[CitiFunds]
TO: Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington D.C. 20549
FROM: Cash Reserves Portfolio
(CIK No. 0000850615)
(CCC No. n*omv5zd)
(Registration File No. 811-05813)
DATE: October 16, 2000
On behalf of the above-noted registrant, transmitted herewith for filing
pursuant to Rule 30b2-1 are the annual financial statements for the period ended
August 31, 2000.
Please call Tammie Ebanks of CFBDS, Inc. at (345) 945-1824 with any comments or
questions relating to this report.
<PAGE>
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CITIFUNDS(R)
--------------------------------------------------------------------------------
Cash Reserves
ANNUAL REPORT
AUGUST 31, 2000
CITIFUNDS
--------------------------------------------------------------------------
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
STATEMENT OF ASSETS AND LIABILITIES 5
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STATEMENT OF OPERATIONS 6
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STATEMENT OF CHANGES IN NET ASSETS 7
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FINANCIAL HIGHLIGHTS 8
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NOTES TO FINANCIAL STATEMENTS 11
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INDEPENDENT AUDITORS' REPORT 14
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CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS 15
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 18
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS 19
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS 20
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 22
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INDEPENDENT AUDITORS' REPORT 24
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
Robust economic growth, inflation concerns and rising interest rates helped
produce higher yields for most money market instruments during the reporting
period. This trend toward higher interest rates persisted through the summer of
2000, when evidence began to appear that the Federal Reserve Board's (the "Fed")
restrictive monetary policies may have had a moderating effect on U.S.
economic growth.
In this environment, the CitiFunds' investment adviser, Citibank, N.A.,
continued to manage Cash Reserves Portfolio, the portfolio in which the Fund
invests all of its investable assets, with the goal of achieving its investment
objective: providing liquidity and as high a level of current income as is
consistent with the preservation of capital.
This report reviews the Portfolio's investment activities and performance
during the twelve months ended August 31, 2000, 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,
/s/ Philip W. Coolidge
----------------------
Philip W. Coolidge
President
September 15, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
MONEY MARKET SECURITIES PROVIDED COMPETITIVE RETURNS AND A RELATIVELY SAFE
HARBOR FOR MANY INVESTORS DURING THE REPORTING PERIOD. These benefits were
particularly valuable during the second half of the period, when heightened
volatility in the stock market and rising interest rates produced flat or
negative returns for some investment classes, including stocks and longer-term
bonds.
The U.S. economy during most of the reporting period was characterized by
strong growth, rising prices for some important commodities, including oil, and
the lowest levels of unemployment in recent memory. During the first half of the
reporting period, these economic forces were complemented by a rapidly rising
stock market, especially within market sectors expected to benefit from strong
demand for technology and telecommunications services.
BECAUSE THIS COMBINATION OF POSITIVE ECONOMIC FORCES HAS HISTORICALLY LED TO
HIGHER RATES OF INFLATION, THE FED CONTINUED TO MOVE TOWARD A MORE RESTRICTIVE
MONETARY POLICY DURING THE PERIOD. In fact, the Fed raised short-term interest
rates four times during the reporting period, for a total increase of 1.25%, in
an effort to relieve inflationary pressures that might threaten to derail U.S.
economic prosperity.
IN THIS ENVIRONMENT, MANAGEMENT MAINTAINED A RELATIVELY SHORT AVERAGE
MATURITY from the start of the reporting period into the first quarter of 2000.
This maturity strategy was designed to keep assets available for higher-yielding
securities if interest rates rose. Subsequently, management began to gradually
extend the Fund's average maturity to take advantage of higher yielding
opportunities among money market instruments with moderately longer maturities.
WHEN IT BECAME APPARENT TO THE MANAGERS IN FEBRUARY THAT MOST INVESTORS
EXPECTED THE FED TO RAISE INTEREST RATES AGGRESSIVELY, MANAGEMENT MORE
AGGRESSIVELY EXTENDED THE PORTFOLIO'S AVERAGE MATURITY TO BETWEEN 80 AND 89 DAYS
IN ORDER TO LOCK IN PREVAILING yields for as long as practical. Management
generally maintained a long average maturity for the remainder of the reporting
period.
From a security selection perspective, management has sought to maintain a
well-diversified asset mix. As of August 31, 2000, approximately 30.2% of the
Fund's assets was invested in Yankee CDs, which are U.S. dollar-denominated
certificates of deposit issued by foreign banks on management's approved credit
list. In addition, about 2.2% of the Fund's assets was invested in short-term
securities issued by U.S. government agencies. Because U.S. Treasury bill yields
have been relatively unattractive over the past year very few of these
securities are currently held in the Portfolio.
AS FOR THE FORESEEABLE FUTURE, MANAGEMENT EXPECTS THE FED WILL NOT MAKE
POLICY DECISIONS UNTIL AFTER THE NOVEMBER PRESIDENTIAL ELECTION. Recent economic
statistics indicate that the Fed's previous rate hikes may have been effective
in slowing the rate of economic growth and forestalling an acceleration of
inflation. In addition, management believes that recent labor strikes and U.S.
census-related layoffs may keep inflationary pressures in check. Consequently,
the managers expect that money market yields may eventually begin to decline
from current levels. Of course, management will adjust its strategies as
economic and market conditions change.
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 8/31/00 o iMoneyNet, Inc. (formerly
Class N shares $2,553.5 million IBC Financial Data) 1st Tier Taxable
Class A shares $5.4 million Money Market Funds Average
Class B shares $521,515
Cititrade(R) shares $39,633
* The Lipper Funds Average and iMoneyNet, Inc. Funds Average reflect the
performance (excluding sales charges) of mutual funds with similar
objectives.
Cititrade is a registered service mark of Citicorp.
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
JANUARY 4,
ONE FIVE TEN 1999
ALL PERIODS ENDED AUGUST 31, 2000 YEAR YEARS* YEARS* INCEPTION*
================================================================================
CitiFunds Cash Reserves Class N 5.49% 5.10% 4.75% --
CitiFunds Cash Reserves Class A 5.49% -- -- 5.09%
CitiFunds Cash Reserves Class B 4.70% -- -- 4.42%
Cititrade Cash Reserves -- -- -- 0.22%**#
Lipper Taxable Money Market
Funds Average 5.32% 4.94% 4.66% 4.89%+
iMoneyNet, Inc. (formerly IBC
Financial Data)1st Tier Taxable Money
Market Funds Average 5.42% 5.06% 4.68% 5.02%+
* Average Annual Total Return + Since 12/31/98
** Not Annualized # Commencement of Operations 8/18/2000
7-DAY YIELDS CLASS N CLASS A CLASS B CITITRADE
------- ------ ------- --------
Annualized Current 6.00% 6.00% 5.25% 5.70%
Effective 6.18% 6.18% 5.39% 5.86%
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, 2000, Class N
paid $0.05353, Class A paid $0.05353, Class B paid $0.04603 and Cititrade paid
$0.00218 per share to shareholders from net investment income. For such period
1.4% 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. IMONEYNET,
INC. (FORMERLY IBC FINANCIAL DATA) 1ST TIER TAXABLE MONEY MARKET FUNDS AVERAGE
As illustrated, CitiFunds Cash Reserves generally provided a similar annualized
seven-day yield to that of a comparable iMoneyNet, Inc. Money Market Funds
Average, as published in Money Fund Report(TM), for the one-year period.
[Table below represents line chart in its printed piece]
CitiFunds Cash iMoneyNet, Inc. 1st Tier Taxable
Reserves Class N Money Market Funds Average
---------------- ---------------------------------
8/31/99 0.0469 0.0455
9/7/99 0.047 0.0458
9/14/99 0.047 0.046
9/21/99 0.0475 0.0463
9/28/99 0.0476 0.0465
10/5/99 0.048 0.0467
10/12/99 0.0477 0.047
10/19/99 0.0481 0.0473
10/26/99 0.0482 0.0476
11/2/99 0.0491 0.048
11/9/99 0.049 0.048
11/16/99 0.0495 0.0486
11/23/99 0.0503 0.0491
11/30/99 0.051 0.0497
12/7/99 0.0508 0.05
12/14/99 0.051 0.0506
12/21/99 0.0512 0.0512
12/28/99 0.051 0.0515
1/4/00 0.0498 0.0505
1/11/00 0.051 0.0515
1/18/00 0.0513 0.0513
1/25/00 0.0511 0.051
2/1/00 0.0512 0.0511
2/8/00 0.0512 0.0512
2/15/00 0.0516 0.0516
2/22/00 0.0518 0.0516
2/29/00 0.0521 0.0519
3/7/00 0.0523 0.0518
3/14/00 0.0524 0.052
3/21/00 0.0527 0.0523
3/28/00 0.0537 0.0529
4/4/00 0.0538 0.0535
4/11/00 0.0538 0.0535
4/18/00 0.0542 0.0537
4/25/00 0.0541 0.0539
5/2/00 0.0547 0.0539
5/9/00 0.0547 0.0542
5/16/00 0.0554 0.0548
5/23/00 0.057 0.0561
5/30/00 0.0577 0.0569
6/6/00 0.0582 0.0573
6/13/00 0.0582 0.0578
6/20/00 0.0587 0.0581
6/27/00 0.0589 0.0585
7/4/00 0.0603 0.0591
7/11/00 0.0593 0.0587
7/18/00 0.0593 0.0589
7/25/00 0.0594 0.059
8/1/00 0.0596 0.0591
8/8/00 0.0592 0.059
8/15/00 0.0595 0.0592
8/22/00 0.0595 0.059
8/29/00 0.0598 0.0591
Note: Although money market funds seek to preserve the value of your investment
at $1.00 per share, it is possible to lose money by investing in the Fund.
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, 2000
================================================================================
ASSETS:
Investment in Cash Reserves Portfolio, at value (Note 1A) $2,572,738,108
Receivable for shares of beneficial interest sold 2,346,985
--------------------------------------------------------------------------------
Total assets 2,575,085,093
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LIABILITIES:
Dividends payable 10,604,665
Payable for shares of beneficial interest repurchased 3,728,653
Payable to affiliate-Shareholder Servicing Agents' fees (Note 3B) 541,300
Accrued expenses and other liabilities 812,580
--------------------------------------------------------------------------------
Total liabilities 15,687,198
--------------------------------------------------------------------------------
NET ASSETS $2,559,397,895
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $2,559,397,895
================================================================================
CLASS N SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($2,553,408,622/2,553,408,622 shares outstanding) $1.00
================================================================================
CLASS A SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($5,428,125/5,428,125 shares outstanding) $1.00
================================================================================
CLASS B SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($521,515/521,515 shares outstanding) $1.00
================================================================================
CITITRADE SHARES:
Net Asset Value, Offering Price and Redemption Price Per Share
($39,633/39,633 shares outstanding) $1.00
================================================================================
See notes to financial statements
5
<PAGE>
CITIFUNDS CASH RESERVES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
================================================================================
INVESTMENT INCOME (Note 1B):
Income from Cash Reserves Portfolio $159,126,288
Allocated expenses from Cash Reserves Portfolio (2,638,044)
--------------------------------------------------------------------------------
$156,488,244
EXPENSES:
Administrative fees (Note 3A) 9,207,939
Shareholder Servicing Agents' fees Class N (Note 3B) 6,553,008
Shareholder Servicing Agents' fees Class A (Note 3B) 22,600
Shareholder Servicing Agents' fees Class B (Note 3B) 1,489
Distribution fees Class N (Note 4) 2,630,840
Distribution fees Class A (Note 4) 18,080
Distribution/Service fees Class B (Note 4) 4,467
Distribution fees Cititrade (Note 4) 8
Shareholder reports 58,404
Custody and fund accounting fees 44,342
Legal fees 38,712
Transfer agent fees 38,097
Trustees' fees 34,245
Audit fees 13,230
Registration fees 4,324
Other 16,341
--------------------------------------------------------------------------------
Total expenses 18,686,126
Less aggregate amount waived by Administrator
and Distributor (Notes 3A and 4) (2,903,579)
--------------------------------------------------------------------------------
Net expenses 15,782,547
--------------------------------------------------------------------------------
Net investment income $140,705,697
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS CASH RESERVES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
-----------------------------------
2000 1999
================================================================================
FROM INVESTMENT ACTIVITIES:
Net investment income, declared as
dividends to shareholders (Note 2):
Class N shares $ 140,202,446 $ 112,961,346
Class A shares 475,345 156,220
Class B shares 27,820 1,633
Cititrade shares 86 --
--------------------------------------------------------------------------------
140,705,697 113,119,199
================================================================================
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST AT NET ASSET VALUE OF
$1.00 PER SHARE (Note 5):
CLASS N
Proceeds from sale of shares 1,907,748,222 1,886,643,101
Net asset value of shares issued
to shareholders from reinvestment
of dividends 24,256,167 19,740,194
Cost of shares repurchased (1,964,983,880) (1,518,438,323)
--------------------------------------------------------------------------------
Total Class N (32,979,491) 387,944,972
--------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST AT NET ASSET VALUE OF
$1.00 PER SHARE (Note 5):
CLASS A*
Proceeds from sale of shares 88,089,536 31,613,958
Net asset value of shares issued to
shareholders from reinvestment
of dividends 474,500 155,314
Cost of shares repurchased (91,471,358) (23,433,826)
--------------------------------------------------------------------------------
Total Class A (2,907,322) 8,335,446
--------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST AT NET ASSET VALUE OF
$1.00 PER SHARE (Note 5):
CLASS B*
Proceeds from sale of shares 5,143,841 264,341
Net asset value of shares issued to
shareholders from reinvestment
of dividends 26,523 1,552
Cost of shares repurchased (4,808,593) (106,149)
--------------------------------------------------------------------------------
Total Class B 361,771 159,744
--------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST AT NET ASSET VALUE OF
$1.00 PER SHARE (Note 5):
CITITRADE**
Proceeds from sale of shares 62,412 --
Net asset value of shares issued to
shareholders from reinvestment
of dividends 83 --
Cost of shares repurchased (22,862) --
--------------------------------------------------------------------------------
Total Cititrade 39,633 --
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (35,485,409) 396,440,162
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,594,883,304 2,198,443,142
--------------------------------------------------------------------------------
End of period $ 2,559,397,895 $ 2,594,883,304
================================================================================
* January 4, 1999 (Commencement of Operations)
** August 18, 2000 (Commencement of Operations)
See notes to financial statements
7
<PAGE>
CITIFUNDS CASH RESERVES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS N
-----------------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
========================================================================================================
<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 0.05353 0.04536 0.05050 0.04940 0.05039
Less dividends from net
investment income (0.05353) (0.04536) (0.05050) (0.04940) (0.05039)
--------------------------------------------------------------------------------------------------------
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) $2,553,409 $2,586,388 $2,198,443 $1,827,181 $1,468,177
Ratio of expenses to
average net assets+ 0.70% 0.70% 0.70% 0.70% 0.69%
Ratio of net investment
income to average
net assets+ 5.35% 4.53% 5.05% 4.96% 5.02%
Total return 5.49% 4.63% 5.17% 5.05% 5.16%
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 $ 0.05112 $ 0.04301 $ 0.04814 $ 0.04697 $ 0.04766
RATIOS:
Expenses to average
net assets+ 0.93% 0.94% 0.94% 0.95% 0.96%
Net investment income to
average net assets+ 5.11% 4.29% 4.81% 4.71% 4.75%
========================================================================================================
</TABLE>
+ Includes the Fund's share of Cash Reserves Portfolio's allocated expenses.
See notes to financial statements
8
<PAGE>
CITIFUNDS CASH RESERVES
FINANCIAL HIGHLIGHTS
CLASS A
-----------------------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
AUGUST 31, TO AUGUST 31,
2000 1999
================================================================================
Net Asset Value, beginning of period $1.00000 $1.00000
Net investment income 0.05353 0.02897
Less dividends from net investment income (0.05353) (0.02897)
--------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000 $1.00000
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $ 5,428 $ 8,335
Ratio of expenses to average net assets+ 0.70% 0.70%*
Ratio of net investment income to average
net assets+ 5.26% 4.49%*
Total return 5.49% 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 $0.05020 $0.02746
RATIOS:
Expenses to average net assets+ 1.03% 0.94%*
Net investment income to average net assets+ 4.93% 4.25%*
================================================================================
CLASS B
-----------------------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
AUGUST 31, TO AUGUST 31,
2000 1999
================================================================================
Net Asset Value, beginning of period $1.00000 $1.00000
Net investment income 0.04603 0.02406
Less dividends from net investment income (0.04603) (0.02406)
--------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000 $1.00000
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $ 522 $ 160
Ratio of expenses to average net assets+ 1.45% 1.45%*
Ratio of net investment income to average
net assets+ 4.67% 3.71%*
Total return 4.70% 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 $0.04317 $0.02258
RATIOS:
Expenses to average net assets+ 1.70% 1.69%*
Net investment income to average net assets+ 4.42% 3.47%*
================================================================================
+ 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
FINANCIAL HIGHLIGHTS (Continued)
CITITRADE
------------------
FOR THE PERIOD
AUGUST 18, 2000
(COMMENCEMENT
OF OPERATIONS)
TO AUGUST 31, 2000
================================================================================
Net Asset Value, beginning of period $1.00000
Net investment income 0.00218
Less dividends from net investment income (0.00218)
--------------------------------------------------------------------------------
Net Asset Value, end of period $1.00000
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $ 40
Ratio of expenses to average net assets+ 1.00%*
Ratio of net investment income to average net assets+ 5.05%*
Total return 0.22%**
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 $0.00218
RATIOS:
Expenses to average net assets+ 1.23%*
Net investment income to average net assets+ 4.82%*
================================================================================
+ Includes the Fund's share of Cash Reserves Portfolio's allocated expenses.
* Annualized
** Not Annualized
See notes to financial statements
10
<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 (17.9% at August 31, 2000) 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 currently offers Class N, Class A, Class B and Cititrade shares. The
Fund commenced its public offering of Class A and Class B shares on January 4,
1999, and Cititrade shares on August 18, 2000. 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 of other Funds in the fund family and Cititrade shares
are available to Cititrade customers. 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 and Cititrade 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.
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
11
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS (Continued)
to any two or more funds in the series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
2. DIVIDENDS The net income of the Fund is determined once daily, as of 3:00
p.m. Eastern Time, and all of the net income of the Fund so determined is
declared as a dividend to shareholders of record at the time of such
determination. Dividends are distributed in the form of additional shares of the
Fund or, at the election of the shareholder, in cash (subject to the policies of
the shareholder's Shareholder Servicing Agent) on or prior to the last business
day of the month.
3. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services
Plan which provides that the Trust, on behalf of each Fund, may obtain the
services of an Administrator, one or more Shareholder Servicing Agents, and
other Servicing Agents, and may enter into agreements providing for the payment
of fees for such services. Under the Trust's Administrative Services Plan, the
aggregate of the fees paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.70% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year. For the year ended
August 31, 2000 management agreed to voluntarily limit Fund expenses to 0.70%
for Class N and Class A, 1.00% for Cititrade and 1.45% for Class B, inclusive of
Portfolio allocated expenses.
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 $9,207,939 of which
$254,659 was voluntarily waived, for the year ended August 31, 2000. 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 Citigroup Inc.
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
12
<PAGE>
CITIFUNDS CASH RESERVES
NOTES TO FINANCIAL STATEMENTS
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 $6,553,008, $22,600 and $1,489 for Class N, Class A and Class B
shares, respectively, for the year ended August 31, 2000.
4. DISTRIBUTION FEES/SERVICE FEES The Fund has adopted a Plan of Distribution
for Class N, Class A and the Cititrade share class and a Distribution/Service
fee for Class B pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended, under which the Fund compensates the Distributor at an annual rate
not to exceed 0.10%, 0.20%, 0.60% and 0.75% of the Fund's Class N, Class A,
Cititrade and Class B shares, average daily net assets, respectively. The
Distribution fees for Class N amounted to $2,630,840, for Class A $18,080,
Cititrade $8 and Class B $4,467 for the year ended August 31, 2000, of which all
from Class N and Class A fees were voluntarily waived. 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, 2000.
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 $1,333,452,319 and $1,525,675,041, respectively, for
the year ended August 31, 2000.
13
<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, 2000 and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated in conformity with accounting
principles generally accepted in the United States of America. 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 auditing
standards generally accepted in the United States of America 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, 2000 by correspondence with our custodian
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 12, 2000
14
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
ASSET BACKED -- 9.1%
--------------------------------------------------------------------------------
Lincs-Ser,*
6.63% due 7/07/01 $100,000 $ 99,991,260
Restructured Asset Securities,*
6.64% due 6/22/01 65,000 65,000,000
Steers,
6.86% due 10/02/00 365,000 365,028,521
Strategic Money Market Trust Receipts,*
6.78% due 9/13/00 350,000 350,001,796
6.64% due 12/13/00 320,000 320,000,000
Strats Trust,
6.65% due 8/20/01 100,000 100,000,000
--------------
1,300,021,577
--------------
BANK NOTES -- 3.9%
--------------------------------------------------------------------------------
BankAmerica,
6.46% due 11/09/00 100,000 100,000,000
6.48% due 11/20/00 50,000 50,000,000
6.90% due 12/13/00 100,000 100,000,000
6.93% due 1/16/01 100,000 100,000,000
6.98% due 3/30/01 110,000 110,000,000
7.18% due 6/14/01 100,000 100,000,000
--------------
560,000,000
--------------
CERTIFICATES OF DEPOSIT (EURO) -- 9.3%
--------------------------------------------------------------------------------
Bayerische Hypo,
6.52% due 12/28/00 173,000 172,905,328
Commerzbank,
6.88% due 4/30/01 110,000 109,986,240
Credit Agricole Indosuez,
7.00% due 7/09/01 100,000 100,000,000
6.89% due 8/24/01 100,000 99,976,832
Credit Suisse First Boston,
6.78% due 10/02/00 100,000 100,007,905
Landesbank Hessen Thuringen,
7.01% due 11/24/00 57,000 57,001,521
Merrill Lynch & Co. Inc.,
6.67% due 3/02/01 500,000 499,950,137
Morgan Stanley Dean Witter Discover,
6.69% due 3/16/01 200,000 200,000,000
--------------
1,339,827,963
--------------
CERTIFICATES OF DEPOSIT (YANKEE) -- 30.2%
--------------------------------------------------------------------------------
Abbey National Treasury Services,*
6.46% due 12/28/00 89,000 88,988,273
6.51% due 12/28/00 100,000 100,018,313
6.92% due 4/24/01 200,000 200,000,000
7.09% due 5/03/01 150,000 150,009,486
Bank Austria,
5.93% due 9/07/00 100,000 99,999,214
6.71% due 2/12/01 135,000 134,976,984
Bank of Nova Scotia,
6.71% due 2/05/01 150,000 149,975,518
6.74% due 2/16/01 40,000 40,007,427
Bayerische Landesbank,
5.86% due 9/27/00 94,000 93,995,838
6.77% due 2/22/01 62,000 62,000,199
6.55% due 6/04/01 135,000 134,954,653
Bear Stearns Cos. Inc.,
6.75% due 2/20/01 250,000 250,000,000
Branch Bank & Trust,
6.68% due 2/16/01 300,000 299,946,364
Commerzbank,
6.67% due 3/01/01 100,000 99,976,469
6.80% due 4/17/01 80,175 80,189,255
7.17% due 6/28/01 150,000 149,959,226
7.15% due 6/29/01 125,000 125,106,330
6.88% due 8/10/01 100,000 99,977,738
Credit Suisse First Boston,
6.75% due 3/05/01 250,000 249,974,796
Deutsche Bank,
6.20% due 10/18/00 100,000 99,993,862
6.45% due 1/08/01 100,000 99,983,197
6.89% due 8/20/01 167,000 166,954,111
Dexia Bank,
6.98% due 7/18/01 55,000 55,006,000
Dresdner Bank,
7.12% due 6/18/01 100,000 99,984,982
Giro Funding U.S. Corp.,
6.54% due 2/21/01 103,727 100,467,033
Nord Deutsche Landesbank,
6.28% due 9/01/00 50,000 50,000,000
Rabobank Nederland,
6.13% due 10/31/00 50,000 49,489,583
6.47% due 1/18/01 100,000 99,981,895
6.52% due 1/25/01 140,000 139,973,389
6.85% due 4/06/01 100,000 99,983,095
7.18% due 6/13/01 50,000 49,987,090
15
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (YANKEE) -- (CONT'D)
--------------------------------------------------------------------------------
Societe Generale,
6.56% due 1/16/01 $108,000 $ 107,980,750
6.80% due 4/10/01 50,000 49,994,258
6.81% due 4/17/01 50,000 50,008,132
6.75% due 4/18/01 110,000 109,979,522
Toronto Dominion Bank,
6.71% due 2/07/01 90,000 89,990,686
UBS AG Stamford,
5.93% due 10/02/00 50,000 49,980,604
6.24% due 12/06/00 50,000 49,990,603
6.23% due 12/07/00 120,000 119,980,247
--------------
4,349,765,122
--------------
COMMERCIAL PAPER -- 30.8%
--------------------------------------------------------------------------------
ABN-Amro Bank,
6.03% due 10/10/00 100,000 99,346,750
Associates Corp. North America,
6.66% due 9/01/00 200,000 200,000,000
Associates First Capital Corp.,
6.66% due 9/01/00 110,000 110,000,000
BankAmerica Corp.,
6.18% due 11/22/00 100,000 98,592,333
Brahms Funding Corp.,
6.64% due 9/22/00 105,000 104,593,178
6.61% due 10/25/00 350,000 346,529,750
British Telecommunications Plc.,
6.68% due 11/08/00 97,500 96,269,767
6.69% due 11/08/00 50,000 49,368,167
6.18% due 11/17/00 100,000 98,678,166
6.30% due 12/15/00 60,000 58,897,500
6.32% due 12/18/00 50,000 49,052,000
Cregem North America Inc.,
5.99% due 10/10/00 100,000 99,351,083
Den Danske Bank,
6.03% due 10/10/00 50,000 49,673,375
Four Winds Funding Corp.,
6.52% due 9/11/00 147,550 147,282,771
6.52% due 9/15/00 100,000 99,746,444
General Electric Capital Corp.,
6.52% due 2/02/01 150,000 145,816,333
Goldman Sachs Corp.,
6.81% due 9/14/00 300,000 300,000,000
International Nederland,
6.18% due 11/17/00 100,000 98,678,167
6.39% due 12/26/00 100,000 97,941,000
Lone Star,
6.52% due 9/14/00 252,845 252,249,691
Moat Funding,
6.56% due 10/06/00 275,000 273,246,111
Morgan Stanley Dean Witter Discover,
6.68% due 11/24/00 350,000 350,000,000
Moriarty Ltd.,
6.10% due 9/06/00 100,000 99,915,278
6.67% due 11/22/00 50,000 49,240,361
6.77% due 11/22/00 50,000 49,229,542
6.54% due 2/16/01 200,000 193,896,000
6.55% due 2/28/01 150,000 145,087,500
Santander Financial,
6.65% due 12/13/00 100,000 98,097,361
Sigma Finance Corp.,
6.77% due 11/20/00 90,000 88,647,000
6.20% due 11/21/00 75,000 73,954,593
6.55% due 2/08/01 38,000 36,893,778
6.87% due 4/09/01 100,000 100,000,000
Surrey Funding Corp.,
6.53% due 9/18/00 271,000 270,164,981
--------------
4,430,438,980
--------------
MEDIUM TERM NOTES -- 2.6%
--------------------------------------------------------------------------------
Abbey National Treasury Services,
6.19% due 10/18/00 100,000 99,992,635
E.I. Du Pont de Nemours & Co.,
6.69% due 3/13/01 53,000 53,000,000
Credit Suisse First Boston,
6.66% due 5/10/01 225,000 224,984,527
--------------
377,977,162
--------------
TIME DEPOSITS -- 10.8%
--------------------------------------------------------------------------------
Barclays Bank Plc.,
6.63% due 9/01/00 394,171 394,171,000
Branch Bank & Trust,
6.63% due 9/01/00 200,000 200,000,000
Harris Trust &Savings,
6.66% due 9/01/00 242,218 242,218,000
Key Bank National Association,
6.63% due 9/01/00 150,000 150,000,000
Societe Generale,
6.66% due 9/01/00 66,000 66,000,000
Suntrust Grand Cayman,
6.63% due 9/01/00 500,000 500,000,000
--------------
1,552,389,000
--------------
16
<PAGE>
CASH RESERVES PORTFOLIO
PORTFOLIO OF INVESTMENTS August 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
UNITED STATES GOVERNMENT AGENCY -- 1.5%
--------------------------------------------------------------------------------
Federal Home Loan Bank,
5.97% due 12/01/00 $100,000 $ 99,964,445
Federal Home Loan Bank Consumer
Discount Notes,
6.45% due 7/09/01 100,000 94,427,917
Federal Home Loan Mortgage
Discount Notes,
6.84% due 7/25/01 20,000 19,995,054
---------------
214,387,416
---------------
UNITED STATES TREASURY BILLS -- 0.7%
--------------------------------------------------------------------------------
United States Treasury Bills,
5.21% due 11/09/00 15,000 14,850,213
5.28% due 11/09/00 30,000 29,696,400
5.62% due 11/09/00 60,000 59,389,062
---------------
103,935,675
---------------
TOTAL INVESTMENTS,
AT AMORTIZED COST 98.9% 14,228,742,895
OTHER ASSETS,
LESS LIABILITIES 1.1 163,597,739
------ ---------------
NET ASSETS 100.0% $14,392,340,634
====== ===============
* Variable interest rate -- subject to periodic change.
See notes to financial statements
17
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
================================================================================
ASSETS:
Investments at value (Note 1A) $14,228,742,895
Cash 278
Interest receivable 164,714,620
--------------------------------------------------------------------------------
Total assets 14,393,457,793
--------------------------------------------------------------------------------
LIABILITIES:
Payable to affiliate--Investment Advisory fee (Note 2A) 875,881
Accrued expenses and other liabilities 241,278
--------------------------------------------------------------------------------
Total liabilities 1,117,159
--------------------------------------------------------------------------------
NET ASSETS $14,392,340,634
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $14,392,340,634
================================================================================
See notes to financial statements
18
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
================================================================================
INTEREST INCOME (Note 1B) $ 897,863,487
EXPENSES:
Investment Advisory fees (Note 2A) $ 22,344,495
Administrative fees (Note 2B) 7,448,165
Custody and fund accounting fees 3,354,601
Trustees' fees 75,590
Audit fees 40,770
Legal fees 32,452
Other 49,563
--------------------------------------------------------------------------------
Total expenses 33,345,636
Less aggregate amounts waived by Investment
Adviser and Administrator (Notes 2A, and 2B) (18,433,019)
Less fees paid indirectly (Note 1F) (8,375)
--------------------------------------------------------------------------------
Net expenses 14,904,242
--------------------------------------------------------------------------------
Net investment income $ 882,959,245
================================================================================
See notes to financial statements
19
<PAGE>
CASH RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
-----------------------------------
2000 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 882,959,245 $ 628,439,104
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 58,289,540,600 47,581,662,450
Value of withdrawals (59,709,503,859) (42,086,666,522)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital transactions (1,419,963,259) 5,494,995,928
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (537,004,014) 6,123,435,032
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 14,929,344,648 8,805,909,616
--------------------------------------------------------------------------------
End of period $14,392,340,634 $14,929,344,648
================================================================================
See notes to financial statements
20
<PAGE>
CASH RESERVES PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
=========================================================================================================
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets (000's omitted) $14,392,341 $14,929,345 $ 8,805,910 $ 7,657,400 $ 4,442,187
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 5.93% 5.13% 5.65% 5.57% 5.64%
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% 0.22% 0.23% 0.23%
Net investment income to
average net assets 5.81% 5.01% 5.53% 5.44% 5.50%
=========================================================================================================
</TABLE>
See notes to financial statements
21
<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 Citigroup Inc.
The preparation of financial statements in accordance with United States of
America 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, in accordance with Rule 2a-7 of the Investment Company Act of 1940, as
amended (1940 Act). 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 agreements
underlying investments to ensure the existence of a proper level of collateral.
E. OTHER Purchases, maturities and sales of money market instruments are
accounted for on the date of the transaction.
F. 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 mea-
22
<PAGE>
CASH RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
sure 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.
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 $22,344,495
of which $10,984,854 was voluntarily waived for the year ended August 31, 2000.
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, is computed at
the annual rate of 0.05% of the Portfolio's average daily net assets. The
Administrative fees amounted to $7,448,165, all of which were voluntarily waived
for the year ended August 31, 2000. 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 $470,947,921,224 and $471,853,812,341, respectively, for
the year ended August 31, 2000.
4. LINE OF CREDIT The Portfolio, along with other funds in the fund family,
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, 2000, the commitment fee allocated to the
Portfolio was $43,206. Since the line of credit was established, there have been
no borrowings.
23
<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, 2000 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
auditing standards generally accepted in the United States of America. 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, 2000 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, 2000, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with accounting principles
generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
October 12, 2000
24
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Walter E. Robb, III
E. Kirby Warren
SECRETARY
Robert Frenkel**
TREASURER
Linwood Downs*
*AFFILIATED PERSON OF ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF INVESTMENT ADVISER
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
CitiFiduciary Trust Company
125 Broad Street, New York, NY 10004
SUB-TRANSFER AGENT
PFPC
4400 Computer Drive
West Boro, MA 01581
SUB-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>
This report 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.
(C)2000 Citicorp [RECYCLE LOGO] Printed on recycled paper CFA/RCR/800
