ANNUAL REPORT O AUGUST 31, 1999
CITIFUNDS SM
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CASH RESERVES
MONEY MARKETS
INVESTMENT PRODUCTS:
NOT FDIC INSURED O NO BANK GUARANTEE O MAY LOSE VALUE
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Fund Performance 4
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CITIFUNDS CASH RESERVES
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Statement of Assets and Liabilities 5
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Statement of Operations 5
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Statement of Changes in Net Assets 6
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Financial Highlights 7
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Notes to Financial Statements 9
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Independent Auditors' Report 12
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CASH RESERVES PORTFOLIO
Portfolio of Investments 13
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Statement of Assets and Liabilities 16
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Statement of Operations 16
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Statement of Changes in Net Assets 17
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Financial Highlights 17
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Notes to Financial Statements 18
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Independent Auditors' Report 20
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
Despite the volatility of the financial markets over the past twelve months,
money market securities once again provided competitive returns for shareholders
seeking income with capital preservation. Economic conditions during the
reporting period were generally characterized by strong growth coupled with low
inflation. However, many forward-looking investors were alternately concerned
over the past year that the economy might either be deteriorating or growing too
quickly. Those investors who sought the safety of money market funds were
largely unaffected by the volatility of the stock and bond markets caused by
changing market conditions and shifting investor views.
In this environment, the CitiFunds' investment adviser, Citibank, N.A.,
continued to manage CitiFundssm Cash Reserves with the goal of achieving its
investment objectives: providing liquidity and as high a level of current income
as is consistent with preservation of capital.
This report reviews the Fund's investment activities and performance during
the twelve months ended August 31, 1999, and provides a summary of Citibank's
perspective on and outlook for the money market securities marketplace.
Thank you for your continued confidence and participation.
Sincerely,
Philip W. Coolidge
- ------------------
Philip W. Coolidge
President
September 15, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
THE PAST YEAR HAS BEEN AN EVENTFUL ONE FOR THE U.S. ECONOMY AND FINANCIAL
MARKETS. Between September 1, 1998 and August 31, 1999, the period that
coincides with CitiFundssm Cash Reserves fiscal year, the U.S. economy underwent
a full interest-rate cycle. When the reporting period began, interest rates were
declining sharply in response to the currency and credit crisis that began in
Asia, had already spread to Russia and was threatening Latin America. Many U.S.
investors were concerned that economic weakness abroad might derail the domestic
economy. In response, the Federal Reserve Board (the "Fed") and other central
banks throughout the world reduced short-term interest rates in an attempt to
stimulate global economic growth. As a result, interest rates and yields of most
money market instruments declined over the last four months of 1998.
However, the first eight months of 1999 reflected dramatically different
economic conditions. When it became apparent early in the year that the worst of
the global financial crisis was over, many investors' concerns about an economic
slowdown eased. Japan's economy began to improve, conditions in Latin America
remained relatively stable and Europe's economies rebounded more strongly than
previously expected. In fact, the U.S. economy was also stronger than most
analysts expected, and evidence quickly emerged that it might be growing at
unsustainable rates. This unexpectedly robust economic growth triggered fears
among fixed-income investors that inflation might accelerate beyond its
prevailing low levels. Tight labor markets and rising commodities prices lent
credence to this view. In response, the Fed raised short-term interest rates
twice during the summer of 1999, effectively offsetting most of the rate cuts it
had implemented last fall.
IN THIS ENVIRONMENT, MONEY MARKET YIELDS GENERALLY ROSE ALONG WITH INTEREST
RATES. In addition, the differences in yields (also known as "spreads") widened
among securities with different maturities. This was due primarily to aggressive
funding strategies adopted by many corporations in anticipation of year-end
concerns over potential Y2K problems. Many corporations have decided to raise
capital now, rather than wait until November or December when investors'
concerns over possible computer-related problems might constrain liquidity in
the markets.
The Fund's management team maintained a conservative investment approach
during the reporting period. Within those parameters, the managers adopted a
relatively defensive posture during most of 1999 when interest rates were
rising. This strategy included an average weighted maturity positioned toward
the short end of its range, which enabled the managers to capture higher yields
quickly as they became available.
LATER IN THE REPORTING PERIOD, THE MANAGERS ATTEMPTED TO TAKE ADVANTAGE OF
HIGHER YIELDS AND WIDER SPREADS BY INVESTING IN HIGHLY RATED MONEY MARKET
INSTRUMENTS WITH LONGER MATURITIES. The management team found especially
attractive income opportunities in bank obligations, commercial paper backed by
credit card receivables and short-term debt instruments issued by industrial
companies and insurance companies. At the same time, the managers tried to
ensure
2
<PAGE>
sufficient liquidity for the Fund by balancing those modestly longer-term
holdings with very short-term positions in commercial paper. This "barbell
strategy"--named because of its concentrations at both ends of the money market
maturity spectrum--produced an average maturity for the Fund of between 75 and
85 days, which is toward the long end of the neutral range.
LOOKING FORWARD, WHILE IT IS POSSIBLE THAT THE FED MAY RAISE SHORT-TERM
INTEREST RATES AGAIN, THE FUND'S MANAGERS EXPECT THAT THE U.S. ECONOMY SHOULD
MODERATE. In their view, evidence of such a slowdown may become apparent toward
the end of 1999 if Y2K concerns become more pronounced. Due to the potential for
disruption in the securities markets, many investors and issuers are being
generally cautious. Many corporate issuers appear to be completing funding
activity earlier than usual, and some investors are maintaining relatively
defensive postures. In case of Y2K-related market disruptions, the Fed has
indicated that it is prepared to do what is necessary to ensure liquidity. In
the managers' opinion, additional Fed interest-rate increases are therefore
unlikely.
FUND FACTS
FUND OBJECTIVE
To provide its shareholders with liquidity and as high a level of current income
as is consistent with the preservation of capital.
INVESTMENT ADVISER, DIVIDENDS
Cash Reserves Portfolio Declared daily, paid monthly
Citibank, N.A.
COMMENCEMENT OF OPERATIONS BENCHMARKS*
August 31, 1984 o Lipper Taxable Money Market
Funds Average
o IBC Financial Data 1st Tier Taxable
NET ASSETS AS OF 8/31/99 Money Market Funds Average
Class N Shares $2,586.4 million
Class A Shares $8.3 million
Class B Shares $159,744
* The Lipper Funds Average and IBC Funds Average reflect the performance
(excluding sales charges) of mutual funds with similar objectives.
3
<PAGE>
CITIFUNDS CASH RESERVES
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
ONE FIVE TEN JANUARY 4, 1999
ALL PERIODS ENDED AUGUST 31, 1999 YEAR YEARS* YEARS* (INCEPTION)**
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<S> <C> <C> <C> <C>
CitiFunds Cash Reserves (Class N) 4.63% 5.06% 5.00% --
CitiFunds Cash Reserves (Class A) -- -- -- 2.89%
CitiFunds Cash Reserves (Class B) -- -- -- 2.41%
Lipper Taxable Money Market Funds Average 4.43% 4.93% 4.91% --
</TABLE>
* Average Annual Total Return
** Not Annualized
7-DAY YIELDS
Annualized Current 4.69%
Effective 4.80%
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.
Note: A money market fund's yield more closely reflects the current earnings of
the fund than does the total return.
IMPORTANT TAX INFORMATION--For the fiscal year ended August 31, 1999, Class N
paid $0.04536, Class A paid $0.02897 and Class B paid $0.02406 per share to
shareholders from net investment income. For such period 0.2% of dividends paid
were derived from interest earned from U.S. Government and U.S. Government
agency obligations.
COMPARISON OF 7-DAY YIELDS FOR CITIFUNDS CASH RESERVES (CLASS N)
VS. IBC FINANCIAL DATA 1ST TIER TAXABLE MONEY MARKET FUNDS AVERAGE
As illustrated, CitiFunds Cash Reserves generally provided a higher annualized
seven-day yield to that of a comparable IBC Financial Data Money Market Funds
Average, as published in IBC Money Fund Report(TM), for the one-year period.
<PAGE>
The following information represents the plot points of the chart.
8/25/98 4.99 4.91
5.02 4.92
4.98 4.90
5.00 4.92
4.97 4.89
4.96 4.87
4.95 4.83
10/13/98 4.80 4.76
4.70 4.71
4.70 4.64
4.72 4.67
4.65 4.62
4.66 4.62
4.52 4.55
4.60 4.56
12/8/98 4.53 4.53
4.59 4.55
4.58 4.54
4.56 4.52
4.54 4.55
4.49 4.47
4.48 4.44
1/26/99 4.39 4.37
4.44 4.34
4.40 4.31
4.40 4.28
4.40 4.34
4.41 4.27
4.37 4.25
4.37 4.24
3/23/99 4.36 4.22
4.39 4.22
4.39 4.25
4.34 4.21
4.33 4.20
4.31 4.19
4.38 4.21
4.32 4.19
5/18/99 4.35 4.18
4.32 4.18
4.35 4.22
4.30 4.21
4.43 4.22
4.34 4.22
4.40 4.26
7/6/99 4.53 4.31
4.45 4.33
4.49 4.36
4.51 4.38
4.54 4.41
4.51 4.41
4.55 4.45
4.55 4.48
8/31/99 4.69 4.55
Note: Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. 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.
4
<PAGE>
CITIFUNDS CASH RESERVES
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
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ASSETS:
Investment in Cash Reserves Portfolio, at value (Note 1A) $2,608,472,586
Receivable for shares of beneficial interest sold 149,673
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Total assets 2,608,622,259
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LIABILITIES:
Dividends payable 8,005,107
Payable for shares of beneficial interest repurchased 4,278,481
Payable to affiliate-Shareholder Servicing Agents' fees (Note 3B) 546,527
Accrued expenses and other liabilities 908,840
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Total liabilities 13,738,955
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NET ASSETS $2,594,883,304
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NET ASSETS CONSIST OF:
Paid-in capital $2,594,883,304
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CLASS N SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($2,586,388,114/2,586,388,114 shares outstanding) $1.00
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CLASS A SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($8,335,446/8,335,446 shares outstanding) $1.00
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CLASS B SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($159,744/159,744 shares outstanding) $1.00
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CITIFUNDS CASH RESERVES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
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INVESTMENT INCOME (Note 1B):
Income from Cash Reserves Portfolio $130,612,498
Allocated expenses from Cash Reserves Portfolio (2,497,417)
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$128,115,081
EXPENSES:
Administrative fees (Note 3A) 8,740,127
Shareholder Servicing Agents' fees Class N (Note 3B) 6,231,978
Shareholder Servicing Agents' fees Class A (Note 3B) 8,629
Shareholder Servicing Agents' fees Class B (Note 3B) 109
Distribution fees Class N (Note 4) 2,497,179
Distribution fees Class A (Note 4) 6,903
Distribution/Service fees Class B (Note 4) 327
Registration fees 105,949
Shareholder reports 57,118
Trustees' fees 37,045
Custody and fund accounting fees 29,110
Legal fees 23,437
Audit fees 15,892
Transfer agent fees 12,052
Other 42,783
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Total expenses 17,808,638
Less aggregate amount waived by Administrator
and Distributor (Notes 3A and 4) (2,812,756)
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Net expenses 14,995,882
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Net investment income $113,119,199
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See notes to financial statements
5
<PAGE>
CITIFUNDS CASH RESERVES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
---------------------------
1999 1998
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FROM INVESTMENT ACTIVITIES:
Net investment income, declared as dividends
to shareholders (Note 2):
Class N shares $ 112,961,346 $ 101,618,405
Class A shares 156,220 --
Class B shares 1,633 --
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113,119,199 101,618,405
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT
NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
CLASS N
Proceeds from sale of shares 1,886,643,101 2,136,332,396
Net asset value of shares issued to shareholders
from reinvestment of dividends 19,740,194 19,303,676
Cost of shares repurchased (1,518,438,323)(1,784,373,626)
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Total Class N 387,944,972 371,262,446
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT
NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
CLASS A*
Proceeds from sale of shares 31,613,958 --
Net asset value of shares issued to shareholders
from reinvestment of dividends 155,314 --
Cost of shares repurchased (23,433,826) --
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Total Class A 8,335,446 --
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT
NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
CLASS B*
Proceeds from sale of shares 264,341 --
Net asset value of shares issued to shareholders
from reinvestment of dividends 1,552 --
Cost of shares repurchased (106,149) --
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Total Class B 159,744 --
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NET INCREASE IN NET ASSETS 396,440,162 371,262,446
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NET ASSETS:
Beginning of period 2,198,443,142 1,827,180,696
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End of period $2,594,883,304$ 2,198,443,142
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* January 4, 1999 (Commencement of Operations) to August 31, 1999.
See notes to financial statements
6
<PAGE>
CITIFUNDS CASH RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS N
--------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------
1999 1998 1997 1996 1995
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<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 0.04536 0.05050 0.04940 0.05039 0.05174
Less dividends from net
investment income (0.04536) (0.05050) (0.04940) (0.05039) (0.05174)
- ---------------------------------------------------------------------------------------------
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) $2,586,388 $2,198,443 $1,827,181 $1,468,177 $931,886
Ratio of expenses to average
net assets+ 0.70% 0.70% 0.70% 0.69% 0.69%
Ratio of net investment income
to average net assets+ 4.53% 5.05% 4.96% 5.02% 5.17%
Total return 4.63% 5.17% 5.05% 5.16% 5.30%
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 $0.04301 $0.04814 $0.04697 $0.04766 $0.04895
RATIOS:
Expenses to average net assets+ 0.94% 0.94% 0.95% 0.96% 0.97%
Net investment income to
average net assets+ 4.29% 4.81% 4.71% 4.75% 4.89%
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+ Includes the Fund's share of Cash Reserves Portfolio's allocated expenses.
</TABLE>
See notes to financial statements
7
<PAGE>
CITIFUNDS CASH RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-------------------------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1999
- -------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $1.00000
Net investment income 0.02897
Less dividends from net investment income (0.02897)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000
- -------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $8,335
Ratio of expenses to average net assets+ 0.70%*
Ratio of net investment income to average net assets+ 4.49%*
Total return 2.89%**
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 $0.02746
RATIOS:
Expenses to average net assets+ 0.94%*
Net investment income to average net assets+ 4.25%*
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<CAPTION>
CLASS B
----------------------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1999
- -------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $1.00000
Net investment income 0.02406
Less dividends from net investment income (0.02406)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000
- -------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $160
Ratio of expenses to average net assets+ 1.45%*
Ratio of net investment income to average net assets+ 3.71%*
Total return 2.41%**
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 $0.02258
RATIOS:
expenses to average net assets+ 1.69%*
Net investment income to average net assets+ 3.47%*
- -------------------------------------------------------------------------------------
</TABLE>
+ Includes the Fund's share of Cash Reserves Portfolio's allocated expenses.
* Annualized
** Not Annualized
See notes to financial statements
8
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Cash Reserves (the "Fund") is a
separate diversified series of CitiFunds Trust 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 value of such investment reflects
the Fund's proportionate interest (17.5% at August 31, 1999) in the net assets
of the Portfolio. CFBDS, Inc. ("CFBDS"), 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 Fund offers Class N, Class A and Class B shares. The Fund commenced its
public offering of Class A and Class B shares on January 4, 1999. Each class has
different eligibility requirements and its own combination of charges and fees.
Class N, which has no sales charge, is the share class generally available for
new investments. Class A and Class B shares are available only by exchange from
Class A or Class B shares or other Funds in the CitiFunds Family of Funds.
Expenses of the Fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro-rata share of the assets of the Fund, if the Fund were
liquidated. Class N and Class A shares have lower expenses than Class B shares.
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 preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are 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.
9
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS (Continued)
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders all of its taxable income. 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 CFBDS. 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 4:00
p.m. 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 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. For the year ended
August 31, 1999, management agreed to voluntarily limit Fund expenses to 0.70%
for Class N and Class A and 1.45% for Class B.
A. ADMINISTRATIVE FEES Under the terms of an Administrative Services
Agreement, CFBDS 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 $8,740,127 of which
$805,037 was voluntarily waived, for the year ended August 31, 1999. Citibank
acts as Sub-Administrator and performs certain duties and receives such
compensation from CFBDS as from time to time is agreed to by CFBDS and Citibank.
Citibank is a wholly-owned subsidiary of Citicorp, which in turn is a
wholly-owned subsidiary of Citigroup
10
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS
Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc. which was completed on October 8, 1998.
The 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 each Fund's classes of shares
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 $6,231,978,
$8,629 and $109 for Class N, Class A and Class B shares, respectively, of which
$109 was voluntarily waived for Class B for the year ended August 31, 1999.
4. DISTRIBUTION FEES/SERVICE FEES The Fund has adopted a Plan of Distribution
for Class N and Class A and a Distribution/Service fee for Class B 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%, 0.20%
and 0.75% of the Fund's Class N, Class A and Class B shares, respectively
average daily net assets. The Distribution fees for Class N amounted to
$2,497,179 of which $2,000,707 was voluntarily waived, for Class A $6,903, all
of which was voluntarily waived and Class B$327 for the year ended August 31,
1999. The Distributor may also receive an additional fee from Class N shares 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 additional
fee has not been assessed through August 31, 1999.
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 $1,381,305,797 and $1,107,768,730, respectively, for
the year ended August 31, 1999.
11
<PAGE>
CITIFUNDS CASH RESERVES
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES OF CITIFUNDS TRUST III(THE TRUST) AND THE SHAREHOLDERS OF
CITIFUNDS 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
CitiFunds Cash Reserves (the "Fund"), a series of CitiFunds Trust III, at August
31, 1999 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, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 6, 1999
12
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------
ASSET BACKED -- 9.1%
- ----------------------------------------------------
Lincs-Ser *
5.32% due 2/15/00 $ 87,500 $ 87,500,000
5.29% due 4/15/00 100,000 100,000,000
Restructured Asset
Securities *
5.20% due 6/02/00 250,000 250,000,000
SMM Trust *
5.368% due 1/26/00 100,000 100,000,000
Steers *
5.269% due 11/10/99 201,000 201,000,000
Strategic Money Market
Trust Receipts *
5.24% due 12/15/99 200,000 200,000,000
5.20% due 3/15/00 240,000 240,000,000
Strats Trust *
5.38% due 8/18/00 100,000 100,000,000
Triangle Funding Ltd. *
5.35% due 10/15/99 82,000 82,000,000
--------------
1,360,500,000
--------------
BANK NOTES -- 13.2%
- ----------------------------------------------------
Bank of America
5.50% due 2/25/00 400,000 400,000,000
5.84% due 3/17/00 100,000 100,000,000
FCC National Bank
4.90% due 12/16/99 185,000 184,974,065
5.84% due 2/25/00 100,000 100,000,000
5.85% due 3/20/00 164,000 164,000,000
First National Bank
5.83% due 2/22/00 100,000 100,000,000
First USA Bank
5.93% due 8/29/00 100,000 99,961,992
Key Bank National
Association *
5.475% due 9/23/99 350,000 349,989,452
Morgan Guaranty
Trust Co. *
5.40% due 5/10/00 210,000 209,943,306
Nationsbank
5.00% due 11/19/99 160,000 160,000,000
Westpac Banking Corp.
5.20% due 5/11/00 100,000 99,959,974
--------------
1,968,828,789
--------------
CERTIFICATES OF DEPOSIT
(DOMESTIC) -- 2.8%
- ----------------------------------------------------
Bankers Trust Co. *
5.57% due 5/15/00 200,000 199,938,194
Morgan Guaranty
Trust Co.
4.90% due 10/15/99 85,000 84,990,073
4.63% due 10/22/99 65,000 64,963,673
4.99% due 12/10/99 62,000 62,000,000
--------------
411,891,940
--------------
CERTIFICATES OF DEPOSIT (EURO) -- 4.2%
- ----------------------------------------------------
Barclays Bank
5.25% due 11/02/99 100,000 100,000,000
Bayerische Vereinsbank
4.99% due 11/10/99 171,000 171,006,408
5.02% due 11/23/99 100,000 100,002,066
Credit Agricole Indosuez
4.96% due 9/27/99 75,000 75,000,528
Dresdner Bank
5.26% due 11/02/99 100,000 100,000,000
Halifax
5.14% due 12/06/99 55,000 55,015,560
International Nederlanden
Group
4.97% due 9/27/99 25,000 25,000,176
--------------
626,024,738
--------------
CERTIFICATES OF DEPOSIT (YANKEE) -- 27.8%
- ----------------------------------------------------
Abbey National Treasury
Services *
5.495% due 5/01/00 350,000 349,849,366
Algemene Bank
5.50% due 9/02/99 70,000 70,000,912
Bank Austria
5.15% due 5/04/00 100,000 99,987,016
5.20% due 5/10/00 35,000 34,983,722
5.95% due 8/21/00 100,000 99,953,544
Bank of Montreal
5.59% due 2/04/00 400,000 400,000,000
5.11% due 4/10/00 100,000 99,970,712
Bank of Nova Scotia
5.83% due 2/14/00 115,000 115,000,000
Bayerische Hypo
5.16% due 4/03/00 100,000 99,971,649
5.10% due 4/12/00 100,000 99,976,347
13
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) August 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------
Bayerische Vereinsbank
4.99% due 9/07/99 $ 70,000 $ 70,000,228
5.15% due 3/23/00 100,000 99,973,093
Commerzbank
5.22% due 5/10/00 100,000 99,966,780
5.58% due 6/19/00 160,000 159,963,173
5.77% due 7/03/00 120,000 119,961,481
Deutsche Bank
5.33% due 3/09/00 50,000 50,017,532
Deutsche Bank
5.38% due 4/26/00* 225,000 224,897,019
Deutsche Bank
5.51% due 6/08/00 96,000 95,971,628
5.71% due 7/10/00 100,000 99,967,148
5.98% due 9/05/00 100,000 99,946,907
Landesbank Hessen
Thuringen
5.12% due 4/26/00 100,000 99,962,318
Lloyds Bank
5.67% due 7/17/00 100,000 99,958,011
National Westminster
Bank
5.04% due 9/02/99 118,100 118,100,303
5.03% due 2/08/00 55,000 54,869,521
Nord Deutsche
Landesbank
5.16% due 5/17/00 100,000 99,959,009
Rabobank Nederland
5.08% due 4/12/00 100,000 99,970,431
5.52% due 6/07/00 62,000 61,809,773
Svenska Handelsbanken
5.28% due 3/03/00 120,000 120,044,931
5.23% due 5/10/00 100,000 99,973,424
5.59% due 6/19/00 50,000 49,988,493
Toronto Dominion
5.15% due 4/27/00 100,000 99,968,472
UBS AG Stamford
5.29% due 5/22/00 85,000 84,970,447
5.34% due 5/24/00 50,000 49,982,205
5.60% due 6/26/00 25,000 24,990,185
5.76% due 7/05/00 50,000 49,939,138
Westdeutsche Landesbank
5.625% due 9/01/99 100,000 100,000,000
5.125% due 9/15/99 48,000 48,002,540
4.84% due 11/05/99 116,000 115,992,017
5.47% due 2/22/00 85,000 85,000,000
--------------
4,153,839,475
--------------
COMMERCIAL PAPER -- 23.3%
- ----------------------------------------------------
Abbey National
North America
5.21% due 3/03/00 170,000 165,473,089
Associates First Capital
Corp.
5.63% due 9/01/99 200,000 200,000,000
Associates Corp. of
North America
5.63% due 9/01/99 100,000 100,000,000
Banco Santander
5.16% due 9/10/99 150,000 149,806,500
BankAmerica Corp.
4.84% due 10/06/99 50,000 49,764,722
Bank of New York
5.65% due 2/11/00 50,000 48,720,903
Caisse D'Amortissement
4.735% due 10/08/99 76,000 75,630,144
Exxon Corp.
5.62% due 9/01/00 200,000 200,000,000
Four Winds Funding Corp.
5.17% due 9/03/99 200,000 199,942,556
General Electric Capital
Corp.
4.75% due 10/04/99 125,000 124,455,729
4.75% due 10/05/99 125,000 124,439,236
5.41% due 2/10/00 190,000 185,374,450
5.41% due 2/11/00 100,000 97,550,472
J. P. Morgan & Co., Inc.
5.59% due 2/07/00 85,000 82,901,421
Morgan Stanley Dean
Witter Disc.
5.59% due 1/27/00* 200,000 200,000,000
5.62% due 2/04/00 440,000 440,000,000
Moriarty Ltd.
5.34% due 10/26/99 200,000 198,368,333
Newport Funding Corp.
5.34% due 10/22/99 139,721 138,664,011
Province de Quebec
4.80% due 12/17/99 30,000 29,572,000
Prudential Funding Corp.
5.63% due 9/01/99 200,000 200,000,000
Riverwoods Funding Corp.
5.34% due 10/26/99 98,146 97,345,292
Santander Financial
5.69% due 2/11/00 75,000 73,069,469
14
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------
Sigma Finance Corp.
5.34% due 10/26/99 $100,000 $ 99,184,167
5.26% due 11/02/99 125,000 123,867,639
5.43% due 2/01/00 80,000 78,153,800
---------------
3,482,283,933
---------------
CORPORATE NOTES -- 3.5%
- ----------------------------------------------------
Credit Suisse *
5.54% due 10/07/99 325,000 325,000,000
J. P. Morgan & Co., Inc.*
5.56% due 5/04/00 200,000 200,000,000
---------------
525,000,000
---------------
MEDIUM TERM NOTES -- 5.3%
- ----------------------------------------------------
Credit Suisse *
5.57% due 5/10/00 200,000 200,000,000
Goldman Sachs Group *
5.39% due 1/31/00 335,500 335,500,000
Sigma Finance Corp.
5.125% due 2/09/00 250,000 250,000,000
---------------
785,500,000
---------------
TIME DEPOSITS -- 7.6%
- ----------------------------------------------------
Barclays Bank
5.63% due 9/01/99 143,452 143,452,000
Landesbank Hessen
Thuringen
5.66% due 9/01/99 182,500 182,500,000
Rabobank Nederland
5.63% due 9/01/99 100,000 100,000,000
Societe Generale
5.56% due 9/01/99 160,578 160,578,000
Suntrust
5.63% due 9/01/99 400,000 400,000,000
Svenska Grand Cayman
5.63% due 9/01/99 150,000 150,000,000
---------------
1,136,530,000
---------------
UNITED STATES GOVERNMENT AGENCY -- 2.8%
- ----------------------------------------------------
Federal Home Loan Bank
Consumer Discount
Notes
5.39% due 7/28/00 100,000 95,044,194
Federal Home Loan
Mortgage Discount
Notes
5.21% due 3/09/00 48,062 46,740,429
5.16% due 6/13/00 50,000 47,950,333
5.22% due 6/15/00 135,000 129,362,400
Federal National Mortgage
Association
4.86% due 2/10/00 100,000 99,963,605
---------------
419,060,961
---------------
UNITED STATES TREASURY BILLS -- 0.3%
- ----------------------------------------------------
United States Treasury Bills
4.135% due 10/14/99 25,000 24,876,524
4.175% due 12/09/99 15,000 14,827,781
---------------
39,704,305
---------------
TOTAL INVESTMENTS AT VALUE
/AMORTIZED COST 99.9% 14,909,164,141
OTHER ASSETS,
LESS LIABILITIES 0.1% 20,180,507
---- ---------------
- ----------------------------------------------------
NET ASSETS 100.0% $14,929,344,648
----- ---------------
* Variable interest rate - subject to periodic change.
See notes to financial statements
15
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AUGUST 31, 1999
- -------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value (Note 1A) $14,909,164,141
Cash 1,804
Interest receivable 121,674,021
- -------------------------------------------------------------------------------------------
Total assets 15,030,839,966
- -------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 99,946,907
Payable to affiliate--Investment Advisory fee (Note 2A) 1,113,656
Accrued expenses and other liabilities 434,755
- -------------------------------------------------------------------------------------------
Total liabilities 101,495,318
- -------------------------------------------------------------------------------------------
NET ASSETS $14,929,344,648
- -------------------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $14,929,344,648
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CASH RESERVES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME (Note 1B): $640,703,011
EXPENSES:
Investment Advisory fees (Note 2A) $ 18,380,593
Administrative fees (Note 2B) 6,126,864
Custody and fund accounting fees 2,505,470
Legal fees 70,203
Trustees' fees 67,304
Audit fees 45,100
Other 153,571
- -------------------------------------------------------------------------------------------
Total expenses 27,349,105
Less aggregate amounts waived by Investment Adviser
and Administrator (Notes 2A, and 2B) (15,085,181)
Less fees paid indirectly (Note 1E) (17)
- -------------------------------------------------------------------------------------------
Net expenses 12,263,907
- -------------------------------------------------------------------------------------------
Net investment income $628,439,104
- -------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
16
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 628,439,104 $ 504,627,904
- -----------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 47,581,662,450 30,335,511,897
Value of withdrawals (42,086,666,522) (29,691,630,125)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital transactions 5,494,995,928 643,881,772
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 6,123,435,032 1,148,509,676
- -----------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 8,805,909,616 7,657,399,940
- -----------------------------------------------------------------------------------------------------------
End of period $14,929,344,648 $ 8,805,909,616
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CASH RESERVES PORTFOLIO
FINANCIAL HIGHLIGHTS
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets (000's omitted) $14,929,345 $8,805,910 $7,657,400 $4,442,187 $4,765,406
Ratio of expenses to average
net assets 0.10% 0.10% 0.10% 0.10% 0.10%
Ratio of net investment income
to average net assets 5.13% 5.65% 5.57% 5.64% 5.88%
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 0.22% 0.22% 0.23% 0.23% 0.23%
Net investment income to
average net assets 5.01% 5.53% 5.44% 5.50% 5.75%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
17
<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.
Citibank is a wholly-owned subsidiary of Citicorp, which in turn is a
wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed as a result
of the merger of Citicorp and Travelers Group, Inc. which was completed on
October 8, 1998.
The 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 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 AGREEMENT 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 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
18
<PAGE>
CASH RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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 $18,380,593
of which $8,958,317 was voluntarily waived for the year ended August 31 1999.
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 $6,126,864, all of which were voluntarily waived
for the year ended August 31, 1999. 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 $317,241,778,448 and $311,116,822,640, respectively, for
the year ended August 31, 1999.
4. LINE OF CREDIT The Portfolio, along with other CitiFunds, entered into an
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the year ended
August 31, 1999, the commitment fee allocated to the Portfolio was $32,324.
Since the line of credit was established, there have been no borrowings.
19
<PAGE>
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, 1999 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 of these financial statements in accordance with
generally accepted auditing standards. Those standards require that we plan and
perform the 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, 1999 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, 1999, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
October 6, 1999
20
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., CHAIRMAN
Philip W. Coolidge*, PRESIDENT
Walter E. Robb, III
E. Kirby Warren
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
CFBDS, Inc.
21 Milk Street, 5th Floor, Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
Thisreport is prepared for the information of shareholders of CitiFunds Cash
Reserves. It is authorized for distribution to prospective investors only when
preceded or accompanied by an effective prospectus of CitiFunds Cash Reserves.
Ask for a prospectus (except for CitiFunds Cash Reserves, which preceded or
accompanies this report) containing more complete information, including all
sales charges (if any), fees and expenses. Please read the prospectus carefully
before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service agent or call1-800-625-4554.
(C)1999 Citicorp R Printed on recycled paper CFA/RCR/899
<PAGE>
ANNUAL REPORT O AUGUST 31, 1999
CITIFUNDS SM
- --------------------
U.S. Treasury Reserves
MONEY MARKETS
INVESTMENT PRODUCTS:
NOT FDIC INSURED O NO BANK GUARANTEE O MAY LOSE VALUE
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
- -----------------------------------------------------------------------
Portfolio Environment and Outlook 2
- -----------------------------------------------------------------------
Fund Facts 3
- -----------------------------------------------------------------------
Fund Performance 4
- -----------------------------------------------------------------------
CITIFUNDS U.S. TREASURY RESERVES
Statement of Assets and Liabilities 5
- -----------------------------------------------------------------------
Statement of Operations 5
- -----------------------------------------------------------------------
Statement of Changes in Net Assets 6
- -----------------------------------------------------------------------
Financial Highlights 6
- -----------------------------------------------------------------------
Notes to Financial Statements 7
- -----------------------------------------------------------------------
Independent Auditors' Report 10
- -----------------------------------------------------------------------
U.S. TREASURY RESERVES PORTFOLIO
Portfolio of Investments 11
- -----------------------------------------------------------------------
Statement of Assets and Liabilities 12
- -----------------------------------------------------------------------
Statement of Operations 12
- -----------------------------------------------------------------------
Statement of Changes in Net Assets 13
- -----------------------------------------------------------------------
Financial Highlights 13
- -----------------------------------------------------------------------
Notes to Financial Statements 14
- -----------------------------------------------------------------------
Independent Auditors' Report 16
- -----------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
Despite the volatility of the financial markets over the past twelve months,
money market securities once again provided competitive returns for shareholders
seeking income with capital preservation. Economic conditions during the
reporting period were generally characterized by strong growth coupled with low
inflation. However, forward-looking investors were alternately concerned over
the past year that the economy might either be deteriorating or growing too
quickly. Those who sought the safety of money market funds were largely
unaffected by the volatility of the stock and bond markets caused by changing
market conditions and shifting investor views.
In this environment, the CitiFunds' investment adviser, Citibank, N.A.,
continued to manage CitiFundsSM U.S. Treasury Reserves with the goal of
achieving its investment objectives: providing liquidity and as high a level of
current income from U.S. government obligations as is consistent with
preservation of capital.
This report reviews the Fund's investment activities and performance during
the twelve months ended August 31, 1999, and provides a summary of Citibank's
perspective on and outlook for the money market securities marketplace.
Thank you for your continued confidence and participation.
Sincerely,
Philip W. Coolidge
- ------------------
Philip W. Coolidge
President
September 15, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
THE PAST YEAR HAS BEEN AN EVENTFUL ONE FOR THE U.S. ECONOMY AND FINANCIAL
MARKETS. Between September 1, 1998 and August 31, 1999, a period that coincides
with CitiFundsSM U.S. Treasury Reserves' fiscal year, the U.S. economy underwent
a full interest-rate cycle. When the reporting period began, interest rates were
declining sharply in response to the currency and credit crisis that began in
Asia, had already spread to Russia and was threatening Latin America. Many U.S.
investors were concerned that economic weakness abroad might derail the domestic
economy. In response, the Federal Reserve Board (the "Fed") and other central
banks throughout the world reduced short-term interest rates in an attempt to
stimulate global economic growth. As a result, interest rates and yields of most
money market instruments declined over the last four months of 1998.
However, the first eight months of 1999 reflected dramatically different
economic conditions. When it became apparent early in the year that the worst of
the global financial crisis was over, many investors' concerns about an economic
slow-down eased. In fact, the U.S. economy was actually stronger than most
investment professionals expected, and evidence quickly emerged that it might be
growing at unsustainable rates. This unexpectedly robust growth triggered fears
among fixed-income investors that inflation might accelerate from its prevailing
low levels. Tight labor markets and rising commodities prices lent credence to
this view. In response, the Fed raised short-term interest rates twice during
the summer of 1999, effectively offsetting most of the rate cuts it had
implemented last fall.
IN THIS ENVIRONMENT, MOST MONEY MARKET YIELDS GENERALLY ROSE ALONG WITH
INTEREST RATES. However, yields of U.S. Treasury bills did not rise to the same
extent as other types of money market instruments primarily because of the
federal budget surplus which has reduced the federal government's need to borrow
to cover short-term operating deficits. Yet, demand for U.S. Treasury bills
remains very strong from investors seeking highly creditworthy investments in an
uncertain market environment.
The Fund's managers maintained the conservative investment approach that has
long characterized the management of this Fund. For example, the managers
adopted a relatively defensive posture during most of 1999 when interest rates
were rising. This posture included an weighted average maturity positioned
toward the short end of its range, which enabled the managers to capture higher
yields quickly as they became available. Later in the reporting period, the
managers attempted to take advantage of higher yields and wider spreads by
reinvesting proceeds from maturing Treasury bills into higher yielding bills and
notes with longer maturities. The management team found especially attractive
income opportunities in Cash Management Bills, which are securities issued by
the U.S. Treasury in anticipation of tax revenues. This strategy produced an
average weighted maturity for the Fund of between 55 and 60 days, which is
toward the long end of the neutral range.
2
<PAGE>
LOOKING FORWARD, WHILE IT IS POSSIBLE THAT THE FED MAY RAISE SHORT-TERM
INTEREST RATES FURTHER, THE MANAGEMENT TEAM EXPECTS THE U.S. ECONOMY SHOULD
MODERATE. In our view, evidence of such a slow-down may become apparent toward
the end of 1999 if Y2K concerns become more pronounced. Due to the potential for
disruption in the securities markets, many investors and issuers are being
generally cautious. Many corporate issuers appear to be completing funding
activity earlier than usual, and some investors are maintaining relatively
defensive postures. In case of Y2K-related market disruptions, the Fed has
indicated that it is prepared to do what is necessary to ensure liquidity. In
our opinion, further Fed interest-rate increases are therefore unlikely.
FUND FACTS
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.
INVESTMENT ADVISER, DIVIDENDS
U.S. TREASURY RESERVES PORTFOLIO Declared daily, paid monthly
Citibank, N.A.
COMMENCEMENT OF OPERATIONS BENCHMARK*
May 3, 1991 *Lipper S&P AAA rated U.S.
Treasury Money Market
NET ASSETS AS OF 8/31/99 Funds Average
$343.5 million
* The Lipper Funds Average and IBC Funds Average reflect the performance
(excluding sales charges) of mutual funds with similar objectives.
3
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ONE FIVE MAY 3, 1991
ALL PERIODS ENDED AUGUST 31, 1999 YEAR YEARS* INCEPTION*
- -------------------------------------------------------------------------------
CitiFunds U.S. Treasury Reserves 4.02% 4.57% 4.09%
Lipper S&P AAA rated U.S. Treasury
Money Market Funds Average 4.27% 4.76% 4.22%+
* Average Annual Total Return
+ Since April 30, 1991
7-DAY YIELDS
Annualized Current 3.99%
Effective 4.07%
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.
Note: A money market fund's yield more closely reflects the current earnings of
the fund than does the total return.
IMPORTANT TAX INFORMATION--For the fiscal year ended August 31, 1999 the Fund
paid $0.03947 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.
Note: Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. 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.
4
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investment in U.S. Treasury Reserves Portfolio, at value (Note 1) $345,066,191
Receivable for shares of beneficial interest sold 19,814
- ---------------------------------------------------------------------------------------------
Total Assets 345,086,005
- ---------------------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 696,227
Payable for shares of beneficial interest repurchased 679,565
Payable to affiliate Shareholder servicing agents' fees (Note 3B) 75,856
Accrued expenses and other liabilities 138,765
- ---------------------------------------------------------------------------------------------
Total liabilities 1,590,413
- ---------------------------------------------------------------------------------------------
NET ASSETS for 343,495,592 shares of beneficial interest outstanding $343,495,592
- ---------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $343,495,592
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE $1.00
- ---------------------------------------------------------------------------------------------
CITIFUNDS U.S. TREASURY RESERVES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<CAPTION>
- ---------------------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1A):
Income from U.S. Treasury Reserves Portfolio $15,217,275
Allocated expenses from U.S. Treasury Reserves Portfolio (327,935)
- ---------------------------------------------------------------------------------------------
$14,889,340
EXPENSES:
Administrative fees (Note 3A) 1,143,209
Shareholder Servicing Agents' fees (Note 3B) 816,578
Distribution fees (Note 4) 326,631
Shareholder reports 32,244
Custody and fund accounting fees 18,450
Legal fees 13,559
Audit fees 12,363
Transfer agent fees 12,000
Trustees' fees 8,041
Registration fees 6,605
Miscellaneous 19,053
- ---------------------------------------------------------------------------------------------
Total expenses 2,408,733
Less aggregate amounts waived by Administrator and Distributor
(Notes 3A and 4) (450,508)
- ---------------------------------------------------------------------------------------------
Net expenses 1,958,225
- ---------------------------------------------------------------------------------------------
Net investment income $12,931,115
- ---------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
5
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income, declared as dividends
to shareholders (Note 2) $ 12,931,115 $ 14,529,497
- --------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
AT NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
Proceeds from sale of shares 914,468,035 922,659,629
Net asset value of shares issued to shareholders
from reinvestment of dividends 5,724,238 7,216,677
Cost of shares repurchased (896,627,173) (970,663,177)
- --------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 23,565,100 (40,786,871)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 319,930,492 360,717,363
- --------------------------------------------------------------------------------------------
End of period $343,495,592 $319,930,492
- --------------------------------------------------------------------------------------------
CITIFUNDS U.S. TREASURY RESERVES
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED AUGUST 31,
- --------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<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 0.03947 0.04552 0.04547 0.04602 0.04751
Less dividends from net
investment income (0.03947) (0.04552) (0.04547) (0.04602) (0.04751)
- --------------------------------------------------------------------------------------------
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) $343,496 $319,930 $360,717 $317,996 $256,452
Ratio of expenses to
average net assets+ 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income
to average net assets+ 3.96% 4.55% 4.57% 4.61% 4.77%
Total return 4.02% 4.65% 4.64% 4.70% 4.86%
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 $0.03678 $0.04292 $0.04278 $0.04313 $0.04452
RATIOS:
Expenses to average net assets+ 0.97% 0.96% 0.97% 1.00% 1.00%
Net investment income to
average net assets+ 3.69% 4.29% 4.30% 4.32% 4.47%
- ---------------------------------------------------------------------------------------------
+ Includes the Fund's share of U.S. Treasury Reserves Portfolio's allocated expenses.
</TABLE>
See notes to financial statements
6
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds U.S. Treasury Reserves (the "Fund")
is a separate diversified series of CitiFunds Trust 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"), an open-end, diversified management investment
company which Citibank, N.A. ("Citibank") serves as Investment Adviser. The
value of such investment reflects the Fund's proportionate interest (29.0% at
August 31, 1999) in the net assets of the Portfolio. CFBDS, Inc. ("CFBDS") acts
as the Trust's Administrator and Distributor. Citibank also serves as
Sub-Administrator and makes shares available to customers through various
Shareholder Servicing Agents. Citibank is a wholly-owned subsidiary of Citicorp,
which in turn is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The 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 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 CFBDS. 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.
7
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
NOTES TO FINANCIAL STATEMENTS (Continued)
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. For the year ended
August 31, 1999, management agreed to voluntarily limit Fund expenses to 0.70%.
A. ADMINISTRATIVE FEES Under the terms of an Administrative Services
Agreement, CFBDS is entitled to an administrative fee from the Fund, as
compensation for overall administrative services and general office facilities,
which is accrued daily and monthly at an annual rate of 0.35% of average daily
net assets of the Fund. The Administrative fees amounted to $1,143,209, of which
$300,489 was voluntarily waived for the year ended August 31, 1999. Citibank
acts as Sub-Administrator and performs such duties and receives such
compensation from CFBDS as from time to time is agreed to by CFBDS 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 $816,578 for the year ended August 31, 1999.
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 of 0.10% of the Fund's
average daily net assets. The Distribution fees amounted to $326,631, of which
$150,019 was voluntarily waived for the year ended August 31, 1999. 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 additional fee has not been
assessed through August 31, 1999.
8
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
NOTES TO FINANCIAL STATEMENTS
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 $1,285,455,881 and $1,276,515,600, respectively, for
the year ended August 31, 1999.
9
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
CITIFUNDS U.S. TREASURY RESERVES:
We have audited the accompanying statement of assets and liabilities of
CitiFunds U.S. Treasury Reserves, a separate series of CitiFunds Trust III (the
"Trust") (a Massachusetts business trust), as of August 31, 1999, the related
statement of operations for the year then ended, the statement of changes in net
assets for the years ended August 31, 1999 and 1998, and the financial
highlights for each of the years in the five-year period ended August 31, 1999.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CitiFunds U.S.
Treasury Reserves at August 31, 1999, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 4, 1999
10
<PAGE>
U.S. TREASURY RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ---------------------------------------------------
U.S. TREASURY BILLS--99.8%
- ---------------------------------------------------
United States Treasury Bill,
due 9/09/99 $100,271 $ 100,170,432
United States Treasury Bill,
due 9/15/99 62,671 62,544,593
United States Treasury Bill,
due 9/23/99 55,000 54,845,908
United States Treasury Bill,
due 9/30/99 260,917 259,960,007
United States Treasury Bill,
due 10/07/99 174,198 173,418,481
United States Treasury Bill,
due 10/14/99 81,549 81,106,899
United States Treasury Bill,
due 10/28/99 138,008 137,001,768
United States Treasury Bill,
due 11/18/99 76,191 75,417,789
United States Treasury Bill,
due 1/06/00 82,187 80,845,023
United States Treasury Bill,
due 1/27/00 164,768 161,510,570
--------------
TOTAL INVESTMENTS,
AT AMORTIZED COST 99.8% 1,186,821,470
OTHER ASSETS,
LESS LIABILITIES 0.2 1,805,041
--------------
NET ASSETS 100.0% $1,188,626,511
--------------
See notes to financial statements
11
<PAGE>
U.S. TREASURY RESERVES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AUGUST 31, 1999
- --------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at amortized cost (Note 1A) $1,186,821,470
Cash 1,153,532
Receivable for investments sold 49,861,889
- --------------------------------------------------------------------------------------------
Total assets 1,237,836,891
- --------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 49,072,323
Payable to affiliate - Investment advisory fees (Note 2A) 79,609
Accrued expenses and other liabilities 58,448
- --------------------------------------------------------------------------------------------
Total liabilities 49,210,380
- --------------------------------------------------------------------------------------------
NET ASSETS $1,188,626,511
- --------------------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $1,188,626,511
- --------------------------------------------------------------------------------------------
U.S. TREASURY RESERVES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
- --------------------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1B) $41,286,380
EXPENSES:
Investment Advisory fees (Note 2A) $1,331,983
Administrative fees (Note 2B) 443,994
Custody and fund accounting fees 200,205
Audit fees 19,200
Trustees' fees 12,721
Legal fees 9,710
Miscellaneous 31,445
- --------------------------------------------------------------------------------------------
Total expenses 2,049,258
Less aggregate amounts waived by Investment Adviser
and Administrator (Notes 2A and 2B) (1,161,259)
Less fees paid indirectly (Note 1D) (107)
- --------------------------------------------------------------------------------------------
Net expenses 887,892
- --------------------------------------------------------------------------------------------
Net investment income $40,398,488
- --------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
12
<PAGE>
U.S. TREASURY RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 40,398,488 $ 44,213,443
- --------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 3,426,724,559 1,935,301,975
Value of withdrawals (3,190,341,131) (1,975,581,019)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions 236,383,428 (40,279,044)
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 276,781,916 3,934,399
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 911,844,595 907,910,196
- --------------------------------------------------------------------------------------------
End of period $1,188,626,511 $ 911,844,595
- --------------------------------------------------------------------------------------------
</TABLE>
U.S. TREASURY RESERVES PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $1,188,627 $911,845 $907,910 $767,804 $832,258
Ratio of expenses to
average net assets 0.10% 0.10% 0.10% 0.10% 0.10%
Ratio of net investment income
to average net assets 4.55% 5.14% 5.15% 5.20% 5.36%
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 0.23% 0.23% 0.24% 0.25% 0.25%
Net investment income to
average net assets 4.42% 5.01% 5.01% 5.05% 5.21%
- --------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
13
<PAGE>
U.S. TREASURY RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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.
CFBDS, Inc ("CFBDS"), acts as the Portfolio's Administrator. Citibank N.A.
("Citibank") acts as the Investment Adviser. Citibank is a wholly-owned
subsidiary of Citicorp, which in turn is a wholly-owned subsidiary of Citigroup
Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc. which was completed on October 8, 1998.
The 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 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 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 $1,331,983
of which $717,265 was voluntarily waived for the year ended August 31, 1999. The
investment advisory fee is computed at an annual rate of 0.15% of the
Portfolio's average daily net assets.
14
<PAGE>
U.S. TREASURY RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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 $443,994, all of which was
voluntarily waived for the year ended August 31, 1999. 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 $6,789,307,983 and $6,546,755,122, respectively, for the
year ended August 31, 1999.
4. LINE OF CREDIT The Portfolio, along with other CitiFunds, entered into an
agreement with a bank which allows the Funds collectively to borrow up to $75
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the year ended
August 31, 1999, the commitment fee allocated to the Portfolio was $2,305. Since
the line of credit was established, there have been no borrowings.
15
<PAGE>
U.S. TREASURY RESERVES PORTFOLIO
INDEPENDENT AUDITORS' REPORT
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, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the years ended
August 31, 1999 and 1998, and the financial highlights for each of the years in
the five-year period ended August 31, 1999. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
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, 1999, 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 U.S. Treasury
Reserves Portfolio at August 31, 1999, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 4, 1999
16
<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
CFBDS, Inc.
21 Milk Street, 5th Floor, Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds U.S.
Treasury Reserves. It is authorized for distribution to prospective investors
only when preceded or accompanied by an effective prospectus of CitiFunds U.S.
Treasury Reserves.
Ask for a prospectus (except for CitiFunds U.S. Treasury Reserves, which
preceded or accompanies this report) containing more complete information,
including all sales charges (if any), fees and expenses. Please read the
prospectus carefully before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554
(C)1999 Citicorp R Printed on recycled paper CFA/RUS/899
