-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LVFLiEUvBpVFMCbhZg5P32oE9XQs5S52WTzqqfrXUH1A6rsbQ3mQxFOUb6BIvJoe HqF24LRkhAopdBgPsrvsYg== 0000950156-95-000129.txt : 19950615 0000950156-95-000129.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950156-95-000129 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950308 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDMARK FUNDS I CENTRAL INDEX KEY: 0000744388 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-04006 FILM NUMBER: 95519215 BUSINESS ADDRESS: STREET 1: 6ST JAMES ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174231679 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK GROWTH & INCOME FUND DATE OF NAME CHANGE: 19900429 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARKFUNDS MANAGED MUNICIPAL BOND TRUST DATE OF NAME CHANGE: 19860819 N-30B-2 1 LANDMARK BALANCED FUND AR [LOGO] LANDMARK (SM) FUNDS Advised by Citibank, N.A. ------------------------------------ Landmark Balanced Fund ------------------------------------ ANNUAL REPORT December 31, 1994 - - -------------------------------------------------------------------------------- A LETTER TO OUR SHAREHOLDERS - - -------------------------------------------------------------------------------- Dear Shareholder: 1994 was a difficult year for financial markets. A stronger-than-expected economy and higher interest rates adversely affected many types of investments, especially the bond market, where prices declined almost 10% since the beginning of 1994. The stock market fell just over 8% from its highs in the first half of the year, but later recouped those losses on the strength of strong corporate earnings and finished the year with a small gain. Throughout the period, the Landmark Funds' investment adviser, Citibank, N.A., managed the underlying Balanced Portfolio in a manner consistent with the Landmark Balanced Fund's investment objectives: to earn high current income by investing in a broad range of securities, to preserve capital, and to provide growth potential with reduced risk. The Portfolio seeks to participate in the potential long-term returns of the stock market at a lower level of share price volatility than is normally available from a fund invested entirely in stocks. This Annual Report for the period ended December 31, 1994 reviews the Fund's investment activities and performance over the past twelve months and provides a summary of Citibank's perspective on the financial markets and outlook for the foreseeable future. On behalf of the Board of Trustees of the Landmark Funds, I want to thank our shareholders for their participation and support. We look forward to serving you in the months and years ahead. /s/Philip W. Coolidge Philip W. Coolidge President January 20, 1995 Remember that Mutual Fund Shares: o Are not bank deposits or FDIC insured o Are not obligations of or guaranteed by Citibank or Citicorp Investment Services o Are subject to investment risks, including possible loss of the principal amount invested TABLE OF CONTENTS 1 Letter to Shareholders - - ---------------------------------------- 2 Market Environment Fund Snapshot - - ---------------------------------------- 3 Portfolio Managers The Portfolio Responds - - ---------------------------------------- 4 Fund Quotes Strategy and Outlook - - ---------------------------------------- 5 Balanced Portfolio by the Numbers - - ---------------------------------------- 6 Fund Data Performance Highlights - - ---------------------------------------- Landmark Balanced Fund - - ---------------------------------------- 7 Statement of Assets and Liabilities - - ---------------------------------------- 8 Statement of Operations - - ---------------------------------------- 9 Statement of Changes in Net Assets - - ---------------------------------------- 10 Financial Highlights - - ---------------------------------------- 11 Notes to Financial Statements - - ---------------------------------------- 14 Independent Auditors' Report - - ---------------------------------------- Balanced Portfolio - - ---------------------------------------- 15 Portfolio of Investments - - ---------------------------------------- 18 Statement of Assets and Liabilities Statement of Operations - - ---------------------------------------- 19 Statement of Changes in Net Assets Financial Highlights - - ---------------------------------------- 20 Notes to Financial Statements - - ---------------------------------------- 22 Independent Auditors' Report 1 - - -------------------------------------------------------------------------------- MARKET ENVIRONMENT - - -------------------------------------------------------------------------------- In our semi-annual report six months ago, we advised a cautious approach to stocks over the short term in order to participate in the long-term gains that we believe lie ahead. Our caution proved to be prudent as large capitalization stocks produced only small gains for the full year. Our relative optimism regarding the bond market, however, was misplaced--the bond market suffered its worst annual decline in years. We attribute the performance of both financial markets for the 12-month period ended December 31, 1994 to tighter monetary policy on the part of the Federal Reserve Board, which attempted to slow the growth of the U.S. economy. The Federal Reserve raised the federal funds rate (the rate banks charge each other for overnight loans) six times during the year, from 3.0% to 5.5%, in an effort to prevent an acceleration of inflation. We believe, however, that higher short-term interest rates and inflation fears alone are not a sufficient explanation for the bond market's decline. Indeed, prices increased by only about 3% during 1994. In addition to tighter monetary policy, a weak dollar relative to other currencies caused many foreign investors to move their capital from the U.S. bond market to other nations. And problems associated with some investors' highly leveraged fixed-income positions placed additional selling pressure on bonds as some institutional investors were forced to sell their holdings to repay their loans. - - -------------------------------------------------------------------------------- FUND SNAPSHOT - - -------------------------------------------------------------------------------- COMMENCEMENT OF OPERATIONS October 19, 1990 NET ASSETS AS OF 12/31/94 $227.3 million FUND OBJECTIVE High current income, preservation of capital and provide growth potential by investing in a mix of equity and fixed income securities DIVIDENDS Paid quarterly, if any CAPITAL GAINS Distributed annually, if any BENCHMARKS o Standard & Poor's 500 Index o Lehman Government/Corporate Bond Index o Lipper Balanced Funds Average INVESTMENT ADVISER, BALANCED PORTFOLIO Citibank, N.A. 2 - - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS - - -------------------------------------------------------------------------------- A. Dwight Hyde, Jr. Vice President, Citibank, N.A. U.S. Chief Investment Officer, Citibank Global Asset Management Mr. Hyde has been responsible for managing the equity portion of the Portfolio since its inception after serving as the manager of the equity portion of the Fund since January 1993. He serves as U.S. Chief Investment Officer for Citibank Global Asset Management and personally manages over $3.5 billion of equity assets for Citibank, including the Equity Portfolio. He also serves as head of the Equity Strategy Committee and is a member of the Citibank Investment Policy Committee. Mr. Hyde joined Citibank in 1980. He has also served as Chief Investment Officer at Dean Witter Asset Management and Paribas Asset Management. Mr. Hyde is a member of the New York Society of Security Analysts and the Financial Analysts Foundation. Mark Lindbloom Vice President, Citibank, N.A. Mr. Lindbloom has been responsible for managing the fixed income portion of the Portfolio since its inception after serving as the manager of the fixed income portion of the Fund since March 1993. He also manages the Landmark Intermediate Income Fund and intermediate maturity fixed income portfolios for investment advisory and institutional accounts at Citibank. Prior to joining Citibank in 1986, Mr. Lindbloom was employed by Brown Brothers Harriman & Company, where he managed discretionary corporate portfolios holding fixed income assets. - - -------------------------------------------------------------------------------- THE PORTFOLIO RESPONDS - - -------------------------------------------------------------------------------- The equity portion of the Portfolio was managed cautiously during the year, focusing on companies that have demonstrated stability in uncertain markets and solid future earnings prospects. For example, in 1994 we focused mainly on large- and medium-capitalization growth stocks, with particular emphasis on the economically sensitive capital spending and technology industries. We also found attractive values in the stocks of commodity, energy, health care and transportation companies. On the other hand, we tended to avoid the stocks of companies that are sensitive to interest rates, such as banks and utilities. Furthermore, we sold companies from the Portfolio that we believe became relatively expensive on a valuation basis. The Portfolio's fixed-income investments were managed with an eye toward maintaining shareholder value and generating competitive levels of income. Throughout most of the year, we maintained a "neutral" average duration (a measure of the Portfolio's sensitivity to changes in interest rates) for the portfolio, attempting to mirror the overall market's sensitivity to changes in interest rates. Short-term investments in corporate notes, asset-backed securities and commercial mortgage securities were balanced by longer term investments in corporate bonds, mortgage-backed securities and U.S. Treasury bonds, producing a portfolio with an average duration in the intermediate range. All securities held by the Fund were rated investment-grade or its equivalent. As of December 31, 1994, 88% were in AAA-rated bonds. 3 - - -------------------------------------------------------------------------------- FUND QUOTES FROM THE PORTFOLIO MANAGERS - - -------------------------------------------------------------------------------- "The major stock indices have held up fairly well in 1994, but the list of stocks reaching new highs has become smaller. We've become more cautious as a result." "We've invested in companies where we feel earnings prospects are solid, and we've been trimming companies that have high price-earnings ratios." "The characteristics of the fixed- income market are far different than they were a year ago. A slower pace of economic growth should benefit bonds." - - -------------------------------------------------------------------------------- STRATEGY AND OUTLOOK - - -------------------------------------------------------------------------------- Looking forward, we believe that the level of economic growth and the Federal Reserve's monetary policy decisions will continue to dominate the stock and bond markets over the next several months. If the Federal Reserve raises short-term interest rates further because of concerns about inflation, the markets are likely to remain under pressure over the near term. If, on the other hand, economic growth begins to moderate to more sustainable levels, stocks and bonds should react positively. Rising corporate earnings and declining bond yields should prove to be positive for the financial markets as 1995 unfolds. Finally, we expect the new Republican-controlled Congress to be positive for stocks and bonds. If initiatives such as a capital-gains tax cut and the balanced budget amendment are successful, capital should flow into financial assets, driving prices higher. Perhaps most significantly, deficit-reduction measures should help support the dollar relative to other currencies, making the U.S. markets more attractive to overseas investors. We expect the combination of moderate economic growth, low inflation, lower taxes on capital gains and foreign investment to be a powerful foundation for stock and bond market gains in 1995 and beyond. 4 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- BY THE NUMBERS - - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO (As of 12/31/94) - - -------------------------------------------------------------------- Name Industry Sector % of Net Assets General Electric Co. Electronic 2.34% American Express Co. Finance-Non Banks 1.86% Royal Dutch Petroleum Co. Energy 1.64% General Motors Corp. Cyclicals-Durables 1.55% Consolidated Rail Inc. Transportation 1.54% Air Products & Chemicals Inc. Commodities 1.46% American Telephone & Telegraph Co. Information Processing 1.45% General Motors Corp. "Class E" Information Processing 1.43% Unocal Corp. Energy 1.32% Texas Instruments, Inc. Electronic 1.31% FIXED INCOME HOLDINGS As of 12/31/94, the fixed income holdings were distributed as follows (as a percent of the total portfolio): - - -------------------------------------------------------------------- U.S. Treasuries .............. 19% Mortgage Obligations ......... 13 Asset Backed Securities ...... 2 Corporate Bonds .............. 3 Yankee Bonds ................. 2 -- 39% CHANGES IN PORTFOLIO ASSET ALLOCATION Portfolio of investments as of 12/31/94 Cash/Short Term/Other ................. 5% Stocks ................................ 56% Treasuries ............................ 19% Other Bonds ........................... 20% Compared to 12/31/93 Cash/Short Term/Other ................. 8% Stocks ................................ 57% Treasuries ............................ 9% Other Bonds ........................... 26% 5 - - -------------------------------------------------------------------------------- FUND DATA All Periods Ended December 31, 1994 - - -------------------------------------------------------------------------------- Total Returns ----------------------------- Since 10/19/90 One Inception Year (annualized) -------- ------------ Landmark Balanced Fund without Sales Charge .................. (2.06)% 11.17% Lipper Balanced Funds Average ........... (2.50)% 11.58%* Standard & Poor's 500 Index ............. 1.31% 13.77%* Lehman Government/Corporate Bond Index .. (3.51)% 8.19%* Landmark Balanced Fund with Maximum Sales Charge of 4.75% .... (6.71)% 9.89% *From 10/31/90 30-Day SEC Yield 3.17% Income Dividends Per Share $0.394 Capital Gain Distributions $0.030 - - -------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS - - -------------------------------------------------------------------------------- A $10,000 investment in the Fund made on inception date would have grown to $14,866 with sales charge (as of 12/31/94). The graph shows how the Fund compares to our benchmarks for the period October 31, 1990 to December 31, 1994. The graph includes the initial sales charge on the Fund (no comparable charge exists for the other indices) and assumes all dividends and distributions from the Fund are reinvested at Net Asset Value. The following data is presented as a graph in the printed report. Landmark Landmark Lehman Balanced Balanced Lipper Government/ Without With Balanced S&P 500 Corporate Sales Sales Funds Index Bond Index Charge Charge Average (Unmanaged) (Unmanaged) -------- -------- -------- ----------- ----------- Oct. 90 $10,000 $ 9,525 $10,000 $10,000 $10,000 $10,553 $10,052 $10,435 $10,646 $10,133 - - -------------------------------------------------------------- Dec. 90 $10,798 $10,285 $10,677 $10,943 $10,354 $11,302 $10,766 $11,034 $11,420 $10,510 $11,881 $11,316 $11,520 $12,237 $10,628 $12,026 $11,455 $11,724 $12,533 $10,719 $12,037 $11,465 $11,752 $12,563 $10,793 $12,481 $11,888 $12,098 $13,104 $10,917 $12,047 $11,475 $11,725 $12,504 $10,969 $12,624 $12,024 $12,122 $13,087 $10,957 $13,115 $12,492 $12,433 $13,397 $11,095 $12,938 $12,324 $12,449 $13,173 $11,350 $13,175 $12,549 $12,632 $13,350 $11,587 $12,949 $12,334 $12,353 $12,812 $11,690 - - -------------------------------------------------------------- Dec. 91 $13,995 $13,331 $13,357 $14,277 $11,807 $13,736 $13,083 $13,241 $14,012 $12,205 $13,941 $13,279 $13,400 $14,194 $12,024 $13,770 $13,116 $13,202 $13,917 $12,088 $13,824 $13,168 $13,322 $14,326 $12,022 $13,900 $13,240 $13,460 $14,397 $12,094 $13,655 $13,007 $13,315 $14,182 $12,328 $14,115 $13,444 $13,712 $14,762 $12,510 $13,907 $13,246 $13,582 $14,460 $12,830 $14,157 $13,484 $13,753 $14,630 $12,944 $14,366 $13,683 $13,754 $14,681 $13,120 $14,827 $14,123 $14,094 $15,182 $12,919 - - -------------------------------------------------------------- Dec. 92 $14,950 $14,240 $14,355 $15,369 $12,908 $15,061 $14,345 $14,548 $15,498 $13,130 $15,039 $14,324 $14,644 $15,709 $13,416 $15,559 $14,820 $14,920 $16,040 $13,694 $15,359 $14,630 $14,738 $15,652 $13,741 $15,603 $14,862 $14,978 $16,071 $13,846 $15,598 $14,857 $15,146 $16,118 $13,839 $15,476 $14,741 $15,170 $16,054 $14,153 $15,966 $15,208 $15,628 $16,662 $14,244 $15,955 $15,198 $15,681 $16,534 $14,571 $16,090 $15,326 $15,822 $16,876 $14,622 $15,922 $15,166 $15,591 $16,716 $14,682 - - -------------------------------------------------------------- Dec. 93 $16,218 $15,448 $15,867 $16,918 $14,508 $16,571 $15,784 $16,253 $17,494 $14,571 $16,241 $15,469 $15,934 $17,020 $14,791 $15,622 $14,880 $15,348 $16,277 $14,469 $15,714 $14,968 $15,377 $16,486 $14,114 $15,920 $15,164 $15,449 $16,756 $13,997 $15,553 $14,815 $15,167 $16,346 $13,971 $15,981 $15,222 $15,509 $16,882 $13,937 $16,305 $15,530 $15,906 $17,574 $14,216 $15,866 $15,113 $15,618 $17,149 $14,222 $16,099 $15,334 $15,711 $17,546 $14,007 $15,703 $14,957 $15,324 $16,902 $13,991 - - -------------------------------------------------------------- Dec. 94 $15,884 $15,130 $15,453 $17,151 $13,741 Notes: All Fund performance numbers represent past performance, and are no guarantee of future results. The Fund's share price and investment return will fluctuate, so that the value of an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns include change in share price and reinvestment of dividends and distributions, if any. Total return figures "with sales charge" are provided in accordance with SEC guidelines for comparative purposes for prospective investors. 6 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 - - -------------------------------------------------------------------------------- Assets: Investment in Balanced Portfolio, at value (Note 1A) ..................................... $ 227,785,802 Receivable for shares of beneficial interest sold .......................................... 114,725 ------------- Total assets ......................................... 227,900,527 ------------- Liabilities: Payable for shares of beneficial interest repurchased ................................... 482,389 Payable to affiliates--Shareholder servicing agents' fee (Note 3B) ........................ 47,957 Accrued expenses and other liabilities ................... 61,385 ------------- Total liabilities .................................... 591,731 ------------- Net Assets for 16,810,822 shares of beneficial interest outstanding ........................ $ 227,308,796 ============= Net Assets Consist of: Paid-in capital .......................................... $ 232,566,335 Unrealized appreciation of investments ................... 1,543,118 Accumulated net realized loss on investments ......................................... (7,003,192) Undistributed net investment income ...................... 202,535 ------------- Total ................................................ $ 227,308,796 ============= Net Asset Value and Redemption Price Per Share of Beneficial Interest ....................... $13.52 ====== Computation of Offering Price: Maximum Offering Price per share based on a 4.75% sales charge ($13.52/0.9525) ................ $14.19 ====== See notes to financial statements 7 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended December 31, 1994 - - -------------------------------------------------------------------------------- Investment Income (Note 1B): Interest ...................................... $ 2,049,771 Dividends ..................................... 867,711 $ 2,917,482 ------------ Dividend Income from Balanced Portfolio ....... 2,317,246 Interest Income from Balanced Portfolio ....... 4,152,334 Other Income Foreign Tax reclaim .............. 6,190 Allocated Expenses from Balanced Portfolio .... (821,143) 5,654,627 ------------ ------------ 8,572,109 Expenses: Shareholder Servicing Agents' fees (Note 3B) .............................. 977,967 Investment advisory fees (Note 2) ............. 340,160 Administrative fees (Note 3A) ................. 409,258 Distribution fees (Note 4) .................... 122,246 Expense reimbursement fees (Note 7) ........... 191,943 ------------ Total expenses ............................ 2,041,574 Less aggregate amount waived by Shareholder Servicing Agents (Note 3B) ...... (366,738) ------------- Net expenses ............................. 1,674,836 ------------ Net investment income .................... 6,897,273 Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) from investment transactions ................ (6,869,492) Net change in unrealized appreciation(depreciation) .................. (5,321,496) ------------ Net realized and unrealized gain (loss) on investments .................. (12,190,988) ------------ Net Decrease in Net Assets Resulting from Operations ................... $ (5,293,715) ============ See notes to financial statements 8 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, December 31, 1994 1993 ------------- ------------- Increase (Decrease) in Net Assets from: Operations: Net investment income ...................... $ 6,897,273 $ 3,537,220 Net realized gain (loss) on investment transactions ............... (6,869,492) 3,189,168 Net change in unrealized appreciation (depreciation) of investments ............ (5,321,496) 4,538,368 ------------- ------------- Net increase (decrease) in net assets resulting from operations ........ (5,293,715) 11,264,756 ------------- ------------- Equalization (Note 1E) ..................... -- 2,143 ------------- ------------- Distributions to Shareholders from: Net investment income ...................... (6,810,013) (3,542,388) Net realized gain on investments ........... (527,276) (2,203,230) ------------- ------------- Decrease in net assets from distributions to shareholders .......... (7,337,289) (5,745,618) ------------- ------------- Transactions in Shares of Beneficial Interest (Note 6): Net proceeds from sale of shares ........... 9,407,740 19,709,621 Net asset value of shares issued to shareholders from reinvestment of distributions ......................... 7,330,858 5,730,746 Net asset value of shares issued in connection with the acquisition of Citibank IRA Balanced Portfolio (Note 8) ....................... -- 238,052,969 Cost of shares repurchased ................. (42,014,602) (19,095,025) ------------- ------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest .......... (25,276,004) 244,398,311 ------------- ------------- Net Increase (Decrease) in Net Assets ............................ (37,907,008) 249,919,592 Net Assets: Beginning of period ........................ 265,215,804 15,296,212 ------------- ------------- End of period (including undistributed net investment income of $202,535 and $17,648, respectively) ............... $ 227,308,796 $ 265,215,804 ============= ============= See notes to financial statements 9 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - - --------------------------------------------------------------------------------
October 19, 1990 Year Ended December 31, (Commencement of -------------------------------------------------------- Operations) to 1994 1993 1992 1991 December 31,1990 ---- ---- ---- ---- ---------------- Net Asset Value, beginning of period .......... $ 14.24 $ 13.54 $ 12.93 $ 10.27 $ 9.75 -------- -------- -------- -------- -------- Income From Operations: Net investment income ......................... 0.399 0.336 0.266 0.336 0.081 Net realized and unrealized gain (loss) on investments ....................... (0.695) 0.803 0.600 2.665 0.513 -------- -------- -------- -------- -------- Total from operations .................... (0.296) 1.139 0.866 3.001 0.594 -------- -------- -------- -------- -------- Less Distributions From: Net investment income ....................... (0.394) (0.319) (0.256) (0.341) (0.074) Net realized gain on investments ............ (0.030) (0.120) -- -- -- -------- -------- -------- -------- -------- Total from distributions ................ (0.424) (0.439) (0.256) (0.341) (0.074) -------- -------- -------- -------- -------- Net Asset Value, end of period ................ $ 13.52 $ 14.24 $ 13.54 $ 12.93 $ 10.27 ======== ======== ======== ======== ======== Ratios/Supplemental Data: Net assets, end of period (000's omitted) ............................. $227,309 $265,216 $15,296 $10,239 $ 6,855 Ratio of expenses to average net assets .................................. 1.02% 1.04% 1.40% 1.40% 1.40% Ratio of net investment income to average net assets ....................... 2.82% 2.46% 2.07% 2.88% 4.06% Portfolio turnover ............................ 29% 101% 102% 117% 12% Total return .................................. (2.06)% 8.48% 6.82% 29.61% 6.09% Note: If Agents of the Fund for the periods indicated and Agents of Balanced Portfolio for the period May 1, 1994 to December 31, 1994 had not waived a portion of their fees and an expense reimbursement agreement had not been in effect and had expenses been limited to that required by certain state securities laws, the net investment income per share and the ratios would have been as follows: Net investment income per share ............ $ 0.378 $ 0.310 $ 0.148 $ 0.211 $ 0.059 Ratios: Expenses to average net assets ............. 1.17% 1.23% 2.32% 2.47% 2.50% Net investment income to average net assets ........................ 2.67% 2.27% 1.15% 1.81% 2.96% Annualized Because of the significant increase in Fund shares outstanding during the year ended December 31, 1993, the per share amount for net investment income was computed using a monthly average number of shares outstanding during the year. Not annualized Includes the Fund's share of Balanced Portfolio allocated expenses for the period May 1, 1994 to December 31, 1994. Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in securities. The portfolio turnover rate for the period since the Fund transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report.
See notes to financial statements 10 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES The Landmark Balanced Fund (the "Fund") is a separate diversified series of Landmark Funds I (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. On May 1, 1994, the Fund began investing all of its investable assets in Balanced Portfolio (the "Portfolio"), a management investment company for which Citibank, N.A. ("Citibank") serves as Investment Adviser. The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the Fund's Administrator and Distributor. Citibank also serves as Sub-Administrator and makes Fund shares available to customers as Shareholder Servicing Agent. The Trust seeks to achieve the Fund's investment objectives of earning high current income, preservation of capital and providing growth potential with reduced risk by investing all of its investable assets in the Portfolio, an open-end, diversified management investment company having the same investment objectives and policies and substantially the same investment restrictions as the Fund. The value of such investment reflects the Fund's proportionate interest (99.3% at December 31, 1994) in the net assets of the Portfolio. The financial statements of the Portfolio, including the portfolio of investments, are contained elsewhere in this report and should be read in conjunction with the Fund's financial statements. The significant accounting policies consistently followed by the Fund are in conformity with generally accepted accounting principles and 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. Prior to the Fund's investment in the Portfolio, the Fund held its investments directly. For investments which were held directly interest income was determined on the basis of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for federal income tax purposes. Gain and loss from principal paydowns was recorded as interest income. Dividend income was recorded on the ex-dividend date. C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of its taxable income, including any net realized gain on investment transactions. Accordingly, no provision for federal income or excise tax is necessary. At December 31, 1994, the Fund, for federal income tax purposes, had a capital loss carryover of $3,730,366, which will expire on December 31, 2002. Such capital loss carryover will reduce the Fund's taxable income arising from future net realized gain on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. D. EXPENSES -- The Fund bears all costs of its operations other than expenses specifically assumed by Citibank and LFBDS. Expenses incurred by the Trust with respect to any two or more funds or 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. E. DISTRIBUTIONS -- Distributions to shareholders are recorded on ex-dividend date. The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from generally accepted accounting principles. These differences are attributable to permanent book and tax accounting differences. Reclassifications are made to the Fund's capital accounts to reflect income and net realized gains available for distribution (or available capital loss 11 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - - -------------------------------------------------------------------------------- carryovers) under income tax rules and regulations. For the year ended December 31, 1994, the Fund reclassed $12,198 to paid-in capital, $127,473 from accumulated net loss on investment and $115,275 to undistributed net investment income. Prior to January 1, 1994, the Fund followed equalization accounting by which a portion of the proceeds from sales and cost of repurchases of Fund shares was credited or charged to undistributed net investment income on the date of the transaction so that undistributed net investment income per share was unaffected by Fund shares sold or repurchased. The Fund discontinued equalization accounting as of January 1, 1994 and reclassified net equalization credits in the amount of $17,648 from accumulated net investment income to paid-in capital. In management's opinion, discontinuance of equalization accounting will result in less distortion of undistributed net investment income as compared to income available for distribution for federal income tax purposes. This change has no effect on the Fund's net assets, results of operations or net asset value per share, and did not have a material effect on the per share amounts in the Financial Highlights. F. OTHER -- All the net investment income, realized and unrealized gain and loss of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and the other investors in the Portfolio at the time of such determination. Investment transactions are accounted for on the trade date basis. Realized gains and losses are determined on the identified cost basis. (2) INVESTMENT ADVISORY FEE Prior to May 1, 1994 (when the Fund transferred all of its investable assets to the Portfolio in exchange for an interest in the Portfolio), the Fund retained Citibank, as its Investment Adviser. The investment advisory fee paid to Citibank, as compensation for overall investment management services, amounted to $340,160 for the four months ended April 30, 1994. The investment advisory fee was computed at the annual rate of 0.40% of the Fund's average daily net assets. The Portfolio has engaged Citibank to render investment advisory services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. (3) ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services Plan (the "Administrative Services Plan") which provides that the Trust, on behalf of the 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 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 0.65% of the Fund's average daily net assets on an annualized basis for the Fund's then current fiscal year. A. ADMINISTRATIVE FEE -- 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, may not exceed an annual rate of 0.20% of the Fund's average daily net assets. Prior to May 1, 1994 (when the Fund transferred all of its investable assets to the Portfolio in exchange for an interest in the Portfolio), the Administrator received fees computed at the annualized rate of 0.20% of the Fund's average daily net assets which amounted to $170,080 for the four months ended April 30, 1994. For the period May 1, 1994 to December 31, 1994, under the Administrative Services Plan the Administrator received fees computed at an annual rate of 0.15% of the Fund's average daily net assets which amounted to $239,178. Citibank acts as Sub-Administrator and performs such duties and receives such compensation from LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund pays no compensation directly to any 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 or directors of the Administrator or its affiliates. 12 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - - -------------------------------------------------------------------------------- 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 that 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 0.40% 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. Shareholder Servicing Agents' fees amounted to $977,967, of which $366,738 was voluntarily waived for the year ended December 31, 1994. (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 reimburses the Distributor for expenses incurred or anticipated in connection with sales of shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's average daily net assets. The Distributor may also receive an additional fee from the Fund at an annual rate not to exceed 0.05% 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. No payment of such additional fee has been made during the period. Under the Administrative Services Plan distribution fees were computed at an annual rate of 0.05% of the Fund's average daily net assets, which amounted to $122,246 for the year ended December 31, 1994. (5) INVESTMENT TRANSACTIONS On May 1, 1994 the Fund transferred all of its investable assets ($246,231,647) to the Portfolio in exchange for an interest in the Portfolio. Increases and decreases in the Fund's investment in the Portfolio for the period May 1, 1994 to December 31, 1994 aggregated $3,619,716 and $25,470,972, respectively. Purchases and sales of investments, other than short-term obligations during the period January 1, 1994 to April 30, 1994 aggregated $78,436,141 and $68,770,188, respectively. (6) 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). Transactions in shares of beneficial interest were as follows: Year Ended Year Ended December 31, December 31, 1994 1993 ----------- ----------- Shares sold .................................. 671,065 1,404,177 Shares issued in connection with the acquisition of Citibank IRA Balanced Portfolio (Note 8) ......................... -- 17,043,695 Shares issued to shareholders from reinvest- ment of distribution ....................... 539,598 403,690 Shares repurchased ........................... (3,026,611) (1,354,544) ----------- ----------- Net increase (decrease) ...................... (1,815,948) 17,497,018 =========== =========== (7) EXPENSE REIMBURSEMENT FEE LFBDS has entered into an expense reimbursement agreement with the Fund. LFBDS has agreed to pay all of the ordinary operating expenses (excluding interest, taxes, brokerage commissions, litigation costs or other extraordinary costs or expenses) of the Fund, other than fees paid under the Administrative Services Agreement, Distribution Agreement, and the Shareholder Servicing Agreements. The Agreement shall terminate on May 31, 2000, unless sooner terminated by either party upon not less than 30 days nor more than 60 days written notice to the other party. The Trust has agreed to pay LFBDS an expense reimbursement fee from the Fund, in addition to the administrative and distribution fees, accrued daily and paid monthly; provided, however, that such fee shall not exceed the amount such that immediately after any such payment the aggregate expenses of the Fund including expenses allocated from the Portfolio would, on an annual basis, exceed an agreed upon rate, currently 1.02% of average daily net assets. 13 - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - - -------------------------------------------------------------------------------- (8) ACQUISITION OF CITIBANK IRA BALANCED PORTFOLIO On June 25, 1993, the Fund acquired all of the net assets of the Balanced Portfolio of the Collective Investment Trust for Citibank IRAs pursuant to an Agreement and Plan of Reorganization approved by Citibank IRA Balanced Portfolio participants on February 18, 1993. The acquisition was accomplished by a tax-free exchange of 17,043,695 shares of the Fund (valued at $238,052,969) in exchange for the Balanced Portfolio's net assets on June 25, 1993. The Citibank IRA Balanced Portfolio's net assets at that date ($238,052,969), including $140,152 of unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Fund after the acquisition were $258,574,336. - - -------------------------------------------------------------------------------- Landmark Balanced Fund - - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - - -------------------------------------------------------------------------------- TO THE TRUSTEES AND THE SHAREHOLDERS OF LANDMARK FUNDS I (THE TRUST): LANDMARK BALANCED FUND In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Landmark Balanced Fund (the "Fund"), a series of the Landmark Funds I, at December 31, 1994, and the results of its operations, the changes in its net assets and the financial highlights for the year then ended in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of investments owned at December 31, 1994, provides a reasonable basis for the opinion expressed above. The statement of changes in net assets for the period ended December 31, 1993 and the financial highlights for each of the periods then ended were audited by other independent accountants whose report dated February 2, 1994 expressed an unqualified opinion on those statements. PRICE WATERHOUSE LLP Boston, Massachusetts February 3, 1995 14 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 1994 - - -------------------------------------------------------------------------------- Issuer Shares Value - - -------------------------------------------------------------------------------- COMMON STOCKS -- 56.1% - - -------------------------------------------------------------------------------- COMMODITIES - 3.3% Air Products & Chemicals Inc. ............ 75,000 $ 3,346,875 Lubrizol Corp. ........................... 60,000 2,032,500 Nucor Corp. .............................. 41,200 2,286,600 ------------ 7,665,975 ------------ CYCLICALS - DURABLES - 2.9% Cooper Tire & Rubber Co. ................. 13,700 323,663 Ford Motor Co. ........................... 96,000 2,688,000 General Motors Corp. ..................... 84,000 3,549,000 ------------ 6,560,663 ------------ CYCLICALS - NON DURABLES - 1.3% Eastman Kodak Co. ........................ 62,000 2,960,500 ------------ ELECTRONIC - 5.5% Emerson Electric Co. ..................... 35,000 2,187,500 General Electric Co. ..................... 105,000 5,355,000 Hewlett Packard Co. ...................... 20,000 1,997,500 Texas Instruments, Inc. .................. 40,200 3,009,975 ------------ 12,549,975 ------------ ENERGY - 3.6% Royal Dutch Petroleum Co. ADR's .............................. 35,000 3,762,500 Schlumberger LTD ......................... 27,000 1,360,125 Unocal Corp. ............................. 111,000 3,024,750 ------------ 8,147,375 ------------ ENTERTAINMENT/MEDIA - 1.0% Carnival Corp. ........................... 26,100 554,625 Gaylord Entertainment Co. ................ 12,000 273,000 Tele-Communications Inc. Class "A" .............................. 65,000 1,413,750 ------------ 2,241,375 ------------ FINANCE BANKS - 2.9% BankAmerica Corp. ........................ 60,000 2,370,000 First Fidelity Bancorp ................... 47,000 2,109,125 Signet Banking Corp. ..................... 76,000 2,175,500 ------------ 6,654,625 ------------ FINANCE - NON BANKS - 7.4% American Express Co. ..................... 100,000 4,262,500 American International Group Inc. ............................. 28,000 2,744,000 Asia Tigers Fund ......................... 28,300 265,313 Avalon Properties Inc. ................... 75,000 1,725,000 Chile Fund ............................... 11,600 535,050 Emerging Germany Fund, Inc. .............. 23,100 170,363 Emerging Tiger Fund, Inc. ................ 34,600 393,575 Federal National Mortgage Association ................... 40,000 2,915,000 First Australia Fund, Inc. ............... 8,500 75,438 France Growth Fund ....................... 12,300 112,238 Future Germany Fund ...................... 11,700 168,188 Irish Investment Fund, Inc. .............. 3,300 28,463 Malaysia Fund ............................ 19,600 338,100 Pakistan Investment Fund ................. 34,100 306,900 Thai Capital Fund ........................ 18,500 307,563 The India Fund, Inc. ..................... 42,000 446,250 The New Germany Fund ..................... 28,600 328,900 The Thai Fund, Inc. ...................... 14,100 315,485 Travelers Inc. ........................... 38,000 1,235,000 United Kingdom Fund, Inc. ................ 16,100 175,088 ------------ 16,848,414 ------------ GROWTH STAPLES - 3.2% McDonald's Corp. ......................... 86,000 2,515,500 PepsiCo Inc. ............................. 62,500 2,265,625 Sysco Corp. .............................. 100,000 2,575,000 ------------ 7,356,125 ------------ HEALTH CARE - 5.8% Abbott Laboratories ...................... 77,000 2,512,125 Coastal Healthcare Group ................. 52,600 1,439,925 Community Health Systems ................. 35,500 967,375 FHP Group ................................ 56,000 1,442,000 Johnson & Johnson ........................ 49,000 2,682,750 Pfizer Inc. .............................. 32,000 2,472,000 United Health Care Co. ................... 11,500 518,938 Value Health Inc. ........................ 35,300 1,314,925 ------------ 13,350,038 ------------ 15 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 1994 continued - - -------------------------------------------------------------------------------- Issuer Shares Value - - -------------------------------------------------------------------------------- INFORMATION PROCESSING - 7.8% American Telephone & Telegraph Co. ........................... 66,000 $ 3,316,500 Cisco Systems, Inc. ...................... 70,000 2,458,750 DSC Communications ....................... 48,000 1,722,000 General Motors Corp. Class "E" ........... 85,000 3,272,500 Silicon Graphics Inc.* ................... 60,000 1,852,500 Stratus Computer Inc.* ................... 68,000 2,584,000 Xerox Corp. .............................. 26,500 2,623,500 ------------ 17,829,750 ------------ MACHINERY - 3.2% Cooper Industries Inc. ................... 46,000 1,569,750 Deere & Co. .............................. 30,000 1,987,500 Fluor Corp. .............................. 45,000 1,940,623 WMX Technologies Inc. .................... 71,000 1,863,750 ------------ 7,361,623 ------------ RETAIL SALES - 4.2% Home Depot Inc. .......................... 50,000 2,300,000 Limited Inc. ............................. 65,000 1,178,125 May Department Stores Co. ................ 70,000 2,362,500 Toys "R" Us Inc.* ........................ 80,000 2,440,000 Wal-Mart Stores Inc. ..................... 58,000 1,232,500 ------------ 9,513,125 ------------ TRANSPORTATION - 2.7% Consolidated Rail Inc. ................... 70,000 3,535,000 Norfolk Southern Co. ..................... 45,000 2,728,125 ------------ 6,263,125 ------------ UTILITIES - 1.3% FPL Group Inc. ........................... 38,000 1,334,750 Telefonos de Mexico ADR's ................ 42,700 1,750,700 ------------ 3,085,450 ------------ TOTAL COMMON STOCK (Identified Cost $120,023,280) 128,388,138 ------------ - - -------------------------------------------------------------------------------- FIXED INCOME -- 39.0% - - -------------------------------------------------------------------------------- Principal Issuer Amount Value - - -------------------------------------------------------------------------------- ASSET BACKED - 1.9% Carco 7.875% , due 7/15/99 .................... $3,000,000 $2,960,625 General Motors Acceptance Corp., 5.95%, due 2/15/97 ...................... 276,188 276,099 GMAC 1992 E Grantor Trust, 4.75%, due 8/15/97 ...................... 333,484 325,564 Merrill Lynch Asset Backed Co. ........... 5.125%, due 7/15/98 ..................... 730,712 715,410 ------------ 4,277,698 ------------ MORTGAGE OBLIGATIONS - 13.4% COLLATERALIZED MORTGAGE OBLIGATIONS - 9.4% Banc One Credit 7.55%, due 12/15/99 .................... 3,000,000 2,959,800 Equitable Capital Credit. 8.95%, due 10/15/06 ..................... 3,000,000 3,028,800 Federal Home Loan Mortgage Corp. 6.00%, due 3/15/09 ...................... 3,000,000 2,388,687 6.00%, due 3/15/09 ...................... 2,496,985 1,987,972 Federal National Mortgage Association 6.50%, due 9/17/09 ...................... 2,800,000 2,359,000 HFCHC 6.725%, due 5/20/08 ..................... 3,275,000 3,269,858 Nomura Asset Corp. 7.265%, due 7/07/03 ..................... 2,578,498 2,635,225 Resolution Trust Corp. 5.6125%, due 9/25/24 .................... 2,961,725 2,954,321 ------------ 21,583,663 ------------ 16 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 1994 continued - - -------------------------------------------------------------------------------- Principal Issuer Amount Value - - -------------------------------------------------------------------------------- MORTGAGE BACKED SECURITIES - 0.1% Federal Home Loan Mortgage Corp. 8.50%, due 6/1/01 ....................... $ 44,837 $ 44,473 9.50%, due 2/1/01 ....................... 25,915 26,539 Federal National Mortgage Assoc 9.00%, due 11/1/01 ...................... 43,316 43,926 ------------ 114,938 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.9% 6.50%, due 1/15/25 TBA .................. 3,000,000 2,599,680 7.50%, due 1/15/25 ...................... 3,000,000 2,783,430 8.25%, due 7/15/05 TBA .................. 891,347 849,837 6.50%, due 1/15/10 TBA .................. 3,000,000 2,741,250 ------------ 8,974,197 ------------ TOTAL MORTGAGE OBLIGATIONS ............... 30,672,798 ------------ DOMESTIC CORPORATE BONDS - 2.9% Caterpillar Inc. 9.00%, due 4/15/06 ...................... 2,300,000 2,363,250 General Motors Acceptance Corp. 8.70%, due 3/15/95 ...................... 1,450,000 1,454,843 5.15% due 9/14/95 ....................... 1,600,000 1,572,192 Grand Met. Investment Corp., Zero Coupon Bond, due 6/1/04 .............................. 2,800,000 1,316,140 ------------ 6,706,425 ------------ YANKEE BONDS - 1.8% Aegon, NV 8.00%, due 8/15/06 ...................... 2,800,000 2,682,876 Phillips Electronics, NV 8.375%, due 9/15/06 ..................... 1,500,000 1,468,953 ------------ 4,151,829 ------------ UNITED STATES GOVERNMENT OBLIGATIONS - 19.0% United States Government Agency - 2.1% Federal National Mortgage Association 6.28%, due 2/3/04 ....................... 2,800,000 2,463,748 6.14%, due 1/21/04 ...................... 2,800,000 2,428,048 ------------ 4,891,796 ------------ UNITED STATES TREASURY NOTES - 15.7% 7.25 %, due 11/30/96 ..................... $ 5,600,000 $ 5,557,104 7.37 %, due 11/15/97 ..................... 16,000,000 15,829,920 7.75 %, due 11/30/99 ..................... 5,000,000 4,981,250 7.50%, due 11/15/24 ...................... 10,000,000 9,565,600 ------------ 35,933,874 ------------ UNITED STATES TREASURY STRIPPED BONDS - 1 2% United States Treasury Stripped, Zero Coupon Bond due 8/15/03 ............................. 2,800,000 1,434,412 due 2/l5/04 ............................. 2,800,000 1,379,196 ------------ 2,813,608 ------------ TOTAL UNITED STATES GOVERNMENT OBLIGATIONS 43,639,278 ------------ TOTAL FIXED INCOME (Identified Cost $96,277,202) 89,448,028 ------------ - - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS -- 11.5% - - -------------------------------------------------------------------------------- Salomon Repurchase Agreement, 6.00 %, due 1/03/95, proceeds at maturity $26,259,495 (secured by $29,340,000 U.S. Treasury Note 4.75% due 9/30/98) ............................ 26,242,000 ------------ TOTAL INVESTMENTS ........................ 106.6% 244,078,166 (Identified Cost $242,542,482) OTHER LIABILITIES LESS ASSETS ............................. (6.6)% (15,130,203) ------------ ------------ NET ASSETS ............................... 100.0% $228,947,963 ============ ============ * Non-income producing security ** TBA's are mortgage-backed securities traded under delayed delivery commitments, settling after December 31, 1994. Although the unit price for the trade has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2% from the principal amount. Income on TBA's is not earned until settlement date. See notes to financial statements 17 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 - - -------------------------------------------------------------------------------- Assets: Investments at value (Note 1A) (Identified Cost, $242,542,482) ......................... $244,078,166 Cash ...................................................... 200 Receivable for investments sold ........................... 1,869,272 Dividends and interest receivable ......................... 1,253,943 ------------ Total assets .......................................... 247,201,581 ------------ Liabilities: Payable for investments purchased ......................... 18,166,074 Payable to affiliates--Investment advisory fee (Note 2) ................................... 77,408 Accrued expenses and other liabilities .................... 10,136 ------------ Total liabilities ..................................... 18,253,618 ------------ Net Assets ................................................ $228,947,963 ============ Represented by: Paid-in capital for beneficial interests .................................... $228,947,963 ============ See notes to financial statements - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Period May 1, 1994 (Commencement of Operations) to December 31, 1994 - - -------------------------------------------------------------------------------- Investment Income: Interest .................................. $ 4,161,173 Dividends ................................. 2,320,775 ----------- Total Income $ 6,481,948 Expenses: Investment advisory fees (Note 2) ......... 640,795 Administrative fees (Note 3) .............. 80,099 Expense reimbursement fees (Note 6) ....... 101,856 ----------- Total expenses .......................... 822,750 ----------- Net investment income ................... 5,659,198 ----------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized loss from investment transactions ............................ (6,675,580) Unrealized appreciation (depreciation) of investments-- Beginning of period ..................... -- End of period ........................... 1,535,684 Plus unrealized depreciation acquired in connection with Landmark Balanced Fund contribution (Note 1) ..... 2,886,846 ----------- Net change in unrealized appreciation (depreciation) ............. 4,422,530 ----------- Net realized and unrealized loss on investments ..................... (2,253,050) ----------- Net Increase in Net Assets Resulting from Operations ............... $ 3,406,148 =========== See notes to financial statements 18 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - - -------------------------------------------------------------------------------- May 1, 1994 (Commencement of Operations) to December 31, 1994 ----------------- Increase (Decrease) in Net Assets from: Operations: Net investment income ..................................... $ 5,659,198 Net realized loss on investment transactions .............. (6,675,580) Net change in unrealized depreciation of investments ...... 4,422,530 ------------- Net increase in net assets resulting from operations .. 3,406,148 ------------- Capital Transactions: Proceeds from contributions ............................... 251,032,858 Value of withdrawals ...................................... (25,491,043) ------------- Net increase in net assets from capital transactions .. 225,541,815 ------------- Net Increase in Net Assets ................................ 228,947,963 Net Assets: Beginning of period ....................................... -- ------------- End of period ............................................. $ 228,947,963 ============= - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - - -------------------------------------------------------------------------------- May 1, 1994 (Commencement of Operations) to December 31, 1994 --------------- Ratios/Supplemental Data: Net Assets, end of period (000 omitted) ................... $228,948 Ratio of expenses to average net assets ................... 0.51%* Ratio of net investment income to average net assets ...... 3.53%* Portfolio turnover ........................................ 105% * Annualized See notes to financial statements 19 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES Balanced Portfolio (the "Portfolio"), a separate series of The Premium Portfolios (the "Portfolio Trust"), is registered under the Investment Company Act of 1940, as amended, as a 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. On May 1, 1994 (commencement of operations of the Portfolio) the Landmark Balanced Fund transferred all of its investable assets ($246,231,647 including $2,886,846 unrealized depreciation), to the Portfolio in exchange for an interest in the Portfolio. The significant accounting policies consistently followed by the Portfolio are in conformity with generally accepted accounting principles and are as follows: A. INVESTMENT SECURITY VALUATIONS -- Equity securities listed on securities exchanges or reported through the NASDAQ system are valued at last sale prices. Unlisted securities or listed securities for which last sales prices are not available are valued at last quoted bid prices. Debt securities (other than short-term obligations maturing in sixty days or less), are valued on the basis of valuations furnished by pricing services which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, and other market data, without exclusive reliance on quoted prices or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of the securities. Short-term obligations, maturing in sixty days or less, are valued at amortized cost, which approximates market value. Securities, if any, for which there are no such valuations or quotations are valued at fair value as determined in good faith by or under guidelines established by the Trustees. B. INCOME -- Interest income consists of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for federal income tax purposes. Gain and loss from principal paydowns are recorded as interest income. Dividend income is recorded on the ex-dividend date. C. U.S. FEDERAL TAXES -- The Portfolio is considered a partnership under the U.S. Internal Revenue Code. Accordingly, no provision for federal income or excise tax is necessary. D. EXPENSES -- The Portfolio bears all costs of its operations other than expenses specifically assumed by Citibank and SFG. Expenses incurred by the Portfolio Trust with respect to any two or more portfolios or series are allocated in proportion to the average net assets of each portfolio, except when allocations of direct expenses to each portfolio can otherwise be made fairly. Expenses directly attributable to a portfolio are charged to that portfolio. E. 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. F. TBA PURCHASE COMMITMENTS -- The Portfolio enters into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The Portfolio holds, and maintains until the settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Portfolio's other assets. Unsettled TBA purchase commitments are valued 20 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - - -------------------------------------------------------------------------------- at the current market value of the underlying securities, generally according to the procedures described under Note 1A. Although the Portfolio will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio, the Portfolio may dispose of a commitment prior to settlement if the Portfolio's Adviser deems it appropriate to do so. G. OTHER -- Investment transactions are accounted for on the date the investments are purchased or sold. Realized gains and losses are determined on the identified cost basis. (2) INVESTMENT ADVISORY FEES The investment advisory fee paid to Citibank, as compensation for overall investment management services, amounted to $640,795 for the period May 1, 1994 (commencement of operations) to December 31, 1994. The investment advisory fee is computed at the annual rate of 0.40% of the Portfolio's average daily net assets. (3) ADMINISTRATIVE FEE 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 an annual rate of 0.05% of the Portfolio's average daily net assets. The administrative fee amounted to $80,099 for the period May 1, 1994 (commencement of operations) to December 31, 1994. Citibank acts as Sub-Administrator and performs such duties and receives such compensation from SFG as from time to time is agreed to by SFG and Citibank. The Portfolio pays no compensation directly 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 or directors of the Administrator or its affiliates. (4) PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other than short-term obligations, aggregated $247,513,662 and $265,784,549, respectively, which include purchases and sales of U.S. Government securities amounting to $86,400,594 and $83,287,426, respectively, for the period May 1, 1994 (commencement of operations) to December 31, 1994. (5) FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at December 31, 1994, as computed on a federal income tax basis, are as follows: Aggregate cost ........................................ $ 242,542,482 ============= Gross unrealized appreciation ......................... $ 9,570,964 Gross unrealized depreciation ......................... (8,035,280) ------------- Net unrealized appreciation ........................... $ 1,535,684 ============= (6) EXPENSE REIMBURSEMENT FEE SFG has entered into an expense reimbursement agreement with the Portfolio. SFG has agreed to pay all of the ordinary operating expenses (excluding interest, taxes, brokerage commissions litigation costs or other extraordinary costs or expenses) of the Portfolio, other than fees paid under the Advisory Agreement and Administrative Services Agreement. The Agreement shall terminate on April 30, 2004, unless sooner terminated by either party upon not less than 30 days nor more than a 60 days written notice to the other party. The Portfolio Trust has agreed to pay SFG an expense reimbursement fee from the Portfolio, in addition to the administrative fee, accrued daily and paid monthly; provided, however, that such fee shall not exceed the amount such that immediately after any such payment the aggregate ordinary expenses of the Portfolio would, on an annual basis, exceed an agreed upon rate, currently 0.55% of average daily net assets. 21 - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - - -------------------------------------------------------------------------------- (7) LINE OF CREDIT As of May 1, 1994 the Portfolio, along with the other Landmark Funds, entered into an agreement with a bank which allows the Funds collectively to borrow up to $40 million for temporary or emergency purposes. Interest on the borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. In addition, the $15 million committed portion of the line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the period May 1, 1994 (commencement of operations) to December 31, 1994, the commitment fee allocated to the Portfolio was $1,060. Since the line of credit was established, there have been no borrowings. - - -------------------------------------------------------------------------------- Balanced Portfolio - - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - - -------------------------------------------------------------------------------- TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH RESPECT TO ITS SERIES, BALANCED PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Balanced Portfolio (the "Portfolio"), a series of The Premium Portfolios, as at December 31, 1994 and the related statements of operations and of changes in net assets and the financial highlights for the period May 1, 1994 (commencement of operations) to December 31, 1994. 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 audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of investments owned at December 31, 1994, by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provides 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 December 31, 1994, the results of its operations and the changes in its net assets and the financial highlights for the period May 1, 1994 (commencement of operations) to December 31, 1994 in accordance with U.S. generally accepted accounting principles. PRICE WATERHOUSE Chartered Accountants Toronto, Ontario February 3, 1995 22 - - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENTS - - -------------------------------------------------------------------------------- FOR CITIBANK NEW YORK RETAIL BANKING AND BUSINESS AND PROFESSIONAL CUSTOMERS: Citibank, N.A. 450 West 33rd Street, New York, NY 10001 (212) 564-3456 or (800) 846-5300 FOR CITIGOLD CUSTOMERS: Citibank, N.A. Citigold P.O. Box 5130, New York, NY 10150-5130 Call Your Citigold Executive or (212) 974-0900 or (800) 285-1701 FOR PRIVATE BANKING CLIENTS: Citibank, N.A. The Citibank Private Bank 153 East 53rd Street, New York, NY 10043 Call Your Citibank Private Banking Account Officer, Investment Specialist or (212) 559-5959 FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS: Citibank, N.A. Citibank Global Asset Management 153 East 53rd Street, New York, NY 10043 (212) 559-7117 FOR NORTH AMERICAN INVESTOR SERVICES CLIENTS: Citibank, N.A. 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9100 FOR CITICORP INVESTMENT SERVICES CUSTOMERS: Citicorp Investment Services One Court Square, Long Island City, NY 11120 Call Your Investment Consultant or (800) 846-5200 (212) 736-8170 in New York City Logo Landmark Funds MONEY MARKET FUNDS: Cash Reserves Premium Liquid Reserves Institutional Liquid Reserves U.S. Treasury Reserves Premium U.S. Treasury Reserves Institutional U.S. Treasury Reserves Tax Free Reserves California Tax Free Reserves Connecticut Tax Free Reserves New York Tax Free Reserves STOCK & BOND FUNDS: U.S. Government Income Fund Intermediate Income Fund New York Tax Free Income Fund Balanced Fund Equity Fund International Equity Fund TRUSTEES AND OFFICERS Philip W. Coolidge*, President H. B. Alvord Riley C. Gilley Diana R. Harrington Susan B. Kerley C. Oscar Morong, Jr. Donald B. Otis E. Kirby Warren William S. Woods, Jr. SECRETARY AND TREASURER James B. Craver* ASSISTANT TREASURER Barbara M. O'Dette* ASSISTANT SECRETARY Molly S. Mugler* *Affiliated Person of Administrator and Distributor - - --------------------------------------------------------- INVESTMENT ADVISER (OF BALANCED PORTFOLIO) Citibank, N.A. 153 East 53rd Street, New York, NY 10043 ADMINISTRATOR AND DISTRIBUTOR The Landmark Funds Broker-Dealer Services, Inc. 6 St. James Avenue, Boston, MA 02116 (617) 423-1679 TRANSFER AGENT State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110 CUSTODIAN Investors Bank and Trust Company One Lincoln Plaza, Boston, MA 02111 AUDITORS Price Waterhouse LLP 160 Federal Street, Boston, MA 02110 LEGAL COUNSEL Bingham, Dana & Gould 150 Federal Street, Boston, MA 02110 - - --------------------------------------------------------- SHAREHOLDER SERVICING AGENTS (See Inside Cover) This report is prepared for the information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. This Report is Prepared & Printed on Recycled Paper [GRAPHIC OMITTED] EQ/BL/A/94 -----END PRIVACY-ENHANCED MESSAGE-----