-----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, NsGb3rHbYXm66iWFiRaZgUCRxq4ySSk6/egiyKsdmQ7v0cKzwYB+2W+PdKInoumL e/xiRhUCkjHw6/ya18EZMQ== 0000950156-95-000132.txt : 19950613 0000950156-95-000132.hdr.sgml : 19950613 ACCESSION NUMBER: 0000950156-95-000132 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 FIXED INCOME FUNDS /MA/ CENTRAL INDEX KEY: 0000795808 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-05033 FILM NUMBER: 95519272 BUSINESS ADDRESS: STREET 1: 6ST JAMES AVE 9TH FL CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174231679 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FIXED INCOME FUNDS/ DATE OF NAME CHANGE: 19931117 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FIXED INCOME FUNCS/DE DATE OF NAME CHANGE: 19931115 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK U S GOVERNMENT INCOME FUND DATE OF NAME CHANGE: 19920703 N-30B-2 1 LANDMARK U.S. GOVERNMENT INCOME FUND AR [Logo] LANDMARK(SM) FUNDS Advised by Citibank, N.A. Landmark U.S. Government Income 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 to finish the year with a small gain. Throughout the period, the Landmark Funds' investment adviser, Citibank, N.A., managed the underlying Government Income Portfolio in a manner consistent with the objectives stated in the Landmark U.S. Government Income Fund's prospectus: to provide monthly dividend income as well as to preserve the value of the investment of its shareholders. The Fund seeks to provide an attractive yield, a competitive expense ratio and a high quality investment portfolio consisting solely of securities backed by the full faith and credit of the U.S. government. 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: * Are not bank deposits or FDIC insured * Are not obligations of or guaranteed by Citibank or Citicorp Investment Services * 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 Manager The Portfolio Responds - ---------------------------------------- 4 Fund Quotes Strategy and Outlook Government Income Portfolio by the Numbers - ---------------------------------------- 5 Fund Data Performance Highlights - ---------------------------------------- LANDMARK U.S. GOVERNMENT INCOME FUND - ---------------------------------------- 6 Statement of Assets and Liabilities - ---------------------------------------- 7 Statement of Operations - ---------------------------------------- 8 Statement of Changes in Net Assets - ---------------------------------------- 9 Financial Highlights - ---------------------------------------- 10 Notes to Financial Statements - ---------------------------------------- 13 Independent Auditors' Report - ---------------------------------------- GOVERNMENT INCOME PORTFOLIO - ---------------------------------------- 14 Portfolio of Investments - ---------------------------------------- 15 Statement of Assets and Liabilities Statement of Operations - ---------------------------------------- 16 Statement of Changes in Net Assets Financial Highlights - ---------------------------------------- 17 Notes to Financial Statements - ---------------------------------------- 19 Independent Auditors' Report 1 - -------------------------------------------------------------------------------- MARKET ENVIRONMENT - -------------------------------------------------------------------------------- 1994 saw the largest bond market declines in approximately 20 years. A 3-year U.S. Treasury note produced a -1.52% total return in 1994 while a 30-year U.S. Treasury bond delivered a -11.99% total return over the same time horizon. The fixed-income market's poor performance was a reaction to a number of different economic influences. First, economic growth was stronger than expected, fueling fears of inflation. Despite the Federal Reserve Board's efforts to forestall higher inflation by raising the pivotal federal funds rate six times in 1994 from 3% to 5.5%, many fixed-income investors chose to view tighter monetary policy as a sign of impending inflationary pressure rather than as an indication of the Federal Reserve's inflation-fighting resolve. Yet, at year-end, the economy showed few signs that inflation is about to accelerate significantly--prices increased by only about 3% during 1994. Second, a weak dollar relative to other currencies, especially the Japanese yen, caused many foreign investors to move their capital from the U.S. bond market to other nations. This was slightly exacerbated by surging demand for capital from emerging markets in Latin America and Asia. Finally, 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. Commercial banks liquidated shorter dated Treasury securities to fund increasing loan demand. - -------------------------------------------------------------------------------- FUND SNAPSHOT - -------------------------------------------------------------------------------- COMMENCEMENT OF OPERATIONS September 8, 1986 NET ASSETS AS OF 12/31/94 $52.9 million FUND OBJECTIVE To provide monthly dividend income as well as to protect the value of the investment of its shareholders through investing in debt obligations that are backed by the full faith and credit of the U.S. Government. DIVIDENDS Paid monthly, if any CAPITAL GAINS Paid annually, if any BENCHMARKS * Lipper Short U.S. Government Funds Average * Lehman 1-5 Year U.S. Treasury Index INVESTMENT ADVISER, GOVERNMENT INCOME PORTFOLIO Citibank, N.A. 2 - -------------------------------------------------------------------------------- PORTFOLIO MANAGER - -------------------------------------------------------------------------------- THOMAS HALLEY Vice President, Citibank, N.A. Mr. Halley has been responsible for managing the Portfolio since its inception after serving as the manager of the Fund since December 1988. He also manages other commingled investment funds at Citibank as well as institutional insurance portfolios. Mr. Halley authors the commentary on economic trends for Citibank Global Asset Management publications. Prior to joining Citibank in 1988, Mr. Halley was a Senior Fixed Income Portfolio Manager with Brown Brothers Harriman & Company. He has more than 20 years of experience in the management of taxable fixed income investments. - -------------------------------------------------------------------------------- THE PORTFOLIO RESPONDS - -------------------------------------------------------------------------------- Shareholders of the Landmark U.S. Government Income Fund were sheltered from much of the brunt of 1994's bond market decline. The Portfolio's short-term average duration and concentration in the highest quality securities served to soften the impact of influences that affected every sector of the U.S. and international bond markets. Within the Fund's risk-averse investment parameters, we actively managed the Portfolio's average duration (a measure of the Portfolio's sensitivity to changes in interest rates) to minimize the impact of higher short-term interest rates on shareholders' capital. At the start of 1994, the Portfolio's average duration was approximately 2.8 years. By year end, the average duration fell to 2.2 years. In addition, we increased the Portfolio's holdings of shorter term, government-guaranteed mortgage-backed securities from about 4% of the Portfolio at the start of the year to approximately 22% at the end of the period. This allocation change primarily reflected fundamental developments in the mortgage-backed securities market, which began the year overvalued but became increasingly more attractive as the year progressed. All securities held by the Portfolio are backed by the U.S. government as to the timely payment of interest and principal. 3 - -------------------------------------------------------------------------------- FUND QUOTES FROM THE PORTFOLIO MANAGER - -------------------------------------------------------------------------------- "1994 saw the first negative annualized returns for the bond market. Our goal in this difficult environment has been to preserve shareholder value." "We're optimistic about the bond market's prospects in 1995. The market appears to be oversold, and we expect prices to recover as the economy slows." - -------------------------------------------------------------------------------- STRATEGY AND OUTLOOK - -------------------------------------------------------------------------------- We believe that the bond market's problems in 1994 have set the stage for better fixed-income returns in 1995. If the Federal Reserve is successful in its efforts to dampen economic growth and prevent a rise of inflation, as we expect, inflation fears should subside and longer term interest rates should decline from year-end 1994 levels. The result would be higher bond prices and the possibility of some capital appreciation for Fund shareholders. We also expect the new Republican-controlled Congress to be positive for the financial markets, including bonds. If initiatives such as a capital-gains tax cut and the balanced budget amendment are successful, capital could flow into financial assets, driving prices higher. Perhaps most significantly, deficit-reduction measures should help shore up the dollar relative to other currencies, making the U.S. bond market more attractive to overseas investors. Although we expect the combination of moderate economic growth, low inflation, lower taxes on capital gains and foreign investment to be a powerful foundation for bond market gains by year-end 1995, we remain cautious regarding the market's prospects during the early part of the year. We have positioned the Portfolio in a defensive posture to preserve shareholder value, and stand ready to take advantage of rising bond prices when they become available. - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- BY THE NUMBERS - -------------------------------------------------------------------------------- CHANGES IN PORTFOLIO ASSET ALLOCATION Portfolio of investments as of 12/31/94 CASH/SHORT TERM/OTHER ................. 1.2% GNMA .................................. 22.2% U.S. TREASURY ISSUES .................. 76.6% Compared to 12/31/93 CASH/SHORT TERM/OTHER ................. 10.0% GNMA .................................. 4.1% U.S. TREASURY ISSUES .................. 85.9% 4 - -------------------------------------------------------------------------------- FUND DATA All Periods Ended December 31, 1994 - -------------------------------------------------------------------------------- TOTAL RETURNS ------------------------------- SINCE FIVE 9/8/86 ONE YEARS INCEPTION YEAR (ANNUALIZED)(ANNUALIZED) ---- ---------- ---------- Landmark U.S. Government Income Fund without Sales Charge ...................... (1.72)% 6.21% 6.07% Lipper Short U.S. Government Funds Average .. (1.65)% 6.06% 6.35%* Lehman 1-5 Year U.S. Treasury Index ......... (0.79)% 7.01% 7.08%* Landmark U.S. Government Income Fund with Maximum Sales Charge of 1.50% ...... (3.18)% 5.89% 5.88% * From 8/31/86 30-Day SEC Yield 6.80% Income Dividends Per Share $0.461 - -------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS - -------------------------------------------------------------------------------- A $10,000 investment in the Fund made on inception date would have grown to $16,079 with sales charge (as of 12/31/94). The graph shows how this compares to our benchmarks over the same period. 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] Changes in Portfolio Composition Landmark Landmark Lipper Lehman U.S. U.S. Short Term 1-5 Year Government Government U.S. U.S. Income Income Government Treasury Without With Funds Index Sales Charge Sales Charge Average (Unmanaged) ------------ ------------ ------------ ----------- Sept. 86 $10,000 $ 9,850 $10,000 $10,000 $ 9,660 $ 9,515 $ 9,975 $ 9,958 $ 9,682 $ 9,537 $10,085 $10,065 $ 9,847 $ 9,700 $10,193 $10,136 - ------------------------------------------------------------------ Dec. 86 $ 9,881 $ 9,733 $10,225 $10,155 $ 9,982 $ 9,832 $10,322 $10,233 $10,053 $ 9,902 $10,383 $10,283 $ 9,985 $ 9,835 $10,373 $10,289 $ 9,792 $ 9,646 $10,208 $10,176 $ 9,788 $ 9,641 $10,212 $10,178 $ 9,909 $ 9,761 $10,325 $10,294 $ 9,904 $ 9,755 $10,353 $10,339 $ 9,866 $ 9,718 $10,348 $10,340 $ 9,655 $ 9,511 $10,263 $10,267 $ 9,965 $ 9,816 $10,492 $10,515 $10,025 $ 9,874 $10,555 $10,583 - ------------------------------------------------------------------ Dec. 87 $10,151 $ 9,999 $10,634 $10,665 $10,479 $10,322 $10,860 $10,863 $10,619 $10,459 $10,956 $10,963 $10,523 $10,365 $10,953 $10,959 $10,495 $10,337 $10,956 $10,961 $10,455 $10,298 $10,938 $10,935 $10,633 $10,473 $11,060 $11,100 $10,592 $10,433 $11,062 $11,091 $10,574 $10,415 $11,079 $11,103 $10,744 $10,583 $11,222 $11,255 $10,869 $10,706 $11,341 $11,385 $10,780 $10,618 $11,294 $11,325 - ------------------------------------------------------------------ Dec. 88 $10,785 $10,624 $11,314 $11,339 $10,922 $10,758 $11,413 $11,433 $10,818 $10,656 $11,407 $11,414 $10,856 $10,693 $11,452 $11,463 $11,044 $10,878 $11,606 $11,675 $11,305 $11,136 $11,781 $11,857 $11,595 $11,421 $11,995 $12,115 $11,818 $11,641 $12,165 $12,329 $11,596 $11,422 $12,079 $12,208 $11,628 $11,453 $12,138 $12,271 $11,955 $11,776 $12,335 $12,493 $12,061 $11,880 $12,437 $12,608 - ------------------------------------------------------------------ Dec. 89 $12,080 $11,899 $12,486 $12,654 $11,867 $11,689 $12,467 $12,627 $11,880 $11,702 $12,524 $12,684 $11,864 $11,686 $12,562 $12,709 $11,671 $11,496 $12,576 $12,711 $12,058 $11,878 $12,763 $12,938 $12,265 $12,081 $12,893 $13,090 $12,441 $12,254 $13,044 $13,265 $12,260 $12,077 $13,065 $13,280 $12,357 $12,172 $13,162 $13,392 $12,523 $12,335 $13,296 $13,560 $12,807 $12,615 $13,442 $13,716 - ------------------------------------------------------------------ Dec. 90 $13,034 $12,839 $13,593 $13,893 $13,183 $12,985 $13,716 $14,029 $13,258 $13,059 $13,795 $14,113 $13,309 $13,110 $13,870 $14,201 $13,442 $13,240 $13,998 $14,345 $13,510 $13,307 $14,078 $14,430 $13,454 $13,252 $14,107 $14,465 $13,659 $13,454 $14,244 $14,609 $13,982 $13,772 $14,445 $14,850 $14,324 $14,109 $14,613 $15,052 $14,459 $14,242 $14,762 $15,228 $14,535 $14,317 $14,902 $15,401 - ------------------------------------------------------------------ Dec. 91 $14,833 $14,610 $15,152 $15,698 $14,733 $14,512 $15,063 $15,618 $14,802 $14,580 $15,024 $15,658 $14,777 $14,555 $14,937 $15,621 $14,863 $14,640 $15,059 $15,772 $15,058 $14,832 $15,217 $15,965 $15,215 $14,987 $15,375 $16,172 $15,410 $15,179 $15,560 $16,424 $15,512 $15,279 $15,687 $16,590 $15,649 $15,414 $15,816 $16,791 $15,502 $15,269 $15,693 $16,623 $15,483 $15,251 $15,668 $16,567 - ------------------------------------------------------------------ Dec. 92 $15,657 $15,422 $15,818 $16,752 $15,865 $15,627 $16,017 $17,017 $16,022 $15,781 $16,170 $17,216 $16,078 $15,837 $16,221 $17,275 $16,177 $15,934 $16,312 $17,406 $16,125 $15,883 $16,293 $17,347 $16,303 $16,059 $16,444 $17,534 $16,295 $16,051 $16,488 $17,566 $16,534 $16,286 $16,650 $17,776 $16,600 $16,351 $16,697 $17,835 $16,637 $16,387 $16,725 $17,878 $16,555 $16,307 $16,677 $17,838 - ------------------------------------------------------------------ Dec. 93 $16,608 $16,359 $16,737 $17,910 $16,709 $16,458 $16,850 $18,058 $16,524 $16,276 $16,711 $17,874 $16,330 $16,085 $16,538 $17,699 $16,208 $15,965 $16,421 $17,596 $16,240 $15,996 $16,391 $17,616 $16,238 $15,995 $16,390 $17,642 $16,408 $16,162 $16,523 $17,835 $16,441 $16,194 $16,561 $17,890 $16,353 $16,107 $16,503 $17,793 $16,369 $16,123 $16,512 $17,816 $16,280 $16,035 $16,446 $17,727 - ------------------------------------------------------------------ Dec. 94 $16,323 $16,079 $16,483 $17,768 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. 5 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 - -------------------------------------------------------------------------------- ASSETS: Investment in Government Income Portfolio, at value (Note 1) ....................................... $ 53,319,296 Receivable for shares of beneficial interest sold ........................................... 3,327 ------------ Total assets .......................................... 53,322,623 ------------ LIABILITIES: Payable for shares of beneficial interest repurchased .................................... 384,595 Accrued expenses and other liabilities .................... 4,796 ------------ Total liabilities ..................................... 389,391 ------------ NET ASSETS for 5,702,825 shares of beneficial interest outstanding ......................... $ 52,933,232 ============ NET ASSETS CONSIST OF: Paid-in capital ........................................... $ 59,290,776 Accumulated net realized loss on investments ..................................... (4,341,626) Unrealized depreciation of investments .................... (2,046,933) Undistributed net investment income ....................... 31,015 ------------ Total ................................................. $ 52,933,232 ============ NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ........................ $ 9.28 ============ COMPUTATION OF OFFERING PRICE: Maximum Offering Price per share based on a 1.50% sales charge ($9.28/0.985) ................... $ 9.42 ============ See notes to financial statements 6 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended December 31, 1994 - -------------------------------------------------------------------------------- INVESTMENT INCOME (Note 1B): Interest Income ............................... $ 1,388,166 Interest Income from Government Income Portfolio ............................ $ 2,377,626 Allocated Expenses from Government Income Portfolio ............................ (180,748) 2,196,878 ----------- ----------- 3,585,044 EXPENSES: Shareholder Servicing Agents' fees (Note 3B) .............................. 272,783 Administrative fees (Note 3A) ................. 115,661 Investment advisory fees (Note 2) ............. 93,572 Shareholder reports ........................... 43,675 Distributions fees (Note 4) ................... 34,098 Legal fees .................................... 30,540 Custodian fees ................................ 30,339 Trustees' fees ................................ 16,336 Auditing fees ................................. 14,777 Transfer agent fees ........................... 8,672 Insurance ..................................... 1,826 Miscellaneous ................................. 15,857 ----------- Total expenses ............................ 678,136 Less aggregate amount waived by Investment Adviser, Administrator, Shareholder Servicing Agents, and Distributor (Notes 2, 3A, 3B and 4) ......... (279,815) Expenses assumed by Administrator ........... (32,319) ----------- Net expenses ............................. 366,002 ----------- Net investment income .................... 3,219,042 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from investment transactions ..................... (2,780,042) Net change in unrealized appreciation (depreciation) .............................. (1,924,684) ----------- Net realized and unrealized gain (loss) on investments .................... (4,704,726) ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................... $(1,485,684) =========== See notes to financial statements 7 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOUR MONTHS ENDED YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1993 AUGUST 31, 1994 (NOTE 1G) 1993 ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ........................................................ $ 3,219,042 $ 1,201,630 $ 2,721,826 Net realized gain (loss) on investment transactions .......................... (2,780,042) 423,125 323,278 Net change in unrealized appreciation (depreciation) of investments .......... (1,924,684) (1,283,375) 1,062,070 ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ............ (1,485,684) 341,380 4,107,174 ------------ ------------ ------------ EQUALIZATION (Note 1E) ....................................................... -- (3,403) 53,945 ------------ ------------ ------------ DISTRIBUTION TO SHAREHOLDERS FROM: Net investment income ........................................................ (3,193,045) (1,196,612) (2,877,409) In excess of net investment income (Note 1E) ................................. -- -- (40,723) ------------ ------------ ------------ Decrease in net assets from distributions to shareholders .................. (3,193,045) (1,196,612) (2,918,132) ------------ ------------ ------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 6): Net proceeds from sale of shares ............................................. 20,093,238 19,441,244 49,622,162 Net asset value of shares issued to shareholders from reinvestment of dividends ............................................. 3,182,428 1,161,679 2,710,858 Cost of shares repurchased ................................................... (44,969,764) (22,552,561) (27,620,988) ------------ ------------ ------------ Net increase (decrease) in net assets from transactions in shares of beneficial interest ........................................................ (21,694,098) (1,949,638) 24,712,032 ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS ........................................ (26,372,827) (2,808,273) 25,955,019 NET ASSETS: Beginning of period .......................................................... 79,306,059 82,114,332 56,159,313 ------------ ------------ ------------ End of period (including undistributed (overdistributed) net investment income of $31,015, $270,943, and ($40,723), respectively) .................. $ 52,933,232 $ 79,306,059 $ 82,114,332 ============ ============ ============
See notes to financial statements 8 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
FOUR MONTHS ENDED YEAR ENDED DECEMBER 31, YEAR ENDED AUGUST 31 DECEMBER 31, 1993 ---------------------------------------------- 1994 (NOTE 1G) 1993 1992 1991 1990 ---- --------- ---- ---- ---- ---- Net Asset Value, beginning of period . $ 9.91 $ 10.01 $ 9.85 $ 9.42 $ 8.93 $ 9.08 Income From Operations: Net investment income ................ 0.466 0.183 0.448 0.591 0.710 0.653 Net realized and unrealized gain (loss) on investments ........................ (0.635) (0.138) 0.183 0.413 0.499 (0.148) -------- -------- -------- -------- ------- -------- Total from operations ........... (0.169) 0.045 0.631 1.004 1.209 0.505 -------- -------- -------- -------- ------- -------- Less Distributions From: Net investment income .............. (0.461) (0.145) (0.464) (0.574) (0.719) (0.655) In excess of net investment income ........................... -- -- (0.007) -- -- -- -------- -------- -------- -------- -------- ------- Total from distributions ....... (0.461) (0.145) (0.471) (0.574) (0.719) (0.655) -------- -------- -------- -------- -------- ------- Net Asset Value, end of period ....... $ 9.28 $ 9.91 $ 10.01 $ 9.85 $ 9.42 $ 8.93 -------- -------- -------- -------- -------- ------- Ratios/Supplemental Data: Net assets, end of period (000's omitted) .................... $52,933 $79,306 $82,114 $56,159 $25,556 $21,521 Ratio of expenses to average net assets ......................... 0.80% 0.80% 0.80% 0.51% 0.97% 1.88% Ratio of net investment income to average net assets .............. 4.72% 4.34% 4.46% 6.03% 7.71% 7.19% Portfolio turnover ................... 22% 26% 111% 161% 42% 14% Total return ......................... (1.72)% 0.45% 6.59% 10.94% 14.04% 5.73% Note: If Agents of the Fund for the periods indicated and Agents of Government Income Portfolio for the period May 1, 1994 to December 31, 1994 had not waived a portion of their fees, the net investment income per share and the ratios would have been as follows: Net investment income per share ...... $ 0.421 $ 0.164 $ 0.400 $ 0.503 $ 0.659 $ 0.648 Ratios: Expenses to average net assets ....... 1.26% 1.27% 1.27% 1.41% 1.52% 1.94% Net investment income to average net assets ................... 4.26% 3.88% 3.98% 5.13% 7.16% 7.13% Not Annualized Annualized Includes the Fund's share of Government Income 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 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 9 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES The Landmark U.S. Government Income Fund (the "Fund") is a separate diversified series of Landmark Fixed Income Funds (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 Government Income Portfolio (the "Portfolio"), a management investment company for which Citibank, N.A. ("Citibank") serves as Investment Adviser. The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the Trust's Administrator and Distributor. Citibank also serves as Sub-Administrator and makes Fund shares available to customers as Shareholder Servicing Agent. The Trust seeks to achieve the Fund's investment objective to provide shareholders with monthly dividends, as well as to protect the value of the investment of shareholders by investing all of its investable assets in the Portfolio, an open-end, diversified management investment company having the same investment objective and policies and substantially the same investment restrictions as the Fund. The value of such investment reflects the Fund's proportionate interest (95.8% 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. 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 $3,291,171, of which $714,586 will expire on August 31, 1995, $835,037 will expire on August 31, 1996 and $1,741,548 will expire on December 31, 2002. Such capital loss carryover will reduce the Fund's taxable income arising from future net realized capital 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 carryovers) under income tax rules and regulations. For the year ended 10 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- December 31, 1994, the fund reclassed $212,926 from accumulated net realized loss on investment to paid-in capital. 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 $265,925 from undistributed 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. CHANGE IN FISCAL YEAR END -- Effective September 1, 1993, the Fund changed its fiscal year end from August 31 to December 31. G. OTHER -- All the net investment income and 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 a trade date 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 $93,572, of which $67,712 was voluntarily waived for the four months ended April 30, 1994. The investment advisory fee was computed at the annual rate of 0.35% 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 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 $53,470, of which $15,652 was voluntarily waived 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 $62,191, of which $60,059 was voluntarily waived. Citibank acts as Sub-Administrator and performs such duties and receives such compensation from LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund pays no compensation directly to any Trustee or any officer who is affiliated with the Administrator, all of whom receive remuneration for their services to the Fund from the Administrator or its affiliates. Certain of the officers and a Trustee of the Fund are officers or directors 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 that Shareholder Servicing Agent acts as an agent for its customers and provides other related services. For their services, each 11 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- 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 $272,783, of which $102,294 was voluntarily waived for the year ended December 31, 1994. (4) DISTRIBUTION FEE The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the Fund 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 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 fees has been made during the period. Under the Administrative Services Plan, the distribution fees were computed at an annual rate of 0.05% of the Fund's average daily net assets which amounted to $34,098, all of which was voluntarily waived for the year ended December 31, 1994. (5) INVESTMENT TRANSACTIONS On May 1, 1994 the Fund transferred all of its investable assets ($74,423,365) 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 $3,514,487 and $25,216,425, respectively. Purchases and sales of U.S. Government securities, other than short-term obligations, during the period from January 1, 1994 to April 30, 1994 aggregated $21,946,449 and $16, 618,234, 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: FOUR MONTHS YEAR ENDED YEAR ENDED DECEMBER 31, ENDED DECEMBER 31, 1993 AUGUST 31, 1994 (NOTE 1G) 1993 ---------- ---------- ---------- Shares sold .................... 2,047,894 1,947,820 5,024,248 Shares issued to shareholders from rein- vestment of dividends ......... 333,897 116,648 275,025 Shares repurchased ............. (4,683,580) (2,260,936) (2,800,321) ---------- ---------- ---------- Net increase (decrease) ........ (2,301,789) (196,468) 2,498,952 ========== ========== ========== 12 - -------------------------------------------------------------------------------- Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- TO THE TRUSTEES AND THE SHAREHOLDERS OF LANDMARK FIXED INCOME FUNDS (THE TRUST): LANDMARK U.S. GOVERNMENT INCOME 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 U.S. Government Income Fund (the "Fund"), a series of Landmark Fixed Income Funds, 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 include 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 periods 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 3, 1994 expressed an unqualified opinion on those statements. PRICE WATERHOUSE LLP Boston, Massachusetts February 3, 1995 13 - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 1994 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE - -------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--22.2% - -------------------------------------------------------------------------------- 6.50%, 2008 ............................... $7,839 $ 7,162,440 6.50%, 2009 ............................... 3,210 2,932,828 8.00%, 2006 ............................... 368 359,457 8.00%, 2007 ............................... 292 285,101 8.00%, 2017 ............................... 700 669,605 8.00%, 2021 ............................... 294 280,848 8.00%, 2022 ............................... 281 268,930 9.50%, 2016 ............................... 4 3,825 9.50%, 2017 ............................... 82 84,198 9.50%, 2018 ............................... 96 99,060 9.50%, 2019 ............................... 92 95,394 9.50%, 2020 ............................... 86 88,930 ----------- TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (Identified Cost $12,670,871) 12,330,616 ----------- - -------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--76.6% - -------------------------------------------------------------------------------- U.S. Treasury Notes, 3.875%,2/28/1995 ......................... $ 300 $ 299,250 4.625%,2/15/1996 ......................... 7,200 6,982,848 5.125%,3/31/1996 ......................... 13,350 12,976,600 7.25%,8/31/1996 .......................... 8,250 8,202,315 4.25%,5/15/1996 .......................... 3,025 2,899,281 4.375%,11/15/1996 ........................ 9,925 9,360,466 5.375%,5/31/1998 ......................... 2,100 1,946,763 ----------- TOTAL GOVERNMENT OBLIGATIONS (Identified Cost $44,404,936) ............. 42,667,523 ----------- TOTAL INVESTMENTS (Identified Cost $57,075,807) ............. 98.8% 54,998,139 OTHER ASSETS LESS OTHER LIABILITIES .................... 1.2% 674,933 ----- ----------- NET ASSETS ................................ 100.0% $55,673,072 ===== =========== See notes to financial statements 14 - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 - -------------------------------------------------------------------------------- ASSETS: Investments at value (Note 1A) (Identified Cost, $57,075,807) ... $54,998,139 Cash ............................................................ 27,683 Interest receivable ............................................. 666,350 ----------- Total assets ................................................ 55,692,172 ----------- LIABILITIES: Payable to affiliates--Investment advisory fee (Note 2) ......... 16,712 Accrued expenses and other liabilities .......................... 2,388 ----------- Total liabilities ........................................... 19,100 ----------- NET ASSETS ...................................................... $55,673,072 =========== REPRESENTED BY: Paid-in capital for beneficial interests ........................ $55,673,072 =========== See notes to financial statements - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Period May 1, 1994 (Commencement of Operations) to December 31, 1994 - -------------------------------------------------------------------------------- INTEREST INCOME (Note 1B): .................... $ 2,424,128 EXPENSES: Investment advisory fees (Note 2) .................................... $ 148,797 Administrative fees (Note 3) .................. 21,257 Expense reimbursement fees (Note 6) .................................... 15,578 ----------- Total expenses .............................. 185,632 Less aggregate amount waived by the Administrator (Note 3) ............... (1,583) ----------- Net Expense ................................... 184,049 ----------- Net investment income ....................... 2,240,079 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 5): Net realized loss from investment transactions ................................ (2,084,009) Unrealized appreciation (depreciation) of investments-- Beginning of period ........................ -- End of period .............................. (2,077,668) Less unrealized depreciation acquired in connection with the Landmark U.S. Government Income Fund contribution (Note 1) ........ 2,521,279 ----------- Net change in unrealized appreciation (depreciation) .............. 443,611 ----------- Net realized and unrealized loss on investments ...................... (1,640,398) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................... $ 599,681 =========== See notes to financial statements 15 - -------------------------------------------------------------------------------- Government Income 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 ..................................... $ 2,240,079 Net realized loss on investment transactions ............................................ (2,084,009) Net change in unrealized appreciation (depreciation) of investments ........................... 443,611 ------------ Net increase (decrease) in net assets resulting from operations ........................... 599,681 ------------ CAPITAL TRANSACTIONS: Proceeds from contributions ............................... 80,362,853 Value of withdrawals ...................................... (25,289,462) ------------ Net increase in net assets from capital transactions ........................... 55,073,391 ------------ NET INCREASE IN NET ASSETS: ............................... 55,673,072 NET ASSETS: Beginning of period ....................................... -- ------------ End of period ............................................. $ 55,673,072 ============ - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FOR THE PERIOD MAY 1, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994 ----------------- RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (000 omitted) .................... $55,673 Ratio of expenses to average net assets .................... 0.43%* Ratio of net investment income to average net assets ... 5.27%* Portfolio turnover ........................................ 40% Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and an expense reimbursement agreement had not been in effect during the period indicated, the ratios would have been as follows: RATIOS: Expenses to average net assets ............................. 0.44%* Net investment income to average net assets ................ 5.26%* * Annualized See notes to financial statements 16 - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES Government Income 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. The Investment Adviser of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Administrator. On May 1, 1994 (commencement of operations) the Landmark U.S. Government Income Fund transferred all of its investable assets ($74,423,365 including $2,521,279 of 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 -- Debt securities (other than short-term obligations maturing in 60 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 60 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 U.S. federal income tax purposes. Gain and loss from principal paydowns are recorded as ordinary income. 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. 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. 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 $148,797, for the period May 1, 1994 (commencement of operations) to December 31, 1994. The investment advisory fee is computed at the annual rate of 0.35% 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 the annual rate of 0.05% of the Portfolio's average daily net assets. The administrative fee amounted to $21,257 of which $1,583 was voluntarily waived, 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 Trustee or any officer who is affiliated with the Administrator, all of whom receive remuneration for their services to the Portfolio from the Administrator or its affiliates. Certain of the officers and a Trustee of the Portfolio are officers or directors of the Administrator or its affiliates. (4) PURCHASES AND SALES OF INVESTMENTs Purchases and sales of U.S. Government securities, other than short-term obligations, aggregated $24,815,368 and $40,532,002, respectively, for the period May 1, 1994 (commencement of operations) to December 31, 1994. 17 - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- (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 ......................................... $ 57,075,807 ============ Gross unrealized appreciation .......................... $ 27,101 Gross unrealized depreciation .......................... (2,104,769) ------------ Net unrealized depreciation ............................ $ (2,077,668) ============ (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 0.45% of the Portfolio's average daily net assets. (7) LINE OF CREDIT As of May 1, 1994 the Portfolio, along with 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 borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. In addition, the $15 million committed portion of the line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the year ended December 31, 1994 the commitment fee allocated to the Portfolio was $464. Since the line of credit was established, there have been no borrowings. 18 - -------------------------------------------------------------------------------- Government Income Portfolio - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH RESPECT TO ITS SERIES, GOVERNMENT INCOME PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Government Income 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, 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 - -------------------------------------------------------------------------------- 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 19 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 GOVERNMENT INCOME 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] FI/USG/A/94 -----END PRIVACY-ENHANCED MESSAGE-----