<PAGE>
Tax Free Reserves Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS August 31, 1996
PRINCIPAL
AMOUNT
ISSUER (000's OMITTED) VALUE
- --------------------------------------------------------------------------------
TAX-EXEMPT COMMERCIAL
PAPER--3.7%
Anne Arundel County, Maryland
Economic Revenue,
AMT, 3.60% due 11/13/96 .................. $ 5,800 $ 5,800,000
Pinellas County, Florida Educational
Facilities, 3.63% due 10/10/96 ........... 3,000 3,000,000
State of Vermont, Series I,
3.25% due 9/20/96 ........................ 5,000 5,000,000
--------------
13,800,000
--------------
GENERAL OBLIGATION
BONDS AND NOTES--8.6%
Anne Arundel County, Maryland,
5.80% due 3/1/97 ......................... 1,150 1,164,324
Austin, Texas,
7.75% due 9/1/96 ......................... 1,340 1,340,000
Chicago, Illinois,
3.65% due 10/31/96 ....................... 6,300 6,300,000
Chicago, Illinois,
5.00% due 1/1/97 ......................... 4,310 4,333,837
DeKalb County, Georgia,
7.30% due 1/1/97 ......................... 1,000 1,033,327
Louisiana State,
5.00% due 8/1/97 ......................... 2,000 2,021,221
Michigan State,
4.00% due 9/30/96 ........................ 6,000 6,004,682
Missouri State,
7.75% due 11/1/96 ........................ 2,400 2,416,121
Salt Lake City, Utah School District,
4.40% due 3/1/97 ......................... 2,090 2,101,425
Salt Lake County, Utah,
5.00% due 12/15/96 ....................... 1,080 1,084,260
Tennessee State,
5.00% due 3/1/97 ......................... 1,065 1,073,771
Union County, New Jersey
Revenue, 6.50% due 6/15/97 ............... 3,000 3,060,634
--------------
31,933,602
--------------
ANNUAL AND SEMI-ANNUAL TENDER REVENUE BONDS
AND NOTES (PUTS)--32.8%
Atlanta, Georgia Urban Resource
Finance Authority,
3.90% due 11/1/96 ........................ 3,000 3,000,000
Clackmas County, Oregon Hospital
Facilities Authority,
3.40% due 10/1/96 ........................ 6,000 6,000,000
Harris County Texas Toll Road,
7.40% due 2/15/97 ........................ 2,800 2,929,876
Harrisonburg, Virginia Multi-Family
Housing Revenue,
3.50% due 2/1/97 ......................... 2,000 2,000,000
Hawaii State Department of Budget and
Finance Revenue,
3.20% due 9/3/96 ......................... 4,605 4,605,000
Hawaii State Department of Budget and
Finance Revenue,
3.65% due 3/3/97 ......................... 5,560 5,560,000
Houston, Texas Water Systems Revenue,
8.10% due 12/1/96 ........................ 1,500 1,546,150
Illinois Housing Development
Authority, AMT,
3.45% due 9/3/96 ......................... 4,100 4,100,000
Indiana State, Toll Finance Authority,
6.88% due 1/1/97 ......................... 3,500 3,604,476
Indianapolis, Indiana Local Public
Bond Bank, 5.00% due 2/1/97 .............. 1,000 1,007,889
Iowa Municipalities Workers,
4.10% due 7/1/97 ......................... 1,000 1,000,000
Jackson County, Mississippi,
3.70% due 2/3/97 ......................... 7,240 7,240,000
LeClaire Iowa Elec. Revenue,
4.13% due 9/1/96 ......................... 3,930 3,930,000
Los Angeles, California
Certificates of Participation,
3.70% due 2/1/97 ......................... 2,555 2,559,160
Lower Neches Valley, Texas
Pollution Control Revenue,
3.65% due 2/18/97 ........................ 1,200 1,200,000
Marion County, Tennessee
Industrial Environmental, AMT,
3.85% due 2/1/97 ......................... 6,000 6,000,000
Maryland State Community
Development Administration, AMT,
3.55% due 10/1/96 ........................ 3,000 3,000,000
Massachusetts Bay Transportation
Authority, 7.00% due 3/1/97 .............. 2,160 2,198,501
Metropolitan Government Nashville,
Tennessee, AMT, 3.80% due 11/1/96 ........ 1,500 1,500,000
Metropolitan Government Nashville,
Tennessee, 9.10% due 12/1/96 ............. 1,685 1,707,635
Minnesota Public Facilities Authorities,
6.50% due 3/1/97 ......................... 1,000 1,013,806
Missouri State Housing Development,
AMT, 4.20% due 11/1/96 ................... 2,000 2,000,000
Montgomery County, Maryland
Housing Opportunities,
3.90% due 11/14/96 ....................... 4,500 4,500,000
New Mexico Mortgage Finance
Authority, AMT, 3.25% due 2/28/97 ........ 4,000 4,000,000
North Carolina Medical Care
Community, 3.70% due 10/1/96 ............. 785 785,000
Northeast Maryland Waste Disposal
Authorization, 6.65% due 1/1/97 .......... 3,545 3,579,444
Ohio Housing Finance Mortgage Agency
Revenue, AMT, 3.80% due 3/3/97 ........... 2,000 2,000,000
Ohio State Public Facilities Community,
5.20% due 5/1/97 ......................... 1,500 1,514,005
Oklahoma State Water Resource Board
State Loan Revenue,
3.10% due 9/3/96 ......................... 10,000 10,000,000
Oklahoma State Water Resource Board
State Loan Revenue,
3.75% due 3/1/97 ......................... 5,000 5,000,000
Oklahoma State Water Resource Board
State Loan Revenue,
3.70% due 3/3/97 ......................... 3,000 3,000,000
Pennsylvania State Higher Education
Revenue, 3.70% due 2/26/97 .............. 3,000 3,000,000
Pennsylvania State Turnpike Common
Revenue, 4.25% due 12/1/96 ............... 1,760 1,764,045
Phoenix, Arizona Apartment Revenue,
5.05% due 7/1/97 ......................... 1,840 1,858,243
Seattle, Washington,
7.00% due 10/1/96 ........................ 1,000 1,022,599
Snohomish County, Washington Public
Utility, 8.00% due 1/1/97 ................ 1,000 1,033,450
Snohomish County, Washington Solid
Waste, 8.00% due 12/1/96 ................. 1,025 1,035,873
Texas State, AMT,
3.90% due 11/6/96 ........................ 1,000 1,000,000
Texas State, Public Finance Authority
Revenue, 6.30% due 2/1/97 ................ 2,000 2,021,854
Tooele County Utah Hazardous Waste,
AMT, 3.60% due 11/21/96 .................. 1,800 1,800,000
Virginia State Public School Authority,
7.50% due 1/1/97 ......................... 1,000 1,013,849
Washington State Housing Finance
Commission, AMT,
3.80% due 6/1/97 ......................... 3,500 3,500,000
Westfield, Massachusetts,
6.75% due 9/1/96 ......................... 1,000 1,000,000
------------
122,130,855
------------
REVENUE, TAX, BOND AND
TAX REVENUE ANTICIPATION
NOTES--7.3%
Chicago, Illinois Park District,
5.00% due 10/30/96 ....................... 1,000 1,002,219
Contra Costa, California, Transportation
Tax and Revenue Notes,
5.00% due 3/1/97 ........................ 2,000 2,019,092
Houston, Texas,
4.50% due 6/30/97 ........................ 5,000 5,028,657
Idaho State,
4.50% due 6/30/97 ........................ 3,000 3,014,156
Los Angeles County, California,
4.50% due 6/30/97 ........................ 5,000 5,029,077
Maine State,
4.50% due 6/27/97 ........................ 1,000 1,004,925
Tennessee State Local Development
Authority Revenue,
4.00% due 5/29/97 ........................ 3,000 3,008,122
Texas State,
4.75% due 8/29/97 ........................ 7,000 7,053,395
----- ------------
27,159,643
============
VARIABLE RATE DEMAND
NOTES*--51.0%
Alaska State Housing Finance Authority,
due 6/1/26 ............................... 1,500 1,500,000
Arkansas Hospital Equipment
Finance Authority, due 11/1/10 ........... 3,000 3,000,000
Baltimore, Maryland, Port Facilities
Authority, due 10/14/11 .................. 1,000 1,000,000
Bexar County Texas Health Facilities
Development, due 7/11/11 ................. 1,000 1,000,000
Botetourt County, Virginia Industrial
Development, AMT, due 7/1/11 ............. 2,200 2,200,000
Boulder County, Colorado Industrial
Development Revenue, due 12/1/04 ........ 2,730 2,730,000
Brazos River Harbor, Texas,
due 12/1/19 .............................. 1,100 1,100,000
Brazos, Texas, Harbor Industrial
Development, Authority,
due 12/1/13 .............................. 2,900 2,900,000
California Pollution Control Finance,
due 10/1/11 .............................. 1,000 1,000,000
California Statewide Community
Certificates, due 7/1/15 ................. 1,000 1,000,000
Cherokee County, South Carolina
Industrial Revenue, AMT,
due 8/1/19 ............................... 200 200,000
Chicago, Illinois O'Hare International
Airport Revenue, due 1/1/15 .............. 1,985 1,985,000
Cochise County, Arizona Pollution
Control Revenue, AMT, due 9/1/24 ........ 2,000 2,000,000
Colorado Health Facilities Authority
Revenue, due 10/1/14 ..................... 700 700,000
Colorado Health Facilities Authority
Revenue, due 5/15/20 ..................... 200 200,000
Colorado Health Facilities Authority
Revenue, due 5/15/22 ..................... 2,000 2,000,000
Columbia, Missouri Water and Electric
Revenue, due 8/15/99 ..................... 500 500,000
Dade County, Florida Spa Revenue,
due 8/1/15 ............................... 7,000 7,000,000
Desoto Parish, Lousiana Pollution
Control, due 7/1/18 ...................... 1,200 1,200,000
District of Columbia,
due 10/1/15 .............................. 500 500,000
Eloy, Arizona Industrial Development
Authority Revenue, AMT, due 8/1/20 ....... 1,000 1,000,000
Fayetteville, Arkansas Industrial
Development, AMT, due 12/1/04 ............ 1,100 1,100,000
Florida Housing Finance Authority,
due 12/1/08 .............................. 600 600,000
Forsyth County, Georgia Development
Authority Industrial, due 1/1/07 ......... 2,000 2,000,000
Fort Wayne, Indiana Economic
Development Revenue, due 12/1/03 ......... 1,000 1,000,000
Fort Wayne, Indiana Hospital Revenue,
due 1/1/16 ............................... 4,180 4,180,000
Franklin County, Ohio Health Systems
Revenue, due 7/1/15 ...................... 100 100,000
Grapevine, Texas Industrial Development
Corp., due 3/1/10 ........................ 600 600,000
Gulf Coast, Texas Industrial Development
Authority, AMT, due 5/1/25 ............... 300 300,000
Gwinett County, Georgia Industrial
Development Revenue,
AMT, due 6/1/05 .......................... 1,500 1,500,000
Indiana State Educational Facilities
Authority, 3/1/25 ........................ 1,300 1,300,000
Iowa Health Care Facilities,
due 4/1/10 ............................... 7,400 7,400,000
Jackson County, Mississippi Pollution
Control Revenue, due 12/1/16 ............. 700 700,000
Jackson, Mississippi Industrial Development
Revenue, due 12/1/15 ..................... 1,825 1,825,000
Jefferson Parish, Louisiana Hospital
District 2, due 12/1/15 .................. 2,700 2,700,000
Kansas City, Kansas Industrial Revenue,
due 8/1/15 ............................... 200 200,000
Kansas City, Missouri Hospital Facilities
Revenue, due 10/15/14 .................... 1,970 1,970,000
Kentucky Finance Development
Authority Revenue, due 12/1/15 ........... 2,000 2,000,000
Kentucky League of Cities Revenue,
due 3/1/97 ............................... 1,500 1,500,000
Kern County, California Certificates of
Participation, due 8/1/06 ................ 800 800,000
Kokomo, Indiana Economic Development
Revenue, AMT, due 9/1/30 ................. 2,940 2,940,000
Lincoln County, Wyoming Pollution
Control, due 8/1/15 ...................... 600 600,000
Lincoln County, Wyoming Pollution
Control, AMT, due 7/1/17 ................. 1,100 1,100,000
Louisa County, Virginia Industrial
Development Authority,
due 1/1/20 ............................... 5,000 5,000,000
Lynchburg, Virginia Industrial
Development Authority,
due 12/1/25 .............................. 3,400 3,400,000
Maricopa County, Arizona Hospital
Facilities Authority, due 12/1/08 ........ 500 500,000
Marion County, West Virginia Solid Waste
Disposal, due 10/1/17 .................... 9,500 9,500,000
Missouri State Health and Educational
Facilities Authority, due 12/1/19 ........ 1,300 1,300,000
Nash County, North Carolina Industrial
and Pollution Control
Revenue, due 12/1/14 ..................... 1,000 1,000,000
Nevada Housing Division, AMT,
due 4/1/20 ............................... 1,000 1,000,000
New Hanover County, North Carolina,
due 3/1/14 ............................... 2,250 2,250,000
North Carolina Educational Facilities
Finance Authority, due 9/1/20 ........... 1,300 1,300,000
North Carolina Medical
Care Community, due 9/1/02 ............... 2,800 2,800,000
North Carolina Medical
Care Community, due 4/1/21 ............... 1,700 1,700,000
North Carolina Medical Care Hospital,
due 6/1/22 ............................... 4,700 4,700,000
Orange County, Florida Health
Facilities Authority, due 11/15/26 ....... 4,500 4,500,000
Orange County, Florida Industrial
Development Authority, due 1/1/11 ........ 1,550 1,550,000
Pennsylvania State Higher Education
Student Loan, due 7/1/18 ................. 2,000 2,000,000
Pennsylvania State Higher Education
Student Loan, AMT, due 12/1/24 ........... 3,100 3,100,000
Pennsylvania State Higher Education
Revenue, due 11/15/35 .................... 2,000 2,000,000
Person County, North Carolina
Pollution Control Authority,
due 11/1/19 .............................. 3,000 3,000,000
Phenix City, Alabama Environmental
Revenue, due 3/1/31 ...................... 200 200,000
Pima County, Arizona Multi-Family
Housing Revenue, AMT, due 6/1/34 ......... 1,100 1,100,000
Port Arthur, Texas Navigation District,
due 4/1/14 ............................... 1,000 1,000,000
Port Arthur, Texas Navigation
District, AMT, due 10/1/24 ............... 300 300,000
Putnam County, West Virginia
Industrial Development Revenue,
due 10/1/11 .............................. 600 600,000
Rhode Island State Industrial Facilities
Corp., AMT, due 6/1/05 ................... 4,950 4,950,000
Rhode Island State Industrial Facilities
Corp., due 11/1/05 ....................... 5,300 5,300,000
Savannah, Illinois Industrial Development
Revenue, due 6/1/04 ...................... 600 600,000
Sikeston, Missouri, Electric Revenue
Authority, due 6/1/22 .................... 10,098 10,098,000
South Carolina Jobs, due 11/1/25 ............ 1,400 1,400,000
Southeastern Oklahoma Industrial
Authorities, due 6/1/16 .................. 3,400 3,400,000
St. Charles County, Missouri Industrial
Development Authority,
due 12/1/07 .............................. 1,000 1,000,000
St. Charles Parish, Louisiana Pollution
Control Authority, due 6/1/05 ............ 2,800 2,800,000
Tipton, Indiana Economic Development
Revenue, due 7/1/22 ...................... 1,085 1,085,000
Tracy, California, due 5/1/15 ............... 300 300,000
Uinta County, Wyoming, Pollution
Control Revenue, due 8/15/20 ............. 3,300 3,300,000
University of Arkansas, due 12/1/19 ......... 9,100 9,100,000
University of Maryland, due 7/1/15 .......... 5,000 5,000,000
Utah State Board of Regents,
due 11/1/31 .............................. 9,000 9,000,000
Vermont Industrial Development
Authority, AMT, due 12/1/11 .............. 1,000 1,000,000
Washington State Health Care
Facilities, due 10/1/05 .................. 1,900 1,900,000
West Feliciana Parish, Louisiana,
due 4/1/16 ............................... 800 800,000
West Virginia State Hospital Finance
Authority, due 12/1/25 ................... 2,800 2,800,000
Wisconsin State, due 5/1/04 ................. 1,000 1,000,000
------------
189,763,000
------------
TOTAL INVESTMENTS AT AMORTIZED COST ......... 103.4% 384,787,100
OTHER ASSETS, LESS LIABILITIES .............. (3.4) (12,616,020)
----- ------------
NET ASSETS .................................. 100.0% $372,171,080
===== ============
AMT-Subject to Alternative Minimum Tax
* 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
<PAGE>
Tax Free Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES August 31, 1996
ASSETS:
Investments, at amortized cost and value (Note 1A) ........ $384,787,100
Cash ...................................................... 68,724
Interest receivable ....................................... 3,016,874
------------
Total assets .......................................... 387,872,698
------------
LIABILITIES:
Payable for investments purchased ......................... 15,561,127
Payable to affiliate-- Investment Advisory fees (Note 2A) . 63,751
Accrued expenses and other liabilities .................... 76,740
------------
Total liabilities ..................................... 15,701,618
------------
NET ASSETS ................................................ $372,171,080
============
REPRESENTED BY:
Capital paid-in for beneficial interests .................. $372,171,080
============
Tax Free Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1996
INVESTMENT INCOME (Note 1B) ................... $14,128,044
EXPENSES:
Investment Advisory fees (Note 2A) ............ $ 782,232
Custodian fees ................................ 205,966
Administrative fees (Note 2B) ................. 195,558
Auditing fees ................................. 20,200
Legal fees .................................... 14,805
Trustee fees .................................. 10,279
Miscellaneous ................................. 10,256
----------
Total Expenses ........................ 1,239,296
Less aggregate amount waived by Investment
Advisor and Administrator (Notes 2A and 2B) .. (60,744)
Less fees paid indirectly (Note 1D) ........... (5,375)
----------
Net expenses .............................. 1,173,177
-----------
Net investment income ..................... 12,954,867
NET REALIZED LOSS ON INVESTMENTS .............. (25,753)
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .............................. $12,929,114
===========
See notes to financial statements
<PAGE>
Tax Free Reserves Portfolio
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STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
------------------------
1996 1995
------ ------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income ....................... $ 12,954,867 $ 10,884,482
Net realized gain (loss) on investments ..... (25,753) 75,464
------------ -------------
Increase in net assets from operations .. 12,929,114 10,959,946
------------ -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ................. 426,786,434 487,327,869
Value of withdrawals ........................ (461,766,719) (337,173,146)
------------ -------------
Net increase (decrease) in net
assets from capital transactions ....... (34,980,285) 150,154,723
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS ....... (22,051,171) 161,114,669
NET ASSETS:
Beginning of period ......................... 394,222,251 233,107,582
------------ -------------
End of period ............................... $372,171,080 $ 394,222,251
============ =============
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Tax Free Reserves Portfolio
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED AUGUST 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted) ...... $372,171 $394,222 $233,108 $277,593 $212,502
Ratio of expenses to average net assets ...... 0.30% 0.32% 0.31% 0.31% 0.31%
Ratio of net investment income to average
net assets .................................. 3.31% 3.55% 2.33% 2.35% 3.43%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees during the periods indicated, the
ratios would have been as follows:
RATIOS:
Expenses to average net assets ............... 0.32% 0.32% 0.32% 0.33% 0.35%
Net investment income to average net assets .. 3.29% 3.55% 2.32% 2.32% 3.39%
</TABLE>
See notes to financial statements
<PAGE>
Tax Free Reserves Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Tax Free Reserves Portfolio (the "Portfolio") is registered under the Investment
Company Act of 1940, as amended, as a no-load, non-diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Landmark Funds Broker-Dealer
Services, Inc. ("LFBDS") acts as the Portfolio's Administrator. Citibank, N.A.
("Citibank") acts as the Investment Adviser.
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 Portfolio are
in conformity with generally accepted accounting principles and are as follows:
A. VALUATION OF INVESTMENTS -- Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair value.
The Portfolio's use of amortized cost is subject to the Portfolio's compliance
with certain conditions as specified under Rule 2a-7 of the Investment Company
Act of 1940.
B. INTEREST INCOME AND EXPENSES -- Interest income consists of interest accrued
and discount earned (including both original issue and market discount),
adjusted for amortization of premium, on the investments of the Portfolio,
accrued ratably to the date of maturity, plus or minus net realized gain or
loss, if any, on investments. Expenses of the Portfolio are accrued daily.
C. FEDERAL INCOME TAXES -- The Portfolio's policy is to comply with the
applicable provisions of the Internal Revenue Code. Accordingly, no provision
for federal income taxes is necessary.
D. FEES PAID INDIRECTLY -- The Fund's custodian bank calculates its fees 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.
E. OTHER -- Purchases, maturities and sales, of money market instruments are
accounted for on the date of the transaction.
(2) INVESTMENT ADVISORY FEE AND ADMINISTRATIVE FEE
A. INVESTMENT ADVISORY FEE -- The investment advisory fee paid to Citibank, as
compensation for overall investment management services, amounted to $782,232,
of which $45,211 was voluntarily waived for the year ended August 31, 1996. The
investment advisory fee is computed at the annual rate of 0.20% of the
Portfolio's average daily net assets.
B. ADMINISTRATIVE FEE -- Under the terms of an Administrative Services
Agreement, the administrative fee payable to the Administrator, as compensation
for overall administrative services and general office facilities, is computed
at the annual rate of 0.05% of the Portfolio's average daily net assets and
amounted to $195,558, of which $15,533 was voluntarily waived for the year ended
August 31, 1996. The Portfolio pays no compensation directly to any Trustee or
any officer who is affiliated with the Administrator, all of whom receive
remuneration for their services to the Portfolio from the Administrator or its
affiliates. Certain of the officers and a Trustee of the Portfolio are officers
and a director of the Administrator or its affiliates.
(3) INVESTMENT TRANSACTIONS
Purchases, and maturities and sales of money market instruments, exclusive of
securities purchased subject to repurchase agreements, aggregated $1,229,551,239
and $1,240,863,441, respectively, for the year ended August 31, 1996.
(4) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES
The cost of investment securities owned at August 31, 1996, for federal income
tax purposes, amounted to $384,787,100.
(5) LINE OF CREDIT
The Portfolio, along with other Landmark Funds, entered into an agreement with a
bank which allows the Funds collectively to borrow up to $40 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. The line
of credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended August 31, 1996,
the commitment fee allocated to the Portfolio was $1,638. Since the line of
credit was established, there have been no borrowings.
<PAGE>
Tax Free Reserves Portfolio
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF TAX FREE RESERVES PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Tax Free Reserves Portfolio (a New
York Trust) as of August 31, 1996, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
August 31, 1996 and 1995, and the financial highlights for each of the years in
the five-year period ended August 31, 1996. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 1996, by correspondence with the Custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Tax Free Reserves
Portfolio at August 31, 1996, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 4, 1996
