of CitiFunds Tax Free Income Trust (the "Trust") (a
Massachusetts business trust), as of December 31, 1999, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended December 31, 1999 and 1998, and the financial highlights for
each of the years in the four-year period ended December 31, 1999 and for the
period August 17, 1995 (Commencement of Operations) to December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CitiFunds National
Tax Free Income Portfolio at December 31, 1999, the results of its operations,
the changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 2000
18
<PAGE>
This page intentionally left blank.
<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
Linwood Downs*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF THE INVESTMENT MANAGER
***TRUSTEE EMERITUS
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 California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o Citifunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds
National Tax Free Income Portfolio. It is authorized for distribution to
prospective investors only when preceded or accompanied by an effective
prospectus of CitiFunds National Tax Free Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds National Tax Free Income Portfolio, which
preceded or accompanies this report) containing more complete information,
including all sales charges (if any), fees and expenses. Please read the
prospectus carefully before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. Investments in non-U.S.
securities and small company stocks are subject to additional risks.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)2000 Citicorp (LOGO)Printed on recycled paper CFA/NAT/1299
<PAGE>
Annual Report o December 31, 1999
CITIFUNDS(SM)
- -------------
CALIFORNIA TAX FREE
INCOME PORTFOLIO
- -----------------------------------------------
B O N D S
-----------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
-----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
CITIFUNDS CALIFORNIA 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 8
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS 9
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS 10
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 11
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 13
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 18
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
1999 was a challenging year for California's municipal bond market.
Faster-than-expected U.S. economic growth coupled with rapid global economic
recovery contributed to sharply higher interest rates and price erosion for most
U.S. bonds. These negative economic influences were also compounded by adverse
supply-and-demand factors such as the lack of demand from institutional and
corporate buyers that offset the positive effects of reduced supply. Yet,
municipal bonds still ended the year providing attractive yields when contrasted
with comparable taxable investments on an after-tax basis.
Throughout the period, the CitiFunds' investment adviser, Citibank, N.A.,
continued to manage CitiFunds(SM) California Tax Free Income Portfolio according
to its investment objective, which is to generate high levels of current income
exempt from federal and California state personal income taxes and preserve the
value of its shareholders' investment.
This report reviews the Fund's investment activities and performance for
the year ended December 31, 1999, and provides a summary of Citibank's
perspective on and outlook for California's tax-exempt bond market.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------
Philip W. Coolidge
President
January 17, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
AFTER SEVERAL YEARS OF STRONG RETURNS, THE CALIFORNIA MUNICIPAL BOND
MARKET DECLINED IN 1999. While the positive economic and market conditions in
California and the rest of the U.S. over the past several years have remained
largely intact, many investors became increasingly concerned in 1999 that
inflationary pressures might resurface. In fact, in an attempt to forestall a
potential reacceleration of inflation, the Federal Reserve Board (the "Fed")
raised interest rates three times during 1999.
These economic conditions are in stark contrast to the environment that
prevailed just before the reporting period began. In November 1998, the Fed
completed a series of interest rate cuts intended to stimulate global economic
growth, which was threatened by the spread of an international currency and
credit crisis and to help insulate the U.S. economy from the adverse effects of
a global economic slowdown. That strategy was apparently effective as many
overseas economies began to recover in 1999 and the growth of the U.S. economy
continued.
CHANGING ECONOMIC CONDITIONS HAVE RAISED INFLATION CONCERNS AMONG BOND
INVESTORS. Uncertainty regarding the direction and magnitude of interest rates
created higher levels of volatility in the fixed-income markets early in 1999.
When it became clear that the U.S. and international economies were possibly
growing too fast, the Fed raised short-term interest rates in an attempt to
prevent inflation.
Higher interest rates adversely affected the prices of both taxable and
tax-exempt securities. THE TAX-EXEMPT MARKET, HOWEVER, WAS ALSO NEGATIVELY
IMPACTED BY UNIQUE SUPPLY-AND-DEMAND FACTORS. Although demand for municipal
bonds remained strong from many individual investors, most institutions and
corporations such as insurance companies did not participate in the municipal
market at the level they had in previous years. In Fund management's view, this
is because yields on taxable corporate bonds rose enough to exceed the after-tax
yields provided to taxable investors by municipal bonds. Despite the potentially
positive effects of a 20% reduction in the issuance of municipal bonds
nationally, when compared to the previous year, this lack of institutional
demand caused tax-exempt bond prices to further decline.
In California, however, demand for municipal bonds from individuals was
stronger than in most other states, primarily due to the enormous amounts of
wealth generated by the strong performance of shares in the state's prominent
high-tech companies and promising start-ups. AS A RESULT, CALIFORNIA'S
TAX-EXEMPT BOND MARKET GENERALLY OUTPERFORMED MUNICIPAL BONDS FROM OTHER PARTS
OF THE U.S.
Throughout the period, the Fund's management generally maintained the
Fund's average duration (a measure of sensitivity to changing interest rates)
toward the short end of the neutral range over the course of the year. By
maintaining that duration, the investment team had more cash available to
purchase higher yielding securities as they became available.
2
<PAGE>
THE FUND'S MANAGEMENT FOUND ATTRACTIVE OPPORTUNITIES PRIMARILY AMONG
INTERMEDIATE-TERM BONDS SELLING AT A MODEST PREMIUM TO FACE VALUE. In the
opinion of management, bonds in the 10- to 15-year maturity range provided
highly competitive returns at lower levels of price risk than the 20-30 year
sector. More importantly, premium coupon bonds tend to have a level of price
volatility that is lower than discount or par coupon. Management focused
primarily on bonds with high credit ratings in order to maintain the Fund's
liquidity.
LOOKING AHEAD, MANAGEMENT BELIEVES THAT MUNICIPAL BONDS SHOULD DELIVER
BETTER RETURNS IN 2000, IF, AS THEY EXPECT, NATIONAL SUPPLY-AND-DEMAND FORCES
RETURN TO A MORE FAVORABLE BALANCE. And if the U.S. economy begins to moderate
and inflation remains low over the next several months, the municipal bond
market may rally.
3
<PAGE>
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 12/31/99 BENCHMARKS
Class A Shares o Lipper California State Municipal
$34.4 million Bond Funds Average
Class B Shares o Lehman Brothers California
$1.2 million 4 Years Plus Bond Index*
* The Lehman Brothers California 4 Years Plus Bond Index is a broad measure of
the California 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 DECEMBER 31, 1999
[PIE CHART OMITTED]
Transportation Revenue..... 29%
Education.................. 19%
Utilities.................. 13%
Redevelopment.............. 12%
State Agencies............. 9%
General Obligation Bonds... 8%
Housing Revenue............ 7%
*Short-Term................ 3%
* Includes cash and net other assets
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
ONE 11/2/98
ALL PERIODS ENDING DECEMBER 31, 1999 YEAR (INCEPTION)*
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CitiFunds California Tax Free Income Portfolio (Class A)
without sales charge (2.54)% (1.17)%
Lipper California State Municipal Bond Funds Average (5.16)% (3.30)%+
Lehman Brothers California 4 Years Plus Bond Index (3.65)% (2.72)%+
CitiFunds California Tax Free Income Portfolio (Class A)
with a maximum sales charge of 4.50% (6.93)% (5.01)%
CitiFunds California Tax Free Income Portfolio (Class B)
without deferred sales charge -- (3.22)%#**
Lipper California State Municipal Bond Funds Average -- (5.16)%++
Lehman Brothers California 4 Years Plus Bond Index -- (3.65)%++
CitiFunds California Tax Free Income Portfolio (Class B)
with a maximum deferred sales charge of 4.50% -- (7.57)%#**
</TABLE>
* Average Annual Total Return
** Not Annualized
+ From 10/31/98
++ From 12/31/98
# Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.48% Income Dividends Per Share Class A $0.400
30-Day SEC Yield Class B 4.01% Income Dividends Per Share Class B $0.332
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have been $9,421,
including the maximum sales charge (as of 12/31/99). The graph shows how this
compares to its benchmark over the same period.
[GRAPH OMITTED]
Date CitiFunds Lipper Lehman Brothers
California Tax Free California State California 4 Years
Income Portfolio Municipal Bond Plus Bond Index
Date (Class A) Funds Average (unmanaged)
- ------------------------------------------------------------------------
11/02/98 9550 10000 10000
11/30/98 9655 10042 10035
12/3198 9666 10043 10060
1/31/99 9817 10153 10180
2/28/99 9740 10101 10135
3/31/99 9762 10115 10149
4/30/99 9758 10126 10175
5/31/99 9640 10044 10116
6/30/99 9472 9868 9970
7/31/99 9501 9880 10006
8/31/99 9442 9745 9926
9/30/99 9479 9730 9930
10/31/99 9361 9547 9822
11/30/99 9481 9636 9927
12/31/99 9421 9525 9921
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 "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
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--97.9%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS--7.6%
- --------------------------------------------------------------------------------
Aa3 Los Angeles, California,
5.375% due 09/01/15 $1,480 $ 1,436,458
Aaa Puerto Rico Commonwealth,
6.25% due 07/01/12 1,150 1,254,363
-----------
2,690,821
-----------
EDUCATION--19.2%
- --------------------------------------------------------------------------------
Aaa Duarte, California University
School District, Zero Coupon
due 11/01/16 725 269,062
Aaa Fallbrook, California, School District,
5.38% due 9/01/14 555 548,590
Aaa Glendale, California University
School District,
5.75% due 9/01/13 1,125 1,152,832
Aaa Los Angeles, California University
School District,
5.50% due 7/01/17 2,550 2,472,047
Aaa Pomona, California University
School District, 6.50%
due 8/01/19 600 636,042
Aaa San Bernardino, California
University School District,
5.625% due 8/01/15 1,225 1,220,541
Aaa Union, California Elementary
School District, Zero Coupon
due 9/01/16 1,400 524,706
-----------
6,823,820
-----------
HOUSING--7.4%
- --------------------------------------------------------------------------------
Aaa California Housing Finance Agency, AMT,
5.55% due 2/01/13 2,700 2,653,155
-----------
REDEVELOPMENT--12.4%
- --------------------------------------------------------------------------------
Aaa Anaheim California Public
Finance Authority,
6.00% due 9/01/11 1,000 1,066,490
Aaa Coalinga California Public
Finance Authority,
5.85% due 9/15/13 $1,595 $ 1,665,276
Aaa Puerto Rico Public
Finance Corporation,
5.375% due 6/01/17 1,750 1,695,138
-----------
4,426,904
-----------
STATE AGENCIES--8.6%
- --------------------------------------------------------------------------------
Aa California State Public Works Lease,
5.55% due 6/01/10 1,150 1,185,707
Aaa Puerto Rico Municipal Finance Agency,
6.00% due 7/01/11 1,750 1,862,140
-----------
3,047,847
-----------
TRANSPORTATION REVENUE--29.3%
- --------------------------------------------------------------------------------
Aaa Foothill/Eastern Transportation
Corridor, 5.25% due 1/15/13 1,050 1,031,530
Aaa Intermodal Container Transfer,
5.75% due 11/01/14 2,000 2,041,900
Aaa Los Angeles, California Harbor
Department Revenue,
5.25% due 11/01/08 1,000 1,004,130
Aa Port Oakland, California
Port Revenue,
6.50% due 11/01/16 1,000 1,043,900
Aaa Puerto Rico Commonwealth Highway
& Transportation,
5.50% due 7/01/13 1,125 1,137,825
Aaa Puerto Rico Commonwealth Highway
& Transportation,
5.50% due 7/01/15 1,000 990,750
Aa3 San Francisco, California,
Transportation Tax Authority,
5.25% due 7/01/13 2,960 2,906,720
Aa3 San Francisco, California,
Transportation Tax Authority,
5.25% due 7/01/17 290 271,707
-----------
10,428,462
-----------
6
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
UTILITIES--13.4%
- --------------------------------------------------------------------------------
Aaa Fresno, California,
Sewer Revenue,
6.25% due 9/01/14 $1,405 $ 1,511,429
Aaa Los Angeles, California,
Electrical Plant Revenue,
6.375% due 2/01/20 1,000 1,034,540
Aaa Metropolitan Water District,
South California,
5.50% due 7/01/16 620 604,909
Aaa Puerto Rico Commonwealth
Aqueduct Sewer,
6.25% due 7/01/13 1,500 1,631,550
-----------
4,782,428
-----------
TOTAL MUNICIPAL BONDS
(Identified Cost $35,784,139) 34,853,437
-----------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST--1.7%
- --------------------------------------------------------------------------------
VMIG-1 Municipal Securitization Trust
Certificates, 5.38%
due 11/01/06 $ 15 $ 15,000
Aa Orange County,
California Sanitation District,
4.25% due 8/01/17 600 600,000
-----------
TOTAL VARIABLE RATE DEMAND
NOTES AT AMORTIZED COST 615,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$36,399,139) 99.6% 35,468,437
OTHER ASSETS,
LESS LIABILITIES 0.4 133,692
----- -----------
NET ASSETS 100.0% $35,602,129
===== ===========
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 days notice.
AMT -- Subject to Alternative Minimum Tax
See notes to financial statements
7
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $36,399,139) $35,468,437
Cash 132,361
Receivable for shares of beneficial interest sold 164
Interest receivable 677,870
- --------------------------------------------------------------------------------
Total assets 36,278,832
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 556,583
Dividends payable 44,297
Payable to affiliate--Management fees (Note 2) 24,640
Accrued expenses and other liabilities 51,183
- --------------------------------------------------------------------------------
Total liabilities 676,703
- --------------------------------------------------------------------------------
NET ASSETS $35,602,129
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $39,859,726
Unrealized depreciation (930,702)
Accumulated net realized loss (3,326,895)
- --------------------------------------------------------------------------------
Total $35,602,129
- --------------------------------------------------------------------------------
COMPUTATION OF CLASS A SHARES:
Net Asset Value per share
($34,395,648/3,646,052 shares outstanding) $9.43
Offering Price per share ($9.43 / 0.955) $9.87*
================================================================================
CLASS B SHARES:
Net Asset Value and offering price per share
($1,206,481/127,886 shares outstanding) $9.43**
================================================================================
* 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
8
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1B):
Interest $ 3,408,560
EXPENSES:
Management fees (Note 2) $ 536,270
Service fees Class A (Note 3) 175,044
Service fees Class B (Note 3) 11,138
Custody and fund accounting fees 86,170
Legal fees 45,184
Transfer agent fees 33,599
Audit fees 31,465
Shareholder reports 30,635
Registration fees 26,794
Trustee fees 17,595
Miscellaneous 21,064
- --------------------------------------------------------------------------------
Total expenses 1,014,958
Less aggregate amounts waived by the Manager
and Distributor (Notes 2 and 3) (500,406)
Less fees paid indirectly (Note 1G) (2,759)
- --------------------------------------------------------------------------------
Net expenses 511,793
- --------------------------------------------------------------------------------
Net investment income 2,896,767
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (3,465,766)
Net realized gain on futures transactions 138,944
Net unrealized depreciation (1,256,804)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (4,583,626)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,686,859)
================================================================================
See notes to financial statements
9
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 2, 1998
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 2,896,767 $ 451,689
Net realized loss from investment
and futures transactions (3,326,822) (73)
Unrealized appreciation (depreciation)
of investments (1,256,804) 326,102
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,686,859) 777,718
- --------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (2,844,565) (451,689)
Net investment income (Class B) (52,202) --
- --------------------------------------------------------------------------------
Decrease in net assets from
distribution to shareholders (2,896,767) (451,689)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 11,393,530 96,250,028
Net asset value of shares issued
to shareholders from reinvestment
of dividends 2,900,180 353,195
Cost of shares repurchased (72,142,600) (223,125)
- --------------------------------------------------------------------------------
Total Class A (57,848,890) 96,380,098
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 1,955,112 --
Net asset value of shares issued
to shareholders from reinvestment
of dividends 33,420 --
Cost of shares repurchased (660,014) --
- --------------------------------------------------------------------------------
Total Class B 1,328,518 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares of
beneficial interest (56,520,372) 96,380,098
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (61,103,998) 96,706,127
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 96,706,127 --
- --------------------------------------------------------------------------------
End of period $ 35,602,129 $96,706,127
================================================================================
* January 4, 1999 (Commencement of Operations) to December 31, 1999.
See notes to financial statements
10
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A
-----------------------------------
NOVEMBER 2, 1998
YEAR ENDED (COMMENCEMENT
DECEMBER 31, OF OPERATIONS) TO
1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Net Asset Value, beginning of period $ 10.08 $ 10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.400 0.069
Net realized and unrealized gain
(loss) on investments (0.650) 0.080
- --------------------------------------------------------------------------------
Total from operations (0.250) 0.149
- --------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.400) (0.069)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.43 $ 10.08
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $34,396 $96,706
Ratio of expenses to average net assets 0.70% 0%*
Ratio of net investment income
to average net assets 4.06% 4.16%*
Portfolio turnover 116% 1%
Total return (A) (2.54)% 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 $ 0.195 $ 0.042
RATIOS:
Expenses to average net assets 1.41% 1.60%*
Net investment income to average net assets 3.35% 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
11
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS (Continued)
CLASS B
-----------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1999
================================================================================
Net Asset Value, beginning of period $ 11.43
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.332
Net realized and unrealized loss on investments (2.000)
- --------------------------------------------------------------------------------
Total from operations (1.668)
- --------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.332)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.43
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 1,206
Ratio of expenses to average net assets 1.25%*
Ratio of net investment income to average net assets 3.41%*
Portfolio Turnover 116%
Total return (3.22)%**
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 $ 0.263
RATIOS:
Expenses to average net assets 2.40%*
Net investment income to average net assets 2.26%*
================================================================================
* Annualized
** Not annualized
See notes to financial statements
12
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES 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. 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. For
the period ended December 31, 1999, CFBDS, acting as the distributor, received
net commissions paid by investors of $1,750 from sales of Class A shares and
$24,924 in deferred sales charges from redemptions of 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 CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (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. At
December 31, 1999, the Fund, for federal income tax purposes, had a capital loss
carryover of $3,130,610 which will expire on December 31, 2007. 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. 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.
G. 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.
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
14
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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.
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 $536,270, of
which $479,321 was voluntarily waived for the year ended December 31, 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 $175,044 of
which $21,085 was voluntarily waived for the year ended December 31, 1999. Under
the Class B Service Plan, the Fund may pay a combined monthly distribution and
15
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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 $11,138 for the period ended December 31, 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
$80,021,582 and $130,963,611, 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
NOVEMBER 2, 1998
YEAR ENDED (COMMENCEMENT
DECEMBER 31, OF OPERATIONS) TO
1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------
CLASS A
Shares sold 1,129,336 9,580,829
Shares issued to shareholders from
reinvestment of dividends 294,959 34,970
Shares repurchased (7,371,922) (22,120)
- --------------------------------------------------------------------------------
Class A Net increase (decrease) (5,947,627) 9,593,679
================================================================================
CLASS B*
Shares sold 193,805 --
Shares issued to shareholders from
reinvestment of dividends 3,439 --
Shares repurchased (69,358) --
- --------------------------------------------------------------------------------
Class B Net increase 127,886 --
================================================================================
*January 4, 1999 (Commencement of Operations) to December 31, 1999
16
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at December 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $ 36,595,424
================================================================================
Gross unrealized appreciation $ 58,722
Gross unrealized depreciation (1,185,709)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (1,126,987)
================================================================================
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 year ended
December 31, 1999, the commitment fee allocated to the Fund was $205. Since the
line of credit was established there have been no borrowings.
17
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES OF CITIFUNDS TAX FREE INCOME TRUST AND SHAREHOLDERS OF
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of CitiFunds California Tax Free Income
Portfolio, a separate series of CitiFunds Tax Free Income Trust (the "Trust") (a
Massachusetts business trust), as of December 31, 1999, the related statement of
operations for the year then ended, and the statement of changes in net assets
and the financial highlights for the year ended December 31, 1999 and for the
period November 2, 1998 (Commencement of Operations) to December 31, 1998. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1999 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
referred to above, present fairly, in all material respects, the financial
position of CitiFunds California Tax Free Income Portfolio at December 31, 1999,
the results of its operations, the changes in its net assets, and its financial
highlights in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 2000
18
<PAGE>
This page intentionally left blank.
<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
Linwood Downs*
*Affiliated Person of Sub-Administrator and Distributor
**Affiliated Person of the Investment Manager
***Trustee Emeritus
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 California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CITIFUNDS CASH RESERVES
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds
California Tax Free Income Portfolio. It is authorized for distribution to
prospective investors only when preceded or accompanied by an effective
prospectus of CitiFunds California Tax Free Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds California Tax Free Income Portfolio, which
preceded or accompanies this report) containing more complete information,
including all sales charges (if any), fees and expenses. Please read the
prospectus carefully before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. Investments in non-U.S.
securities and small company stocks are subject to additional risks.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)2000 Citicorp (LOGO)Printed on recycled paper CFA/CAT/1299
