CITIFUNDS(r)
-----------
NEW YORK
TAX FREE
INCOME
PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
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INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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<PAGE>
TABLE OF CONTENTS
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 4
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Portfolio Highlights 4
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Fund Performance 5
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Portfolio of Investments 6
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Statement of Assets and Liabilities 9
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Statement of Operations 10
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Statement of Changes in Net Assets 11
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Financial Highlights 12
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Notes to Financial Statements 14
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
While the past six months have been challenging for many types of
investments, municipal bonds have fared relatively well. A strengthening global
economy, rising interest rates and shifting investor sentiment have created wide
fluctuations in the prices of most stocks and higher yielding taxable bonds.
While prices of municipal bonds also fluctuated, they responded positively to
their own supply-and-demand influences.
We are pleased to announce that effective July 14, 2000, the front-end sales
charge on Class A shares of CitiFunds New York Tax Free Income Portfolio is
being waived. As of that date, Class B shares are no longer offered. If you are
a Class B shareholder, your existing Class B shares have been converted to Class
A shares without imposition of any contingent deferred sales charge. It is also
important to note that the Class A shares incur lower annual expenses than the
Class B shares.
This report reviews the Fund's investment activities and performance during
the six months ended June 30, 2000, and provides a summary of Citibank's
perspective on and outlook for the New York tax-exempt bond market. Thank you
for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
July 17, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
ALTHOUGH THE FIRST HALF OF 2000 SAW BOTH ADVANCES AND DECLINES WITHIN NEW
YORK'S MUNICIPAL BOND MARKET, RETURNS WERE POSITIVE FOR THE REPORTING PERIOD.
Rallies during the first quarter and in June offset relative weakness in April
and May.
When the new year began on January 1, 2000, investors were relieved that Y2K
had not negatively impacted the U.S. economy. Most investors soon became
concerned, however, that unsustainably strong economic growth might rekindle
long- dormant inflationary pressures. Consumer spending and borrowing remained
high, oil prices were rising, the stock market set new record highs and
unemployment remained at record lows. Perhaps most important, many investment
professionals expressed concern about the potential for rising wages in a tight
job market. In an attempt to forestall a re-acceleration of inflation, the
Federal Reserve Board (the "Fed") raised short-term interest rates by three
25-basis point* increments during the reporting period (to 6.50%), causing most
bond prices to fall.
DESPITE THESE NEGATIVE INFLUENCES, THE MUNICIPAL BOND MARKET WAS DRIVEN
PRIMARILY BY SUPPLY AND DEMAND INFLUENCES, WHICH WERE GENERALLY POSITIVE. During
the first half of 2000, issuance of municipal bonds in New York declined sharply
compared to the same period one year ago. On the other hand, demand for
municipal bonds remained strong, especially from individual investors seeking a
relatively safe, tax-exempt haven for gains realized in the stock market. With
many buyers competing for a limited number of bonds, this supply-and-demand
imbalance helped support a rally in municipal bond prices.
THE FUND BEGAN THE YEAR WITH A MODESTLY DEFENSIVE POSTURE. Because the
Fund's managers were concerned that rising interest rates might result in a
further decline in bond prices, they had reduced the Fund's average duration (a
measure of sensitivity to changing interest rates) toward the short end of its
range. This position was designed to help the managers capture higher yields
quickly as they became available. When it became apparent during the first
quarter that a reduced supply of municipal bonds was likely to help support
prices, the managers extended the Fund's average duration to the neutral range.
Finally, toward the end of the reporting period, the managers further extended
the Fund's average duration to the long end of the neutral range. This slightly
aggressive stance was intended to help the managers lock in prevailing high
yields for a longer time.
Management also actively managed the mix of bonds in the Fund according to
their analysis of prevailing market conditions. DURING A PERIOD OF INCREASED
VOLATILITY, THE MANAGERS FOCUSED PRIMARILY ON HIGH-QUALITY BONDS WITH MATURITIES
IN THE 10- TO 15-YEAR RANGE. Due to the fact that longer-term bonds provided
little additional yield compared to shorter-term bonds, the managers did not
believe it would be prudent to assume the additional risks of long-term bonds.
Additionally, the managers emphasized bonds that would not be subject to early
redemption within the next several years.
* A basis point is .01% or one one-hundredth of a percent.
2
<PAGE>
LOOKING FORWARD, MANAGEMENT MAINTAINS A POSITIVE OUTLOOK FOR THE NEW YORK
MUNICIPAL BOND MARKET. Although the managers believe that further interest rate
hikes may be likely, the municipal bond market appears to have already
incorporated that possibility into bond prices. The managers have recently seen
signs that the economy may be slowing, suggesting that the Fed's monetary
policies may have proven effective. Weakness in the stock market has caused
demand for municipal bonds to rise, potentially supporting municipal bond prices
near current levels. A strong New York economy has improved the fiscal health of
many municipal bond issuers, causing major ratings agencies to upgrade their
credit ratings. Finally, New York municipal bonds appear to be competitively
valued relative to other bond sectors.
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 preserve the value of its
shareholders' investment.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Declared daily, paid monthly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
September 8, 1986 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/00 BENCHMARKS
Class A shares o Lipper New York State Municipal
$182.3 million Bond Funds Average
Class B shares o Lehman Brothers
$9.7 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 adviser.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 2000
[BAR CHART OMITTED]
Power Revenue 1.0%
Sales Tax Revenue 3.3%
Healthcare 4.3%
Water/Sewer Revenue 8.1%
Other Revenue 8.3%
General Obligation Bonds 8.4%
Housing Revenue 11.1%
State Agencies 23.7%
Transportation Revenue 29.3%
*Short-Term 2.5%
* Includes cash and net other assets
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
ALL PERIODS ENDING JUNE 30, 2000 SIX ONE FIVE TEN
(Unaudited) (See Note 8) MONTHS** YEAR YEARS* YEARS*
================================================================================
CitiFunds New York Tax Free Income
Portfolio (Class A) without sales charge 4.42% (2.66)% 5.47% 6.45%
Lipper New York State Municipal Bond
Funds Average 4.31% (1.06)% 4.77% 6.34%
Lehman Brothers Municipal Bond Index 4.48% 3.25% 5.88% 7.06%
CitiFunds New York Tax Free Income Portfolio
(Class A) with a maximum sales charge
of 4.50% (0.28)% (1.96)% 4.50% 5.96%
CitiFunds New York Tax Free Income Portfolio
(Class B) without deferred sales charge 4.26% 2.24% -- (0.26)%++
Lipper New York State Municipal Bond
Funds Average 4.31% 1.06% -- (0.52)%+
Lehman Brothers Municipal Bond Index 4.48% 3.25% -- 1.53%+
CitiFunds New York Tax Free Income Portfolio
(Class B) with a maximum deferred
sales charge of 4.50% (0.43)% (2.36)% -- (3.30)%++
* Average Annual Total Return
** Not Annualized
+ From 12/31/98
++ Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.74% Income Dividends Per Share Class A $0.270
30-Day SEC Yield Class B 4.25% Income Dividends Per Share Class B $0.243
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made ten years ago would have grown to $17,847,
including the maximum sales charge (as of 6/30/00). The graph shows how the Fund
compares to its benchmark for the same period.
[The following table represents a line chart in the printed piece.]
CitiFunds Lipper
New York Tax Free New York State Lehman Brothers
Income Portfolio Municipal Bond Funds Municipal Bond Index
Date (Class A) Average (unmanaged)
-------- ----------------- -------------------- --------------------
12/31/89 9550 10000 10000
9445.7 9894 9952.7
9487.14 9978.1 10041.8
9490.04 9953.15 10044.8
9340.43 9828.74 9972.06
9592.79 10081.3 10189.8
6/30/90 9725.34 10200.3 10279.3
9941.08 10390 10430.9
9704.58 10176 10279.5
9650.07 10134.3 10285.4
9780.03 10234.6 10471.9
10095.4 10468 10682.5
12/31/90 10116.6 10502.5 10729
10286.3 10645.3 10873
10272.6 10703.9 10967.6
10271.7 10743.5 10971.5
10432.2 10911.1 11118
10522.1 10996.2 11216.8
6/30/91 10512.2 10985.2 11205.7
10667.8 11163.1 11342.2
10822.8 11323.9 11491.6
10994.9 11493.8 11641.2
11110.4 11604.1 11746
11121.1 11620.3 11778.7
12/31/91 11365 11859.7 12031.5
11325.1 11794.5 12058.9
11353.4 11838.1 12062.8
11318.8 11876 12067.3
11391.7 12001.9 12174.7
11583.1 12177.1 12318
6/30/92 11817.4 12429.2 12524.6
12223.9 12884.1 12900.1
12046.9 12688.3 12774.4
12088.1 12726.3 12857.9
11869.9 12515.1 12731.5
12140.5 12821.7 12959.5
12/31/92 12258 12985.8 13091.9
12452 13145.5 13244.1
12929.1 13666.1 13723.1
12822.6 13526.7 13578.1
12920.2 13675.5 13715.1
12949.1 13771.2 13792.2
6/30/93 13163.5 14002.6 14022.5
13168.3 13998.4 14040.7
13394.7 14303.5 14332.8
13549.4 14462.3 14496.2
13572.7 14489.8 14523.7
13450.1 14327.5 14395.9
12/31/93 13732.3 14628.4 14699.7
13865.9 14783.4 14867.2
13523.9 14412.4 14482.2
12911.2 13763.8 13892.8
12935 13777.6 14010.8
13044.2 13912.6 14132.7
6/30/94 12885.8 13815.2 14050.8
13142.7 14058.4 14307.9
13204.4 14104.8 14352.2
12945.4 13834 14141.3
12697.5 13532.4 13889.6
12412.1 13164.3 13638.2
12/31/94 12706.5 13528.9 13938.2
13060 13910.5 14336.8
13440.2 14358.4 14754
13593.2 14480.4 14923.7
13604.9 14497.8 14941.6
14119 14964.6 15418.2
6/30/95 13925.1 14764.1 15284.1
13990.3 14855.6 15429.3
14173.8 15023.5 15625.3
14213.2 15101.6 15723.7
14529 15346.3 15951.7
14846.5 15640.9 16216.5
12/31/95 14979.7 15802 16372.2
15046.5 15873.1 16496.6
14859 15739.8 16384.4
14631.1 15480.1 16174.7
14563.4 15415.1 16129.4
14590.1 15413.5 16123
6/30/96 14754.4 15576.9 16298.7
14888.9 15724.9 16445.4
14844 15687.1 16442.1
15104.2 15930.3 16672.3
15240.5 16089.6 16860.7
15517 16379.2 17169.2
12/31/96 15430.5 16295.7 17097.1
15456 16290.8 17129.6
15607.9 16437.4 17287.2
15406.2 16225.4 17057.3
15532 16366.5 17200.6
15801.4 16610.4 17460.3
6/30/97 15984.9 16778.2 17647.1
16472.8 17289.9 18135.9
16267 17089.3 17965.5
16453.2 17284.2 18179.2
16568 17386.1 18295.6
16653.3 17481.8 18403.5
12/31/97 16914.2 17759.7 18672.2
17118.6 17932 18864.6
17085.6 17924.8 18870.2
17097.5 17928.4 18887.2
16996.8 17786.8 18802.2
17332.8 18106.9 19099.3
6/30/98 17397.8 18175.7 19173.8
17402.4 18201.2 19221.7
17727.6 18505.1 19519.6
17980 18736.4 19763.6
17956.9 18663.4 19763.4
18011 18719.4 19832.6
12/31/98 18080.5 18756.8 19882.2
18323.8 18963.1 20118.8
18163.7 18855 20030.3
18159 18853.2 20058.3
18200.9 18894.6 20108.5
18023.8 18741.6 19991.8
6/30/99 17704.8 18419.2 19704
17750.1 18437.6 19774.9
17590.6 18194.3 19616.7
17589 18128.8 19624.5
17310.3 17829.6 19412.6
17557.9 18015.1 19618.4
12/31/99 17405.2 17838.5 19471.2
17268 17703 19385.5
17519.2 17965 19610.4
17950.6 18392.5 20037.9
17778.5 18250.9 19919.7
17656.2 18115.8 19816.1
6/30/00 18175 18610.4 20341.2
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 INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
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MUNICIPAL BONDS -- 97.5%
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GENERAL OBLIGATION BONDS -- 8.4%
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A3 New York City, NY, Series A,
6.25% due 8/01/12 $ 3,200 $ 3,383,968
A3 New York City, NY,
Series B, Unrefunded,
6.375% due 8/15/11 1,185 1,254,702
A3 New York City, NY,
Series F,
5.25% due 8/01/17 7,000 6,622,280
A3 New York City, NY,
Series F, Prerefunded,
7.65% due 2/01/06 2,700 2,863,862
Aaa New York City, NY,
Series F, Prerefunded,
8.40% due 11/15/06 1,825 1,943,881
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16,068,693
------------
HEALTHCARE -- 4.3%
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Aaa New York State Dormitory Authority,
North Shore University,
5.50% due 11/01/12 2,485 2,542,901
Aaa New York State Dormitory Authority,
North Shore University,
5.50% due 11/01/14 4,000 4,051,160
Aaa New York State Dormitory Authority,
Sloan Kettering Hospital,
5.50% due 7/01/17 1,600 1,603,488
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8,197,549
------------
HOUSING REVENUE -- 11.1%
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Aaa New York State Housing
Finance Agency, ETM,
5.875% due 9/15/14 4,000 4,039,640
Aaa New York State Housing
Finance Agency, ETM,
7.90% due 11/01/06 5,750 6,422,405
Aa New York State Mortgage
Agency Revenue, AMT,
5.35% due 10/01/18 3,200 3,004,928
Aa New York State Mortgage
Agency Revenue, AMT,
5.45% due 4/01/18 1,735 1,675,559
Aa New York State Mortgage
Agency Revenue, AMT,
7.25% due 10/01/07 6,075 6,288,840
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21,431,372
------------
POWER REVENUE -- 1.0%
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Aa3 Long Island Power Authority,
NY, Zero Coupon due
6/01/18 3,000 1,050,150
Aaa Puerto Rico Commonwealth
Highway Authority,
5.25% due 7/01/21 1,000 934,880
------------
1,985,030
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SALES TAX REVENUE -- 3.3%
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Aa3 New York City Transitional,
NY, Series A,
5.875% due 11/01/14 1,000 1,045,460
Aa3 New York City Transitional,
NY, Series A,
6.00% due 8/15/15 5,000 5,266,200
------------
6,311,660
------------
STATE AGENCIES -- 23.7%
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Aaa New York State Dormitory
Authority, City University,
5.60% due 7/01/10 10,550 10,802,883
Aaa New York State Dormitory
Authority, City University,
5.75% due 7/01/18 3,000 3,091,890
Baa1 New York State Dormitory
Authority, Court Facilities,
5.25% due 5/15/21 1,000 922,510
A3 New York State Dormitory
Authority, Mental Health Services,
6.50% due 2/15/11 1,610 1,769,245
6
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
Aaa New York State Dormitory
Authority, New York University,
5.75% due 7/01/27 $ 6,300 $ 6,369,174
Aaa New York State Dormitory
Authority, Saint Joseph's Hospital,
5.25% due 7/01/18 2,000 1,893,080
A3 New York State Dormitory
Authority, State University,
5.25% due 5/15/13 2,030 2,003,732
Aaa New York State Dormitory
Authority, State University,
5.25% due 5/15/14 3,000 2,919,210
A3 New York State Dormitory
Authority, State University,
5.40% due 5/15/23 1,690 1,578,544
Aaa New York State Dormitory
Authority, State University,
5.75% due 7/01/13 1,515 1,571,207
Aaa New York State Dormitory
Authority, State University,
6.00% due 7/01/15 1,160 1,204,208
A3 New York State Local
Government Assistance, Series A,
5.25% due 4/01/19 4,000 3,745,920
A3 New York State Local Government
Assistance, Series E,
6.00% due 4/01/14 2,000 2,129,140
Baa1 New York State Urban Development
Authority, Correctional Cap,
5.75% due 1/01/13 4,250 4,325,438
Baa1 New York State Urban Development
Authority, Youth Facilities,
5.875% due 4/01/09 1,245 1,285,487
------------
45,611,668
------------
TRANSPORTATION REVENUE -- 29.3%
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Baa1 Metropolitan Transportation Authority, NY,
6.125% due 4/01/172,000 2,102,300
Baa1 Metropolitan Transportation
Authority, NY,
5.50% due 7/01/12 2,380 2,398,159
Baa1 Metropolitan Transportation
Authority, NY, Series O,
5.75% due 7/01/13 3,000 3,077,340
Aaa Metropolitan Transportation
Authority, NY,
5.125% due 7/01/17 2,300 2,186,081
Baa1 Metropolitan Transportation
Authority, NY,
5.625% due 7/01/25 1,940 1,900,482
Baa1 Metropolitan Transportation
Authority, NY,
5.75% due 7/01/13 1,000 1,025,780
Aaa New York City Transportation
Authority,
5.625% due 1/01/14 2,500 2,550,575
Aaa New York State Thruway Authority,
6.00% due 4/01/11 7,415 7,784,119
Aaa New York State Thruway
Authority, Series B,
5.25% due 4/01/14 3,000 2,956,500
Aaa New York State Thruway
Authority, Series C,
5.25% due 4/01/15 1,095 1,071,830
Aaa New York State Thruway
Authority, Series E,
5.25% due 1/01/13 9,275 9,199,594
Aaa New York State Thruway
Authority, Series E,
5.25% due 1/01/15 4,550 4,455,133
Baa1 New York State Thruway
Authority, Local Highway, Series B,
5.25% due 4/01/12 8,135 7,962,863
Baa1 New York State Thruway
Authority, Local Highway, Series B,
5.375% due 4/01/13 4,370 4,387,699
7
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
Aaa Puerto Rico Commonwealth
Highway Authority,
5.50% due 7/01/15 $ 1,000 $ 1,029,900
Aaa Puerto Rico Commonwealth
Highway Authority,
6.25% due 7/01/14 2,000 2,206,860
------------
56,295,215
------------
WATER AND SEWER REVENUE -- 8.1%
--------------------------------------------------------------------------------
Aa New York State
Environmental Facilities,
7.00% due 6/15/12 3,250 3,393,065
Aa New York State
Environmental Facilities,
7.50% due 6/15/12 3,000 3,063,900
A1 New York State
Environmental Facilities,
5.25% due 6/15/13 3,500 3,477,180
A1 New York State
Environmental Facilities,
5.25% due 6/15/14 3,500 3,445,540
A1 New York State
Environmental Facilities,
7.125% due 7/01/12 2,100 2,162,034
------------
15,541,719
------------
OTHER REVENUE -- 8.3%
--------------------------------------------------------------------------------
N/R New York City Housing
Development Corp.
6.10% due 11/01/19 1,645 1,668,720
N/R New York City Industrial
Development Agency,
College Mount Saint Vincent
7.00% due 5/01/08 710 739,067
A1 New York City Industrial
Development Agency,
Terminal Group One, AMT,
6.00% due 1/15/15 2,000 2,019,480
N/R Port Authority of New York and
New Jersey, Special Obligation,
6.75% due 10/01/19 11,250 11,432,813
------------
15,860,080
------------
TOTAL MUNICIPAL BONDS
(Identified Cost
$189,201,441) 187,302,986
------------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST -- 1.8%
--------------------------------------------------------------------------------
Aaa New York City, NY, Series B
4.75% due 10/01/20 1,500 1,500,000
Aa3 New York City, NY,
4.55% due 8/01/16 900 900,000
Aa2 New York City, NY,
4.50% due 8/01/23 500 500,000
Aa1 New York State Local
Government Assistance
4.35% due 4/01/22 500 499,985
------------
TOTAL VARIABLE RATE
DEMAND NOTES
AT AMORTIZED COST 3,399,985
------------
TOTAL INVESTMENTS
(Identified Cost
$192,601,426) 99.3% 190,702,971
OTHER ASSETS,
LESS LIABILITIES 0.7 1,278,006
----- ------------
NET ASSETS 100.0% $191,980,977
----- ------------
* 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
8
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (Unaudited)
===============================================================================
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $192,601,426) $190,702,971
Interest receivable 3,685,086
Receivable for shares of beneficial interest sold 191
-------------------------------------------------------------------------------
Total assets 194,388,248
-------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 1,048,325
Payable for shares of beneficial interest repurchased 630,866
Dividends payable 303,682
Payable to the custodian 224,861
Payable to affiliate-- Management fees (Note 2) 59,537
Accrued expenses and other liabilities 140,000
-------------------------------------------------------------------------------
Total liabilities 2,407,271
-------------------------------------------------------------------------------
NET ASSETS $191,980,977
===============================================================================
NET ASSETS CONSIST OF:
Paid-in capital $207,239,040
Accumulated net realized loss on investments
and futures transactions (14,118,703)
Unrealized depreciation of investments (1,898,455)
Undistributed net investment income 759,095
-------------------------------------------------------------------------------
Total $191,980,977
===============================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share
($182,280,984/16,582,821 shares outstanding) $10.99
Offering Price per share (Note 8)
($10.99 / 0.955) $11.51*
===============================================================================
CLASS B SHARES (Note 8):
Net Asset Value and offering price per share
($9,699,993/882,936 shares outstanding) $10.99**
===============================================================================
* 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 NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $5,918,156
EXPENSES:
Management fees (Note 2) $ 770,748
Service fees Class A (Note 3) 244,663
Service fees Class B (Note 3) 36,758
Custody and fund accounting fees 49,759
Transfer agent fees 37,128
Legal fees 21,798
Audit fees 14,700
Shareholder reports 11,938
Trustee fees 10,450
Miscellaneous 29,028
--------------------------------------------------------------------------------
Total expenses 1,226,970
Less aggregate amounts waived by Manager (Note 2) (369,049)
Less fees paid indirectly (Note 1F) (350)
--------------------------------------------------------------------------------
Net expenses 857,571
--------------------------------------------------------------------------------
Net investment income 5,060,585
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions (3,618,803)
Unrealized appreciation 7,238,741
--------------------------------------------------------------------------------
Net realized and unrealized gain on investments 3,619,938
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,680,523
================================================================================
See notes to financial statements
10
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 5,060,585 $15,480,394
Net realized loss from investments and
futures transactions (3,618,803) (5,677,610)
Unrealized appreciation (depreciation)
of investments 7,238,741 (22,044,739)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 8,680,523 (12,241,955)
--------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (4,958,231) (14,326,411)
Net investment income (Class B) (223,209) (335,151)
--------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (5,181,440) (14,661,562)
--------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 5,381,962 34,112,225
Net asset value of shares issued to
shareholders from reinvestment
of dividends 4,974,862 14,423,120
Cost of shares repurchased (55,549,744) (257,931,562)
--------------------------------------------------------------------------------
Total Class A (45,192,920) (209,396,217)
--------------------------------------------------------------------------------
CLASS B (Note 8)*
Net proceeds from sale of shares 585,380 13,958,726
Net asset value of shares issued
to shareholders from reinvestment
of dividends 169,226 268,729
Cost of shares repurchased (1,937,235) (2,661,645)
--------------------------------------------------------------------------------
Total Class B (1,182,629) 11,565,810
--------------------------------------------------------------------------------
Net decrease in net assets from
transactions in shares of
beneficial interest (46,375,549) (197,830,407)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (42,876,466) (224,733,924)
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 234,857,443 459,591,367
--------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $759,095 and
$879,950, respectively) $191,980,977 $234,857,443
================================================================================
* January 4, 1999 (Commencement of Operations).
See notes to financial statements
11
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 ------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $ 10.79 $ 11.69 $ 11.42 $ 10.98 $ 11.25 $ 10.09
-----------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.315 0.514 0.487 0.594 0.585 0.607
Net realized and
unrealized gain
(loss) on investments 0.155 (0.940) 0.282 0.431 (0.267) 1.153
-----------------------------------------------------------------------------------------------------
Total from operations 0.470 (0.426) 0.769 1.025 0.318 1.760
-----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.270) (0.474) (0.499) (0.585) (0.588) (0.600)
-----------------------------------------------------------------------------------------------------
Net Asset Value, end
of period $ 10.99 $ 10.79 $ 11.69 $ 11.42 $ 10.98 $ 11.25
=====================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period
(000's omitted) $182,281 $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% 0.80%
Ratio of net investment
income to average
net assets 4.95%* 4.40% 4.24% 5.31% 5.34% 5.62%
Portfolio turnover 27% 30% 17% 16% 47% 98%
Total return (A) 4.42%** (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, the net investment
income per share and the ratios would have been as follows:
Net investment income
per share $ 0.294 $ 0.465 $ 0.454 $ 0.540 $ 0.534 $ 0.555
RATIOS:
Expenses to average net
assets 1.17%* 1.13% 1.09% 1.28% 1.27% 1.27%
Net investment income to
average net assets 4.58%* 4.07% 3.95% 4.83% 4.87% 5.15%
=====================================================================================================
</TABLE>
* Annualized
** Not Annualized
(A) Total return does not include the maximum sales charge of 4.50% effective
January 4, 1999.
See notes to financial statements
12
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS (Continued)
CLASS B
(Note 8)
--------------------------------
FOR THE PERIOD
JANUARY 4, 1999
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
Net Asset Value, beginning of period $ 10.78 $ 11.69
--------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.251 0.412
Net realized and unrealized gain
(loss) on investments 0.202 (0.923)
--------------------------------------------------------------------------------
Total from operations 0.453 (0.511)
--------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.243) (0.399)
--------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.99 $ 10.78
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $ 9,700 $10,713
Ratio of expenses to average net assets 1.30%* 1.30%*
Ratio of net investment income to average
net assets 4.45%* 3.90%*
Portfolio turnover 27% 30%
Total return 4.26%** (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 $ 0.230 $ 0.375
RATIOS:
Expenses to average net assets 1.67%* 1.63%*
Net investment income to average net assets 4.08%* 3.57%*
================================================================================
* Annualized
** Not Annualized
See notes to financial statements
13
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds New York Tax Free Income Portfolio
(the "Fund") is a separate non-diversified series of CitiFunds Tax Free Income
Trust (the "Trust"), a Massachusetts business trust. The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end, management
investment company. The investment manager of the Fund is Citibank, N.A.
("Citibank"). CFBDS, Inc. ("CFBDS") acts as the Fund's sub-administrator and
distributor.
The Fund, as of June 30, 2000, offered 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 six months ended June 30, 2000, CFBDS, acting as the
distributor, received net commissions paid by investors of $25,686 from sales of
Class A shares and $23,715 in deferred sales charges from redemptions of Class B
shares (see Note 8).
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 NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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, of which $4,822,290 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
15
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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
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 $770,748 of which $369,049 was
voluntarily waived for the six months ended June 30, 2000. 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 amounted to $244,663 for the six months ended June 30, 2000.
Under the Class B
16
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 $36,758 for the six months ended June 30, 2000. 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
$54,802,277 and $103,238,300, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value). Transactions in shares of beneficial interest were
as follows:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
CLASS A
Shares sold 499,697 2,954,505
Shares reinvested 460,147 1,274,608
Shares repurchased (5,149,973) (22,787,364)
--------------------------------------------------------------------------------
Class A net decrease (4,190,129) (18,558,251)
================================================================================
CLASS B (Note 8)*
Shares sold 54,017 1,207,708
Shares reinvested 15,657 24,156
Shares repurchased (180,135) (238,467)
--------------------------------------------------------------------------------
Class B net increase (decrease) (110,461) 993,397
================================================================================
* January 4, 1999 (Commencement of Operations).
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 2000, as
computed on a federal income tax basis, are as follows:
Aggregate cost $192,601,426
================================================================================
Gross unrealized appreciation $ 2,969,419
Gross unrealized depreciation (4,867,874)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (1,898,455)
================================================================================
17
<PAGE>
CITIFUNDS NEW YORK TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
7. LINE OF CREDIT The Fund, along with other CitiFunds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. In addition, the committed portion of the line of credit requires a
quarterly payment of a commitment fee based on the average daily unused portion
of the line of credit. For the six months ended June 30, 2000, the commitment
fee allocated to the Fund was $324. Since the line of credit was established
there have been no borrowings.
8. SUBSEQUENT EVENT Effective July 14, 2000, the front-end sales charges on
Class A shares were waived. As of that date, Class B shares were no longer
offered. All Class B shares were converted to Class A shares without imposition
of any contingent deferred sales charge.
18
<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
Robert Frenkel**
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
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
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.
(C)2000 Citicorp R Printed on recycled paper CFS/NYI/600
<PAGE>
--------------------------------------------------------------------------------
CitiFunds(R)
----------------------
--------------------------------------------------------------------------------
NATIONAL
TAX FREE
INCOME
PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
--------------------------------------------------------------------------
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 8
................................................................................
Statement of Operations 8
................................................................................
Statement of Changes in Net Assets 9
................................................................................
Financial Highlights 10
................................................................................
Notes to Financial Statements 12
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
While the past six months have been challenging for many types of investments
and for many investors, municipal bonds have fared relatively well. A
strengthening global economy, rising interest rates and shifting investor
sentiment have created wide fluctuations in the prices of most stocks and
higher-yielding taxable bonds. While prices of municipal bonds also fluctuated,
they responded positively to their own supply-and-demand influences.
We are pleased to announce that effective July 14, 2000, the front-end sales
charge on Class A shares of CitiFunds National Tax Free Income Portfolio is
being waived. As of that date, Class B shares are no longer offered. If you are
a Class B shareholder, your existing Class B shares have been converted to Class
A shares without imposition of any contingent deferred sales charge. It is also
important to note that the Class A shares incur lower annual expenses than the
Class B shares.
This report reviews the Fund's investment activities and performance during
the six months ended June 30, 2000, and provides a summary of Citibank's
perspective on and outlook for the national tax-exempt bond market. Thank you
for your continued confidence and participation.
Sincerely,
/s/ PHILIP W. COOLIDGE
----------------------
Philip W. Coolidge
President
July 17, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
ALTHOUGH THE FIRST HALF OF 2000 SAW BOTH ADVANCES AND DECLINES WITHIN THE
NATIONAL MUNICIPAL BOND MARKET, overall returns were positive for the reporting
period. Rallies during the first quarter and in June offset relative weakness in
April and May.
When the new year began on January 1, 2000, investors were relieved that Y2K
had not negatively impacted the U.S. economy. Most investors soon became
concerned, however, that unsustainably strong economic growth might rekindle
long-dormant inflationary pressures. Consumer spending and borrowing remained
high, oil prices were rising, the stock market set new record highs and
unemployment remained at record lows. Perhaps most importantly, many investment
professionals expressed concern about potential for rising wages in a tight job
market. In an attempt to forestall a reacceleration of inflation, the Federal
Reserve Board (the "Fed") raised short-term interest rates by three 25-basis
point* increments during the reporting period (to 6.50%), causing most bond
prices to fall.
DESPITE THESE NEGATIVE INFLUENCES, THE MUNICIPAL BOND MARKET WAS DRIVEN
PRIMARILY BY SUPPLY AND DEMAND INFLUENCES, WHICH WERE GENERALLY POSITIVE. During
the first half of 2000, issuance of municipal bonds generally declined
approximately 40%, compared to the same period a year ago. On the other hand,
demand for tax-exempt bonds remained strong, especially from individual
investors seeking a relatively safe, tax-exempt haven for gains that may have
been realized in the stock market. With many buyers competing for a limited
number of bonds, this supply-and-demand imbalance helped support a rally in
municipal bond prices.
THE FUND BEGAN THE YEAR WITH A MODESTLY DEFENSIVE POSTURE. Because the
managers were concerned that rising interest rates might further erode bond
prices, the managers reduced the Fund's average duration (i.e., a measure of
sensitivity to changing interest rates) toward the short end of its range. This
position was designed to help the managers capture higher yields as they became
available. When it became apparent during the first quarter that a reduced
supply of municipal bonds was likely to support prices, the managers extended
the Fund's average duration to the neutral range. Finally, toward the end of the
reporting period, the managers further extended the Fund's average duration to
the long end of the neutral range. This relatively aggressive stance was
intended to help the managers lock in higher yields for a longer period of time.
The managers also actively managed the mix of bonds in the Fund according to
their extensive analysis of prevailing market conditions. In a relatively
volatile investment environment, the manager focused primarily on high-quality
bonds with maturities in the 10- to 15-year range. Because longer-term bonds
provided very little additional yield, the managers did not think it was prudent
to assume the additional risk of investing in longer-term bonds. In addition,
the managers emphasized bonds that may not be subject to early redemptions over
the long term.
* A basis point is .01% or one one-hundredth of a percent.
2
<PAGE>
LOOKING FORWARD, THE MANAGERS MAINTAIN A POSITIVE LONG-TERM OUTLOOK ON THE
MUNICIPAL BOND MARKET. Although the managers believe that further interest rate
hikes by the Fed may be likely, the market appears to have already incorporated
that possibility into bond prices. The managers have recently seen signs that
the U.S. economy may be slowing, suggesting that the Fed's monetary policies may
have proven effective.
Weakness in the stock market has caused demand for municipal bonds to rise,
potentially supporting municipal bond prices near current levels. Finally,
municipal bonds appear to be attractively valued relative to other fixed-income
securities.
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
To generate high levels of current income exempt from federal income taxes+ and
to preserve the value of its shareholders' investment. The Fund invests
primarily in municipal obligations that pay interest that is exempt from federal
income taxes.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Declared daily, paid monthly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
August 17, 1995 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/00 BENCHMARKS
Class A Shares o Lipper General Municipal
$78.7 million Bond Funds Average
Class B Shares o Lehman Brothers Municipal 4 Years Plus
$5.4 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
(AMT). Consult your personal tax adviser.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 2000
(Figures below represents pie chart in its printed piece)
CitiFunds Lipper Lehman
8/17/95 9550
9731 10000 10000
9786 10059 10065
9986 10215 10223
10158 10412 10405
12/31/95 10260 10529 10513
10352 10580 10593
10230 10497 10514
10019 10329 10366
9965 10280 10332
9930 10284 10326
6/30/96 10075 10381 10444
10190 10472 10544
10164 10466 10539
10330 10617 10696
10447 10732 10824
10656 10920 11034
12/31/96 10600 10873 10981
10625 10873 10998
10723 10968 11106
10573 10825 10945
10682 10914 11042
10844 11070 11219
6/30/97 11027 11194 11346
11432 11530 11687
11300 11394 11564
11475 11254 11710
11534 11324 11788
11593 11389 11862
12/31/97 11814 11570 12051
11992 11679 12183
11986 11672 12183
12068 11674 12192
12041 11602 12129
12277 11790 12337
6/30/98 12371 11829 12386
12388 11846 12415
12627 12030 12622
12879 12173 12795
12885 12128 12782
12936 12164 12829
12/31/98 13001 12185 12861
13202 12321 13024
13071 12242 12951
13067 12243 12970
13096 12271 13001
12965 12174 12911
6/30/99 12728 11962 12698
12758 11980 12742
12637 11830 12622
12621 11798 12618
12436 11617 12448
12603 11732 12600
12/31/99 12499 11614 12486
12430 11520 12412
12587 11673 12580
12901 11938 12902
12807 11856 12749
12701 11767 12665
6/30/00 13030 12069 13042
* Includes cash and net other assets.
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
ALL PERIODS ENDING JUNE 30, 2000 SIX ONE 8/17/95
(Unaudited) (See Note 8) MONTHS** YEAR (INCEPTION)*
=======================================================================================
<S> <C> <C> <C>
CitiFunds National Tax Free Income Portfolio (Class A)
without sales charge 4.25% 2.37% 6.58%
Lipper General Municipal Bond Funds Average 3.95% 0.98% 3.97%+
Lehman Brothers Municipal 4 Years Plus
Bond Index 4.45% 2.71% 5.65%+
CitiFunds National Tax Free Income Portfolio (Class A)
with a maximum sales charge
of 4.50% (0.44)% (2.24)% 5.58%
CitiFunds National Tax Free Income Portfolio (Class B)
without deferred sales charge 3.99% 1.96% (0.45)%#
Lipper General Municipal Bond Funds Average 3.95% 0.98% (0.64)%++
Lehman Brothers Municipal 4 Years Plus
Bond Index 4.45% 2.71% 0.94%++
CitiFunds National Tax Free Income Portfolio (Class B)
with a maximum deferred sales
charge of 4.50% (0.69)% (2.63)% (3.49)%#
</TABLE>
* Average Annual Total Return
** Not Annualized
+ From 8/31/95
++ From 12/31/98
# Commencement of Operations 1/4/99
30-Day SEC Yield Class A 4.54% Income Dividends Per Share Class A $0.252
30-Day SEC Yield Class B 4.08% Income Dividends Per Share Class B $0.226
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$13,030, including the maximum sales charge (as of 6/30/00). The graph shows how
the Fund compares to its benchmark for the same period.
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 June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS -- 97.4%
--------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS -- 23.4%
--------------------------------------------------------------------------------
Aaa El Paso County,
Colorado, School District,
6.375% due
12/01/17 $ 1,025 $ 1,088,591
Aaa Ennis, Texas School
District, Zero
Coupon due
8/15/19 2,835 869,778
Aaa Ennis, Texas, School
District, Zero
Coupon due
8/15/21 1,250 326,100
Aaa Fort Worth, Texas,
School District,
5.75% due 2/15/12 3,080 3,192,512
Aaa Georgia State, 5.75%
due 9/01/11 2,510 2,653,848
Aaa Georgia State, 5.80%
due 11/01/16 1,605 1,677,466
Aa3 Massachusetts State,
6.00% due 6/01/15 2,000 2,086,320
Aa3 Massachusetts State,
6.00% due 2/01/14 3,900 4,096,014
A3 New York, New York,
6.125% due
11/15/14 1,500 1,599,330
Aaa Northside, Texas,
School District,
6.00% due 8/15/16 1,150 1,192,251
Aaa North Slope Boro,
Alaska, Zero Coupon
due 6/30/09 1,500 931,035
------------
19,713,245
------------
EDUCATION -- 8.9%
--------------------------------------------------------------------------------
Aaa ABC California Union
School District, Zero
Coupon due 8/01/17 750 283,568
Aaa California Educational
Facility Authority
Revenue, Zero
Coupon due
10/01/18 2,810 939,102
Aaa Chicago, Illinois, Board of
Education, Zero
Coupon due
12/01/14 2,000 882,740
Aaa Pennsylvania State
Higher Education
Authority, 6.125%
due 12/15/17 1,300 1,356,485
Aa1 University of Texas
Revenue, 5.375%
due 8/15/17 $3,000 $2,939,040
Aa1 University of Texas
Revenue, 5.75%
due 8/15/15 1,045 1,071,731
----------
7,472,666
HOUSING -- 7.9%
--------------------------------------------------------------------------------
Aa2 Colorado Housing
Finance Authority,
6.60% due 5/01/28 1,000 1,039,130
Aa2 Colorado Housing
Finance Authority,
6.55% due 5/01/25 985 1,034,595
Aa2 Connecticut State
Housing and Finance
Corp., 5.95%
due 5/15/17 2,000 2,032,420
Aa Georgia State Housing
and Finance Corp.,
4.65% due 12/01/20 1,435 1,396,413
Aaa New Jersey State
Housing Finance
Authority, 4.75%
due 10/01/17 1,135 1,106,761
----------
6,609,319
----------
POWER REVENUE -- 2.5%
--------------------------------------------------------------------------------
Aaa Sikeston, Missouri
Electrical Revenue,
6.00% due 6/01/14 2,000 2,142,500
----------
STATE AGENCIES -- 4.8%
--------------------------------------------------------------------------------
Baa1 New York State
Dormitory Authority,
5.375% due 7/01/14 1,000 978,370
A3 New York State
Dormitory Authority,
5.625% due 5/15/13 3,020 3,042,076
----------
4,020,446
----------
TRANSPORTATION REVENUE -- 34.8%
--------------------------------------------------------------------------------
Baa2 Alliance, Texas,
Airport Authority Inc.,
6.375% due 4/01/21 2,750 2,695,495
Baa1 Dallas/Fort Worth,
Texas, International
Airport Revenue,
6.00% due 11/01/14 2,050 1,990,447
6
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
Baa1 Dallas/Fort Worth,
Texas, International
Airport Revenue,
7.25% due 11/01/30 $ 1,000 $ 1,014,230
Baa3 Kenton County,
Kentucky, Airport
Authority, 6.125%
due 2/01/22 1,075 998,019
Baa3 Kenton County,
Kentucky, Airport
Authority, 7.125%
due 2/01/21 1,250 1,266,925
Aaa Massachusetts Bay
Transportation
Authority, 5.50%
due 3/01/13 1,685 1,721,902
Aaa Massachusetts Bay
Transportation
Authority, 5.50%
due 3/01/14 5,000 5,076,450
Aaa Massachusetts Bay
Transportation
Authority, 5.50%
due 3/01/15 2,500 2,535,025
Aaa Metropolitan Transit
Authority, New York,
6.125% due 4/01/17 1,000 1,051,150
Aaa Miami, Dade County,
Florida, Expressway
Authority, 6.00%
due 7/01/13 1,500 1,590,435
Aaa New Jersey Economic
Development
Authority, 5.75%
due 5/01/13 3,000 3,108,840
Aaa Regional Transportation
Authority of Illinois,
5.75% due 6/01/14 4,010 4,157,688
Aaa Regional Transportation
Authority of Illinois,
5.75% due 6/01/15 2,000 2,054,400
-----------
29,261,006
-----------
WATER AND SEWER REVENUE -- 11.1%
--------------------------------------------------------------------------------
Aaa Chicago, Illinois
Wastewater Revenue,
6.00% due 1/01/15 1,000 1,034,600
Aaa Lower Colorado River
Authority Revenue,
5.75% due 4/15/12 1,550 1,605,320
Aaa Lower Colorado River
Authority Revenue,
6.00% due 4/15/13 3,000 3,161,760
Aaa Pueblo, Colorado,
Waterworks
Revenue, 6.00%
due 11/01/15 1,165 1,214,955
Aaa Kansas State,
Development Finance
Authority, 5.75%
due 4/01/14 2,280 2,354,579
-----------
9,371,214
-----------
MISCELLANEOUS-- 4.0%
--------------------------------------------------------------------------------
Aaa Brazos River, Texas,
Authority Revenue,
4.90% due 10/01/15 2,000 1,839,760
Aaa New Jersey Sports &
Exposition Authority
Contractors,
6.00% due 3/01/15 1,500 1,563,450
-----------
3,403,210
-----------
TOTAL MUNICIPAL BONDS
(Identified Cost $82,063,445) 81,993,606
-----------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST -- 2.0%
--------------------------------------------------------------------------------
VMIG-1 East Baton Rouge
Parish, Louisiana, 4.60%
due 12/01/28 400 400,000
VMIG-1 Harris County,
Texas, Health Facility
Development 4.60%
due 8/15/27 1,000 1,000,000
VMIG-1 New York, New York,
4.75% due 8/15/20 300 300,000
-----------
TOTAL VARIABLE RATE
DEMAND NOTES
AT AMORTIZED COST 1,700,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$83,763,445) 99.4% 83,693,606
OTHER ASSETS,
LESS LIABILITIES 0.6 463,440
----- -----------
NET ASSETS 100.0% $84,157,046
===== ===========
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 days notice.
See notes to financial statements
7
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
<S> <C>
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $83,763,445) $ 83,693,606
Cash 40,171
Interest receivable 1,130,831
--------------------------------------------------------------------------------
Total assets 84,864,608
--------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 456,124
Dividends payable 123,128
Payable to affiliate--Management fee (Note 2) 23,149
Accrued expenses and other liabilities 105,161
--------------------------------------------------------------------------------
Total liabilities 707,562
--------------------------------------------------------------------------------
NET ASSETS $ 84,157,046
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 94,810,472
Unrealized depreciation of investments (69,839)
Accumulated net realized loss on investments (10,774,244)
Undistributed net investment income 190,657
--------------------------------------------------------------------------------
Total $84,157,046
================================================================================
COMPUTATION OF CLASS A SHARES:
Net Asset Value per share ($78,718,045/7,333,579 shares outstanding) $10.73
Offering Price per share (Note 8) ($10.73 O 0.955) $11.24*
================================================================================
CLASS B SHARES (Note 8):
Net Asset Value and offering price per share ($5,439,001/506,815
shares outstanding) $10.73**
================================================================================
* 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.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $ 2,657,615
EXPENSES:
Management fees (Note 2) $ 355,076
Service fees Class A (Note 3) 111,138
Service fees Class B (Note 3) 21,661
Transfer agent fees 36,108
Custody and fund accounting fees 27,614
Legal fees 23,048
Audit fees 15,550
Shareholder reports 13,972
Trustee fees 4,305
Miscellaneous 23,478
--------------------------------------------------------------------------------
Total expenses 631,950
Less aggregate amounts waived by the Manager (Note 2) (234,518)
Less fees paid indirectly (Note 1E) (477)
--------------------------------------------------------------------------------
Net expenses 396,955
--------------------------------------------------------------------------------
Net investment income 2,260,660
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (2,566,165)
Unrealized appreciation 4,121,826
--------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,555,661
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,816,321
================================================================================
</TABLE>
See notes to financial statements
8
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(Unaudited) DECEMBER 31, 1999
=================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 2,260,660 $ 7,776,994
Net realized loss on investment transactions (2,566,165) (8,208,079)
Unrealized appreciation (depreciation) of
investments 4,121,826 (5,867,827)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 3,816,321 (6,298,912)
--------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (2,149,080) (7,347,895)
Net investment income (Class B) (124,816) (231,920)
Net realized gains (Class A) -- (145,071)
Net realized gains (Class B) -- (6,581)
--------------------------------------------------------------------------------
Decrease in net assets from distributions to
shareholders (2,273,896) (7,731,467)
--------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 1,283,313 31,526,984
Net asset value of shares issued to shareholders
from reinvestment of dividends 2,180,645 7,492,966
Cost of shares repurchased (32,647,756) (178,624,173)
--------------------------------------------------------------------------------
Total Class A (29,183,798) (139,604,223)
--------------------------------------------------------------------------------
CLASS B (Note 8)*
Net proceeds from sale of shares 61,677 9,488,937
Net asset value of shares issued to shareholders
from reinvestment of dividends 8,663 188,257
Cost of shares repurchased (1,763,946) (2,087,847)
--------------------------------------------------------------------------------
Total Class B (1,603,606) 7,589,347
--------------------------------------------------------------------------------
Net decrease in net assets from transactions
in shares of beneficial interest (30,787,404) (132,014,876)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (29,244,979) (146,045,255)
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 113,402,025 259,447,280
--------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $190,657 and $203,893,
respectively) $ 84,157,046 $ 113,402,025
================================================================================
* January 4, 1999 (Commencement of Operations).
</TABLE>
See notes to financial statements
9
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
AUGUST 17, 1995
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
JUNE 30, 2000 ---------------------------------- DECEMBER 31,
(Unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period $ 10.54 $ 11.43 $ 10.92 $ 10.34 $ 10.55 $ 10.00
----------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.275 0.469 0.524 0.564 0.562 0.187
Net realized and unrealized
gain (loss) on investments 0.167 (0.900) 0.549 0.586 (0.232) 0.551
----------------------------------------------------------------------------------------------
Total from operations 0.442 (0.431) 1.073 1.150 0.330 0.738
----------------------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.252) (0.450) (0.540) (0.570) (0.540) (0.188)
Net realized gain on
investments -- (0.009) (0.023) -- -- --
----------------------------------------------------------------------------------------------
Total from distributions (0.252) (0.459) (0.563) (0.570) (0.540) (0.188)
----------------------------------------------------------------------------------------------
Net Asset Value, end of
period $ 10.73 $ 10.54 $ 11.43 $ 10.92 $ 10.34 $ 10.55
==============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $78,718 $106,449 $259,447 $ 1,917 $ 2,060 $1,306
Ratio of expenses to average
net assets (A) 0.80%* 0.81% 0% 0.14% 0% 0%
Ratio of expenses to average
net assets after fees paid
indirectly (A) 0.80%* 0.80% 0% 0% 0% 0%
Ratio of net investment income
to average net assets 4.76%* 4.14% 4.49% 5.45% 5.42% 5.20%*
Portfolio turnover 37% 112% 57% 55% 52% 0%
Total return (B) 4.25%** (3.86)% 10.05% 11.45% 3.31% 7.43%**
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period, the expenses were not reduced for fees paid
indirectly, the Sub-administrator had not voluntarily assumed expenses and had
expenses been limited to that required by certain state securities law in 1995,
the net investment income (loss) per share and the ratios would have been as
follows:
Net investment income
(loss) per share $0.245 $0.424 $0.364 $(0.229) $(0.291) $0.098
RATIOS:
Expenses to average net assets 1.30%* 1.20% 1.37% 7.66% 8.23% 2.50%*
Net investment income (loss)
to average net assets 4.26%* 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
10
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
(Note 8)
--------------------------------------------------------------------------------
FOR THE PERIOD
SIX MONTHS JANUARY 4, 1999
ENDED (COMMENCEMENT
JUNE 30, 2000 OF OPERATIONS) TO
(Unaudited) DECEMBER 31, 1999
================================================================================
<S> <C> <C>
Net Asset Value, beginning of period $ 10.54 $11.43
--------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.232 0.385
Net realized and unrealized
gain (loss) on investments 0.184 (0.889)
--------------------------------------------------------------------------------
Total from operations 0.416 (0.504)
--------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.226) (0.377)
Net realized gains on investments -- (0.009)
--------------------------------------------------------------------------------
Total from distributions (0.226) (0.386)
--------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.73 $10.54
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $ 5,439 $6,953
Ratio of expenses to average
net assets 1.30%* 1.30%*
Ratio of net investment income to
average net assets 4.26%* 3.64%*
Portfolio turnover 37% 112%
Total return 3.99%** (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 $ 0.204 $ 0.343
RATIOS:
Expenses to average net assets 1.80%* 1.70%*
Net investment income to average net assets 3.76%* 3.24%*
================================================================================
</TABLE>
* Annualized
** Not annualized
See notes to financial statements
11
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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, as of June 30, 2000, offered 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 June 30, 2000, CFBDS, acting as the distributor,
received net commissions paid by investors of $9,490 from sales of Class A
shares and $2,326 in deferred sales charges from redemptions of Class B shares
(see note 8).
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.
12
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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
13
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (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
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 $355,076, of which $234,518 was
voluntarily waived for the six months ended June 30, 2000. 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 $111,138 for
the six months ended June 30, 2000. 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 $21,661 for the six
months ended June 30, 2000. 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
14
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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
$34,577,137 and $69,056,322, 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(Unaudited) DECEMBER 31, 1999
====================================================================================
<S> <C> <C>
CLASS A
Shares sold 121,887 2,787,001
Shares issued to shareholders from
reinvestment of distributions 206,176 682,352
Shares repurchased (3,090,467) (16,078,135)
------------------------------------------------------------------------------------
Class A net decrease (2,762,404) (12,608,782)
====================================================================================
CLASS B*
Shares sold 5,516 835,142
Shares issued to shareholders from
reinvestment of distributions 9,336 17,284
Shares repurchased (167,966) (192,497)
------------------------------------------------------------------------------------
Class B net increase (decrease) (153,114) 659,929
====================================================================================
* January 4, 1999 (Commencement of Operations).
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 2000, as
computed on a federal income tax basis, are as follows:
Aggregate cost $ 83,763,445
====================================================================================
Gross unrealized appreciation $ 932,660
Gross unrealized depreciation (1,002,499)
------------------------------------------------------------------------------------
Net unrealized depreciation $ (69,839)
====================================================================================
</TABLE>
7. LINE OF CREDIT The Fund, along with other CitiFunds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the six months
ended June 30, 2000, the commitment fee allocated to the Fund was $236. Since
the line of credit was established there have been no borrowings.
15
<PAGE>
CITIFUNDS NATIONAL TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
8. SUBSEQUENT EVENT Effective July 14, 2000, the front-end sales charges on
Class A shares were waived. As of that date, Class B shares were no longer
offered. All Class B shares were converted to Class A shares without imposition
of any contingent deferred sales charge.
16
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., CHAIRMAN
Philip W. Coolidge*, PRESIDENT
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.***
SECRETARY
Robert Frenkel**
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
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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.
(C)2000 Citicorp [Recycled Logo]R Printed on recycled paper CFS/NAT/600
<PAGE>
CITIFUNDS(r)
-----------
CALIFORNIA
TAX FREE
INCOME
PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
--------------------------------------------------------------------------------
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 8
--------------------------------------------------------------------------------
Statement of Changes in Net Assets 9
--------------------------------------------------------------------------------
Financial Highlights 10
--------------------------------------------------------------------------------
Notes to Financial Statements 12
--------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
While the past six months have been challenging for many types of investments
and for many investors, municipal bonds have fared relatively well. A
strengthening global economy, rising interest rates and shifting investor
sentiment have created wide fluctuations in the prices of most stocks and
higher-yielding taxable bonds. While prices of municipal bonds also fluctuated,
they responded positively to their own supply-and-demand influences.
We are pleased to announce that, effective July 14, 2000, the front-end sales
charge on Class A shares of CitiFunds California Tax Free Income Portfolio is
being waived. As of that date, Class B shares are no longer offered. If you are
a Class B shareholder, your existing Class B shares have been converted to Class
A shares without imposition of any contingent deferred sales charge. It is also
important to note that the Class A shares incur lower annual expenses than the
Class B shares.
This report reviews the Fund's investment activities and performance during
the six months ended June 30, 2000 and provides a summary of Citibank's
perspective on and outlook for the California tax-exempt bond market. Thank you
for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
July 17, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
ALTHOUGH THE FIRST HALF OF 2000 SAW BOTH ADVANCES AND DECLINES WITHIN
CALIFORNIA'S MUNICIPAL BOND MARKET, overall returns were positive for the
reporting period. Rallies during the first quarter and in June offset relative
weakness in April and May.
When the new year began on January 1, 2000, investors were relieved that
Y2K had not negatively impacted the U.S. economy. Most investors soon became
concerned, however, that unsustainably strong economic growth might rekindle
long-dormant inflationary pressures. Consumer spending and borrowing remained
high, oil prices were rising, the stock market set new record highs and
unemployment remained at record lows. Perhaps most importantly, many investment
professionals expressed concern about potential for rising wages in a tight job
market. In an attempt to forestall a reacceleration of inflation, the Federal
Reserve Board (the "Fed") raised short-term interest rates in three 25 basis
point* increments during the reporting period (to 6.50%), causing most bond
prices to fall.
DESPITE THESE NEGATIVE INFLUENCES, THE MUNICIPAL BOND MARKET WAS DRIVEN
PRIMARILY BY SUPPLY AND DEMAND INFLUENCES, WHICH WERE GENERALLY POSITIVE. During
the first half of 2000, issuance of municipal bonds in California declined
sharply compared to the same period a year ago. On the other hand, demand for
municipal bonds remained strong, especially from individual investors seeking a
relatively safe, tax-exempt haven for wealth created in Silicon Valley and gains
that may have been realized in the stock market. With many buyers competing for
a limited number of bonds, this supply-and-demand imbalance helped support a
rally in municipal bond prices.
THE FUND BEGAN THE YEAR WITH A MODESTLY DEFENSIVE POSTURE. Because the
Fund's managers were concerned that rising interest rates might result in a
further decline in bond prices, they had reduced the Fund's average duration
(i.e., a measure of sensitivity to changing interest rates) toward the short end
of its range. This position was designed to help the managers capture higher
yields quickly as they became available. When it became apparent during the
first quarter that a reduced supply of municipal bonds was likely to support
prices, the managers extended the Fund's average duration to the neutral range.
Finally, toward the end of the reporting period, the managers further extended
the Fund's average duration to the long end of the neutral range. This slightly
aggressive stance was intended to help the managers lock in prevailing high
yields for a longer period of time.
Management also actively managed the mix of bonds in the Fund according to
their extensive analysis of prevailing market conditions. DURING A PERIOD OF
INCREASED VOLATILITY, THE MANAGERS FOCUSED PRIMARILY ON HIGH-QUALITY BONDS WITH
MATURITIES IN THE 10- TO 15-YEAR RANGE. Because longer-term bonds provided
little additional yield, the managers did not think it was prudent to assume the
additional risks of investing in longer-term bonds. In addition, the managers
emphasized bonds that may not be subject to early redemptions over the long
term.
* A basis point is .01% or one one-hundredth of a percent.
2
<PAGE>
LOOKING FORWARD, THE MANAGERS MAINTAIN A POSITIVE LONG-TERM OUTLOOK FOR THE
CALIFORNIA MUNICIPAL BOND MARKET. Although the managers believe that further
interest rate hikes may be likely, the municipal bond market appears to have
already incorporated that possibility into bond prices. The managers have
recently seen signs that the U.S. economy may be slowing, suggesting that the
Fed's monetary policies may have proven effective.
Weakness in the stock market has caused increased demand for municipal
bonds, potentially supporting municipal bond prices near current levels.
Finally, California municipal bonds appear to be competitively valued relative
to other bond sectors.
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
To generate high levels of current income exempt from federal and California
State personal income taxes and preserve the value of its shareholders'
investment.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A Declared daily, paid monthly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
November 2, 1998 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/00 BENCHMARKS
Class A Shares o Lipper California State Municipal
$23.2 million Bond Funds Average
Class B Shares o Lehman Brothers California
$0.9 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 adviser.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 2000
[BAR CHART OMITTED]
* Short-Term 3%
Housing Revenue 15%
General Obligation Bonds 12%
State Agencies 4%
Redevelopment 1%
Utilities 17%
Transportation Revenue 13%
Education 35%
* Includes cash and net other assets
4
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ALL PERIODS ENDING JUNE 30, 2000 SIX ONE 11/2/98
(Unaudited) (See Note 9) MONTHS** YEAR (INCEPTION)*
--------------------------------------------------------------------------------
CitiFunds California Tax Free Income
Portfolio (Class A) without sales charge 5.58% 5.01% 2.48%
Lipper California State Municipal Bond
Funds Average 4.95% 1.35% (0.05)%
Lehman Brothers California 4 Years Plus
Bond Index 5.45% 2.93% 1.26%
CitiFunds California Tax Free Income
Portfolio (Class A)
with a maximum sales charge of 4.50% 0.83% 0.29% (0.32)%
CitiFunds California Tax Free Income
Portfolio (Class B) without deferred
sales charge 5.32% 4.48% 1.29%#
Lipper California State Municipal Bond
Funds Average 4.95% 1.35% (0.33)%
Lehman Brothers California 4 Years Plus
Bond Index 5.45% 2.93% 1.07%
CitiFunds California Tax Free Income
Portfolio (Class B) with a maximum
deferred sales charge of 4.50% 0.58% (0.22)% (1.79)%#
* 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 4.52% Income Dividends Per Share Class A $0.220
30-Day SEC Yield Class B 4.00% Income Dividends Per Share Class B $0.196
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have been $9,947,
including the maximum sales charge (as of 6/30/00). The graph shows how the Fund
compares to its benchmark for the same period.
[The following table represents a line chart in the printed piece.]
CitiFunds Lehman Brothers
California Lipper California
Tax Free Income California State 4 Years Plus
Portfolio Municipal Bond Bond Index
Date (Class A) Funds Average (unmanaged)
------- --------------- ---------------- ---------------
11/2/98 9550 10000 10000
11/30/98 9655.05 10042 10044
12/31/98 9666.17 10043 10050
1/31/99 9816.82 10153.5 10172.6
2/28/99 9740.02 10100.7 10135
3/31/99 9761.76 10114.8 10164.4
4/30/99 9757.63 10126 10168.5
5/31/99 9640.4 10043.9 10089.1
6/30/99 9472.15 9868.16 9920.65
7/31/99 9500.94 9880 9952.4
8/31/99 9441.69 9744.64 9827
9/30/99 9479.45 9730.03 9839.77
10/31/99 9360.98 9547.1 9682.34
11/30/99 9481.32 9635.89 9801.43
12/31/99 9420.63 9525.08 9682.83
1/31/00 9393.55 9449.83 9639.26
2/29/00 9577.23 9608.59 9810.84
3/31/00 9812.93 9865.14 10087.5
4/30/00 9713.99 9770.43 9923.08
5/31/00 9677.26 9711.81 9897.28
6/30/00 9946.75 9996.36 10211
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 June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS -- 96.6%
--------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS -- 12.5%
--------------------------------------------------------------------------------
Aa3 California State,
6.05% due 2/01/14 $ 500 $ 500,310
Aa3 Los Angeles, California,
5.375% due 9/01/15 1,230 1,239,004
Aaa Puerto Rico Commonwealth,
6.25% due 7/01/12 1,150 1,275,143
-----------
3,014,457
-----------
EDUCATION -- 34.5%
--------------------------------------------------------------------------------
Aaa ABC, California University
School District, Zero Coupon
due 8/01/17 250 94,522
Aaa Duarte, California University
School District, Zero Coupon
due 11/01/16 725 290,660
Aaa Glendale, California University
School District, 5.75%
due 9/01/13 1,000 1,056,620
Aaa Jefferson, California University
High School District, 6.25%
due 8/01/20 1,000 1,091,700
Aaa Los Angeles, California University
School District, 5.50%
due 7/01/17 1,000 1,003,800
Aaa Placer, California University
High School District, 6.00%
due 8/01/14 250 266,928
Aaa Pomona, California University
School District, 6.25%
due 2/01/15 445 489,900
Aaa Pomona, California University
School District, 6.30%
due 2/01/16 480 530,971
Aaa Pomona, California University
School District, 6.50%
due 8/01/19 2,075 2,287,044
Aaa San Bernardino, California
University School District, 5.625%
due 8/01/15 625 641,650
Aaa Union, California Elementary
School District, Zero Coupon
due 9/01/16 1,400 566,538
-----------
8,320,333
HOUSING -- 15.1%
--------------------------------------------------------------------------------
Aaa California Housing
Finance Agency,
AMT, 5.50% due
8/01/11 295 301,817
Aaa California Housing
Finance Agency,
AMT, 5.95% due
8/01/11 200 205,924
Aaa California Housing
Finance Agency,
AMT, 5.85% due
8/01/17 1,000 1,005,300
Aaa California Rural Home
Mortgage Finance,
6.35% due
12/01/29 1,000 1,060,950
Aaa Tri City, California
Housing Finance Agency,
6.45% due 12/01/28 1,045 1,067,802
-----------
3,641,793
REDEVELOPMENT -- 0.7%
--------------------------------------------------------------------------------
Aaa California Educational
Facilities Authority
Revenue, Zero Coupon
due 10/01/18 500 167,100
STATE AGENCIES -- 4.2%
--------------------------------------------------------------------------------
Aaa Puerto Rico Municipal
Finance Agency, 5.50%
due 7/01/17 1,000 1,003,510
-----------
6
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 2000
(Unaudited)
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
TRANSPORTATION REVENUE -- 13.0%
--------------------------------------------------------------------------------
Aaa Intermodal Container
Transfer, 5.75% due
11/01/14 $2,000 $ 2,118,260
Aaa Puerto Rico Commonwealth
Highway & Transportation,
5.50% due 7/01/15 1,000 1,029,900
-----------
3,148,160
UTILITIES -- 16.6%
--------------------------------------------------------------------------------
Aaa Fresno, California,
Sewer Revenue, 6.25%
due 9/01/14 1,000 1,113,780
Aaa Puerto Rico Commonwealth
Aqueduct & Sewer,
6.25% due 7/01/13 1,500 1,660,845
Aaa Sacramento County, California
Sanitation District, 6.00% due
12/01/14 250 266,363
Aaa San Diego County,
California Water
Revenue, 5.75% due
5/01/12 910 973,636
-----------
4,014,624
TOTAL MUNICIPAL BONDS
(Identified Cost $22,779,779) 23,309,977
-----------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST -- 1.6%
--------------------------------------------------------------------------------
VMIG-1 Southern California,
Public Power Transmission
Revenue, 4.25%
due 7/01/23 400 400,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$23,179,779) 98.2% 23,709,977
OTHER ASSETS,
LESS LIABILITIES 1.8 430,053
------ -----------
NET ASSETS 100.0% $24,140,030
====== ===========
* 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 PORTFOLIO
STATEMENTOFASSETSAND LIABILITIES
JUNE 30, 2000(Unaudited)
================================================================================
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $23,179,779) $ 23,709,977
Cash 1,412
Interest receivable 478,459
Receivable from the Administrator 58,641
--------------------------------------------------------------------------------
Total assets 24,248,489
--------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 27,041
Payable for shares of beneficial interest repurchased 11,261
Accrued expenses and other liabilities 70,157
--------------------------------------------------------------------------------
Total liabilities 108,459
--------------------------------------------------------------------------------
NET ASSETS $ 24,140,030
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 27,620,117
Unrealized appreciation 530,198
Accumulated net realized loss on investments (4,010,285)
--------------------------------------------------------------------------------
Total $ 24,140,030
--------------------------------------------------------------------------------
COMPUTATION OF CLASS A SHARES:
Net Asset Value per share ($23,233,346/2,386,647
shares outstanding)$ 9.73
Offering Price per share (Note 9) ($9.73 O 0.955) $ 10.19*
================================================================================
CLASS B SHARES (Note 9):
Net Asset Value and offering price per share
($906,684/93,147 shares outstanding) $ 9.73**
================================================================================
* 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.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000(Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest $ 759,701
EXPENSES:
Management fees (Note 2) $ 104,013
Service fees Class A (Note 3) 33,380
Service fees Class B (Note 3) 3,931
Transfer agent fees 36,347
Custody and fund accounting fees 30,522
Registration fees 17,298
Shareholder reports 15,574
Legal fees 15,550
Trustee fees 8,291
Miscellaneous 13,048
--------------------------------------------------------------------------------
Total expenses 277,954
Less aggregate amounts waived by the Manager (Note 2) (104,013)
Less expenses assumed by the Administrator (Note 8) (58,641)
Less fees paid indirectly (Note 1E) (664)
--------------------------------------------------------------------------------
Net expenses 114,636
--------------------------------------------------------------------------------
Net investment income 645,065
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (683,390)
Net unrealized appreciation 1,460,900
--------------------------------------------------------------------------------
Net realized and unrealized gain on investments 777,510
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,422,575
================================================================================
See notes to financial statements
8
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
STATEMENTOFCHANGESINNETASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 645,065 $ 2,896,767
Net realized loss from investment
and futures transactions (683,390) (3,326,822)
Unrealized appreciation (depreciation)
of investments 1,460,900 (1,256,804)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,422,575 (1,686,859)
--------------------------------------------------------------------------------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income (Class A) (623,747) (2,844,565)
Net investment income (Class B) (21,318) (52,202)
--------------------------------------------------------------------------------
Decrease in net assets from
distribution to shareholders (645,065) (2,896,767)
--------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 1,173,673 11,393,530
Net asset value of shares issued to
shareholders from reinvestment
of dividends 654,189 2,900,180
Cost of shares repurchased (13,737,391) (72,142,600)
--------------------------------------------------------------------------------
Total Class A (11,909,529) (57,848,890)
--------------------------------------------------------------------------------
CLASS B (Note 9)*
Net proceeds from sale of shares -- 1,955,112
Net asset value of shares issued to
shareholders from reinvestment
of dividends 26,101 33,420
Cost of shares repurchased (356,181) (660,014)
--------------------------------------------------------------------------------
Total Class B (330,080) 1,328,518
--------------------------------------------------------------------------------
Net decrease in net assets from
transactions in shares of
beneficial interest (12,239,609) (56,520,372)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (11,462,099) (61,103,998)
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 35,602,129 96,706,127
--------------------------------------------------------------------------------
End of period $24,140,030 $35,602,129
================================================================================
* January 4, 1999 (Commencement of Operations).
See notes to financial statements
9
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A
------------------------------------------
NOVEMBER 2,
1998
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED TO
JUNE 30, 2000 DECEMBER 31, DECEMBER 31,
(Unaudited) 1999 1998
===============================================================================
Net Asset Value, beginning of period $ 9.43 $ 10.08 $ 10.00
-------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.218 0.400 0.069
Net realized and unrealized
gain (loss) on investments 0.302 (0.650) 0.080
-------------------------------------------------------------------------------
Total from operations 0.520 (0.250) 0.149
-------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.220) (0.400) (0.069)
-------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.73 $ 9.43 $ 10.08
===============================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $23,233 $34,396 $96,706
Ratio of expenses to average
net assets 0.80%* 0.70% 0%*
Ratio of net investment income
to average net assets 4.63%* 4.06% 4.16%*
Portfolio turnover 45% 116% 1%
Total return (A) 5.58%** (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 $ 0.162 $ 0.195 $ 0.042
RATIOS:
Expenses to average net assets 1.98%* 1.41% 1.60%*
Net investment income to
average net assets 3.45%* 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
10
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
(Note 9)
--------------------------------
JANUARY 4, 1999
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
Net Asset Value, beginning of period $ 9.43 $ 11.43
--------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.194 0.332
Net realized and unrealized gain
(loss) on investments 0.302 (2.000)
--------------------------------------------------------------------------------
Total from operations 0.496 (1.668)
--------------------------------------------------------------------------------
Less Dividends From:
Net investment income (0.196) (0.332)
--------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.73 $ 9.43
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 907 $ 1,206
Ratio of expenses to average net assets 1.30%* 1.25%*
Ratio of net investment income to
average net assets 4.13%* 3.41%*
Portfolio turnover 45% 116%
Total return 5.32%** (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 $ 0.138 $ 0.263
RATIOS:
Expenses to average net assets 2.48%* 2.40%*
Net investment income to average net assets 2.95%* 2.26%*
================================================================================
* Annualized
** Not annualized
See notes to financial statements
11
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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, as of June 30, 2000, offered 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 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 June 30, 2000, CFBDS, acting as the distributor,
received net commissions paid by investors of $3,773 from sales of Class A
shares and $8,000 in deferred sales charges from redemptions of Class B shares
(see note 9).
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.
12
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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.
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.
13
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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
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 $104,013 all of which was
voluntarily waived for the six months ended June 30, 2000. 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 $33,380 for
the six months ended June 30, 2000. Under the Class B Service Plan, the Fund may
pay a combined monthly distribution and service fee at an annual rate not to
exceed 1.00% of the average daily net assets represented by Class B shares of
the Fund. The distribution fees for Class B shares amounted to $3,931 for the
period ended June 30, 2000. 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 prepa-
14
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
ration, 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
$12,397,194 and $24,725,223, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value). Transactions in shares of beneficial interest were
as follows:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
CLASS A
Shares sold 123,198 1,129,336
Shares issued to shareholders from
reinvestment of distributions 67,825 294,959
Shares repurchased (1,450,428) (7,371,922)
--------------------------------------------------------------------------------
Class A net decrease (1,259,405) (5,947,627)
================================================================================
CLASS B (Note 9)*
Shares sold -- 193,805
Shares issued to shareholders from
reinvestment of dividends 1,328 3,439
Shares repurchased (36,067) (69,358)
--------------------------------------------------------------------------------
Class B net increase (decrease) (34,739) 127,886
================================================================================
*January 4, 1999 (Commencement of Operations).
6. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 2000, as
computed on a federal income tax basis, are as follows:
Aggregate cost $23,179,779
================================================================================
Gross unrealized appreciation $ 590,486
Gross unrealized depreciation (60,288)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 530,198
================================================================================
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
15
<PAGE>
CITIFUNDS CALIFORNIA TAX FREE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
to the specific fund executing the borrowing at the base rate of the bank. The
line of credit requires a quarterly payment of a commitment fee based on the
average daily unused portion of the line of credit. For the six months ended
June 30, 2000, the commitment fee allocated to the Fund was $46. Since the line
of credit was established there have been no borrowings.
8. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the
expenses of the Fund for the six months ended June 30, 2000, which amounted to
$58,641 to maintain a voluntary expense limitation of 0.80% for Class A of
average daily net assets. This voluntary expense limitation may be discontinued
at any time.
9. SUBSEQUENT EVENT Effective July 14, 2000, the front-end sales charges on
Class A shares were waived. As of that date, Class B shares were no longer
offered. All Class B shares were converted to Class A shares without imposition
of any contingent deferred sales charge.
16
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., CHAIRMAN
Philip W. Coolidge*, PRESIDENT
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.***
SECRETARY
Robert Frenkel**
TREASURER
Linwood Downs*
* AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
** AFFILIATED PERSON OF 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
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
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.
(C)2000 Citicorp R Printed on recycled paper CFS/CAT/600
