LANDMARK FUNDS III, N-30B-2, 1997-10-27

LANDMARK FUNDS III
N-30B-2, 1997-10-27

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<PAGE>

[lOGO] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.

LANDMARK
CASH RESERVES

ANNUAL
REPORT
August 31, 1997

<PAGE>

TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
E. Kirby Warren
William S. Woods, Jr.

SECRETARY
Linda T. Gibson*

TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor

- --------------------------------------------------------------------------------

INVESTMENT ADVISER
(OF CASH RESERVES PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043

ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679

TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

AUDITORS
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110

LEGAL COUNSEL
Bingham, Dana & Gould LLP
150 Federal Street, Boston, MA 02110

- --------------------------------------------------------------------------------

SHAREHOLDER SERVICING AGENTS
(See Inside Cover)

This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.

MM/CR/A/97 Printed on Recycled Paper [Recycle Symbol]
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------

Dear Shareholder:

Despite the heightened volatility of the financial markets over the past 12
months, money market securities once again provided competitive returns for
shareholders seeking a level of income commensurate with a stable net asset
value. The reporting period was generally characterized by an economy that many
economists consider ideal: moderate economic growth coupled with low inflation.
Yet, the road to this environment was a bumpy one, marked by periods of
stronger-than-expected growth that occasionally unsettled the longer term stock
and bond markets. Investors who sought the safety of money market funds were
largely unaffected by these markets' volatility.

In this environment, the Landmark Funds' investment adviser, Citibank,
N.A., continued to manage Cash Reserves Portfolio with the goal of achieving its
investment objectives: providing liquidity and as high a level of current income
as is consistent with the preservation of capital. The Fund seeks to offer an
attractive yield and a competitive expense ratio by investing in a high-quality
portfolio of short-term domestic and foreign dollar-denominated money market
instruments.

This report reviews the Fund's investment activities and performance during
the 12 months ended August 31, 1997, and provides a summary of Citibank's
perspective on and outlook for the money market securities marketplace. On
behalf of the Board of Trustees of the Landmark Funds, I want to thank you for
your confidence and participation.

/S/ Philip W. Coolidge
Philip W. Coolidge
President
September 15, 1997

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TABLE OF CONTENTS

1 A Letter to Our Shareholders
- --------------------------------------------------------------------------------
2 Market Environment
Fund Snapshot
- --------------------------------------------------------------------------------
Fund Quotes from the Portfolio Manager
3 The Portfolio Manager Responds
Strategy and Outlook
- --------------------------------------------------------------------------------
4 Fund Data
7-Day Yield Comparisons

- --------------------------------------------------------------------------------
LANDMARK CASH RESERVES
5 Statement of Assets and Liabilities
Statement of Operations
- --------------------------------------------------------------------------------
6 Statement of Changes in Net Assets
Financial Highlights
- --------------------------------------------------------------------------------
7 Notes to Financial Statements
- --------------------------------------------------------------------------------
8 Independent Auditors' Report
- --------------------------------------------------------------------------------
CASH RESERVES PORTFOLIO
- --------------------------------------------------------------------------------
9 Portfolio of Investments
- --------------------------------------------------------------------------------
11 Statement of Assets and Liabilities
Statement of Operations
- --------------------------------------------------------------------------------
12 Statement of Changes in Net Assets
Financial Highlights
- --------------------------------------------------------------------------------
13 Notes to Financial Statements
- --------------------------------------------------------------------------------
14 Independent Auditors' Report
- --------------------------------------------------------------------------------

- ------------------------------------------
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
o Are subject to investment risks, including possible loss of the
principal amount invested

<PAGE>

- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
- --------------------------------------------------------------------------------

In our semi-annual report to shareholders six months ago, we stated, "If
economic growth during the first half of 1997 is as strong as it was in the
fourth quarter of 1996, the resulting increase in inflationary pressures could
prompt the Federal Reserve to raise key short-term interest rates." In fact, the
economy grew at a rate of 4.9% during the first three months of 1997. In
response, the Federal Reserve Board raised the federal funds rate, the interest
rate banks charge each other for overnight loans, by a modest one quarter of a
percentage point. Yields on short-term money market securities rose accordingly;
for example, yields on one-year Treasury bills peaked near 6% in April.

The Federal Reserve's move toward a more restrictive monetary policy proved
to be an isolated event during the first half of the year. U.S. economic growth
moderated to a 3.6% rate during the second quarter of the year. As the financial
markets became more complacent about the potential for a reacceleration of
inflation, money market yields drifted lower and yields on one-year Treasury
bills ended the period at 5.66%.

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FUND SNAPSHOT
- --------------------------------------------------------------------------------

COMMENCEMENT OF OPERATIONS
August 31, 1984

NET ASSETS AS OF 8/31/97
$1,827.2 million

FUND OBJECTIVE
To provide its shareholders with liquidity and as high a level of current income
as is consistent with the preservation of capital.

DIVIDENDS
Declared daily, paid monthly

BENCHMARKS
o Lipper Taxable Money Market Funds Average
o IBC 1st Tier Taxable Money Market Funds Average

INVESTMENT ADVISER,

CASH RESERVES PORTFOLIO

Citibank, N.A.

<PAGE>

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FUND QUOTES FROM THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------

"We began to extend our average maturity early in the year, buying one-year
paper trading at attractive yields. We held those securities as yields
subsequently declined."

"Investor sentiment changed dramatically in April. The market no longer expected
higher inflation, and yields fell."

"We don't expect much volatility over the long term, but we are prepared to take
advantage of any short-term influences that move the market."

- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
- --------------------------------------------------------------------------------

When the economy began to heat up early in the year and investors began to
anticipate a tighter monetary policy, we increased the Portfolio's average
maturity range to as long as 80 to 85 days. We achieved this position by
balancing our very short-term holdings with securities having maturities as long
as one year. This strategy enabled the Portfolio to benefit from the
longer-dated securities' higher yields when money market yields subsequently
fell.

By April, it became clear that the economy would moderate and that the
Federal Reserve was unlikely to raise rates again soon. Accordingly, we
maintained our longer-than-neutral position, allowing the Portfolio's average
duration to fall slowly as our holdings matured and were replaced with new
investments at lower yields. We ended the period with an average duration of 84
days, which is modestly longer than our neutral position of 65 to 75 days.

In addition, we attempted to boost yields by shifting assets to the highest
yielding sectors of the short-term market. In the final months of 1996 and early
in 1997, we shifted our focus to highquality certificates of deposit issued by
strong, creditworthy banks on Citibank's Approved List, which provided better
values and higher yields than comparable investments in corporate or government
securities. By the end of the period, in fact, up to 70% of the Portfolio was
comprised of high-quality bank obligations. We also increased our exposure to
high-quality variable-rate notes, which provided attractive yields.

- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
- --------------------------------------------------------------------------------

We remain cautiously optimistic about the future for money market
securities. We are cautious because of short-term concerns regarding the
economy's strength: we could see another period of robust growth. In such an
event, the Federal Reserve may raise short-term interest rates further in an
attempt to forestall an acceleration of inflation. Yields on money market
securities would probably rise as well.

Over the longer term, however, we are optimistic about the economy's
resiliency. In our view, any short-term inflationary pressures, such as higher
wages in a tight labor market, should be offset by long-term economic factors,
such as continued productivity gains and global competition. As a result, we see
little potential for significantly higher interest rates over the long term.

Our strategy in this environment is to take advantage of short-term market
swings. We intend to lengthen the Portfolio's average maturity in anticipation
of periods of lower interest rates and shorten our average maturity when we
expect interest rates to rise. By capturing higher yielding securities as they
become available, we hope to continue to provide our shareholders with
competitive yields commensurate with safety.

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FUND DATA All Periods Ended August 31, 1997
- --------------------------------------------------------------------------------

TOTAL RETURNS
------------------------------
ONE FIVE TEN
YEAR YEARS* YEARS*
------ -------- --------

Landmark Cash Reserves .................... 5.05% 4.27% 5.55%
Lipper Taxable Money Market Funds Average . 4.84% 4.16% 5.45%

*Average Annual Total Return

7-DAY YIELDS
- ------------
Annualized Current 5.10%
Effective 5.23%

The Annualized Current 7-Day Yield reflects the amount of income generated by
the investment during that seven-day period and assumes that the income is
generated each week over a 365 day period. The yield is shown as a percentage of
the investment.

The Effective 7-Day Yield is calculated similarly, but when annualized the
income earned by the investment during that seven-day period is assumed to be
reinvested.

The effective yield is slightly higher than the current yield because of the
compounding effect of this assumed reinvestment.

IMPORTANT TAX INFORMATION
- ---------------------
For the fiscal year ended August 31, 1997, the Fund paid $0.04940 per share to
shareholders from net investment income. For such period 2.9% of dividends paid
were derived from interest earned from U.S. Government and U.S. Government
agency obligations.

- --------------------------------------------------------------------------------
7-DAY YIELD COMPARISONS
- --------------------------------------------------------------------------------

As the graph illustrates, Landmark Cash Reserves provided a higher annualized
seven-day yield to that of a comparable IBC's Money Fund Report AveragesTM, as
published in IBC Money Fund ReportTM, for the one year period.

COMPARISON OF 7-DAY YIELD FOR LANDMARK CASH RESERVES VS.
IBC 1ST TIER TAXABLE MONEY MARKET FUNDS AVERAGE

LANDMARK CASH RESERVES FUND

IBC 1st Tier
Landmark Taxable Money Market
Cash Reserves Funds Average

9/3/96 4.81% 4.74%
9/10/96 4.78% 4.74%
9/17/96 4.81% 4.75%
9/24/96 4.78% 4.75%
10/1/96 4.87% 4.78%
10/8/96 4.81% 4.75%
10/15/96 4.83% 4.76%
10/22/96 4.80% 4.74%
10/29/96 4.82% 4.75%
11/5/96 4.85% 4.75%
11/12/96 4.82% 4.74%
11/19/96 4.89% 4.75%
11/26/96 4.81% 4.75%
12/3/96 4.90% 4.78%
12/10/96 4.81% 4.74%
12/17/96 4.83% 4.76%
12/24/96 4.81% 4.78%
12/31/96 4.93% 4.82%
1/7/97 4.95% 4.81%
1/14/97 4.83% 4.76%
1/21/97 4.84% 4.76%
1/28/97 4.85% 4.75%
2/4/97 4.89% 4.78%
2/11/97 4.83% 4.75%
2/18/97 4.83% 4.74%
2/25/97 4.81% 4.73%
3/4/97 4.86% 4.75%
3/11/97 4.79% 4.72%
3/18/97 4.79% 4.73%
3/25/97 4.85% 4.74%
4/1/97 5.09% 4.82%
4/8/97 4.96% 4.82%
4/15/97 5.01% 4.84%
4/22/97 4.99% 4.86%
4/29/97 5.05% 4.89%
5/6/97 5.03% 4.90%
5/13/97 5.04% 4.90%
5/20/97 5.05% 4.91%
5/27/97 5.03% 4.93%
6/3/97 5.11% 4.94%
6/10/97 5.02% 4.93%
6/17/97 5.08% 4.95%
6/24/97 5.03% 4.94%
7/1/97 5.15% 4.97%
7/8/97 5.09% 4.95%
7/15/97 5.06% 4.94%
7/22/97 5.04% 4.93%
7/29/97 5.08% 4.93%
8/5/97 5.13% 4.95%
8/12/97 5.05% 4.92%
8/19/97 5.09% 4.95%
8/26/97 5.07% 4.93%

Notes: The Fund seeks to maintain a stable $1.00 per share price, although there
is no assurance that this will be so on a continuing basis. Fund shares are not
insured or guaranteed by the U.S. Government. Yields and total returns will
fluctuate and past performance is no guarantee of future results. Total return
figures include reinvestment of dividends. Returns and yields reflect certain
voluntary fee waivers. If the waivers were not in place, the Fund's returns and
yields would have been lower.

<PAGE>
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Landmark Cash Reserves
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES August 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in Cash Reserves Portfolio, at value (Note 1) .................................... $1,834,362,105
Receivable for shares of beneficial interest sold ........................................... 4,450
--------------
Total assets ............................................................................... 1,834,366,555
--------------
LIABILITIES:
Dividends payable ........................................................................... 6,094,449
Payable to affiliate-Shareholder Servicing Agents' fees (Note 3B) ........................... 383,570
Payable for shares of beneficial interest repurchased ....................................... 25,078
Accrued expenses and other liabilities ...................................................... 682,762
--------------
Total liabilities .......................................................................... 7,185,859
--------------
NET ASSETS for 1,827,180,696 shares of beneficial interest outstanding ...................... $1,827,180,696
==============

NET ASSETS CONSIST OF:
Paid-in capital ............................................................................. $1,827,180,696
==============

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE .............................. $1.00
=====
</TABLE>

- --------------------------------------------------------------------------------
Landmark Cash Reserves
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

INVESTMENT INCOME (Note 1B):
<S> <C> <C>
Income from Cash Reserves Portfolio ....................................... $92,001,139
Allocated expenses from Cash Reserves Portfolio ........................... (1,626,487)
-----------
$90,374,652

EXPENSES:
Administrative fees (Note 3A) ............................................. 5,691,335
Shareholder Servicing Agents' fees (Note 3B) .............................. 4,065,240
Distribution fees (Note 4) ................................................ 1,626,096
Registration fees ......................................................... 113,337
Shareholder reports ....................................................... 41,773
Trustees' fees ............................................................ 29,034
Custodian fees ............................................................ 23,037
Transfer agent fees ....................................................... 12,000
Legal fees ................................................................ 10,832
Auditing fees ............................................................. 10,366
Other ..................................................................... 45,836
--------
Total expenses ........................................................... 11,668,886
Less aggregate amount waived by Administrator
and Distributor (Note 3A and 4) ........................................ (1,891,252)
-----------
Net expenses ............................................................. 9,777,634
-----------
Net investment income $80,597,018
===========
</TABLE>
See notes to financial statements
<PAGE>
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Landmark Cash Reserves
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------
1997 1996
-------- --------
FROM INVESTMENT ACTIVITIES:
<S> <C> <C>
Net investment income, declared as dividends to
shareholders (Note 2) $ 80,597,018 $ 61,893,956
============== ==============
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
AT NET ASSET VALUE OF $1.00 PER SHARE (NOTE 5):
Proceeds from sale of shares ................................ $1,774,468,339 $1,540,964,431
Net asset value of shares issued to shareholders
from reinvestment of dividends ............................. 16,289,796 13,170,093
Cost of shares repurchased .................. (1,431,754,345) (1,017,843,826)
-------------- --------------
NET INCREASE IN NET ASSETS ...................... 359,003,790 536,290,698
NET ASSETS:
Beginning of period ......................................... 1,468,176,906 931,886,208
-------------- --------------
End of period ............................................... $1,827,180,696 $1,468,176,906
============== ==============
</TABLE>

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Landmark Cash Reserves
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ................... $ 1.00000 $ 1.00000 $1.00000 $1.00000 $1.00000
Net investment income .................................. 0.04940 0.05039 0.05174 0.03137 0.02671
Less dividends from net investment income .............. (0.04940) (0.05039) (0.05174) (0.03137) (0.02671)
-------- ---------- -------- -------- --------
Net Asset Value, end of period ......................... $ 1.00000 $ 1.00000 $1.00000 $1.00000 $1.00000
======== ========== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) .............. $1,827,181 $1,468,177 $931,886 $445,600 $470,758
Ratio of expenses to average net assets* ............... 0.70% 0.69% 0.69% 0.69% 0.69%
Ratio of net investment income to
average net assets ..................................... 4.96% 5.02% 5.17% 3.12% 2.67%
Total return ........................................... 5.05% 5.16% 5.30% 3.18% 2.70%

Note: If agents of the Fund and agents of Cash Reserves Portfolio had not
waived all or a portion of their fees during the periods indicated, the net
investment income per share and the ratios would have been as follows:
Net investment income per share ........................ $ 0.04697 $ 0.04766 $0.04895 $0.02840 $0.02381

RATIOS:
Expenses to average net assets* ........................ 0.95% 0.96% 0.97% 0.99% 0.98%
Net investment income to average net assets ............ 4.71% 4.75% 4.89% 2.82% 2.38%
</TABLE>

*Includes the Fund's share of Cash Reserves Portfolio's allocated expenses.

See notes to financial statements

<PAGE>

Landmark Cash Reserves
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

(1) SIGNIFICANT ACCOUNTING POLICIES
Landmark Cash Reserves (the "Fund") is a separate diversified series of Landmark
Funds III (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 Fund invests all of its investable assets in Cash
Reserves Portfolio (the "Portfolio"), a management investment company for which
Citibank, N.A. ("Citibank") serves as investment adviser. The Landmark Funds
Broker-Dealer Services, Inc. ("LFBDS") acts as the Trust's Administrator and
Distributor. Citibank also serves as Sub-Administrator and makes shares
available to customers as Shareholder Servicing Agent.

The Trust seeks to achieve the Fund's investment objective to provide liquidity
and as high a level of current income as is consistent with the preservation of
capital by investing all of its investable assets in the Portfolio, an open-end,
diversified management investment company having the same investment objective
as the Fund. The value of such investment reflects the Fund's proportionate
interest (24.0% at August 31, 1997) in the net assets of the Portfolio.

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 financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.

The significant accounting policies consistently followed by the Fund are as
follows:

A. INVESTMENT VALUATION -- Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.

B. INVESTMENT INCOME -- The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio.

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. Accordingly, no provision
for federal income or excise tax is necessary.

D. EXPENSES -- The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and LFBDS. Expenses incurred by the Trust with
respect to any two or more Funds in the 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. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.

(2) DIVIDENDS
The net income of the Fund is determined once daily, as of 3:00 p.m., Eastern
time, and all of the net income of the Fund so determined is declared as a
dividend to shareholders of record at the time of such determination. Dividends
are distributed in the form of additional shares of the Fund or, at the election
of the shareholder, in cash (subject to the policies of the shareholder's
Shareholder Servicing Agent) on or prior to the last business day of the month.

(3) ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan which provides that the
Trust, on behalf of each Fund, may obtain the services of an Administrator, one
or more Shareholder Servicing Agents, and other Servicing Agents, and may enter
into agreements providing for the payment of fees for such services. Under the
Trust's Administrative Services Plan, the aggregate of the fees paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund under such Plan and the Basic Distribution Fee paid from the Fund
to the Distributor under the Distribution Plan may not exceed 0.70% of the
Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year.

A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, LFBDS is entitled to an administrative fee from the Fund, as
compensation for overall administrative services and general office facilities,
which is accrued daily and paid monthly at an annual rate of 0.35% of average
daily net assets. The Administrative fees amounted to $5,691,335 of which
$1,261,465 was waived, voluntarily for the year ended August 31, 1997. Citibank
acts as Sub-Administrator and performs such duties and receives such
compensation from LFBDS as from time to time is agreed to by LFBDS and Citibank.
The Fund 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 Fund from the Administrator or its affiliates. Certain of the
officers and a Trustee of the Fund are officers and a director of the
Administrator or its affiliates.

B. SHAREHOLDER SERVICING AGENTS FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which the Shareholder Servicing Agent acts as an agent for its
customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment has been made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. The Shareholder
Servicing Agents fees amounted to $4,065,240, for the year ended August 31,
1997.

(4) DISTRIBUTION FEES
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, in which the Fund compensates the
Distributor at an annual rate not to exceed 0.10% of the Fund's average daily
net assets. The Distribution fees amounted to $1,626,096 of which $629,787 was
voluntarily waived, for the year ended August 31, 1997. The Distributor may also
receive an additional fee from the Fund at an annual rate not to exceed 0.10% of
the Fund's average daily net assets in anticipation of, or as reimbursement for,
advertising expenses incurred by the Distributor in connection with the sale of
shares of the Fund. The Distributor has voluntarily agreed to waive this fee
through August 31, 1997.

(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).

(6) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$1,022,191,849 and $751,824,452, respectively, for the year ended August 31,
1997.

<PAGE>

Landmark Cash Reserves
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

TO THE TRUSTEES OF LANDMARK FUNDS III (THE TRUST) AND THE SHAREHOLDERS OF
LANDMARK CASH RESERVES:

In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Landmark Cash Reserves (the "Fund"), a series of Landmark Funds III, at August
31, 1997 and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at August 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
October 6, 1997

<PAGE>

- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------

BANK NOTES--3.5%
Australia & New Zealand Bank
5.645%, due 2/19/98 .......................... $65,000 $ 64,986,601
Morgan Guaranty Trust Co.
5.85%, due 3/16/98 ........................... 100,000 99,972,340
5.93%, due 8/31/98 ........................... 100,000 99,961,876
------------
264,920,817
------------
CERTIFICATES OF DEPOSIT
(EURODOLLARS)--1.3%
Sumitomo Bank
5.69%, due 12/22/97 .......................... 100,000 100,003,052
------------

CERTIFICATES OF DEPOSIT
(YANKEE)--47.5%
ABN Amro Bank NV
5.68%, due 12/19/97 .......................... 100,000 99,988,293
6.14%, due 5/01/98 ........................... 90,000 89,986,209
Bank America National Association
5.67%, due 6/30/98 ........................... 200,000 199,855,388
Bank America of Chicago
5.85%, due 3/13/98 ........................... 100,000 99,942,394
Bank of Tokyo Mitsubishi New York
5.69%, due 12/19/97 .......................... 185,000 185,000,000
5.78%, due 12/29/97 .......................... 150,000 150,013,155
Barclays Bank of New York
5.84%, due 3/11/98 ........................... 100,000 99,984,982
Bayeriche Landesbank
5.86%, due 7/17/98 ........................... 100,000 99,953,330
Canadian Imperial Bank
5.94%, due 3/17/98 ........................... 100,000 99,984,515
5.86%, due 8/10/98 ........................... 70,000 69,967,878
5.91%, due 8/28/98 ........................... 46,000 45,973,903
Credit Suisse
5.84%, due 3/11/98 ........................... 100,000 99,984,977
5.745%, due 7/21/98 .......................... 100,000 99,970,089
Dai Ichi Kangyo Bank
5.68%, due 10/28/97 .......................... 100,000 100,001,561
5.67%, due11/04/97 ........................... 131,000 131,005,534
5.73%, due 12/29/97 .......................... 100,000 100,006,793
Deutsche Bank AG
6.20%, due 4/08/98 ........................... 50,000 49,989,987
Key Bank National Association
5.68%, due 7/02/98 ........................... 100,000 99,934,952
5.69%, due 7/07/98 ........................... 100,000 99,942,162
Landesbank Hessen Thuringen
6.13%, due 4/01/98 ........................... 50,000 49,964,438
Morgan Guaranty Trust Co.
5.71%, due 1/06/98 ........................... 100,000 99,986,666
Morgan Stanley Group, Inc.
5.79%, due 5/18/98 ........................... 75,000 75,000,000
Natwest BankCorp
5.933%, due 6/26/98 .......................... 100,000 99,947,329
Rabobank Nederland
6.18%, due 5/01/98 ........................... 100,000 99,987,351
Royal Bank of Canada
5.58%, due 12/11/97 .......................... 100,000 99,972,997
6.08%, due 5/27/98 ........................... 100,000 99,971,952
5.78%, due 7/31/98 ........................... 55,000 54,980,784
Sanwa Bank
5.76%, due 9/19/97 ........................... 300,000 300,001,478
5.72%, due 10/17/97 .......................... 50,000 50,000,630
Societe Generale Bank
5.87%, due 3/03/98 ........................... 125,000 124,976,020
6.35%, due 4/15/98 ........................... 175,000 174,984,028
5.86%, due 7/21/98 ........................... 50,000 49,983,068
Sumitomo Bank
5.74%, due 9/08/97 ........................... 195,000 195,000,000
5.69%, due 10/14/97 .......................... 40,000 40,000,000
------------
3,636,242,843
------------
ASSET BACKED--4.1%
Asset Backed Securities
Investment Trust
5.652%, due 6/15/98 .......................... 157,000 156,974,733
Asset Backed Trust
5.662%, due 1/15/98 .......................... 157,000 156,994,150
------------
313,968,883
------------
COMMERCIAL PAPER--12.5%
Barton Capital Corp.
5.52%, due 9/18/97 ........................... 70,000 69,817,533
CIT Group Holdings Inc.
5.55%, due 9/02/97 ........................... 100,000 99,984,583
Electronic Data System Corp.
5.50%, due 10/03/97 .......................... 60,000 59,706,667
Korea Development Bank
5.80%, due 9/18/97 ........................... 50,000 49,863,056
5.80%, due 9/22/97 ........................... 80,000 79,729,333
Pooled Accounts Receivable
Capital Corp.
5.53%, due 9/16/97 ........................... 150,275 149,928,741
5.52%, due 9/19/97 ........................... 181,542 181,040,944
Receivables Capital Corp.
5.52%, due 9/18/97 ........................... 64,549 64,380,742
5.50%, due 9/22/97 ........................... 126,168 125,763,211
5.51%, due 9/22/97 ........................... 76,403 76,157,428
------------
956,372,238
------------
FLOATING RATE NOTES--14.8%
Abbey National Treasury Services
6.00%, due 6/17/98 ........................... 100,000 99,969,738
Bank One, Columbus
5.64%, due 5/14/98 ........................... 75,000 74,964,527
Bank One, Indianapolis
5.66%, due 2/05/98 ........................... 150,000 149,961,646
FCC National Bank
5.73%, due 4/07/98 ........................... 200,000 199,953,854
5.67%, due 7/02/98 ........................... 100,000 99,926,840
First USA Bank
5.809%, due 4/29/98 .......................... 100,000 100,078,329
Merrill Lynch & Co., Inc.
5.77%, due 10/07/97 .......................... 20,000 19,999,506
5.765%, due 11/12/97 ......................... 100,000 99,995,070
5.75%, due 1/09/98 ........................... 150,000 149,984,453
Strats Trust
5.652%, due 12/15/97 ......................... 139,500 139,491,411
------------
1,134,325,374
------------
TIME DEPOSIT--15.4%
Fleet Bank
5.563%, due 9/02/97 .......................... 100,000 100,000,000
Keybank National Association
5.625%, due 9/02/97 .......................... 150,000 150,000,000
Royal Bank of Canada
5.50%, due 9/02/97 ........................... 100,000 100,000,000
Sun Trust
5.438%, due 9/02/97 .......................... 131,299 131,299,000
Svenska Grand Cayman
5.625%, due 9/02/97 .......................... 250,000 250,000,000
Wells Fargo & Co.
5.531%, due 9/02/97 .......................... 200,000 200,000,000
Westdeutsche Landesbank
5.656%, due 9/02/97 .......................... 250,000 250,000,000
------------
1,181,299,000
------------
TOTAL INVESTMENTS
AT AMORTIZED COST ............................ 99.1% 7,587,132,207
OTHER ASSETS, LESS LIABILITIES ............... 0.9 70,267,733
------- --------------
NET ASSETS ................................... 100.0% $7,657,399,940
===== ==============

See notes to financial statements

<PAGE>
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES August 31, 1997
- --------------------------------------------------------------------------------

ASSETS:
Investments at value (Note 1A) ................................ $7,587,132,207
Cash .......................................................... 188
Interest receivable ........................................... 70,969,862
--------------
Total assets ................................................. 7,658,102,257
--------------

LIABILITIES:
Payable to affiliate--investment advisory fee (Note 2A) ....... 345,435
Accrued expenses and other liabilities ........................ 356,882
--------------
Total liabilities ............................................ 702,317
--------------
NET ASSETS .................................................... $7,657,399,940
==============

REPRESENTED BY:
Paid-in capital for beneficial interests ...................... $7,657,399,940
==============
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
INTEREST INCOME (Note 1B) ............................................. $345,707,841

EXPENSES:
Investment advisory fees (Note 2A) .................................... $ 9,148,204
Administrative fees (Note 2B) ......................................... 3,049,401
Custodian fees ........................................................ 1,513,346
Auditing fees ......................................................... 48,003
Trustees' fees ........................................................ 43,104
Legal fees ............................................................ 21,171
Other ................................................................. 83,464
-----------
Total expenses .................................................... 13,906,693

Less aggregate amount waived by Investment
Adviser and Administrator (Notes 2A and 2B) ..................... (7,802,319)
Less fees paid indirectly (Note 1E) ............................... (659)
-----------
Net expenses ...................................................... 6,103,715
------------
Net investment income ............................................. $339,604,126
============
</TABLE>

See notes to financial statements

<PAGE>

Cash Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------
1997 1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
<S> <C> <C>
Net investment income ......................... $ 339,604,126 $ 230,781,560
--------------- ---------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ................... 33,685,999,190 24,522,122,636
Value of withdrawals .......................... (30,810,390,668) (25,076,123,009)
--------------- ---------------
Net increase (decrease) in net assets
from capital transactions 2,875,608,522 (554,000,373)
--------------- ---------------

NET INCREASE (DECREASE) IN NET ASSETS ......... 3,215,212,648 (323,218,813)
NET ASSETS:
Beginning of period ........................... 4,442,187,292 4,765,406,105
--------------- ---------------
End of period ................................. $ 7,657,399,940 $ 4,442,187,292
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED AUGUST 31,
-------------------------------------------------------------------

1997 1996 1995 1994 1993
---- ---- ---- ---- ----
RATIOS/SUPPLEMENTAL DATA:

<S> <C> <C> <C> <C> <C>
Net assets (000's omitted) ............................. $7,657,400 $4,442,187 $4,765,406 $2,147,361 $781,470
Ratio of expenses to average net assets ................ 0.10% 0.10% 0.10% 0.11% 0.20%
Ratio of net investment income to
average net assets ..................................... 5.57% 5.64% 5.88% 3.87% 3.15%

Note: If agents of the Portfolio had not voluntarily waived a portion of their fees for the periods indicated, the ratios
would have been as follows:

RATIOS:
Expenses to average net assets ......................... 0.23% 0.23% 0.23% 0.24% 0.25%
Net investment income to average net assets ............ 5.44% 5.50% 5.75% 3.74% 3.10%
</TABLE>

See notes to financial statements

<PAGE>

- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

(1) SIGNIFICANT ACCOUNTING POLICIES
Cash Reserves Portfolio (the "Portfolio") is registered under the U.S.
Investment Company Act of 1940, as amended, as a no-load, 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. Signature Financial Group (Grand Cayman),
Ltd. ("SFG") acts as the Portfolio's Administrator and Citibank, N.A.
("Citibank") acts as the Investment Adviser.

The significant accounting policies consistently followed by the Portfolio 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.
This method involves valuing a portfolio security at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium. 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 U.S. 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) 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. The Portfolio bears all costs of its operations
other than expenses specifically assumed by Citibank and SFG.

C. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.

D. REPURCHASE AGREEMENTS -- It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.

E. FEES PAID INDIRECTLY -- The Portfolio's custodian bank calculates its fees
based on the Portfolio's average daily net assets. The fees are 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 Portfolio. This amount is shown as a reduction of expenses on
the Statement of Operations.

F. OTHER -- Purchases, maturities and sales of money market instruments are
accounted for on the date of the transaction.

(2) INVESTMENT ADVISORY FEES AND ADMINISTRATIVE FEES
A. INVESTMENT ADVISORY FEE -- The Investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to $9,148,204,
of which $4,752,918 was voluntarily waived for the year ended August 31, 1997.
The investment advisory fees are computed at an annual rate of 0.15% of the
Portfolio's average daily net assets.

B. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative fee paid to the Administrator, as compensation for
overall administrative services and general office facilities, are computed at
the annual rate of 0.05% of the Portfolio's average daily net assets. The
Administrative fees amounted to $3,049,401, all of which were voluntarily waived
for the year ended August 31, 1997. The Portfolio pays no compensation directly
to any Trustee or to 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, maturities and sales of money market instruments aggregated
$407,817,667,716 and $404,668,761,218, respectively, for the year ended August
31, 1997.

(4) 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 $60 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 $15 million committed portion of the line of credit requires a
quarterly payment of a commitment fee based on the average daily unused portion
of the line of credit. For the year ended August 31, 1997, the commitment fee
allocated to the Portfolio was $23,449. Since the line of credit was
established, there have been no borrowings.

- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

TO THE TRUSTEES AND THE INVESTORS OF CASH RESERVES PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Cash Reserves Portfolio (the "Portfolio") as at
August 31, 1997 and the related statements of operations and of changes in net
assets and the financial highlights for the periods indicated. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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, which included confirmation of investments owned at
August 31, 1997 by correspondence with the custodian, provide a reasonable basis
for our opinion.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at August 31, 1997, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.

PRICE WATERHOUSE
Chartered Accountants

Toronto, Ontario
October 6, 1997

<PAGE>

- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
- --------------------------------------------------------------------------------

FOR RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
(212) 820-2383 or (800) 846-5300

FOR CITIGOLD CUSTOMERS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or, in NY or CT, or (800) 285-1701, for
all other states, (800) 285-1707

FOR CITIBANK PRIVATE BANKING CLIENTS:
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Investment Specialist or (212) 559-5959

FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117

FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
Master Trust Accounts
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9659

FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 820-2380 in New York City

<PAGE>

LANDMARK
FUNDS

MONEY MARKET FUNDS:
Cash Reserves
Premium Liquid Reserves
Institutional Liquid Reserves

U.S. Treasury Reserves
Premium U.S. Treasury Reserves
Institutional U.S. Treasury Reserves

Tax Free Reserves
Institutional Tax Free Reserves

California Tax Free Reserves
Connecticut Tax Free Reserves
New York Tax Free Reserves

STOCK & BOND FUNDS:
U.S. Government Income Fund
Intermediate Income Fund
National Tax Free Income Fund
New York Tax Free Income Fund

Balanced Fund
Equity Fund
International Equity Fund
Small Cap Equity Fund
Emerging Asian Markets Equity Fund
Emerging Asian Markets Equity Fund

<PAGE>

[lOGO] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.

LANDMARK
U.S. TREASURY
RESERVES

ANNUAL
REPORT
August 31, 1997

<PAGE>

TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
E. Kirby Warren
William S. Woods, Jr.

SECRETARY
Linda T. Gibson*

TREASURER
John R. Elder*

*Affiliated Person of Administrator and Distributor

- --------------------------------------------------------------------------------

INVESTMENT ADVISER
(OF U.S. TREASURY RESERVES PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043

ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679

TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110

LEGAL COUNSEL Bingham, Dana & Gould LLP
150 Federal Street, Boston, MA 02110

- --------------------------------------------------------------------------------

SHAREHOLDER SERVICING AGENTS
(See Inside of Cover)

This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.

MM/UST/A/97 Printed on Recycled Paper [Recycle Symbol]

<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------

Dear Shareholder:

Despite the heightened volatility of the financial markets over the past 12
months, short-term U.S. government securities once again provided competitive
returns for shareholders seeking a level of income commensurate with a stable
net asset value. The period was generally characterized by an economy that many
economists consider ideal: moderate growth coupled with low inflation. Yet, the
road to this environment was a bumpy one, marked by periods of stronger-than-
expected growth that occasionally unsettled the longer term stock and bond
markets. Investors who sought the safety of money market funds were largely
unaffected by these markets' volatility.

In this environment, the Landmark Funds' investment adviser, Citibank,
N.A., continued to manage U.S. Treasury Reserves Portfolio with the goal of
achieving its investment objectives: providing liquidity and as high a level of
current income as is consistent with the preservation of capital. The Fund seeks
to offer an attractive yield and a competitive expense ratio by investing in a
high-quality portfolio composed exclusively of U.S. Treasury securities.

This report reviews the Fund's investment activities and performance during
the 12 months ended August 31, 1997, and provides a summary of Citibank's
perspective on and outlook for the U.S. Treasury securities marketplace. On
behalf of the Board of Trustees of the Landmark Funds, I want to thank you for
your confidence and participation.

/s/ Philip W. Coolidge
- -----------------------------
Philip W. Coolidge
President
September 15, 1997

Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
o Are subject to investment risks, including possible loss of the principal
amount invested

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1 A Letter to Our Shareholders
- --------------------------------------------------------------------------------
2 Market Environment
Fund Snapshot
- --------------------------------------------------------------------------------
Fund Quotes from the Portfolio Manager
3 The Portfolio Manager Responds
Strategy and Outlook
- --------------------------------------------------------------------------------
4 Fund Data
- --------------------------------------------------------------------------------

LANDMARK U.S. TREASURY RESERVES
- --------------------------------------------------------------------------------
5 Statement of Assets and Liabilities
Statement of Operations
- --------------------------------------------------------------------------------
6 Statement of Changes in Net Assets
Financial Highlights
- --------------------------------------------------------------------------------
7 Notes to Financial Statements
- --------------------------------------------------------------------------------
9 Independent Auditors' Report

U.S. TREASURY RESERVES PORTFOLIO
- --------------------------------------------------------------------------------
10 Portfolio of Investments
- --------------------------------------------------------------------------------
11 Statement of Assets and Liabilities
Statement of Operations
- --------------------------------------------------------------------------------
12 Statement of Changes in Net Assets
Financial Highlights
- --------------------------------------------------------------------------------
13 Notes to Financial Statements
- --------------------------------------------------------------------------------
14 Independent Auditors' Report

- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
- --------------------------------------------------------------------------------
In our semi-annual report to shareholders six months ago, we stated, "If
economic growth during the first half of 1997 is as strong as it was in the
fourth quarter of 1996, the resulting increase in inflationary pressures could
prompt the Federal Reserve to raise key short-term interest rates." In fact, the
economy grew at a rate of 4.9% during the first three months of 1997. In
response, the Federal Reserve Board raised the federal funds rate, the interest
rate banks charge each other for overnight loans, by a modest one-quarter of a
percentage point. Yields on short-term money market securities rose accordingly;
for example, yields on one-year Treasury bills peaked near 6% in April.

The Federal Reserve's move toward a more restrictive monetary policy proved
to be an isolated event during the first half of the year. U.S. economic growth
moderated to a 3.6% rate during the second quarter of the year. As the financial
markets became more complacent about the potential for a reacceleration of
inflation, one-year Treasury bill yields drifted lower and ended the period at
5.66%.

In addition, yields of U.S. Treasury bills were affected by the
government's progress toward a balanced budget. Smaller federal deficits require
less issuance of Treasury securities. Yet, demand remained strong, particularly
from overseas investors attracted to U.S. markets by a strong dollar. These
influences helped keep U.S. Treasury yields low relative to other types of money
market securities.

- --------------------------------------------------------------------------------
FUND SNAPSHOT
- --------------------------------------------------------------------------------

COMMENCEMENT OF OPERATIONS
May 3, 1991

NET ASSETS AS OF 8/31/97
$360.7 million

FUND OBJECTIVE
To provide liquidity and as high a level of current income from U.S. Government
obligations as is consistent with the preservation of capital.

DIVIDENDS
Declared daily, paid monthly

BENCHMARK
o Lipper U.S. Treasury Money Market Funds Average

INVESTMENT ADVISER,
U.S. TREASURY RESERVES PORTFOLIO
Citibank, N.A.

"Stronger-than-expected tax revenues resulted in a further decline in the
federal budget deficit. The Treasury responded by cutting back on the issuance
of Treasury bills."

"Investor sentiment changed dramatically in April. The market no longer expected
higher inflation, and yields fell."

"We don't expect much volatility over the long term, but we are prepared to take
advantage of any short-term influences, including supply/demand factors, that
move the market."

- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
- --------------------------------------------------------------------------------

Our primary strategy during the reporting period was to take advantage of
changes in the supply of and demand for U.S. Treasury bills. Yields typically
rise during periods of increased issuance and fall when issuance declines.

Accordingly, we adjusted the Portfolio's average maturity based on
projected Treasury financing schedules. Just prior to times of plentiful
issuance, we reduced the Portfolio's average maturity to as low as 35 days in
order to free up cash for the purchase of higher-yielding T-bills as they became
available. After such purchases, the Portfolio's average maturity naturally
lengthened to as high as 60 days, which enabled us to maintain relatively high
yields when prevailing interest rates declined. We consider an average maturity
of 45 to 50 days to be "neutral." The Portfolio is required to maintain an
average maturity of 60 days or less to preserve its ratings of AAAm and Aaa
assigned by Standard & Poor's and Moody's Investors Service, respectively.

- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
- --------------------------------------------------------------------------------

We remain cautiously optimistic about the future for U.S. Treasury
securities. We are cautious because of short-term concerns regarding the
national economy's strength: we could see another period of robust growth. In
such an event, the Federal Reserve may be likely to raise short-term interest
rates further. Yields on U.S. Treasury bills would probably rise as well,
although supply/demand influences may constrain that rise relative to other
types of money market securities.

Our strategy in this environment is to take advantage of short-term market
swings caused by economic and supply/demand influences. We intend to shorten the
Portfolio's average maturity in anticipation of periods of greater issuance and
higher interest rates. Conversely, we intend to lengthen our average maturity
just after period of issuance and when we expect interest rates to fall. By
capturing higher yielding securities as they become available, we hope to
continue to provide our shareholders with competitive yields commensurate with
safety.

SINCE
ONE FIVE 5/3/91
YEAR YEAR* INCEPTION*
---- ----- ----------

Landmark U.S. Treasury Reserves ...... 4.64% 3.92% 4.01%
Lipper U.S. Treasury Money
Market Funds Average ................ 4.77% 4.06% 5.32%

* Average Annual Total Return
+ From 5/31/91

7-DAY YIELDS
- ------------
Annualized Current 4.57%
Effective 4.68%

The Annualized Current 7-Day Yield reflects the amount of income generated by
the investment during the seven day period and assumes that the income is
generated each week over a 365 day period. The yield is shown as a percentage of
the investment.

The Effective 7-Day Yield is calculated similarly, but when annualized the
income earned by the investment during the seven day period is assumed to be
reinvested.

The effective yield is slightly higher than the current yield because of the
compounding effect of this assumed reinvestment.

IMPORTANT TAX INFORMATION
- ---------------------------------
For the Fiscal year ended August 31, 1997 the Fund paid $0.04547 per share to
shareholders from net investment income. For such period, 100% of income
dividends paid were derived from interest earned from U.S. Treasury Bills, Notes
and Bonds.

NOTES: The Fund seeks to maintain a stable $1.00 per share price,
although there is no assurance that this will be so on a continuing basis. Fund
shares are not insured or guaranteed by the U.S. Government. Yields and total
returns will fluctuate and past performance is no guarantee of future results.
Total return figures include reinvestment of dividends. Returns and yields
reflect certain voluntary fee waivers. If the waivers were not in place, the
Fund's returns and yields would have been lower.

<PAGE>
- --------------------------------------------------------------------------------
Landmark U.S. Treasury Reserves
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES August 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in U.S. Treasury Reserves Portfolio, at value (Note 1) ............................ $361,602,874
Receivable for shares of beneficial interest sold ............................................ 7,950
------------
Total assets ................................................................................. 361,610,824
------------
LIABILITIES:
Dividend payable ............................................................................. 682,483
Payable to affiliate-- Shareholder Servicing Agents' fee (Note 3B) ........................... 74,357
Accrued expenses and other liabilities ....................................................... 136,621
------------
Total liabilities ............................................................................ 893,461
------------
NET ASSETS for 360,717,363 shares of beneficial interest outstanding ......................... $360,717,363
============
NET ASSETS CONSIST OF:
Paid-in capital .............................................................................. $360,717,363
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE ............................... $1.00
=====
</TABLE>

<TABLE>
<CAPTION>
INVESTMENT INCOME (Note 1A):
<S> <C> <C>
Income from U.S. Treasury Reserves Portfolio .............................. $17,876,494
Allocated expenses from U.S. Treasury Reserves Portfolio .................. (340,428)
-----------
Net investment income from U.S. Treasury Reserves Portfolio .......... $17,536,066

EXPENSES:
Administrative fees (Note 3A) ............................................. 1,187,880
Shareholder Servicing Agents' fees (Note 3B) .............................. 848,485
Distribution fees (Note 4) ................................................ 339,394
Custodian fees ............................................................ 23,937
Registration fees ......................................................... 14,553
Transfer agent fees ....................................................... 12,000
Trustee fees .............................................................. 11,852
Auditing fees ............................................................. 10,400
Shareholder reports ....................................................... 9,576
Legal fees ................................................................ 4,859
Miscellaneous ............................................................. 6,339
-----------
Total expenses ....................................................... 2,469,275
Less aggregate amounts waived by Administrator and Distributor
(Notes 3A and 4) (434,646)
-----------
Net expenses ......................................................... 2,034,629
-----------
Net investment income ................................................ $15,501,437
===========
</TABLE>
See notes to financial statements

<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Treasury Reserves
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996
------ -------
FROM INVESTMENT ACTIVITIES:
<S> <C> <C>
Net investment income, declared as dividends to shareholders ............. $ 15,501,437 $ 13,609,215
============ ==============
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT NET ASSET
VALUE OF $1.00 PER SHARE (Note 5):
Proceeds from sale of shares ............................................. $918,132,847 $1,010,031,115
Net asset value of shares issued to shareholders from
reinvestment of dividends ............................................... 7,474,185 7,289,474
Cost of shares repurchased ............................................... (882,885,646) (955,776,257)
------------ --------------
NET INCREASE IN NET ASSETS .................................... 42,721,386 61,544,332
NET ASSETS:
Beginning of period ...................................................... 317,995,977 256,451,645
------------ ---------------
End of period ............................................................ $360,717,363 $ 317,995,977
============ ================
</TABLE>

EIGHT MONTHS YEAR
YEAR ENDED AUGUST 31, ENDED ENDED
--------------------------------------------- AUGUST 31, DECEMBER 31,
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ............. $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income ............................ 0.04547 0.04602 0.04751 0.02837 0.01662 0.03117
Less dividends from net investment income ........ (0.04547) (0.04602) (0.04751) (0.02837) (0.01662) (0.03117)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period ................... $1.00000 $1.00000 $1.00000 $1$1.00000 $1.00000 $1.00000
======== ======== ======== ======== ======== ========

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) ........ $360,717 $317,996 $256,452 $203,400 $249,466 $338,719
Ratio of expenses to average net assets* ......... 0.70% 0.70% 0.70% 0.70% 0.66%+ 0.70%
Ratio of net investment income to average
net assets ..................................... 4.57% 4.61% 4.77% 2.81% 2.49%+ 3.19%
Total return ..................................... 4.64% 4.70% 4.86% 2.87% 2.53%+ 3.16%
Note: If agents of the Fund and agents of U.S. Treasury Reserves Portfolio had not waived all or a portion of their fees during the
periods indicated, the net investment income per share and the ratios would have been as follows:
Net investment income per share .................. $0.04278 $0.04313 $0.04452 $0.02514 $0.01455 $0.02853

RATIOS:
Expenses to average net assets* .................. 0.97% 1.00% 1.00% 1.02% 0.97%+ 0.96%
Net investment income to average net assets ...... 4.30% 4.32% 4.47% 2.49% 2.18%+ 2.92%

* Includes the Fund's share of U.S. Treasury Reserves Portfolio's allocated expenses.
+ Annualized.
</TABLE>

See notes to financial statements

<PAGE>

(1) SIGNIFICANT ACCOUNTING POLICIES
Landmark U.S. Treasury Reserves (the "Fund") is a separate diversified series of
Landmark Funds III (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 Fund invests all of its investable assets in
U.S. Treasury Reserves Portfolio (the "Portfolio"), a management investment
company for which Citibank, N.A. ("Citibank") serves as Investment Adviser. The
Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the Trust's
Administrator and Distributor. Citibank also serves as Sub-Administrator and
makes Fund shares available to customers through various Shareholder Servicing
Agents.

The Trust seeks to achieve the Fund's investment objective of providing
shareholders with liquidity and as high a level of current income from U.S.
Government obligations as is consistent with preservation of capital by
investing all of its investable assets in the Portfolio, an open-end,
diversified management investment company having the same investment objective
as the Fund. The value of such investment reflects the Fund's proportionate
interest (39.8% at August 31, 1997) in the net assets of the Portfolio.

The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.

The significant accounting policies consistently followed by the Fund are as
follows:

A. INVESTMENT INCOME -- The Fund earns income, net of Portfolio expenses, daily
on its investment in the Portfolio.

B. 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. Accordingly, no provision
for federal income or excise tax is necessary.

C. EXPENSES -- The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and LFBDS. Expenses incurred by the Trust with
respect to any two or more Funds in a series are allocated in proportion to the
average net assets of each Fund, except where allocations of direct expenses to
each Fund can otherwise be made fairly. Expenses directly attributable to a Fund
are charged to that Fund.

D. OTHER -- All the net investment income of the Portfolio is allocated pro
rata, based on respective ownership interests, among the Fund and other
investors in the Portfolio at the time of such determination.

(2) DIVIDENDS
The net income of the Fund is determined once daily, as of 12:00 noon, Eastern
standard time, and all of the net income of the Fund so determined is declared
as a dividend to shareholders of record at the time of such determination.
Dividends are distributed in the form of additional shares of the Fund or, at
the election of the shareholder, in cash (subject to the policies of the
shareholder's Shareholder Servicing Agent) on or prior to the last business day
of the month.

(3) ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan which provides that the
Trust, on behalf of each Fund, may obtain the services of an Administrator, one
or more Shareholder Servicing Agents, and other Servicing Agents, and may enter
into agreements providing for the payment of fees for such services. Under the
Trust's Administrative Services Plan, the aggregate of the fee paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund under such plan and the Basic Distribution Fee paid from the Fund
to the Distributor under the Distribution Plan may not exceed 0.70% of the
Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year.

A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, LFBDS is entitled to an administrative fee from the Fund, as
compensation for overall administrative services and general office facilities,
which is accrued daily and paid monthly at an annual rate of 0.35% of average
daily net assets of the Fund. The Administrative fees amounted to $1,187,880, of
which $289,909 was voluntarily waived for the year ended August 31, 1997.
Citibank acts as Sub-Administrator and performs such duties and receives such
compensation from LFBDS as from time to time is agreed to by LFBDS and Citibank.
The Fund pays no compensation directly to any Trustee or to any officer who is
affiliated with the Administrator, all of whom receive remuneration for their
services to the Fund from the Administrator or its affiliates. Certain of the
officers and a Trustee of the Fund are officers and a director of the
Administrator or its affiliates.

B. SHAREHOLDER SERVICING AGENT FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which the Shareholder Servicing Agent acts as an agent for its
customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, but may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. The Shareholder
Servicing Agent fees amounted to $848,485, for the year ended August 31, 1997.

(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).

(6) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$510,147,636 and $484,688,793, respectively, for the year ended August 31, 1997.

<PAGE>
- --------------------------------------------------------------------------------
Landmark U.S. Treasury Reserves
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

TO THE TRUSTEES AND SHAREHOLDERS OF LANDMARK U.S. TREASURY RESERVES:

We have audited the accompanying statement of assets and liabilities of
Landmark U.S. Treasury Reserves, a separate series of Landmark Funds III (the
"Trust") (a Massachusetts business trust), as of August 31, 1997, the related
statement of operations for the year then ended, the statement of changes in net
assets for the years ended August 31, 1997 and 1996, and the financial
highlights for each of the years in the four-year period ended August 31, 1997,
the eight months ended August 31, 1993, and the year ended December 31, 1992.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on the
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. 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 Landmark U.S.
Treasury Reserves at August 31, 1997, 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 6, 1997

<PAGE>

U.S. Treasury Reserves Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--99.5%
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS--79.7%
due 9/18/1997 ......................... $280,932 $280,246,760
due 10/16/1997 ........................ 50,000 49,685,000
due 10/23/1997 ........................ 190,664 189,261,230
due 10/30/1997 ........................ 18,000 17,851,763
due 11/28/1997 ........................ 50,000 49,375,444
due 1/29/1998 ......................... 50,000 48,933,333
due 2/05/1998 ......................... 90,000 87,949,188
------------
723,302,718
------------
U.S. TREASURY NOTES--19.8%
5.75% due 9/30/1997 ................... 155,000 155,046,144
8.75% due 10/15/1997 .................. 25,000 25,096,389
------------
180,142,533
------------
TOTAL INVESTMENTS AT AMORTIZED COST .... 99.5% 903,445,251
OTHER ASSETS, LESS LIABILITIES ......... 0.5 4,464,945
---- ------------
NET ASSETS ............................. 100.0% $907,910,196
==== ============

See notes to financial statements

<PAGE>

ASSETS:
Investments, at amortized cost and value (Note 1A) ........... $903,445,251
Cash ......................................................... 631
Interest receivable .......................................... 4,580,840
------------
Total assets ................................................ 908,026,722
------------
LIABILITIES:
Payable to affiliate--INVESTMENT advisory fees (Note 2A) ..... 38,016
Accrued expenses and other liabilities ....................... 78,510
------------
Total liabilities ........................................... 116,526
------------
NET ASSETS ................................................... $907,910,196
============
REPRESENTED BY:
Paid-in capital for beneficial interests ..................... $907,910,196
============
- --------------------------------------------------------------------------------
U.S. Treasury Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME (Note 1B) ............................................... $44,756,356

EXPENSES:
Investment advisory fees (Note 2A) ........................................ $1,279,172
Administrative fees (Note 2B) ............................................. 426,391
Custodian fees ............................................................ 287,904
Auditing fees ............................................................. 20,900
Trustee fees .............................................................. 12,046
Legal fees ................................................................ 8,490
Miscellaneous ............................................................. 29,052
-------
Total expenses ........................................................... 2,063,955
Less aggregate amount waived by Investment Adviser and
Administrator (Notes 2A and 2B) .......................................... (1,211,224)
Less fees paid indirectly (Note 1D) ...................................... (310)
----------
Net expenses ............................................................. 852,421
-----------
Net investment income .................................................... $43,903,935
===========
</TABLE>
See notes to financial statements

<PAGE>

- --------------------------------------------------------------------------------
U.S. Treasury Reserves Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1997 1996
-------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
<S> <C> <C>
Net investment income .................................................... $ 43,903,935 $ 38,179,974
-------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from contributions .............................................. 1,742,310,476 1,474,479,600
Value of withdrawals ..................................................... (1,646,108,001) (1,577,114,165)
-------------- --------------
Net increase (decrease) in net assets from capital transactions .......... 96,202,475 (102,634,565)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS .................................... 140,106,410 (64,454,591)
NET ASSETS:
Beginning of period ...................................................... 767,803,786 832,258,377
-------------- --------------
End of period ............................................................ $ 907,910,196 $ 767,803,786
============== ==============
</TABLE>

Note: If the agents of the Portfolio had not voluntarily waived a portion of
their fees for the periods indicated and the expenses were not reduced for fees
paid indirectly for the years after August 31, 1995, the ratios would have been
as follows:

RATIOS:
Expenses to average net assets ................... 0.24% 0.25% 0.25% 0.26% 0.25% 0.25%
Net investment income to average net assets ...... 5.01% 5.05% 5.21% 3.30% 2.91% 3.58%
</TABLE>

+ Annualized.

See notes to financial statements

<PAGE>

(1) SIGNIFICANT ACCOUNTING POLICIES
U.S. Treasury Reserves Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, 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 and Citibank,
N.A. ("Citibank") acts as the Investment Adviser.

The significant accounting policies consistently followed by the Portfolio 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. INVESTMENT INCOME AND EXPENSES -- Investment 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 Portfolio's custodian bank calculates its fees
based on the Portfolio'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 Portfolio. 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 FEES AND ADMINISTRATIVE FEES
A. INVESTMENT ADVISORY FEE -- The Investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to $1,279,172,
of which $784,833 was voluntarily waived for the year ended August 31, 1997. The
investment advisory fee is computed at an annual rate of 0.15% of the
Portfolio's average daily net assets.

B. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative fee paid to the Administrator, as compensation for
overall administrative services and general office facilities, is accrued daily
and paid monthly at the annual rate of 0.05% of the Portfolio's average daily
net assets. The Administrative fees amounted to $426,391, all of which was
voluntarily waived for the year ended August 31, 1997. 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, maturities and sales of U.S. Treasury obligations, aggregated
$13,100,873,271 and $12,945,786,852, respectively, for the year ended August 31,
1997.

(4) 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 $60 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 $15 million committed portion of the line of credit requires a
quarterly payment of a commitment fee based on the average daily unused portion
of the line of credit. For the year ended August 31, 1997, the commitment fee
allocated to the Portfolio was $3,796. Since the line of credit was established,
there have been no borrowings.

<PAGE>

TO THE TRUSTEES AND INVESTORS OF U.S. TREASURY RESERVES PORTFOLIO:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of U.S. Treasury Reserves Portfolio (a
New York Trust) as of August 31, 1997, the related statement of operations for
the year then ended, the statement of changes in net assets for the years ended
August 31, 1997 and 1996, and the financial highlights for each of the years in
the four-year period ended August 31, 1997, the eight months ended August 31,
1993, and the year ended December 31, 1992. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on the 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, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of U.S. Treasury
Reserves Portfolio at August 31, 1997, 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 6, 1997

<PAGE>

- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
- --------------------------------------------------------------------------------

FOR RETAIL BANKING AND BUSINESS
AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
(212) 820-2383 or (800) 846-5300

FOR CITIGOLD CUSTOMERS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or, in NY or CT (800) 285-1701,
or for all other states, (800) 285-1707

FOR CITIBANK PRIVATE BANKING CLIENTS:
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Investment Specialist or (212) 559-5959

FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117

FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100

FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200,
(212) 820-2380 in New York City

<PAGE>
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LANDMARK
FUNDS

MONEY MARKET FUNDS:
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Institutional Liquid Reserves

U.S. Treasury Reserves
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Tax Free Reserves
Institutional Tax Free Reserves

California Tax Free Reserves
Connecticut Tax Free Reserves
New York Tax Free Reserves

STOCK & BOND FUNDS:
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Balanced Fund
Equity Fund
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