SEMI-ANNUAL REPORT o FEBRUARY 28, 1999
CITIFUNDS(SM)
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CASH RESERVES
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
MONEY MARKETS
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Fund Performance 4
................................................................................
CITIFUNDS CASH RESERVES
Statement of Assets and Liabilities 5
................................................................................
Statement of Operations 6
................................................................................
Statement of Changes in Net Assets 7
................................................................................
Financial Highlights 8
................................................................................
Notes to Financial Statements 10
................................................................................
CASH RESERVES PORTFOLIO
Portfolio of Investments 13
................................................................................
Statement of Assets and Liabilities 15
................................................................................
Statement of Operations 15
................................................................................
Statement of Changes in Net Assets 16
................................................................................
Financial Highlights 16
................................................................................
Notes to Financial Statements 17
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
The 6-month period ended February 28, 1999, was a good one for the U.S. economy
and short-term money market securities. Early in the period, concerns about the
potential spread of the Asian currency and credit crisis to Latin America
contributed to the Federal Reserve Board's decision to reduce key short-term
interest rates three times between September and November. While this easing of
monetary policy caused short-term money market yields to decline, very low
inflation continued to support above-average real returns, which are nominal
yields less the rate of inflation.
In contrast, longer term fixed-income securities did not fare as well as
money market securities. That's because longer term yields rose in response to
reports of robust U.S. economic growth in the fourth quarter of 1998 and the
first two months of 1999. When yields of longer term securities rise, their
prices decline. Accordingly, money market funds such as CitiFunds Cash Reserves
generally performed better than longer term bond funds over the six-month
period.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- ---------------------------
Philip W. Coolidge
President
March 22, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
LOW INFLATION IN THE U.S. AND RECESSIONARY CONDITIONS IN SOME OVERSEAS ECONOMIES
CONTRIBUTED TO LOWER YIELDS on taxable money market securities. The financial
crisis that began in Southeast Asia in mid-1997 spread to other emerging markets
during the third quarter of 1998. Russia was forced by the credit crunch to
devalue its currency and effectively defaulted on its government bonds.
Similarly, the flight of foreign capital from Latin America adversely affected
Brazil, which devalued its currency in January, 1999.
Why did events overseas affect the U.S. money markets? A major reason is
that the U.S. Federal Reserve Board became concerned that the problems in Asia
and Latin America might curtail exports of U.S. companies, which could, in turn,
dampen domestic economic growth. To help stop the further spread of the Asian
crisis and promote continued U.S. economic growth, the Federal Reserve Board
reduced key short-term interest rates in three steps between September and
November.
In anticipation of the Federal Reserve Board's action, WE BEGAN THE
REPORTING PERIOD WITH THE PORTFOLIO'S AVERAGE MATURITY TOWARD THE LONG END OF
ITS RANGE. This strategy enabled us to capture higher yields for as long as
practical while short-term interest rates fell.
In addition, we primarily focused our investments on high-quality bank
obligations and commercial paper during the six-month period. That's because, in
our opinion, bank obligations and commercial paper offered more attractive
values than other short-term money market instruments. For example, the
difference in yields between bank obligations and U.S. Treasury bills was
unusually wide. That's primarily because the federal budget surplus reduced the
government's need to borrow, limiting the supply of Treasury bills available to
investors. Yet, demand for these direct obligations of the federal government
surged in the third quarter of 1998 when U.S. and foreign investors sought a
safe haven amid the turmoil in Asia, Russia and Latin America.
As our holdings matured during the period, we reinvested the proceeds in
money market instruments with modestly shorter maturities. Consequently, THE
PORTFOLIO'S AVERAGE MATURITY GRADUALLY DECLINED OVER THE SIX MONTHS, enabling us
to respond faster to opportunities for higher yields. Such opportunities arose
in February, 1999, for example, when reports of surprisingly strong U.S.
economic growth caused yields of longer term bonds to rise. In this new
environment, we modestly extended the Portfolio's average maturity to capture
the higher yields provided by longer-dated securities.
Looking forward, we expect the U.S. economic expansion to continue
throughout 1999. Yet, persistently low inflation should, in our view, prevent
the Federal Reserve Board from raising short-term interest rates in 1999 in an
attempt to forestall inflationary pressures. If our outlook is correct, money
market yields should remain relatively stable over the foreseeable future, while
longer term yields may rise moderately. We intend to continue to monitor global
economic influences carefully, with an eye toward adjusting our investment
strategy in a way that attempts to capture the opportunities and reduce the
risks of prevailing market conditions.
2
<PAGE>
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
NET ASSETS AS OF 2/28/99 o IBC 1st Tier Taxable Money Market
Class N Shares $2,538.8 million Funds Average
Class A Shares $3.1 million
Class B Shares $11.00
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
ALL PERIODS ENDED FEBRUARY 28, 1999 JANUARY 4, 1999 SIX ONE FIVE TEN
(Unaudited) (INCEPTION)** MONTHS** YEAR YEARS* YEARS*
=============================================================================================
<S> <C> <C> <C> <C> <C>
CitiFunds Cash Reserves (Class N) -- 2.33% 4.95% 4.97% 5.24%
CitiFunds Cash Reserves (Class A) 0.67% -- -- -- --
CitiFunds Cash Reserves (Class B) 0.56% -- -- -- --
Lipper Taxable Money Market Funds Average -- 2.24% 4.76% 4.84% 5.15%
</TABLE>
- ----------
* Average Annual Total Return
** Not Annualized
7-DAY YIELDS
Annualized Current 4.40%
Effective 4.50%
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.
COMPARISON OF 7-DAY YIELDS FOR CITIFUNDS CASH RESERVES (CLASS N) VS. IBC 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 Money Fund Average, as published in
IBC Money Fund ReportTM, for the one-year period.
[FIGURES BELOW REPRESENTS CHART]
<TABLE>
<CAPTION>
Taxable Money Avg. IBC 1st Tier
Date IBC 1st Tier Cash Reserves Taxable Money Avg. Cash Reserves
<S> <C> <C> <C> <C>
3/3/98 4.96% 5.07% 0.0496 0.0507
3/10/98 4.93% 5.00% 0.0493 0.05
3/17/98 4.92% 5.02% 0.0492 0.0502
3/24/98 4.92% 4.99% 0.0492 0.0499
3/31/98 4.93% 5.05% 0.0493 0.0505
4/7/98 4.92% 5.02% 0.0492 0.0502
4/14/98 4.92% 5.02% 0.0492 0.0502
4/21/98 4.92% 4.99% 0.0492 0.0499
4/28/98 4.90% 4.99% 0.049 0.0499
5/5/98 4.90% 4.97% 0.049 0.0497
5/12/98 4.90% 4.93% 0.049 0.0493
5/19/98 4.92% 5.03% 0.0492 0.0503
5/26/98 4.90% 4.98% 0.049 0.0498
6/2/98 4.92% 5.05% 0.0492 0.0505
6/9/98 4.91% 4.98% 0.0491 0.0498
6/16/98 4.92% 5.02% 0.0492 0.0502
6/23/98 4.91% 4.99% 0.0491 0.0499
6/30/98 4.94% 5.05% 0.0494 0.0505
7/7/98 4.91% 5.12% 0.0491 0.0512
7/14/98 4.91% 4.98% 0.0491 0.0498
7/21/98 4.91% 5.00% 0.0491 0.05
7/28/98 4.92% 5.00% 0.0492 0.05
8/4/98 4.92% 5.03% 0.0492 0.0503
8/11/98 4.91% 4.98% 0.0491 0.0498
8/18/98 4.92% 5.02% 0.0492 0.0502
8/25/98 4.91% 4.99% 0.0491 0.0499
9/1/98 4.92% 5.02% 0.0492 0.0502
9/8/98 4.90% 4.98% 0.049 0.0498
9/15/98 4.92% 5.00% 0.0492 0.05
9/22/98 4.89% 4.97% 0.0489 0.0497
9/29/98 4.87% 4.96% 0.0487 0.0496
10/6/98 4.83% 4.95% 0.0483 0.0495
10/13/98 4.76% 4.80% 0.0476 0.048
10/20/98 4.71% 4.70% 0.0471 0.047
10/27/98 4.64% 4.70% 0.0464 0.047
11/3/98 4.67% 4.72% 0.0467 0.0472
11/10/98 4.62% 4.65% 0.0462 0.0465
11/17/98 4.62% 4.66% 0.0462 0.0466
11/24/98 4.55% 4.52% 0.0455 0.0452
12/1/98 4.56% 4.60% 0.0456 0.046
12/8/98 4.53% 4.53% 0.0453 0.0453
12/15/98 4.55% 4.59% 0.0455 0.0459
12/22/98 4.54% 4.58% 0.0454 0.0458
12/29/98 4.52% 4.56% 0.0452 0.0456
1/5/99 4.55% 4.54% 0.0455 0.0454
1/12/99 4.47% 4.49% 0.0447 0.0449
1/19/99 4.44% 4.48% 0.0444 0.0448
1/26/99 4.37% 4.39% 0.0437 0.0439
2/2/99 4.34% 4.44% 0.0434 0.0444
2/9/99 4.31% 4.40% 0.0431 0.044
2/16/99 4.28% 4.40% 0.0428 0.044
2/23/99 4.34% 4.40% 0.0434 0.044
</TABLE>
Note: Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
maintain the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund. 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
FEBRUARY 28, 1999 (Unaudited)
================================================================================
ASSETS:
Investment in Cash Reserves Portfolio, at
value (Note 1A) $2,552,175,683
Receivable for shares of beneficial interest sold 115,732
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Total assets 2,552,291,415
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LIABILITIES:
Dividends payable 7,091,837
Payable to affiliate-Shareholder Servicing Agents'
fees (Note 3B) 486,128
Payable for shares of beneficial interest repurchased 1,986,218
Accrued expenses and other liabilities 804,469
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Total liabilities 10,368,652
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NET ASSETS $2,541,922,763
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $2,541,922,763
================================================================================
Class N Shares:
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($2,538,797,447/2,538,797,447 shares outstanding) $1.00
================================================================================
Class A Shares:
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($3,125,305,/3,125,305 shares outstanding) $1.00
================================================================================
Class B Shares:
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($11/11 shares outstanding) $1.00
================================================================================
See notes to financial statements
5
<PAGE>
CITIFUNDS CASH RESERVES
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Income from Cash Reserves Portfolio $63,496,866
Allocated expenses from Cash
Reserves Portfolio (1,187,055)
- --------------------------------------------------------------------------------
$62,309,811
EXPENSES:
Administrative fees (Note 3A) 4,151,271
Shareholder Servicing Agents' fees
Class N Shares (Note 3B) 2,964,477
Shareholder Servicing Agents' fees
Class A Shares (Note 3B) 716
Shareholder Servicing Agents' fees
Class B shares (Note 3B) 1
Distribution fees
Class N Shares (Note 4) 1,186,077
Distribution fees
Class A Shares (Note 4) 287
Distribution fees
Class B shares(Note 4) 1
Trustees' fees 27,733
Shareholder reports 23,686
Custody and fund accounting fees 8,172
Legal fees 7,338
Audit fees 6,800
Transfer agent fees 4,054
Miscellaneous 104,826
- --------------------------------------------------------------------------------
Total expenses 8,485,439
Less aggregate amount waived by Administrator
and Distributor (Note 3A and 4) (1,359,914)
- --------------------------------------------------------------------------------
Net expenses 7,125,525
- --------------------------------------------------------------------------------
Net investment income $55,184,286
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS CASH RESERVES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
=========================================================================================
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income, declared as dividends
to shareholders (Note 2):
Class N shares $ 55,170,844 $ 101,618,405
Class A shares 13,441 --
Class B shares 1 --
- -----------------------------------------------------------------------------------------
$ 55,184,286 $ 10,618,405
=========================================================================================
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
AT NET ASSET VALUE OF $1.00 PER SHARE (Note 5):
Proceeds from sale of shares $ 917,760,893 $ 2,136,332,396
Net asset value of shares issued to
shareholders from reinvestment of dividends 9,868,244 19,303,676
Cost of shares repurchased (587,274,832) (1,784,373,626)
- -----------------------------------------------------------------------------------------
Total Class N 340,354,305 371,262,446
- -----------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST AT NET
ASSET VALUE OF $1.00 PER SHARE (Note 5):
Proceeds from sale of shares 4,166,360 --
Net asset value of shares issued to shareholders
from reinvestment of dividends 13,416 --
Cost of shares repurchased (1,054,471) --
- -----------------------------------------------------------------------------------------
Total Class A 3,125,305 --
- -----------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST AT NET ASSET VALUE OF $1.00 PER SHARE
(Note 5):
Proceeds from sale of shares 11 --
Net asset value of shares issued to shareholders
from reinvestment of dividends -- --
Cost of shares repurchased -- --
- -----------------------------------------------------------------------------------------
Total Class B 11 --
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 343,479,621 371,262,446
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,198,443,142 1,827,180,696
- -----------------------------------------------------------------------------------------
End of period $ 2,541,922,763 $ 2,198,443,142
=========================================================================================
</TABLE>
See notes to financial statements
7
<PAGE>
CITIFUNDS CASH RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS N
--------------------------------------------------------------------------------
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1999 ----------------------------------------------------------
(Unaudited) 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 0.02309 0.05050 0.04940 0.05039 0.05174
Less dividends from net
investment income (0.02309) (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) $2,538,797 $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+ 4.65%* 5.05% 4.96% 5.02% 5.17%
Total return 2.33%** 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 $0.02198 $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+ 4.41%* 4.81% 4.71% 4.75% 4.89%
========================================================================================================================
</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
FINANCIAL HIGHLIGHTS
CLASS A
-----------------------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1999
(Unaudited)
================================================================================
Net Asset Value, beginning of period $1.00000
Net investment income 0.00670
Less dividends from net investment income (0.00670)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
end of period (000's omitted) $3,125
Ratio of expenses to average net assets+ 0.70%*
Ratio of net investment income to average net assets+ 4.44%*
Total return 0.67%**
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 $0.00662
RATIOS:
Expenses to average net assets+ 0.90%*
Net investment income
to average net assets+ 4.24%*
================================================================================
CLASS B
-------------------------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1999
(Unaudited)
================================================================================
Net Asset Value, beginning of period $1.00000
Net investment income 0.00657
Less dividends from net investment income (0.00657)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
end of period $ 11
Ratio of expenses to average net assets+ 1.45%*
Ratio of net investment income to average net assets+ 3.69%*
Total return 0.56%**
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 $0.00649
RATIOS:
Expenses to average net assets+ 1.65%*
Net investment income
to average net assets+ 3.49%*
================================================================================
+ Includes the Fund's share of Cash Reserves Portfolio's allocated expenses.
* Annualized
** Not Annualized
See notes to financial statements
9
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 (21.7% at February 28, 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. Citibank 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 Funds 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 elegibility requirements and its own combination of charges and
fees. Class N, which has no sale 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 B shares of another Fund in the CitiFunds Family of Funds. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The significant accounting policies consistently followed by the Fund are
as follows:
A. Investment Valuation Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are
included elsewhere in this report.
B. Investment Income The Fund earns income, net of Portfolio expenses,
daily based on its investment in the Portfolio.
C. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders all of its taxable income. Accordingly, no provision
for federal income or excise tax is necessary.
D. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and 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
10
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS (Unaudited)
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
2. DIVIDENDS The net income of the Fund is determined once daily, as of 3:00
p.m., Eastern time, and all of the net income of the Fund so determined is
declared as a dividend to shareholders of record at the time of such
determination. Dividends are distributed in the form of additional shares of the
Fund or, at the election of the shareholder, in cash (subject to the policies of
the shareholder's Shareholder Servicing Agent) on or prior to the last business
day of the month.
3. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services
Plan which provides that the Trust, on behalf of each Fund, may obtain the
services of an Administrator, one or more Shareholder Servicing Agents, and
other Servicing Agents, and may enter into agreements providing for the payment
of fees for such services. Under the Trust's Administrative Services Plan, the
aggregate of the fees paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.70% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year. For the six months
ended February 28, 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 paid monthly at an annual rate of 0.35% of average
daily net assets. The Administrative fees amounted to $4,151,271 of which
$657,179 was waived, voluntarily for the six months ended February 28, 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 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 $2,964,477, $716
and $1 for Class N,
11
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
Class A and Class B shares, respectively, for the six months ended February 28,
1999.
4. DISTRIBUTION FEES The Fund has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund compensates the Distributor at an annual rate not to exceed 0.10%, 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 amounted to $1,186,077 of which
$702,447 was voluntarily waived for Class N, for Class A and Class B, $287 and
$1 all of which was voluntarily waived respectively for the six months ended
February 28, 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 February 28, 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 $683,515,897 and $400,470,465, respectively, for the
six months ended February 28, 1999.
12
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS February 28, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
ASSET BACKED -- 9.5%
- --------------------------------------------------------------------------------
Lincs-Ser *
4.936% due 3/18/99 $100,000 $ 99,998,386
Lincs-Ser *
4.986% due 2/15/00 87,500 87,500,000
SMM Trust *
5.047% due 1/26/00 100,000 100,000,000
Steers *
4.94% due 3/25/9 76,118 76,118,294
4.998% due 11/10/99 201,000 201,000,000
Strategic Money Market
Trust Receipts *
4.937% due 3/05/99 213,000 213,000,000
5.32% due 12/15/99 200,000 200,000,000
Strats Trust *
4.94% due 8/18/99 50,000 50,000,000
Triangle Funding Ltd.
5.07% due 10/15/99 82,000 82,000,000
--------------
1,109,616,680
--------------
BANK NOTES -- 10.0%
- --------------------------------------------------------------------------------
FCC National Bank
5.12% due 5/12/99 100,000 100,001,950
5.86% due 6/03/99 50,000 49,991,365
4.90% due 12/16/99 185,000 184,929,047
First Union National Bank
5.35% due 9/13/99 50,000 50,002,582
Key Bank National
Association
4.995% due 9/23/99 350,000 349,901,233
Nationsbank *
5.00% due 11/19/99 160,000 160,000,000
5.15% due 3/12/99 50,000 50,000,000
5.04% due 6/01/99 32,000 32,000,000
4.98% due 6/10/99 100,000 100,000,00
4.82% due 6/25/99 100,000 99,984,427
--------------
1,176,810,604
--------------
CERTIFICATES OF DEPOSIT
(DOMESTIC) -- 4.4%
- --------------------------------------------------------------------------------
BankBoston
5.23% due 3/09/99 50,000 50,000,000
Centric Capital Corp.
4.86% due 4/19/99 55,493 55,125,914
Chase Manhattan Bank
Corp
5.74% due 5/10/99 57,000 56,993,721
Monte Rosa Capital Corp.
4.86% due 4/13/99 72,625 72,203,412
4.85% due 4./16/99 145,338 144,437,308
Newport Funding Corp.
4.87% due 3/01/99 140,226 140,226,000
-------------
518,986,355
-------------
CERTIFICATES OF DEPOSIT (EURO) -- 7.5%
- --------------------------------------------------------------------------------
ABBY NATIONAL
5.07% due 5/12/99 100,000 100,000,000
Algemene Bank
5.62% due 4/14/99 75,000 74,995,666
5.50% due 9/02/99 70,000 70,168,808
Bayer Hypo Vereinsbank
5.09% due 5/10/99 100,000 100,000,000
5.09% due 5/12/99 100,000 100,001,950
Bayerische Vereinsbank
4.99% due 11/10/99 171,000 171,023,254
5.02% due 11/23/99 100,000 100,006,647
Halifax
5.07% due 5/12/99 100,000 100,000,000
International Nederlanden
Group
4.935% due 6/30/99 60,000 60,000,985
-------------
876,197,310
-------------
CERTIFICATES OF DEPOSIT (YANKEE) -- 25.4%
- --------------------------------------------------------------------------------
Bank of Nova Scotia
5.65% due 3/29/99 38,000 37,995,977
4.96% due 6/11/99 46,500 46,501,592
Bayerische Vereinsbank
4.91% due 7/08/99 120,000 120,000,000
Canadian Imperial Bank
5.745% due 4/27/99 54,000 54,010,520
Credit Agricole Indosuez
5.74% due 4/26/99 50,000 49,993,919
4.93% due 7/12/99 100,000 100,007,210
5.31% due 9/13/99 50,000 50,095,581
Credit Communal de Belgique
5.62% due 3/19/99 45,000 44,997,777
Credit Suisse First Boston
5.06% due 10/07/99 325,000 325,000,000
5.69% due 7/06/99 100,000 100,000,000
Deutsche Bank
5.65% due 3/02/99 100,000 99,999,869
Dresdner Bank
5.09% due 5/06/99 55,000 54,999,788
13
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) February 28, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Landesbank Hessen
Thuringen
5.00% due 4/06/99 $ 50,000 $ 50,000,000
5.19% due 3/01/00 100,000 99,971,037
Morgan Guarantee Trust
Co
4.90% due 10/15/99 85,000 84,948,558
Rabobank Nederland
5.71% due 6/11/99 100,000 99,986,368
5.69% due 6/30/99 75,000 74,996,325
5.64% due 7/30/99 53,000 53,002,363
Societe Generale Bank
5.75% due 4/06/99 100,000 99,995,749
5.76% due 4/16/99 75,000 74,996,380
Societe Generale Bank*
4.85% due 5/20/99 175,800 175,773,654
Svenska Handelsbanken
5.75% due 5/04/99 57,000 56,995,215
5.76% due 5/25/99 75,000 74,989,972
5.74% due 6/01/99 77,000 76,986,818
Swiss Bank Corp.
5.68% due 5/28/99 40,000 40,051,628
5.715% due 6/14/99 100,000 99,988,980
Toronto Dominion
5.03% due 6/03/99 200,000 200,000,000
5.71% due 6/23/99 85,000 84,989,826
5.60% due 8/17/99 50,000 50,143,031
4.79% due 8/18/99 135,000 134,950,642
UBS AG
5.00% due 5/19/9 50,000 49,997,560
Westdeutsche Landesbank
5.125% due 9/15/99 48,000 48,035,924
5.21% due 9/22/99 50,000 50,074,907
4.84% due 11/05/99 116,000 115,969,420
--------------
2,980,446,590
--------------
COMMERCIAL PAPER -- 19.3%
- --------------------------------------------------------------------------------
Aspen Funding Corp.
4.86% due 4/12/99 200,000 198,866,000
BankAmerica Corp.
4.92% due 4/09/99 50,000 49,733,500
Banco Santander
4.85% due 3/01/99 100,000 100,000,000
Barton Capital Corp.
4.87% due 4/06/99 120,285 119,699,212
Caisse d'Amortissement
4.735% due 10/08/99 76,000 73,790,859
CREGEM INC
4.96% due 4/07/99 50,000 49,745,111
4.81% due 7/08/99 150,000 147,414,625
4.81% due 7/09/99 115,000 113,002,514
Deutsche Bank
4.81% due 8/10/99 165,000 161,428,575
General Electric Capital
Corp
5.12% due 3/11/99 250,000 249,644,444
4.75% due 10/04/99 125,000 121,421,007
4.75% due 10/05/99 125,000 121,404,514
4.88% due 3/01/99 75,000 75,000,000
J. P. Morgan & Co., Inc.*
4.74% due 10/04/99 70,000 67,999,983
Province de Quebec
5.04% due 3/16/99 100,000 99,790,000
Repsol International
Finance
4.87% due 7/15/99 100,000 98,160,222
Sigma Finance Corp.
5.35% due 3/05/99 120,000 119,928,667
5.125% due 2/09/00 250,000 250,000,000
Variable Funding Capital
Corp
4.85% due 3/08/99 50,000 49,952,847
--------------
2,266,982,080
--------------
CORPORATE NOTES -- 7.4%
- --------------------------------------------------------------------------------
Associates Corp. of
North America*
4.91% due 6/29/99 150,000 149,961,490
Bear Stearns*
5.00% due 6/04/99 225,000 225,000,000
J. P. Morgan & Co., Inc.*
4.82% due 7/07/99 210,000 209,957,330
Key Bank National
Association*
4.915% due 5/12/99 88,000 87,987,666
Royal Bank of Canada*
4.92% due 6/07/99 200,000 200,011,567
-------------
872,918,053
-------------
MEDIUM TERM NOTES -- 7.1%
- --------------------------------------------------------------------------------
Abbey National Treasury
Services
4.771% due 6/15/99 100,000 99,968,429
5.58% due 8/25/99 100,000 99,980,986
14
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) February 28, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Goldman Sachs Group*
5.05% due 1/31/00 $335,500 $ 335,500,000
Norwest Financial Inc.
5.55% due 8/31/99 100,000 99,985,567
Sigma Finance Corp.
4.89% due 8/27/99 197,000 196,995,459
--------------
832,430,441
--------------
TIME DEPOSITS -- 7.1%
- --------------------------------------------------------------------------------
Banco Bilbao Vizcaya
Nassau
4.84% due 3/01/99 150,000 150,000,000
Chase Bank
4.75% due 3/01/99 386,966 386,966,000
Suntrust
4.81% due 3/01/99 50,000 50,000,000
Svenska Grand Cayman
4.844% due 3/01/99 250,000 250,000,000
---------------
836,966,000
---------------
UNITED STATES GOVERNMENT AGENCY -- 2.6%
- --------------------------------------------------------------------------------
Federal Home Loan Bank
4.71% due 3/16/99 50,000 49,901,874
4.69% due 4/16/99 600 596,404
5.06% due 3/03/00 100,000 99,937,000
Federal National
Mortgage Association
4.86% due 2/10/99 100,000 99,922,269
Student Loan
Marketing Discount Note
4.69% due 4/16/99 50,000 49,700,361
---------------
300,057,908
---------------
UNITED STATES TREASURY BILLS -- 0.3%
- --------------------------------------------------------------------------------
United States Treasury Bills
4.135% due 10/14/99 25,000 24,348,163
4.175% due 12/09/99 15,000 14,507,698
---------------
38,855,861
---------------
TOTAL INVESTMENTS AT VALUE
/AMORTIZED COST 100.6% 11,810,267,882
OTHER ASSETS,
LESS LIABILITIES (0.6%) (75,220,905)
----- ---------------
NET ASSETS 100.0% $11,735,046,977
----- ---------------
* Variable interest rate - subject to periodic change.
See notes to financial statements
15
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (Unaudited)
================================================================================
ASSETS:
Investments at value (Note 1A) $11,810,267,882
Interest receivable 125,683,746
- --------------------------------------------------------------------------------
Total assets 11,935,951,628
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 199,908,037
Payable to affiliate~Investment Advisory fee
(Note 2A) 663,133
Accrued expenses and other liabilities 333,481
- --------------------------------------------------------------------------------
Total liabilities 200,904,651
- --------------------------------------------------------------------------------
NET ASSETS $11,735,046,977
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $11,735,046,977
================================================================================
CASH RESERVES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (Unaudited)
================================================================================
INTEREST INCOME (Note 1B): $ 292,120,478
EXPENSES:
Investment Advisory fees (Note 2A) $ 8,190,847
Administrative fees (Note 2B) 2,730,282
Custody and fund accounting fees 1,095,415
Trustees' fees 53,954
Legal fees 32,082
Audit fees 22,300
Miscellaneous 87,395
- --------------------------------------------------------------------------------
Total expenses 12,212,275
Less aggregate amounts waived by Investment
Adviser and Administrator (Notes 2A, and 2B) (6,745,592)
Less fees paid indirectly (Note 1E) (11)
- --------------------------------------------------------------------------------
Net expenses 5,466,672
- --------------------------------------------------------------------------------
Net investment income $ 286,653,806
================================================================================
See notes to financial statements
16
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(Unaudited) AUGUST 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 286,653,806 $ 504,627,904
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 22,079,029,546 30,335,511,897
Value of withdrawals (19,436,545,991) (29,691,630,125)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital transactions 2,642,483,555 643,881,772
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 2,929,137,361 1,148,509,676
================================================================================
NET ASSETS:
Beginning of period 8,805,909,616 7,657,399,940
- --------------------------------------------------------------------------------
End of period $ 11,735,046,977 $ 8,805,909,616
================================================================================
CASH RESERVES PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 --------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C> <C> <C> <C>
Net assets (000's omitted) $ 11,735,047 $ 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 5.25%* 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 5.13%* 5.53% 5.44% 5.50% 5.75%
====================================================================================================================================
</TABLE>
* Annualized
See notes to financial statements
17
<PAGE>
CASH RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 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 Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.
E. Fees Paid Indirectly The Portfolio's custodian bank calculates its fees
based on the Portfolio's average daily net assets. The fees are reduced
according to a fee arrangement, which provides for custody fees to be reduced
based on a formula developed to measure the value of cash deposited with the
custodian by the
18
<PAGE>
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
$8,190,847, of which $4,015,310 was voluntarily waived for the six months ended
February 28, 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 $2,730,282, all of which were voluntarily waived
for the six months ended February 28, 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 $96,550,935,887 and $93,524,876,338, respectively, for
the six months ended February 28, 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 $60
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the six months
ended February 28, 1999, the commitment fee allocated to the Portfolio was
$15,271. Since the line of credit was established, there have been no
borrowings.
19
<PAGE>
This page intentionally left blank.
<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 New York Tax Free Income Portfolio
o CitiFunds California 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. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent
or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc. as distributor.
(c)1999 Citicorp [Recycle Logo] Printed on recycled paper CFS/RCR/299
<PAGE>
Semi-Annual Report o February 28, 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 6
................................................................................
Statement of Changes in Net Assets 7
................................................................................
Financial Highlights 8
................................................................................
Notes to Financial Statements 9
................................................................................
U.S. TREASURY RESERVES PORTFOLIO
Portfolio of Investments 12
................................................................................
Statement of Assets and Liabilities 13
................................................................................
Statement of Operations 13
................................................................................
Statement of Changes in Net Assets 14
................................................................................
Financial Highlights 14
................................................................................
Notes to Financial Statements 15
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
While the 6-month period ended February 28, 1999, was a good one for the U.S.
economy, yields on short-term U.S. Treasury bills were unusually low relative to
other money market instruments. Early in the period, concerns about the
potential spread of the Asian currency and credit crisis to Latin America caused
a surge in demand for U.S. Treasury securities from domestic and foreign
investors seeking a safe haven.
At the same time, events overseas contributed to the U.S. Federal Reserve
Board's decision to reduce key short-term interest rates three times between
September and November. While this easing on monetary policy caused short-term
U.S. Treasury yields to decline, longer term fixed-income securities did not
fare as well as money market securities. That's because longer term yields rose
in response to reports of robust U.S. economic growth in the fourth quarter of
1998 and the first two months of 1999. When yields of longer term securities
rise, their prices decline. Accordingly, money market funds such as CitiFunds
U.S. Treasury Reserves generally performed better than longer term bond funds
over the six-month period.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- -----------------------------
Philip W. Coolidge
President
March 22, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
LOW INFLATION IN THE U.S. AND RECESSIONARY CONDITIONS IN SOME OVERSEAS
ECONOMIES CONTRIBUTED TO LOWER YIELDS on U.S. Treasury bills. The financial
crisis that began in Southeast Asia in mid-1997 spread to other emerging markets
during the third quarter of 1998. Russia was forced by the credit crunch to
devalue its currency and effectively defaulted on its government bonds.
Similarly, the flight of foreign capital from Latin America adversely affected
Brazil, which devalued its currency in January, 1999.
Why did events overseas affect money market yields in the United States? A
major reason is that the Federal Reserve Board became concerned that the
problems in Asia and Latin America might curtail exports of U.S. companies,
which could, in turn, dampen domestic economic growth. To help stop the further
spread of the Asian crisis and promote continued U.S. economic growth, the
Federal Reserve reduced key short-term interest rates in three steps between
September and November.
In anticipation of the Federal Reserve Board's action, WE BEGAN THE REPORTING
PERIOD WITH THE PORTFOLIO'S AVERAGE MATURITY TOWARD THE LONG END OF ITS RANGE.
This strategy enabled us to capture higher yields for as long as practical while
short-term interest rates fell.
Of course, consistent with our charter, we focused exclusively on U.S.
Treasury securities. However, it is important to note that yields on U.S.
Treasury securities were unusually low during the six-month period relative to
other money market securities, such as high-quality bank obligations and
commercial paper. That's because the federal budget surplus reduced the
government's need to borrow, limiting the supply of Treasury bills available to
investors. Yet, demand for these direct obligations of the federal government
surged when U.S. and foreign investors sought a safe haven amid the turmoil in
Asia, Russia and Latin America.
As our holdings matured during the period, we reinvested the proceeds in U.S.
Treasury securities with modestly shorter maturities, including Cash Management
Bills issued by the U.S. Treasury to finance temporary cash flow needs. As we
opportunistically allowed the Portfolio's average maturity to gradually decline
at various times over the six months, WE WERE ABLE TO RESPOND FASTER TO HIGHER
YIELDS AS THEY BECAME AVAILABLE. Such opportunities arose in February, 1999, for
example, when reports of surprisingly strong U.S. economic growth caused yields
of longer term bonds to rise. In this new environment, we extended the
Portfolio's average maturity to capture the higher yields provided by slightly
longer-dated securities. In addition, we took advantage of changing
supply-and-demand factors to capture higher yields.
Looking forward, we expect the U.S. economic expansion to continue throughout
1999. Yet, persistently low inflation should, in our view, prevent the Federal
Reserve from raising short-term interest rates in 1999 in an attempt to
forestall inflationary pressures. If our outlook is correct, yields on U.S.
Treasury bills should remain relatively stable over the foreseeable future,
while longer term yields may rise modestly. We intend to continue to monitor
global economic influences carefully, with an eye toward adjusting our
investment strategy in a way that takes full advantage of prevailing market
conditions.
2
<PAGE>
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 o Lipper S&P AAA rated U.S.
Treasury Money Funds Average
NET ASSETS AS OF 2/28/99
$323.6 million
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ALL PERIODS ENDED FEBRUARY 28, 1999 SIX ONE FIVE MAY 3, 1991
(Unaudited) MONTHS** YEAR YEARS* INCEPTION*
===============================================================================
CitiFunds U.S. Treasury Reserves 2.00% 4.35% 4.49% 4.09%
Lipper S&P AAA rated U.S. Treasury
Money Funds Average 2.14% 4.63% 4.68% 4.27%+
* Average Annual Total Return
** Not Annualized
+ Since April 30, 1991
7-DAY YIELDS
Annualized Current3.75%
Effective 3.82%
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.
Note: Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
maintain the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund. 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
FEBRUARY 28, 1999 (Unaudited)
================================================================================
ASSETS:
Investment in U.S. Treasury Reserves Portfolio, at value (Note 1) $324,322,328
- --------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 552,077
Payable for shares of beneficial interest repurchased 18,000
Payable to affiliate Shareholder servicing agents' fees (Note 3B) 62,213
Accrued expenses and other liabilities 108,477
- --------------------------------------------------------------------------------
Total liabilities 740,767
- --------------------------------------------------------------------------------
NET ASSETS for 323,581,561 shares of beneficial
interest outstanding $323,581,561
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $323,581,561
================================================================================
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE $1.00
================================================================================
See notes to financial statements
5
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1A):
Income from U.S. Treasury Reserves Portfolio $7,516,614
Allocated expenses from U.S. Treasury Reserves
Portfolio (160,747)
- --------------------------------------------------------------------------------
$7,355,867
EXPENSES:
Administrative fees (Note 3A) 560,064
Shareholder Servicing Agents' fees (Note 3B) 400,046
Distribution fees (Note 4) 160,018
Shareholder reports 9,666
Custody and fund accounting fees 7,845
Trustees' fees 5,573
Transfer agent fees 5,000
Auditing fees 4,500
Legal fees 4,121
Miscellaneous 15,038
- --------------------------------------------------------------------------------
Total expenses 1,171,871
Less aggregate amounts waived by Administrator
and Distributor (Notes 3A and 4) (212,528)
- --------------------------------------------------------------------------------
Net expenses 959,343
- --------------------------------------------------------------------------------
Net investment income $6,396,524
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(Unaudited) AUGUST 31, 1998
========================================================================================
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income, declared as dividends
to shareholders (Note 2) $ 6,396,524 $ 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 $ 384,278,872 $922,659,629
Net asset value of shares issued to shareholders
from reinvestment of dividends 2,804,568 7,216,677
Cost of shares repurchased (383,432,371) (970,663,177)
- ----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,651,069 (40,786,871)
- ----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 319,930,492 360,717,363
- ----------------------------------------------------------------------------------------
End of period $323,581,561 $319,930,492
========================================================================================
</TABLE>
See notes to financial statements
7
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
Net investment income 0.01980 0.04552 0.04547 0.04602 0.04751 0.02837
Less dividends from net
investment income (0.01980) (0.04552) (0.04547) (0.04602) (0.04751) (0.02837)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 $1.00000
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $323,582 $319,930 $360,717 $317,996 $256,452 $203,400
Ratio of expenses to
average net assets+ 0.70%* 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income
to average net assets+ 4.00%* 4.55% 4.57% 4.61% 4.77% 2.81%
Total return 2.00%** 4.65% 4.64% 4.70% 4.86% 2.87%
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 $0.01846 $0.04292 $0.04278 $0.04313 $0.04452 $0.02514
RATIOS:
Expenses to average net assets+ 0.97% *0.96% 0.97% 1.00% 1.00% 1.02%
Net investment income to
average net assets+ 3.73%* 4.29% 4.30% 4.32% 4.47% 2.49%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Includes the Fund's share of U.S. Treasury Reserves Portfolio's allocated
expenses.
* Annualized
** Not Annualized
See notes to financial statements
8
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 (40.3% at
February 28, 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 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
9
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
the election of the shareholder, in cash (subject to the policies of the
shareholder's Shareholder Servicing Agent), on or prior to the last business day
of the month.
3. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services
Plan which provides that the Trust, on behalf of each Fund, may obtain the
services of an Administrator, one or more Shareholder Servicing Agents, and
other Servicing Agents, and may enter into agreements providing for the payment
of fees for such services. Under the Trust's Administrative Services Plan, the
aggregate of the fee paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.70% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year. For the six months
ended February 28, 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 $560,064, of which
$141,756 was voluntarily waived for the six months ended February 28, 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 $400,046 for the six months ended February 28,
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 $160,018, of which
$70,772 was voluntarily waived for the six months ended February 28, 1999. The
Distributor may also receive an additional fee from the Fund at an annual rate
not
10
<PAGE>
CITIFUNDS U.S. TREASURY RESERVES
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 February 28, 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 $835,546,809 and $839,816,918, respectively, for the
six months ended February 28, 1999.
11
<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 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
125 Summer 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 New York Tax Free Income Portfolio
o CitiFunds California 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. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent
or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc.
as distributor.
(C)1999 Citicor R Pinted on recycled paper CFS/RUS/299
