-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CMaKKqZ8KPw5cfxGPfsyKmISkpvEmRN4D6j0M5XEq8NZq0koF+v5HmLzuoIp+zUz 3Zg74jQwmkjrd+rKcxlyhw== 0000950156-97-000673.txt : 19970912 0000950156-97-000673.hdr.sgml : 19970911 ACCESSION NUMBER: 0000950156-97-000673 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970828 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: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 811-05033 FILM NUMBER: 97671370 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 FIXED INCOME FUNDS TRUSTEES AND OFFICERS C. Oscar Morong, Jr., Chairman Philip W. Coolidge*, President Riley C. Gilley Diana R. Harrington Susan B. Kerley Walter E. Robb, III E. Kirby Warren William S. Woods, Jr. SECRETARY Linda T. Gibson* TREASURER John R. Elder* *Affiliated Person of Administrator and Distributor - ---------------------------------------||--------------------------------------- INVESTMENT ADVISER 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 AND CUSTODIAN State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110 AUDITORS Deloitte & Touche LLP 125 Summer Street, Boston, MA 02110 LEGAL COUNSEL Bingham, Dana & Gould 150 Federal Street, Boston, MA 021100 - ---------------------------------------||--------------------------------------- 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. FI/INTI/S/97 Printed on Recycled Paper [logo] LANDMARK(SM) FUNDS Advised by Citibank, N.A. LANDMARK INTERMEDIATE INCOME FUND SEMI-ANNUAL REPORT JUNE 30, 1997 - -------------------------------------------------------------------------------- A LETTER TO OUR SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Shareholder: Although fixed-income securities continued to provide positive returns during the first half of 1997, the period was a relatively volatile one. Yields on U.S. government bonds rose about one-half percentage point before the Federal Reserve Board raised a key short-term interest rate by one-quarter point in late March to cool economic growth and forestall a resurgence of inflation. When it became clear that economic growth was slowing and that inflation would not become a problem anytime soon, the market retraced most of its losses and ended the period with a positive total rate of return. In this environment, the Landmark Funds' investment adviser, Citibank, N.A., continued to manage the Landmark Intermediate Income Fund with the goal of achieving its investment objectives: to generate a high level of current income and to preserve the value of its shareholders' investment. The Fund seeks to provide an attractive yield from a high-quality investment portfolio consisting primarily of intermediate-term securities from a number of fixed-income market sectors. This report reviews the Fund's investment activities and performance during the six-month period ended June 30, 1997, and provides a summary of Citibank's perspective on and outlook for the U.S. bond market. On behalf of the Board of Trustees of the Landmark Funds, I want to thank you for your confidence and participation. /s/ Philip W. Coolidge Philip W. Coolidge President July 18, 1997 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 A Letter to Our Shareholders 2 Market Environment Fund Snapshot - -------------------------------------------------------------------------------- Portfolio Manager 3 The Portfolio Manager Responds Quotes From the Portfolio Manager - -------------------------------------------------------------------------------- Strategy and Outlook 4 Landmark Intermediate Income Fund -- By the Numbers - -------------------------------------------------------------------------------- 5 Fund Data Performance Highlights - -------------------------------------------------------------------------------- 6 Portfolio of Investments - -------------------------------------------------------------------------------- 8 Statement of Assets and Liabilities - -------------------------------------------------------------------------------- 9 Statement of Operations - -------------------------------------------------------------------------------- 10 Statement of Changes in Net Assets - -------------------------------------------------------------------------------- 11 Financial Highlights - -------------------------------------------------------------------------------- 12 Notes to Financial Statements - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MARKET ENVIRONMENT The first half of 1997 represented one of the most interesting periods in recent memory for U.S. financial markets. The economy continued to grow with few signs of inflation, marking the sixth year in what is becoming one of the longest expansions in the post-World War II era. As measured by the Dow Jones Industrial Average, the stock market gained more than 1,100 points for its best six-month performance in 10 years. And the bond market provided positive total rates of return as yields of long-term U.S. Treasury bonds ended the period at 6.78% despite a one-quarter point increase in the federal funds rate, a key short-term interest rate set by the Federal Reserve Board. When examined more closely, however, the general uptrend reveals a considerable amount of volatility. The economy, for example, grew at a torrid 5.9% rate during the first three months of the year when consumer spending and winter temperatures both remained unexpectedly high. As a result, fixed-income investors became concerned early in the year that the economy was growing too fast, posing an inflation threat, and yields on U.S. Treasury bonds rose by about one-half a percentage point. The Federal Reserve Board, apparently agreeing that inflation might become an issue, tightened monetary policy modestly to curtail economic growth. Yet, inflation concerns proved to be short-lived as persistently stable consumer and wholesale prices encouraged fixed-income investors to get back in the market. Yields on most fixed-income securities quickly fell and ended the period marginally above the levels at which they started the year. - -------------------------------------------------------------------------------- FUND SNAPSHOT - -------------------------------------------------------------------------------- COMMENCEMENT OF OPERATIONS June 25, 1993 NET ASSETS AS OF 6/30/97 $38.8 million FUND OBJECTIVE To generate a high level of current income and preserve the value of its shareholders' investments DIVIDENDS Paid monthly CAPITAL GAINS Distributed annually, if any BENCHMARKS o Lipper Intermediate Investment Grade Funds Average o Lehman Aggregate Bond Index INVESTMENT ADVISER Citibank, N.A. - -------------------------------------------------------------------------------- PORTFOLIO MANAGER - -------------------------------------------------------------------------------- MARK LINDBLOOM Vice President, Citibank, N.A. Mr. Lindbloom has been responsible for managing the Landmark Intermediate Income Fund since its inception in June 1993. He also manages the fixed income portion of the Balanced Portfolio 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 MANAGER RESPONDS - -------------------------------------------------------------------------------- We actively managed the Fund during the period by adjusting its average duration (a measure of sensitivity to interest-rate changes) and its sector rotation (the mix of fixed-income asset types). We began the year with a neutral duration of about 4.6 years, but lengthened to the long side of neutral in anticipation of a slow-down in economic growth. By April, our average duration had increased to about 5.5 years. When the economic slow-down began to occur during the second quarter of the year, we returned to a neutral position, ending the period with an average duration of about 4.6 years. Our sector rotation strategy led us to increase our holdings of mortgage-backed securities, which, in addition to providing superior yields, benefited from a relative lack of prepayment risk in a stable-to-rising interest rate environment. About 56% of the portfolio was allocated to mortgage-backed securities by the end of the period. The remainder of the portfolio was invested in U.S. Treasury securities, corporate bonds and asset-backed securities. Because investment-grade corporate bonds provided only small yield advantages over comparable U.S. Treasury bonds, we maintained a lower exposure to corporate securities than we normally do. - -------------------------------------------------------------------------------- QUOTES FROM THE PORTFOLIO MANAGER - -------------------------------------------------------------------------------- "Bond yields rose nearly 50 basis points in February because of stronger-than-expected economic growth and fear that the Federal Reserve would tighten monetary policy." "Mortgage-backed securities performed well during the period, helping us boost the Portfolio's return incrementally." "We expect interest rates to remain stable with a downward bias over the next several months, but we may see fluctuations to higher rates temporarily." - -------------------------------------------------------------------------------- STRATEGY AND OUTLOOK - -------------------------------------------------------------------------------- We are optimistic about the longer term prospects for fixed-income securities. While we expect interest rates to decline modestly over time, we would not be surprised to see short-lived spikes in yield caused by economic data that do not conform to the general consensus opinion. In our view, any temporary increases in yields should be viewed as an opportunity to buy bonds inexpensively. In addition, the U.S. government appears to be making progress toward a balanced budget, which reduces the need to borrow in the public markets through the issuance of U.S. government securities. We expect this relative lack of supply to be accompanied by steady demand for the most creditworthy investments in the world, U.S. Treasury securities, from overseas investors in Europe and Asia. This combination of modest economic growth, low inflation, limited supply and robust demand should be good for fixed-income investors. Accordingly, we expect to maintain our neutral average duration, and we will be ready to lengthen as opportunities to do so present themselves. Furthermore, we will continue to shift assets among mortgage-backed securities, U.S. government securities, corporate bonds and asset-backed securities as market conditions change. - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- BY THE NUMBERS - -------------------------------------------------------------------------------- -------------------------------------------------------------------------- CHANGES IN PORTFOLIO COMPOSITION Portfolio of Investments as of 6/30/97 ... Compared to 12/31/96 CASH/SHORT TERM/OTHER 3% CASH/OTHER 3% ASSET-BACKED SECURITIES 4% ASSET-BACKED SECURITIES 3% MORTGAGE OBLIGATIONS 56% MORTGAGE OBLIGATIONS 53% CORPORATE BONDS 4% CORPORATE BONDS 5% U.S. TREASURY ISSUES 33% U.S. TREASURY ISSUES 36% -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FUND DATA All Periods Ending June 30, 1997 (unaudited) - --------------------------------------------------------------------------------
TOTAL RETURNS ----------------------------- SINCE SIX ONE 6/25/93 MONTHS** YEAR (INCEPTION)* ------ ---- -------- Landmark Intermediate Income Fund without Sales Charge ................. 2.94% 7.74% 4.89% Lipper Intermediate Investment Grade Funds Average ..................... 2.74% 7.54% 4.86%+ Lehman Aggregate Bond Index ............................................ 3.09% 8.15% 5.98%+ Landmark Intermediate Income Fund with Maximum Sales Charge of 4.00% ... (1.17)% 3.43% 3.83%
* Average Annual Total Return ** Not Annualized + From 6/30/93 30-Day SEC Yield 5.75% Income Dividends Per Share $0.264 - -------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS - -------------------------------------------------------------------------------- A $10,000 investment in the Fund made on inception date would have grown to $11,631 with sales charge (as of 6/30/97). The graph shows how this compares to our benchmark over the same period. The graph includes the initial 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. LANDMARK INTERMEDIATE INCOME Landmark Landmark Lipper Intermediate Intermediate Intermediate Lehman Income Fund - Income Fund - Investment Aggregate Bond Without Sales With Sales Charge Grade Funds Index Charge Average (unmanaged) 6/30/93 10,030.00 9,629.00 10,000.00 10,000.00 7/31/93 10,073.00 9,670.00 10,042.00 10,064.00 8/31/93 10,325.00 9,912.00 10,228.00 10,295.00 9/30/93 10,406.00 9,989.00 10,268.00 10,332.00 10/31/93 10,416.00 9,999.00 10,301.00 10,374.00 11/30/93 10,246.00 9,836.00 10,209.00 10,251.00 12/31/93 10,299.00 9,887.00 10,257.00 10,295.00 1/31/94 10,445.00 10,027.00 10,387.00 10,451.00 2/28/94 10,215.00 9,806.00 10,202.00 10,223.00 3/31/94 9,968.00 9,569.00 9,980.00 9,973.00 4/30/94 9,868.00 9,473.00 9,890.00 9,890.00 5/31/94 9,841.00 9,447.00 9,875.00 9,871.00 6/30/94 9,810.00 9,417.00 9,856.00 9,847.00 7/31/94 9,976.00 9,577.00 10,004.00 10,044.00 8/31/94 10,003.00 9,603.00 10,024.00 10,048.00 9/30/94 9,836.00 9,442.00 9,911.00 9,897.00 10/31/94 9,798.00 9,406.00 9,896.00 9,886.00 11/30/94 9,760.00 9,370.00 9,867.00 9,709.00 12/31/94 9,838.00 9,445.00 9,915.00 9,773.00 1/31/95 10,021.00 9,620.00 10,072.00 9,960.00 2/28/95 10,249.00 9,839.00 10,282.00 10,191.00 3/31/95 10,322.00 9,909.00 10,346.00 10,260.00 4/30/95 10,439.00 10,021.00 10,479.00 10,403.00 5/31/95 10,930.00 10,492.00 10,849.00 10,839.00 6/30/95 10,992.00 10,552.00 10,917.00 10,926.00 7/31/95 10,941.00 10,503.00 10,888.00 10,883.00 8/31/95 11,039.00 10,597.00 11,010.00 11,023.00 9/30/95 11,159.00 10,713.00 11,107.00 11,135.00 10/31/95 11,199.00 10,751.00 11,244.00 11,299.00 11/30/95 11,310.00 10,857.00 11,402.00 11,485.00 12/31/95 11,456.00 10,998.00 11,547.00 11,654.00 1/31/96 11,509.00 11,049.00 11,623.00 11,726.00 2/29/96 11,279.00 10,828.00 11,424.00 11,478.00 3/31/96 11,190.00 10,743.00 11,346.00 11,381.00 4/30/96 11,113.00 10,668.00 11,277.00 11,303.00 5/31/96 11,083.00 10,639.00 11,257.00 11,284.00 6/30/96 11,245.00 10,796.00 11,385.00 11,434.00 7/31/96 11,262.55 10,812.05 11,410.00 11,695.08 8/31/96 11,230.24 10,781.03 11,401.00 11,675.19 9/30/96 11,442.75 10,985.04 11,587.00 11,878.34 10/31/96 11,693.04 11,225.32 11,821.00 12,142.04 11/30/96 11,895.09 11,419.28 12,016.00 12,349.67 12/31/96 11,768.97 11,298.21 11,910.00 12,234.82 1/31/97 11,823.82 11,350.87 11,805.00 12,272.75 2/28/97 11,853.30 11,379.17 11,829.00 12,303.43 3/31/97 11,707.60 11,239.29 11,705.00 12,166.86 4/30/97 11,889.41 11,413.84 11,857.00 12,349.36 5/31/97 11,983.31 11,503.97 11,959.00 12,466.68 6/30/97 12,115.35 11,630.73 12,092.00 12,615.04 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. - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FIXED INCOME--101.6% - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES -- 4.0% Green Tree Financial Corp. 8.05% due 10/15/27 .......................... $1,500 $ 1,558,590 ----------- DOMESTIC CORPORATE SECURITIES -- 4.1% Aetna Services, Inc. 6.97% due 8/15/36 ........................... 1,000 1,009,880 Atlantic City Electric Co. 7.10% due 8/23/02 ........................... 560 562,274 ----------- 1,572,154 ----------- YANKEES -- 5.1% Enersis 6.90% due 12/01/06 .................... 1,000 971,280 Inter-American Development Bank 6.95% due 8/01/26 ........................... 1,000 1,025,850 ----------- 1,997,130 ----------- MORTGAGE OBLIGATIONS -- 55.8% COLLATERALIZED MORTGAGE OBLIGATIONS -- 16.1% Asset Securitization Corp. Series 95 7.384% due 8/13/29 .......................... 1,000 1,015,625 Associates Corp. North America 5.96% due 5/15/37 ........................... 750 752,243 CWBMS Inc. 7.75% due 3/01/27 .................. 500 508,281 GE Capital Mortgage Services Inc. 7.50% due 3/25/27 ........................... 199 199,608 GMAC Commercial Mortgage Series 96 7.22% due 10/15/28 .......................... 500 505,469 Merrill Lynch Mortgage Investors Inc. 6.95% due 6/18/29 ........................... 500 503,125 Nomura Asset Securities Corp. 8.15% due 4/04/27 ........................... 1,000 1,068,906 Norwest Assets Securities Corp. 7.50% due 3/25/27 ........................... 699 698,985 Norwest Assets Securities Corp. 7.00% due 4/25/12 ........................... 991 $ 981,501 ----------- 6,233,743 ----------- MORTGAGE BACKED SECURITIES -- 17.9% Federal Home Loan Mortgage Corp. 6.00% due 3/15/09 ........................... 439 406,269 7.50% due 1/15/20 ........................... 1,893 1,903,338 7.50% due 5/15/23 ........................... 886 889,702 8.50% due 4/01/01 26 26,267 Federal National Mortgage Association 7.50% due 10/01/25 .......................... 1,586 1,591,511 7.50% due 6/01/26 ........................... 55 55,189 7.50% due 1/01/26 ........................... 1,800 1,825,866 7.50% due 5/01/26 ........................... 249 249,539 8.00% due 6/01/02 ........................... 15 14,852 ----------- 6,962,533 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 21.8% 7.25% due 10/16/22 .......................... 3,475 3,490,959 7.50% due 5/15/26 ........................... 1,912 1,917,007 7.50% due 9/15/25 ........................... 2,359 2,367,176 8.00% due 12/15/07 .......................... 73 75,272 8.25% due 7/15/05 ........................... 603 616,841 ----------- 8,467,255 ----------- TOTAL MORTGAGE OBLIGATIONS .................... 21,663,531 ----------- UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 32.6% UNITED STATES TREASURY BONDS -- 1.1% United States Treasury Bonds 6.625% due 2/15/27 .......................... 450 440,298 ----------- UNITED STATES TREASURY NOTES-- 29.5% 5.875% due 2/15/04 ........................... $4,000 $ 3,875,640 6.50% due 5/31/02 ............................ 1,800 1,807,308 6.50% due 10/15/06 ........................... 4,200 4,182,276 6.625% due 6/30/01 ........................... 1,200 1,211,244 6.625% due 4/30/02 ........................... 370 373,411 ----------- 11,449,879 ----------- UNITED STATES & OTHER GOVERNMENT AGENCIES -- 2.0% Tennessee Valley Authority 5.98% due 4/01/36 ............................ 750 756,060 ----------- TOTAL UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS ....................... 12,646,237 ----------- TOTAL FIXED INCOME (Identified Cost $39,134,044) ................ 39,437,642 ----------- - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS -- 0.1% - -------------------------------------------------------------------------------- United States Treasury Bills 5.18% due 12/11/97 ........................... 65 63,476 ----------- TOTAL INVESTMENTS (Identified Cost $39,197,520) ................ 101.7% 39,501,118 OTHER ASSETS, LESS LIABILITIES ................ (1.7) (654,473) ----- ----------- NET ASSETS .................................... 100.0% $38,846,645 ===== =========== - -------------------------------------------------------------------------------- FUTURES CONTRACTS - -------------------------------------------------------------------------------- UNDERLYING FACE EXPIRATION AMOUNT AT UNREALIZED DATE VALUE GAIN/LOSS ---------- --------- ---------- Purchased 50 U.S. Treasury Note Sept 97 15,000 ($5,859) ------- See notes to financial statements - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 1997 (unaudited) ASSETS: Investments, at value (Note 1A)(Identified Cost, $39,197,520) ...................................... $39,501,118 Cash ................................................ 897,903 Margin variation receivable ......................... 3,750 Receivable for fund shares sold ..................... 445 Interest receivable ................................. 388,377 ----------- Total assets ....................................... 40,791,593 ----------- LIABILITIES: Payable for investments purchased ................... 1,826,438 Payable for shares of beneficial interest repurchased 38,849 Payable to affiliates: Investment advisory fee (Note 2) ................... $ 5,491 Shareholder Servicing Agents' fee (Note 3B) ........ 8,025 13,516 ------- Accrued expenses .................................... 66,145 ----------- Total liabilities .................................. 1,944,948 ----------- NET ASSETS for 4,094,324 shares of beneficial interest outstanding ............................... $38,846,645 =========== NET ASSETS CONSIST OF: Paid-in capital ..................................... $41,714,455 Accumulated net realized loss from investment transactions and futures contracts ................ (3,316,487) Unrealized appreciation (depreciation) of investments and futures contracts ................. 297,739 Undistributed net investment income ................. 150,938 ----------- Total .............................................. $38,846,645 =========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ............................... $9.49 ===== COMPUTATION OF OFFERING PRICE: Maximum Offering Price per share based on a 4.00% sales charge ($9.49 / 0.96) ...................... $9.89 ===== See notes to financial statements - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1997 (unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME (Note 1B) ........................... $1,430,435 EXPENSES: Investment advisory fees (Note 2) ..................... $70,699 Shareholder servicing agents' fees (Note 3B) .......... 50,499 Administrative fees (Note 3A) ......................... 50,499 Custodian fees ........................................ 36,141 Distribution fees (Note 4) ............................ 30,300 Auditing services ..................................... 15,100 Shareholder reports ................................... 12,771 Trustees fees ......................................... 6,815 Legal services ........................................ 6,507 Transfer agent fees ................................... 5,000 Miscellaneous ......................................... 2,088 - ------- Total expenses ...................................... 286,419 Less aggregate amount waived by Investment Adviser, Administrator and Distributor (Notes 2, 3A, and 4)... (103,107) Less fees paid indirectly (Note 1I) ................... (1,496) - ------- Net expenses ......................................... 181,816 ---------- Net investment income ................................ 1,248,619 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investment transactions ........ (52,654) Net realized loss on futures transactions ............. (3,871) Unrealized appreciation (depreciation) of investments and futures contracts: Beginning of period .................................. 371,315 End of period ........................................ 297,739 - ------- Net change in unrealized appreciation (depreciation) of investments ...................................... (73,576) ---------- Net realized and unrealized gain (loss) on investments (130,101) ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $1,118,518 ========== See notes to financial statements - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED (UNAUDITED) DECEMBER 31, 1996 ----------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income .................................................... $ 1,248,619 $ 2,655,675 Net realized loss from investment transactions ........................... (56,525) (830,939) Net change in unrealized appreciation (depreciation) of investments ...... (73,576) (643,316) ----------- ----------- Net increase in net assets resulting from operations ................... 1,118,518 1,181,420 ----------- ----------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS FROM: Net investment income .................................................... (1,133,365) (2,638,684) ----------- ----------- Decrease in net assets from distributions declared to shareholders ..... (1,133,365) (2,638,684) ----------- ----------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6): Net proceeds from sale of shares ......................................... 409,097 1,467,543 Net asset value of shares issued to shareholders from reinvestment of distributions ........................ 1,131,749 2,602,603 Cost of shares repurchased ............................................... (6,597,966) (8,312,092) ----------- ----------- Net decrease in net assets from transactions in shares of beneficial interest .............................................................. (5,057,120) (4,241,946) ----------- ----------- NET DECREASE IN NET ASSETS ............................................... (5,071,967) (5,699,210) NET ASSETS: Beginning of period ...................................................... 43,918,612 49,617,822 ----------- ----------- End of period (including undistributed net investment income of $150,938 and $35,684, respectively) .................................... $38,846,645 $43,918,612 ----------- -----------
See notes to financial statements - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
FOR THE PERIOD SIX MONTHS YEAR ENDED JUNE 25, 1993 ENDED DECEMBER 31, (COMMENCEMENT OF JUNE 30, 1997 ---------------------------- OPERATIONS) TO (UNAUDITED) 1996 1995 1994 DECEMBER 31, 1993 --------- ----- ------ ------- ------------------ Net Asset Value, beginning of period .......... $9.48 $ 9.77 $ 8.91 $ 9.880 $10.000 ----- ------ ------ ------- ------- Income From Operations: Net investment income ......................... 0.29 0.54 0.57 0.521 0.261 Net realized and unrealized gain (loss) on investments .............................. (0.02) (0.29) 0.86 (0.959) 0.037 ----- ------ ------ ------- ------- Total income from operations ................. 0.27 0.25 1.43 (0.438) 0.298 ----- ------ ------ ------- ------- Less Distributions From: Net investment income ........................ (0.26) (0.54) (0.57) (0.516) (0.261) In excess of net investment income ........... -- -- -- -- (0.006) Net realized gain on investments ............. -- -- -- (0.016) (0.151) ----- ------ ------ ------- ------- Total distributions .......................... (0.26) (0.54) (0.57) (0.532) (0.418) ----- ------ ------ ------- ------- Net Asset Value, end of period ............... $9.49 $ 9.48 $ 9.77 $ 8.910 $ 9.880 ===== ====== ====== ======= ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) ..... $38,847 $43,919 $49,618 $47,582 $61,183 Ratio of expenses to average net assets ....... 0.90%* 0.90% 0.90% 0.90% 0.90%* Ratio of net investment income to average net assets ...................................... 6.18%* 5.72% 5.97% 5.52% 4.95%* Portfolio turnover ............................ 65% 495% 396% 291% 103% Total return .................................. 2.94%+ 2.73% 16.45% (4.48)% 2.99%+ Note: If Agents of the Fund had not voluntarily agreed to waive a portion of their fees for the periods indicated and the expenses were not reduced for fees paid indirectly for the years after December 31, 1994, the net investment income per share and the ratios would have been as follows: Net investment income per share ............... $0.27 $0.50 $0.52 $0.475 $0.236 Ratios: Expenses to average net assets ................ 1.42%* 1.39% 1.42% 1.39% 1.38%* Net investment income to average net assets ... 5.66%* 5.23% 5.45% 5.03% 4.47%* * Annualized +Not annualized
See notes to financial statements - -------------------------------------------------------------------------------- Landmark Intermediate Income Fund NOTES TO FINANCIAL STATEMENTS (unaudited) - -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES Landmark Intermediate Income Fund (the "Fund") is a separate diversified series of Landmark Fixed Income Funds (the "Trust") which is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Investment Adviser of the Fund is Citibank, N.A. ("Citibank"). 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 preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The Fund has approval to issue Class A and Class B shares as described more fully in the Fund's prospectus. No Class B shares have yet to be offered, therefore information presented in these financial statements relates solely to Class A shares. The significant accounting policies consistently followed by the Fund 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 a pricing service, which takes 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 upon 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 is 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 are recorded as ordinary 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, 1996, the Fund, for federal income tax purposes, had a capital loss carryover of $3,257,774, of which $2,182,200 will expire on December 31, 2002 and $1,075,574 which will expire on December 31, 2004. 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. E. DISTRIBUTIONS -- The Fund distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over- distributions for financial statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains. F. REPURCHASE AGREEMENTS -- It is the policy of the Fund 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 custodial bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund 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. G. FUTURES CONTRACTS: -- The Fund may engage in futures transactions. The Fund may use futures contracts in order to protect the Fund from fluctuations in interest rates without actually buying or selling debt securities, or to manage the effective maturity or duration of fixed income securities in the Fund's portfolio in an effort to reduce potential losses or enhance potential gains. Buying futures contracts tends to increase the Fund's exposure to the underlying instrument. Selling futures contracts tends to either decrease the Fund's exposure to the underlying instrument, or to hedge other fund investments. Upon entering into a futures contract, the Fund is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin". Subsequent payments ("variation margin") are made or received by the Fund each day, depending on the daily fluctuation of the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Fund recognizes a realized gain or loss when the contract is closed. Futures contracts are valued at the settlement price established by the board of trade or exchange on which they are traded. There are several risks in connection with the use of futures contracts as a hedging device. The change in the value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in the value of the hedged instruments. In addition, there is the risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Futures contracts involve, to varying degrees, risk of loss in excess of the futures variation margin reflected in the Statement of Assets and Liabilities. H. 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. Distributions to shareholders and shares issuable to shareholders electing to receive distributions in shares are recorded on the ex-dividend date. I. FEES PAID INDIRECTLY -- The Fund's custodian bank calculates its fees based on the Fund's average daily net assets. The fee is reduced according to a fee arrangement, which provides for custody fees to be reduced based on a formula developed to measure the value of cash deposited with the custodian by the Fund. This amount is shown as a reduction of expense on the Statement of Operations. (2) INVESTMENT ADVISORY FEES The investment advisory fee paid to Citibank, as compensation for overall investment management services, amounted to $70,699, of which $34,101 was voluntarily waived for the six months ended June 30, 1997. The investment advisory fee is computed at the annual rate of 0.35% of average daily net assets. (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 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 FEES -- Under the terms of an Administrative Services Agreement, the administrative services fee payable to the Administrator, as compensation for overall administrative services and general office facilities, is computed at an annual rate of 0.25% of the Fund's average daily net assets. The Administrative fees amounted to $50,499, of which $38,706 was voluntarily waived for the six months ended June 30, 1997. 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 Fund has entered into shareholder servicing agreements with each Shareholder Servicing Agent pursuant to which the Shareholder Servicing Agent acts as an agent for its customers and provides other related services. For their services, each Shareholder Servicing Agent receives fees from the Fund, which may be paid periodically, but may not exceed, on an annualized basis, an amount equal to 0.25% of the average daily net assets of the Fund represented by shares owned during the period by investors for whom such Shareholder Servicing Agent maintains a servicing relationship. Shareholder Servicing Agents' fees amounted to $50,499 for the six months ended June 30, 1997. (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, under which the Fund compensates the Distributor at an annual rate not to exceed 0.15% of the Fund's average daily net assets for distribution of the Fund's shares. 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. The Distribution fees amounted to $30,300, all of which was voluntarily waived for the six months ended June 30, 1997. (5) PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities, other than short-term obligations, aggregated $26,578,599 and $30,542,657, respectively, for the six months ended June 30, 1997. (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: SIX MONTHS YEAR ENDED ENDED JUNE 30, 1997 DECEMBER 31, (UNAUDITED) 1996 ------------- ------------ Shares sold .................. 43,346 155,635 Shares issued to shareholders from reinvestment of distributions 120,105 276,737 Shares repurchased ........... (700,066) (881,410) -------- -------- Net decrease ................. (536,615) (449,038) ======== ======== (7) FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at June 30, 1997, as computed on a federal income tax basis, are as follows: Aggregate cost $39,197,520 =========== Gross unrealized appreciation $ 354,282 Gross unrealized depreciation (50,684) ----------- Net unrealized appreciation $ 303,598 =========== (8) LINE OF CREDIT The Fund, along with other Landmark Funds entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $60 million for temporary or emergency purposes. Interest on borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the six months ended June 30, 1997, the commitment fee allocated to the Fund was $91. Since the line of credit was established there have been no borrowings. - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENTS - -------------------------------------------------------------------------------- FOR NEW YORK RETAIL BANKING AND BUSINESS AND PROFESSIONAL CUSTOMERS: Citibank, N.A. 111 Wall Street, New York, NY 10043 (212) 820-2383 or (800) 846-5300 FOR CITIGOLD CUSTOMERS: Citigold P.O. Box 5130, New York, NY 10150-5130 Call Your Citigold Executive or, in NY or CT, (800) 285-1701, or for all other states, (800) 285-1707 FOR CITIBANK 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 CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS: Citibank, N.A. Master Trust Accounts 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9659 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) 820-2380 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 Institutional 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 National Tax Free Income Fund New York Tax Free Income Fund Balanced Fund Equity Fund International Equity Fund Small Cap Equity Fund Emerging Asian Markets Equity Fund TRUSTEES AND OFFICERS C. Oscar Morong, Jr., Chairman Philip W. Coolidge*, President Riley C. Gilley Diana R. Harrington Susan B. Kerley E. Kirby Warren William S. Woods, Jr. SECRETARY Linda T. Gibson* TREASURER John R. Elder* *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. FI/USG/S/97 [Recycle Logo] Printed on Recycled Paper [Logo] LANDMARK(SM) FUNDS Advised by Citibank, N.A. LANDMARK U.S. GOVERNMENT INCOME FUND SEMI-ANNUAL REPORT June 30, 1997 - -------------------------------------------------------------------------------- A LETTER TO OUR SHAREHOLDERS Dear Shareholder: Although U.S. government securities continued to provide positive returns during the first half of 1997, the period was a relatively volatile one. We are pleased that Landmark U.S. Government Income Fund sheltered its shareholders from the brunt of those fluctuations. In this environment, the Landmark Funds' investment adviser, Citibank, N.A., continued to manage the Landmark U.S. Government Income Fund with the goal of achieving its investment objectives: generating current income and preserving the value of its shareholders' investment. Through its investment in Government Income Portfolio, the Fund seeks to provide a higher level of current income than is generally available from money market funds by investing in a high-quality investment portfolio consisting solely of securities backed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. This report reviews the Portfolio's investment activities and performance during the six-month period ended June 30, 1997, and provides a summary of Citibank's perspective on and outlook for the U.S. government securities marketplace. On behalf of the Board of Trustees of the Landmark Funds, I want to thank you for your confidence and participation. /s/ Philip W. Coolidge Philip W. Coolidge President July 18, 1997 - -------------------------------------------------------------------------------- TABLE OF CONTENTS 1 A Letter to Our Shareholders - -------------------------------------------------------------------------------- 2 Market Environment Fund Snapshot - -------------------------------------------------------------------------------- 3 Portfolio Manager The Portfolio Manager Responds - -------------------------------------------------------------------------------- 4 Quotes From the Portfolio Manager Strategy and Outlook - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- GOVERNMENT INCOME PORTFOLIO 12 Portfolio of Investments - -------------------------------------------------------------------------------- 13 Statement of Assets and Liabilities Statement of Operations - -------------------------------------------------------------------------------- 14 Statement of Changes in Net Assets Financial Highlights - -------------------------------------------------------------------------------- 15 Notes to Financial Statements - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MARKET ENVIRONMENT The first half of 1997 represented one of the most interesting periods in recent memory for the U.S. financial markets. The economy continued to grow with few signs of inflation, marking the sixth year in what is becoming one of the longest expansions in the post-World War II era. As measured by the Dow Jones Industrial Average, the stock market gained more than 1,100 points for its best six-month performance in 10 years. The bond market also provided positive total rates of return as yields of long-term U.S. Treasury bonds ended the period at 6.78% despite a one-quarter point increase in the federal funds rate, a key short-term interest rate set by the Federal Reserve Board. When examined more closely, however, the general uptrend reveals a considerable amount of volatility. The economy, for example, grew at a torrid 5.9% rate during the first three months of the year when consumer spending and winter temperatures both remained unexpectedly high. As a result, fixed-income investors became concerned early in the year that the economy was growing too fast, posing an inflation threat, and yields on short-to-intermediate-term bonds rose by about one-half a percentage point. The Federal Reserve Board, apparently agreeing that inflation might become an issue, tightened monetary policy modestly to curtail economic growth. Yet, inflation concerns proved to be short-lived as a conspicuous lack of inflationary pressures on consumer and wholesale prices encouraged fixed-income investors to get back in the market. Yields quickly fell, ending the period just slightly above the levels at which they started the year. - -------------------------------------------------------------------------------- FUND SNAPSHOT COMMENCEMENT OF OPERATIONS September 8, 1986 NET ASSETS AS OF 6/30/97 $23.0 million FUND OBJECTIVE To generate current income and preserve the value of its shareholders' investment. DIVIDENDS Paid monthly, if any CAPITAL GAINS Paid annually, if any BENCHMARKS o Lipper Short U.S. Government Funds Average o Lehman 1-3 Year U.S. Government Index INVESTMENT ADVISER, GOVERNMENT INCOME PORTFOLIO Citibank, N.A. - -------------------------------------------------------------------------------- PORTFOLIO MANAGER DENISE GUETTA Vice President, Citibank NA Ms. Guetta has served as manager of the U.S. Government Income Portfolio since April 1997. Ms. Guetta is a Senior Portfolio Manager responsible for managing institutional liquidity and short-duration portfolios. Ms. Guetta has over ten years investment experience. Prior to joining Citibank in 1996, she was a portfolio manager at Fischer Francis Trees and Watts, Inc. managing leveraged risk positions in the U.S. Treasury and Canadian Markets. She began her career as an account executive at Drexel Burnham Lambert, Inc. managing fixed income and equity portfolios. - -------------------------------------------------------------------------------- THE PORTFOLIO MANAGER RESPONDS We actively managed the Portfolio during the period by adjusting its average duration (a measure of sensitivity to interest-rate changes) and its sector rotation (the mix of fixed-income asset types) within the constraints of our investment policies. We began the year with a neutral duration but lengthened to the long side of neutral in January in anticipation of a slow-down in economic growth. That slow-down began to occur during the second quarter of the year, and we ended the period with an average duration of about 1.8 years, somewhat longer than neutral. While the Portfolio is composed 100% of U.S. government securities, we were able to increase our holdings of mortgage-backed securities issued and guaranteed by the Government National Mortgage Association (GNMA), a government-owned corporation, to about 19% of the Portfolio. The remainder of the Portfolio was invested in U.S. Treasury securities comprised primarily of notes in the one and one-half to three-year range. - -------------------------------------------------------------------------------- QUOTES FROM THE PORTFOLIO MANAGER "Bond yields rose nearly 50 basis points in February because of stronger-than-expected economic growth and fear that the Federal Reserve would tighten monetary policy." "GNMA mortgage-backed securities performed well during the period, helping us boost the Portfolio's return incrementally." "We expect interest rates to remain stable with a downward bias over the next several months, but we may see fluctuations to higher rates temporarily." - -------------------------------------------------------------------------------- STRATEGY AND OUTLOOK We are optimistic about the longer term prospects for U.S. government securities. While we expect interest rates to decline modestly over time, we would not be surprised to see short-lived spikes in yield caused by economic data that does not conform to the general consensus opinion. In our view, any temporary increases in yields should be viewed as an opportunity to buy bonds inexpensively. In addition, the U.S. government appears to be making progress toward a balanced budget, which reduces the need to borrow in the public markets through the issuance of U.S. government securities. We expect this relative lack of supply to be accompanied by steady demand for the most creditworthy investments in the world from overseas investors in Europe and Asia. This combination of modest economic growth, low inflation, limited supply and steady demand should be good for investors in U.S. government securities. Accordingly, we are maintaining our slightly above-neutral average duration, but we will be ready to lengthen further within the permitted range as opportunities to do so present themselves. Furthermore, we will continue to shift assets between GNMA mortgage-backed securities and U.S. Treasury securities as market conditions change. - -------------------------------------------------------------------------------- FUND DATA All Periods Ended June 30, 1997 (unaudited)
TOTAL RETURNS --------------------------------------------------- SIX ONE FIVE TEN MONTHS** YEAR YEARS* YEARS* -------- ---- ------ ------ Landmark U.S. Government Income Fund without Sales Charge .......................... 2.61% 5.88% 4.80% 6.86% Lipper Short U.S. Government Funds Average ..... 2.54% 6.04% 4.74% 6.40% Lehman 1-3 Year U.S. Government Index .......... 2.88% 6.59% 5.54% 7.29% Landmark U.S. Government Income Fund with Maximum Sales Charge of 1.50% ............ 1.07% 4.29% 4.49% 6.70% * Average Annual Total Return. ** Not Annualized. 30-Day SEC Yield 5.25% Income Dividends Per Share $0.246
- -------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS A $10,000 investment in the Fund made on inception date would have grown to $19,122 with sales charge (as of 6/30/97). 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. US GOVT. INCOME FUND Landmark U.S. Landmark U.S. Government Government Lehman 1-3 Yr. Income Fund - Income Fund - Lipper Short US Government Without Sales With Sales U.S. Government Index Charge Charge Funds Average (unmanaged) ------------- ------------ ------------- -------------- Jun-87 $10,000 $9,850 $10,000 $10,000 Jul-87 $9,995 $9,845 $10,027 $10,055 Aug-87 $9,956 $9,807 $10,022 $10,070 Sep-87 $9,744 $9,598 $9,940 $10,033 Oct-87 $10,056 $9,905 $10,161 $10,236 Nov-87 $10,117 $9,965 $10,222 $10,303 Dec-87 $10,244 $10,091 $10,299 $10,373 Jan-88 $10,575 $10,416 $10,517 $10,528 Feb-88 $10,716 $10,555 $10,619 $10,618 Mar-88 $10,619 $10,460 $10,608 $10,640 Apr-88 $10,591 $10,432 $10,611 $10,652 May-88 $10,550 $10,392 $10,593 $10,646 Jun-88 $10,730 $10,569 $10,712 $10,752 Jul-88 $10,689 $10,529 $10,714 $10,758 Aug-88 $10,671 $10,511 $10,730 $10,785 Sep-88 $10,843 $10,680 $10,868 $10,910 Oct-88 $10,968 $10,804 $10,983 $11,020 Nov-88 $10,878 $10,715 $10,938 $10,992 Dec-88 $10,884 $10,721 $10,957 $11,016 Jan-89 $11,022 $10,857 $11,053 $11,103 Feb-89 $10,918 $10,754 $11,048 $11,105 Mar-89 $10,955 $10,791 $11,091 $11,151 Apr-89 $11,145 $10,978 $11,241 $11,333 May-89 $11,409 $11,238 $11,409 $11,493 Jun-89 $11,701 $11,526 $11,617 $11,707 Jul-89 $11,926 $11,747 $11,782 $11,879 Aug-89 $11,702 $11,526 $11,698 $11,809 Sep-89 $11,734 $11,558 $11,756 $11,877 Oct-89 $12,065 $11,884 $11,946 $12,061 Nov-89 $12,172 $11,989 $12,045 $12,170 Dec-89 $12,191 $12,008 $12,092 $12,216 Jan-90 $11,976 $11,796 $12,074 $12,229 Feb-90 $11,989 $11,809 $12,130 $12,294 Mar-90 $11,973 $11,793 $12,166 $12,331 Apr-90 $11,778 $11,601 $12,179 $12,361 May-90 $12,169 $11,986 $12,361 $12,551 Jun-90 $12,378 $12,192 $12,487 $12,683 Jul-90 $12,555 $12,367 $12,633 $12,836 Aug-90 $12,373 $12,187 $12,653 $12,882 Sep-90 $12,471 $12,284 $12,747 $12,984 Oct-90 $12,638 $12,448 $12,877 $13,128 Nov-90 $12,925 $12,731 $13,018 $13,256 Dec-90 $13,154 $12,956 $13,164 $13,412 Jan-91 $13,303 $13,104 $13,284 $13,538 Feb-91 $13,379 $13,178 $13,360 $13,625 Mar-91 $13,431 $13,230 $13,433 $13,716 Apr-91 $13,565 $13,361 $13,557 $13,848 May-91 $13,634 $13,429 $13,634 $13,931 Jun-91 $13,577 $13,373 $13,663 $13,982 Jul-91 $13,784 $13,577 $13,795 $14,103 Aug-91 $14,110 $13,898 $13,990 $14,296 Sep-91 $14,455 $14,238 $14,152 $14,447 Oct-91 $14,591 $14,372 $14,296 $14,603 Nov-91 $14,669 $14,449 $14,432 $14,754 Dec-91 $14,969 $14,744 $14,675 $14,978 Jan-92 $14,868 $14,645 $14,588 $14,959 Feb-92 $14,937 $14,713 $14,550 $15,004 Mar-92 $14,912 $14,689 $14,466 $14,999 Apr-92 $14,999 $14,774 $14,584 $15,136 May-92 $15,196 $14,968 $14,738 $15,276 Jun-92 $15,354 $15,124 $14,891 $15,431 Jul-92 $15,551 $15,318 $15,070 $15,608 Aug-92 $15,654 $15,419 $15,193 $15,734 Sep-92 $15,792 $15,555 $15,318 $15,882 Oct-92 $15,644 $15,409 $15,198 $15,792 Nov-92 $15,625 $15,390 $15,174 $15,768 Dec-92 $15,800 $15,563 $15,320 $15,915 Jan-93 $16,011 $15,771 $15,513 $16,082 Feb-93 $16,168 $15,926 $15,660 $16,211 Mar-93 $16,225 $15,982 $15,710 $16,261 Apr-93 $16,325 $16,080 $15,798 $16,360 May-93 $16,273 $16,029 $15,779 $16,321 Jun-93 $16,452 $16,206 $15,926 $16,443 Jul-93 $16,444 $16,198 $15,969 $16,479 Aug-93 $16,685 $16,435 $16,125 $16,616 Sep-93 $16,752 $16,501 $16,170 $16,669 Oct-93 $16,789 $16,537 $16,198 $16,706 Nov-93 $16,707 $16,456 $16,151 $16,709 Dec-93 $16,761 $16,509 $16,209 $16,776 Jan-94 $16,862 $16,609 $16,319 $16,880 Feb-94 $16,675 $16,425 $16,184 $16,777 Mar-94 $16,480 $16,232 $16,017 $16,692 Apr-94 $16,356 $16,111 $15,903 $16,628 May-94 $16,389 $16,143 $15,875 $16,651 Jun-94 $16,387 $16,141 $15,873 $16,693 Jul-94 $16,558 $16,310 $16,002 $16,843 Aug-94 $16,592 $16,343 $16,039 $16,899 Sep-94 $16,503 $16,255 $15,982 $16,860 Oct-94 $16,519 $16,271 $15,992 $16,899 Nov-94 $16,429 $16,182 $15,928 $16,828 Dec-94 $16,473 $16,226 $15,963 $16,860 Jan-95 $16,720 $16,470 $16,161 $17,089 Feb-95 $16,951 $16,696 $16,392 $17,322 Mar-95 $17,038 $16,783 $16,477 $17,419 Apr-95 $17,216 $16,958 $16,619 $17,574 May-95 $17,612 $17,348 $16,947 $17,874 Jun-95 $17,701 $17,435 $17,031 $17,971 Jul-95 $17,681 $17,416 $17,052 $18,042 Aug-95 $17,807 $17,540 $17,176 $18,151 Sep-95 $17,897 $17,629 $17,274 $18,240 Oct-95 $18,043 $17,772 $17,428 $18,391 Nov-95 $18,226 $17,953 $17,595 $18,547 Dec-95 $18,365 $18,089 $17,741 $18,688 Jan-96 $18,494 $18,217 $17,869 $18,847 Feb-96 $18,341 $18,066 $17,787 $18,774 Mar-96 $18,264 $17,990 $17,765 $18,759 Apr-96 $18,224 $17,951 $17,769 $18,777 May-96 $18,222 $17,948 $17,790 $18,819 Jun-96 $18,335 $18,060 $17,909 $18,956 Jul-96 $18,395 $18,119 $18,014 $19,524 Aug-96 $18,435 $18,159 $18,062 $19,596 Sep-96 $18,593 $18,314 $18,217 $19,775 Oct-96 $18,809 $18,527 $18,409 $19,998 Nov-96 $18,949 $18,664 $18,552 $20,146 Dec-96 $18,919 $18,635 $18,546 $20,150 Jan-97 $19,020 $18,735 $18,634 $20,247 Feb-97 $19,062 $18,776 $18,682 $20,295 Mar-97 $19,004 $18,719 $18,648 $20,279 Apr-97 $19,167 $18,879 $18,785 $20,445 May-97 $19,290 $19,000 $18,895 $20,589 Jun-97 $19,413 $19,122 $18,995 $20,731 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. Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 1997 (unaudited) ASSETS: Investment in Government Income Portfolio, at value (Note 1A) ............................... $22,916,173 Receivable for shares of beneficial interest sold ........................................... 83,275 Receivable from the Administrator ........................................................... 56,467 ----------- Total assets ............................................................................... 23,055,915 ----------- LIABILITIES: Payable for shares of beneficial interest repurchased ....................................... 10,019 Payable to affiliates--Shareholder servicing agents' fees (Note 2B) .......................... 4,813 Accrued expenses and other liabilities ...................................................... 39,302 ----------- Total liabilities .......................................................................... 54,134 ----------- NET ASSETS for 2,408,985 shares of beneficial interest outstanding .......................... $23,001,781 =========== NET ASSETS CONSIST OF: Paid-in capital ............................................................................. $25,850,757 Accumulated net realized loss ............................................................... (2,535,068) Unrealized depreciation ..................................................................... (338,488) Undistributed net investment income ......................................................... 24,580 ----------- Total ...................................................................................... $23,001,781 =========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ....................... $9.55 ===== COMPUTATION OF OFFERING PRICE: Maximum Offering Price per share based on a 1.50% sales charge ($9.55/0.985) ................ $9.70 ===== See notes to financial statements
Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1997 (unaudited) INVESTMENT INCOME (Note 1B): Interest Income from Government Income Portfolio .......................... $755,722 Allocated Expenses from Government Income Portfolio ....................... (44,134) -------- Net investment income from Government Income Portfolio ................... $ 711,588 EXPENSES: Shareholder Servicing Agents' fees (Note 2B) .............................. 31,511 Administrative fees (Note 2A) ............................................. 31,511 Distribution fees (Note 3) ................................................ 18,907 Shareholder reports ....................................................... 11,291 Legal fees ................................................................ 10,507 Auditing fees ............................................................. 6,700 Custodian fees ............................................................ 5,250 Transfer agent fees ....................................................... 5,000 Trustees' fees ............................................................ 4,232 Miscellaneous ............................................................. 2,559 -------- Total expenses ........................................................... 127,468 Less aggregate amount waived by Administrator and Distributor (Notes 2A and 3) ........................................................ (50,418) Expenses Assumed by the Administrator (Note 6) ........................... (20,329) -------- Net expenses ............................................................. 56,721 --------- Net investment income .................................................... 654,867 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM GOVERNMENT INCOME PORTFOLIO: Net realized loss ......................................................... (18,614) Net change in unrealized appreciation (depreciation) ...................... (6,443) -------- Net realized and unrealized gain (loss) from Government Income Portfolio . (25,057) --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $ 629,810 ========= See notes to financial statements
Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, (UNAUDITED) 1996 ----------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ....................................... $ 654,867 $ 1,574,370 Net realized loss ........................................... (18,614) (451,894) Net change in unrealized appreciation (depreciation) ........ (6,443) (298,599) ----------- ----------- Net increase in net assets resulting from operations ....... 629,810 823,877 ----------- ----------- DISTRIBUTION TO SHAREHOLDERS FROM: Net investment income ....................................... (651,828) (1,571,638) ----------- ----------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): Net proceeds from sale of shares ............................ 438,101 1,803,128 Net asset value of shares issued to shareholders from reinvestment of dividends ............................. 646,220 1,549,810 Cost of shares repurchased .................................. (4,804,902) (11,186,181) ----------- ----------- Net decrease in net assets from transactions in shares of beneficial interest ........................................ (3,720,581) (7,833,243) ----------- ----------- NET DECREASE IN NET ASSETS .................................. (3,742,599) (8,581,004) NET ASSETS: Beginning of period ......................................... 26,744,380 35,325,384 ----------- ----------- End of period (including undistributed net investment income of $24,580 and $21,541, respectively) ............... $23,001,781 $26,744,380 =========== =========== See notes to financial statements
Landmark U.S. Government Income Fund - ----------------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
FOUR MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, JUNE 30, 1997 ----------------------------- 1993++ ------------------ (UNAUDITED) 1996 1995 1994++ (NOTE 1F) 1993++ 1992++ ----------- ------- ------- ------- --------- ------- ------- Net Asset Value, beginning of period ............................................ $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01 $ 9.85 $ 9.42 ------- ------- ------- ------- ------- ------- ------- Income From Operations: Net investment income ................................. 0.249 0.516 0.543 0.466 0.183 0.448 0.591 Net realized and unrealized gain (loss) (0.003) (0.232) 0.500 (0.635) (0.138) 0.183 0.413 ------- ------- ------- ------- ------- ------- ------- Total from operations ................................ 0.246 0.284 1.043 (0.169) 0.045 0.631 1.004 ------- ------- ------- ------- ------- ------- ------- Less Distributions From: Net investment income ................................ (0.246) (0.514) (0.543) (0.461) (0.145) (0.464) (0.574) In excess of net investment income ................... -- -- -- -- -- (0.007) -- ------- ------- ------- ------- ------- ------- ------- Total from distributions ............................. (0.246) (0.514) (0.543) (0.461) (0.145) (0.471) (0.574) ------- ------- ------- ------- ------- ------- ------- Net Asset Value, end of period ........................ $ 9.55 $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01 $ 9.85 ======= ======= ======= ======= ======= ======= ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) ............. $23,002 $26,744 $35,325 $52,933 $79,306 $82,114 $56,159 Ratio of expenses to average net assets ................. 0.80%(A)+ 0.80%(A) 0.80%(A) 0.80%(A) 0.80%+ 0.80 0.51% Ratio of net investment income to average net assets .... 5.20%+ 5.31% 5.38% 4.72% 4.34%+ 4.46% 6.03% Portfolio turnover (B) .................................. -- -- -- 22% 26% 111% 161% Total return ............................................ 2.61%** 3.02% 11.48% (1.72)% 0.45%** 6.59% 10.94% Note: If Agents of the Fund for the periods indicated and Agents of Government Income Portfolio for the periods after May 1, 1994 had not voluntarily waived a portion of their fees and assumed Fund expenses, the net investment income per share and the ratios would have been as follows: Net investment income per share ......................... $0.219 $0.460 $0.499 $0.421 $0.164 $0.400 $0.503 Ratios: Expenses to average net assets .......................... 1.36%(A)+ 1.38%(A) 1.23%(A) 1.26%(A) 1.27%+ 1.27% 1.41% Net investment income to average net assets ............. 4.63%+ 4.73% 4.95% 4.26% 3.88%+ 3.98% 5.13% ** Not annualized + Annualized (A) Includes the Fund's share of Government Income Portfolio allocated expenses for the periods subsquent to May 1, 1994. (B) 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. ++ On May 1, 1994, the Fund began investing all its investable assets in Government Income Portfolio. See notes to financial statements
Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) (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. The Fund invests 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. 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 (42.0% at June 30, 1997) 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 preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure in the financial statements. Actual results could differ from those estimates. The Fund has approval to issue Class A and Class B shares as described more fully in the Fund's prospectus. No Class B shares have yet to be offered, therefore the information presented in these financial statements relates solely to Class A shares. The significant accounting policies consistently followed by the Fund are as follows: A. INVESTMENT VALUATION -- Valuation of securities by the Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. INVESTMENT INCOME -- The Fund earns income, net of Portfolio expenses, daily based on its investment in the Portfolio. C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the Internal Revenue Code 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, 1996, the Fund, for federal income tax purposes, had a capital loss carryover of $2,438,711, of which $1,741,548 will expire on December 31, 2002, $329,508 will expire on December 31, 2003 and $367,655 will expire on December 31, 2004. 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 December 31, 1996, the fund reclassified $850,330 to accumulated net realized loss on investments from paid-in capital. 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) 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 fees paid to the Administrator from the Fund, the fees paid to the Shareholder Servicing Agents from the Fund under such Plan and the Basic Distribution Fee paid from the Fund to the Distributor under the Distribution Plan may not exceed 0.65% of the Fund's average daily net assets on an annualized basis for the Fund's then-current fiscal year. A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services Agreement, the administrative fees paid to the Administrator, as compensation for overall administrative services and general office facilities, may not exceed an annual rate of 0.25% of the Fund's average daily net assets. The Administrative fees amounted to $31,511, all of which was voluntarily waived for the six months ended June 30, 1997, 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 Shareholder Servicing Agent receives fees from the Fund, which may be paid periodically, which may not exceed, on an annualized basis, an amount equal to 0.25% of the average daily net assets of 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 $31,511, for the six months ended June 30, 1997. (3) DISTRIBUTION FEES The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the Fund compensates the Distributor at an annual rate not to exceed 0.15% of the Fund's average daily net assets. The Distribution fees amounted to $18,907, all of which was voluntarily waived for the six months ended June 30, 1997. 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. (4) INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in the Portfolio for the six months ended June 30, 1997, aggregated $444,963 and $5,068,210, respectively. (5) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares of beneficial interest were as follows: SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, (UNAUDITED) 1996 ------------- ------------ Shares sold .................................... 45,909 187,460 Shares issued to shareholders from reinvestment of dividends .................................. 67,871 161,737 Shares repurchased ............................. (504,344) (1,160,835) -------- ---------- Net decrease ................................... (390,564) (811,638) ======== ========== (6) ASSUMPTION OF EXPENSES LFBDS has voluntarily agreed to pay a portion of the expenses of the Fund for the six months ended June 30, 1997, which amounted to $20,329. Government Income Portfolio - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--18.7% 6.50%, 2009 ............. $ 249 $ 245,799 6.50%, 2011 ............. 4,343 4,284,513 6.50%, 2019 ............. 1,319 1,281,614 7.00%, 2008 ............. 1,837 1,821,582 7.25%, 2022 ............. 993 995,245 8.00%, 2006 ............. 210 215,559 8.00%, 2007 ............. 206 212,359 8.00%, 2017 ............. 477 494,445 8.00%, 2021 ............. 215 221,191 8.00%, 2022 ............. 164 168,987 9.50%, 2016 ............. 2 2,614 9.50%, 2017 ............. 55 59,630 9.50%, 2018 ............. 43 47,017 9.50%, 2019 ............. 64 69,140 9.50%, 2020 ............. 52 56,231 ----------- 10,175,926 ----------- U.S. GOVERNMENT OBLIGATIONS--75.5% United States Treasury Notes, 5.125% due 02/28/98 .... 8,000 7,970,000 6.125% due 05/15/98 .... 8,000 8,023,760 5.375% due 05/31/98 .... 1,675 1,668,988 5.75% due 12/31/98 ..... 6,000 5,982,180 5.875% due 01/31/99 .... 3,000 2,993,910 6.375% due 05/15/99 .... 6,450 6,482,250 6.875% due 03/31/00 .... 7,425 7,545,656 ----------- 40,666,744 ----------- United States Treasury Bond, 6.75% due 08/15/26 ..... 500 494,845 ----------- Total U.S. Government Obligations 41,161,589 ----------- SHORT-TERM OBLIGATIONS--4.8% Merrill United States Government Repurchase Agreement 5.750% due 07/01/97 proceeds at maturity $2,656,424 (collateralized by $4,075,000 U.S. Government National Strip due 11/15/03) .......... $ 2,656,000 ----------- TOTAL INVESTMENTS (Identified Cost $54,622,971) ......... 99.0% 53,993,515 OTHER ASSETS LESS LIABILITIES ....... 1.0 532,544 ----- ----------- NET ASSETS .............. 100.0% $54,526,059 ===== =========== See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 1997 (unaudited) ASSETS: Investments at value (Note 1A) (Identified Cost, $54,622,971) ... $53,993,515 Cash ............................................................ 694 Interest receivable ............................................. 540,595 Receivable for investments sold ................................. 7,237 ----------- Total assets ................................................... 54,542,041 ----------- LIABILITIES: Payable to affiliates--Investment advisory fees (Note 2) ........ 15,982 ----------- NET ASSETS ...................................................... $54,526,059 =========== REPRESENTED BY: Paid-in capital for beneficial interests ........................ $54,526,059 =========== See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1997 (unaudited) INTEREST INCOME (Note 1B): ............................................ $1,704,750 EXPENSES: Investment advisory fees (Note 2) ..................................... $ 99,554 Administrative fees (Note 3) .......................................... 14,222 Expense fees (Note 6) ................................................. 3,000 -------- Total expenses ....................................................... 116,776 Less aggregate amount waived by the Investment Adviser and Administrator (Note 2 and Note 3) .................................... (17,222) -------- Net expense ........................................................... 99,554 ---------- Net investment income ................................................ 1,605,196 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investment transactions and futures contracts .. (32,534) Unrealized appreciation (depreciation) of investments-- Beginning of period .................................................. (626,543) End of period ........................................................ (629,456) -------- Net change in unrealized appreciation (depreciation) of investments .. (2,913) ---------- Net realized and unrealized loss on investments ...................... (35,447) ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $1,569,749 ========== See notes to financial statements
Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED (UNAUDITED) DECEMBER 31, 1996 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ................................................. $ 1,605,196 $ 3,250,815 Net realized loss on investment transactions .......................... (32,534) (673,824) Net change in unrealized appreciation (depreciation) of investments ... (2,913) (682,218) ----------- ----------- Net increase (decrease) in net assets resulting from operations ...... 1,569,749 1,894,773 ----------- ----------- CAPITAL TRANSACTIONS: Proceeds from contributions ........................................... 12,487,318 26,210,981 Value of withdrawals .................................................. (13,029,825) (27,752,230) ----------- ----------- Net decrease in net assets from capital transactions ................. (542,507) (1,541,249) ----------- ----------- NET INCREASE IN NET ASSETS: ........................................... 1,027,242 353,524 NET ASSETS: Beginning of period ................................................... 53,498,817 53,145,293 ----------- ----------- End of period ......................................................... $54,526,059 $53,498,817 =========== =========== See notes to financial statements
Government Income Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
FOR THE PERIOD SIX MONTHS MAY 1, 1994 ENDED YEAR ENDED DECEMBER 31, (COMMENCMENT OF JUNE 30, 1997 ----------------------- OPERATIONS) TO (UNAUDITED) 1996 1995 DECEMBER 31, 1994 ----------- ---- ---- ----------------- RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (000's omitted) ............................. $54,526 $53,499 $53,145 $55,673 Ratio of expenses to average net assets ............................... 0.35%* 0.35% 0.36% 0.43%* Ratio of net investment income to average net assets .................. 5.83%* 5.75% 5.80% 5.27%* Portfolio turnover .................................................... 6% 100% 284% 40% Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees during the periods indicated, the ratios would have been as follows: RATIOS: Expenses to average net assets ........................................ 0.42%* 0.40% 0.40% 0.44%* Net investment income to average net assets ........................... 5.76%* 5.70% 5.76% 5.26%* * Annualized See notes to financial statements
Government Income Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) (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. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts to and disclosure in the financial statements. Actual results could differ from those estimates. The significant accounting policies consistently followed by the Portfolio 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 approved by the Board of Trustees, 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. 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 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. 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 agreements. 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 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. FUTURES CONTRACTS -- The Portfolio may engage in futures transactions. The Portfolio may use futures contracts in order to protect the Portfolio from fluctuation in interest rates without actually buying or selling debt securities, or to manage the effective maturity or duration of fixed income securities in the Portfolio in an effort to reduce potential losses or enhance potential gains. Buying futures contracts tends to increase the Portfolio's exposure to the underlying instrument. Selling futures contracts tends to either decrease the Portfolio's exposure to the underlying instrument, or to hedge other fund investments. Upon entering into a futures contract, the Portfolio is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin". Subsequent payments ("variation margin") are made or received by the Portfolio each day, depending on the daily fluctuation of the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Portfolio recognizes a realized gain or loss when the contract is closed. Futures contracts are valued at the settlement price established by the board of trade or exchange on which they are traded. There are several risks in connection with the use of futures contracts as a hedging device. The change in the value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in the value of the hedged instruments. In addition, there is the risk the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market. Futures contracts involve, to varying degrees, risk of loss in excess of the futures variation margin reflected in the Statement of Assets and Liabilities. No such instruments were held at June 30, 1997. H. 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 fees paid to Citibank, as compensation for overall investment management services, amounted to $99,554, of which $3,901 was voluntarily waived for the six months ended June 30, 1997. The investment advisory fees are computed at the annual rate of 0.35% of the Portfolio's average daily net assets. (3) ADMINISTRATIVE FEES Under the terms of an Administrative Services Agreement, the administrative fees paid to the Administrator, as compensation for overall administrative services and general office facilities, are computed at the annual rate of 0.05% of the Portfolio's average daily net assets. The Administrative fees amounted to $14,222 of which $13,321 was voluntarily waived, for the six months ended June 30, 1997. 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 $11,656,500 and $2,777,252, respectively, for the six months ended June 30, 1997. (5) FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at June 30, 1997, as computed on a federal income tax basis, are as follows: Aggregate cost ..................... $54,622,971 =========== Gross unrealized appreciation ...... $ 72,122 Gross unrealized depreciation ...... (701,578) ----------- Net unrealized depreciation ........ $ (629,456) =========== (6) EXPENSE FEES SFG has entered into an expense 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 may be terminated by either party upon not less than 30 days nor more than 60 days written notice. The Portfolio has agreed to pay SFG an expense fee on an annual basis, 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 less expenses waived by the Administrator would, on an annual basis, exceed an agreed upon rate, currently 0.35% of the Portfolio's average daily net assets. (7) LINE OF CREDIT The Portfolio, along with other Landmark Funds entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $60 million for temporary or emergency purposes. Interest on borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the six months ended June 30, 1997, the commitment fee allocated to the Portfolio was $120. Since the line of credit was established, there have been no borrowings. - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENTS FOR NEW YORK RETAIL BANKING AND BUSINESS AND PROFESSIONAL CUSTOMERS: Citibank, N.A. 111 Wall Street, New York, NY 10043 (212) 820-2383 or (800) 846-5300 FOR CITIGOLD CUSTOMERS: Citigold P.O. Box 5130, New York, NY 10126-5130 Call Your Citigold Executive or, in NY or CT, (800) 285-1701, or for all other States, (800) 285-1707 FOR CITIBANK 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 Registered Representative 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 CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS: Citibank, N.A. Master Trust Accounts 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9659 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) 820-2380 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 Institutional 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 National Tax Free Income Fund New York Tax Free Income Fund Balanced Fund Equity Fund International Equity Fund Small Cap Equity Fund Emerging Asian Markets Equity Fund -----END PRIVACY-ENHANCED MESSAGE-----