-----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, QqPghMyFp9izGvbb8CWVRPVjnmPrfuRvNcVijay8QIcmtgts7tBjMhwXE9/W1ae7 WrIArw0BYKnYSjbUpTApzg== 0000950156-97-000321.txt : 19970310 0000950156-97-000321.hdr.sgml : 19970310 ACCESSION NUMBER: 0000950156-97-000321 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970307 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDMARK FIXED INCOME FUNDS /MA/ CENTRAL INDEX KEY: 0000795808 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-05033 FILM NUMBER: 97552319 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 H. B. Alvord 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/A/96 Printed on Recycled Paper [recycle symbol] [logo] LANDMARK(SM) FUNDS Advised by Citibank, N.A. LANDMARK INTERMEDIATE INCOME FUND ANNUAL REPORT December 31, 1996 - -------------------------------------------------------------------------------- A LETTER TO OUR SHAREHOLDERS Dear Shareholder: The U.S. bond market produced modestly positive total rates of return in 1996 despite a sharp rise in interest rates early in the year. Bond yields subsequently retraced much of their rise during the second half as it became clearer that the economic environment would likely continue to be one of subdued growth, unchanged monetary policy and low inflation, albeit with a moderately upward bias. 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: generating a high level of current income and preserving 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 year ended December 31, 1996, 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 January 17, 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 5 Fund Data - -------------------------------------- Performance Highlights 2 Market Environment ----------------------------------------- Fund Snapshot 6 Portfolio of Investments - -------------------------------------- ----------------------------------------- Portfolio Manager 7 Statement of Assets and Liabilities 3 The Portfolio Manager Responds ----------------------------------------- Quotes From the Portfolio Manager 8 Statement of Operations - -------------------------------------- ----------------------------------------- 4 Strategy and Outlook 9 Statement of Changes in Net Assets Landmark Intermediate ----------------------------------------- Income Fund -- By the Numbers 10 Financial Highlights - -------------------------------------- ----------------------------------------- 11 Notes to Financial Statements ----------------------------------------- 14 Independent Auditors' Report - -------------------------------------------------------------------------------- MARKET ENVIRONMENT The economic and market environments of 1996 defied the forecasts of most investment strategists, including the Landmark Funds' investment manager, Citibank, N.A. At the start of the year, many investors expected U.S. economic growth to slow substantially. Instead, the pace of economic growth accelerated during the first half of the year, with second quarter Gross Domestic Product reaching 4.7%. This raised concern that the rate of inflation might rise and that the environment for bonds would become less attractive. The market's inflation fears were not realized, however, as economic growth moderated during the second half of the year. Sustainable, non-inflationary economic growth proved to be a formula for positive performance for many financial assets. In the bond market, weaker economic growth during the second half of the year supported the Federal Reserve Board's decision to hold monetary policy steady after their most recent rate cut in January. The prospect of non-inflationary economic growth produced lower yields for fixed-income securities of most types and maturities. - -------------------------------------------------------------------------------- FUND SNAPSHOT COMMENCEMENT OF OPERATIONS June 25, 1993 NET ASSETS AS OF 12/31/96 $43.9 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 When 1996 began, the Fund's investment adviser, Citibank, N.A., increased the portfolio's average duration and shifted assets to the more interest-rate sensitive sectors of the bond market in anticipation of a market rally. As soon as it became apparent in the first quarter of 1996 that the economy was not slowing as expected, we reduced the Fund's average duration to a range considered neutral, thereby reducing the sensitivity of the portfolio to potentially higher interest rates. We maintained this position until the fourth quarter, when a slowing economy and falling interest rates prompted us to lengthen the portfolio's average duration. We also benefitted early in the year from our sector rotation strategy. By increasing our holdings of mortgage-backed and asset-backed securities during the first quarter, we were able to obtain better values and, in most cases, higher yields than were available either from U.S. Treasury securities or high-quality corporate bonds. Mortgage-backed securities were attractive because the risk of homeowners refinancing their mortgages in a rising interest-rate environment was small. Asset-backed securities based on home equity loans and other high-quality obligations produced attractive returns for similar reasons. Toward the end of the year, we shortened the duration of mortgage-backed securities and selectively purchased putable corporate securities. We also maintained a modest position in U.S. Treasury securities throughout the year. - -------------------------------------------------------------------------------- QUOTES FROM THE PORTFOLIO MANAGER "Bond prices rose during the second half of the year as investors realized that economic growth was slowing and inflation would not be a problem." "As long as the economy continues to grow at a moderate rate, we expect no changes in monetary policy from the Federal Reserve Board during the first half of the year." - -------------------------------------------------------------------------------- STRATEGY AND OUTLOOK We are optimistic about the prospect for the U.S. bond market in 1997. The economy appears to be on a steady course in which it should neither overheat to inflationary levels nor deteriorate into a recession. Current indicators suggest that the first several months of the year will see an unchanged monetary policy, modestly lower interest rates and low rates of inflation. We believe that the prospect of lower interest rates should be good news for the bond market, where prices will rise if yields fall. In addition, the prospect of continued low inflation should make investors more comfortable investing in bonds for the longer term as the potential for erosion of buying power is reduced. The bond market could become particularly attractive if President Clinton and the Republican Congress make substantial progress toward further reducing the federal budget deficit. Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- BY THE NUMBERS CHANGES IN PORTFOLIO COMPOSITION Portfolio of Investments as of 12/31/96 . . .Compared to 12/31/95 Mortgage Obligations 53% U.S. Treasury Issues 47% U.S. Treasury Issues 36% Mortgage Obligations 38% Corporate Bonds 5% Corporate Bonds 5% Asset-Backed Securities 3% Asset-Backed Securities 4% Cash/Other 3% Cash/Short Term/Other 6% - -------------------------------------------------------------------------------- FUND DATA All Periods Ending December 31, 1996
TOTAL RETURNS ---------------------- SINCE ONE 6/25/93 YEAR (INCEPTION)* ----- -------- Landmark Intermediate Income Fund without Sales Charge ......................... 2.73% 4.74% Lipper Intermediate Investment Grade Funds Average ............................. 3.12% 4.85%+ Lehman Aggregate Bond Index .................................................... 3.63% 5.92%+ Landmark Intermediate Income Fund with Maximum Sales Charge of 4.00% ........... (1.38)% 3.53% * Average Annual Total Return + From 6/30/93 30-Day SEC Yield 5.61% Income Dividends Per Share $0.538
- -------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS A $10,000 investment in the Fund made on inception date would have grown to $11,298 with sales charge (as of 12/31/96). The graph shows how this compares to our benchmark 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. Landmark Landmark Lipper Intermediate Intermediate Intermediate Lehman Income Income Investment Aggregate w/o sales chg. w/ sales chg. Grade Avg. Index -------------- ------------- ------------ --------- Jun-93 10,030 9,629 10,000 10,000 Jul-93 10,073 9,670 10,042 10,057 Aug-93 10,325 9,912 10,228 10,233 Sep-93 10,406 9,989 10,268 10,261 Oct-93 10,416 9,999 10,301 10,299 Nov-93 10,246 9,836 10,209 10,211 Dec-93 10,299 9,887 10,257 10,266 Jan-94 10,445 10,027 10,387 10,405 Feb-94 10,215 9,806 10,202 10,224 Mar-94 9,968 9,569 9,980 9,971 Apr-94 9,868 9,473 9,890 9,891 May-94 9,841 9,447 9,875 9,890 Jun-94 9,810 9,417 9,856 9,869 Jul-94 9,976 9,577 10,004 10,065 Aug-94 10,003 9,603 10,024 10,077 Sep-94 9,836 9,442 9,911 9,929 Oct-94 9,798 9,406 9,896 9,920 Nov-94 9,760 9,370 9,867 9,898 Dec-94 9,838 9,445 9,914 9,967 Jan-95 10,021 9,620 10,072 10,164 Feb-95 10,249 9,839 10,281 10,406 Mar-95 10,322 9,909 10,345 10,469 Apr-95 10,439 10,021 10,478 10,616 May-95 10,930 10,492 10,848 11,027 Jun-95 10,992 10,552 10,916 11,107 Jul-95 10,941 10,503 10,887 11,083 Aug-95 11,039 10,597 11,009 11,217 Sep-95 11,159 10,713 11,106 11,326 Oct-95 11,199 10,751 11,244 11,473 Nov-95 11,310 10,857 11,401 11,645 Dec-95 11,456 10,998 11,546 11,808 Jan-96 11,509 11,049 11,622 11,886 Feb-96 11,279 10,828 11,423 11,679 Mar-96 11,190 10,743 11,345 11,597 Apr-96 11,113 10,668 11,276 11,532 May-96 11,083 10,639 11,256 11,509 Jun-96 11,245 10,796 11,384 11,664 Jul-96 11,263 10,812 11,410 11,695 Aug-96 11,230 10,781 11,401 11,675 Sep-96 11,443 10,985 11,587 11,878 Oct-96 11,693 11,225 11,821 12,142 Nov-96 11,895 11,419 12,016 12,350 Dec-96 11,769 11,298 11,910 12,235 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 December 31, 1996 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FIXED INCOME--98.9% - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES--3.5% Green Tree Financial Corp. 8.05% due 10/15/27 ..................... $1,500 $ 1,525,305 ----------- DOMESTIC CORPORATE SECURITIES--4.7% Aetna Services, Inc. 6.97% DUE 8/15/36 ..................... 1,000 1,018,310 WMX Technologies Inc. .................. 7.10% due 8/01/26 ..................... 1,000 1,034,460 ----------- 2,052,770 ----------- YANKEES--2.2% Enersis 6.90% due 12/01/06 ............. 1,000 975,990 ----------- MORTGAGE OBLIGATIONS--52.6% COLLATERALIZED MORTGAGE OBLIGATIONS--10.6% Asset Securitization Corp. Series 96 7.21% due 10/31/26 .................... 1,000 1,017,187 Asset Securitization Corp. Series 95 7.38% due 8/13/29 ..................... 1,000 1,008,750 GMAC Commercial Mortgage 7.22% due 2/15/06 ..................... 500 505,781 Nomura Asset Securities Corp. .......... 8.15% due 4/04/27 ..................... 2,000 2,136,875 ----------- 4,668,593 ----------- MORTGAGE BACKED SECURITIES--30.4% Federal Home Loan Mortgage Corp. ....... 7.50% due 1/15/20 ..................... 1,988 1,999,807 7.50% due 8/15/21 ..................... 3,934 3,958,471 7.50% due 5/15/23 ..................... 964 967,375 Federal Home Loan Mortgage Association 8.50% due 4/01/01 ..................... 31 32,369 Federal National Mortgage Association 7.00% due 1/01/99 ..................... 277 278,146 7.00% due 5/01/03 ..................... 2,666 2,676,980 7.50% due 10/01/25 .................... 1,626 1,626,987 7.50% due 4/01/26 ..................... 56 56,439 7.50% due 5/01/26 ..................... 251 250,630 8.00% due 6/01/02 ..................... 19 19,421 8.00% due 7/01/26 ..................... 1,471 1,498,566 ----------- 13,365,191 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 11.6% 7.50% due 9/15/25 ...................... 2,373 2,380,003 7.50% due 5/15/26 ...................... 1,975 1,975,830 8.00% due 12/15/07 ..................... 85 87,724 8.25% due 7/15/05 ...................... 628 641,684 ----------- 5,085,241 ----------- TOTAL MORTGAGE OBLIGATIONS 23,119,025 ----------- UNITED STATES GOVERNMENT & OTHER GOVERNMENT OBLIGATIONS -- 35.9% UNITED STATES TREASURY BONDS -- 4.7% 6.50% due 11/15/26 ..................... 2,100 2,060,961 ----------- UNITED STATES TREASURY NOTES -- 25.4% 5.875% due 11/15/99 .................... 1,500 1,494,135 6.625% due 6/30/01 ..................... 4,500 4,572,405 5.875% due 2/15/04 ..................... 4,200 4,089,078 6.50% due 10/15/06 ..................... 1,000 1,005,470 ----------- 11,161,088 ----------- UNITED STATES & OTHER GOVERNMENT AGENCIES -- 5.8% Inter-American Development Bank 6.95% due 8/01/26 ..................... 1,000 1,036,670 Tennessee Valley Authority 5.98% due 4/01/36 ..................... 1,500 1,523,460 ----------- 2,560,130 ----------- TOTAL UNITED STATES GOVERNMENT & OTHER GOVERNMENT OBLIGATIONS ............................. 15,782,179 ----------- TOTAL INVESTMENTS (Identified Cost $43,083,954) ......... 98.9% 43,455,269 OTHER ASSETS LESS LIABILITIES .......... 1.1% 463,343 ----- ----------- NET ASSETS ............................. 100.0% $43,918,612 ===== =========== See notes to financial statements Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1996 ASSETS: Investments, at value (Note 1A)(Identified Cost, $43,083,954) ............... $43,455,269 Cash ........................................................................ 182,124 Receivable for investments sold ............................................. 2,111,875 Interest receivable ......................................................... 396,780 ----------- Total assets ............................................................ 46,146,048 ----------- LIABILITIES: Payable for investments purchased ........................................... 2,113,438 Payable for shares of beneficial interest repurchased ....................... 35,599 Payable to affiliates: Investment advisory fee (Note 2) .......................................... $ 3,291 Shareholder Servicing Agents' fee (Note 3B) ............................... 10,039 18,330 Accrued expenses ------- 60,069 ----------- Total liabilities ....................................................... 2,227,436 ----------- NET ASSETS for 4,630,939 shares of beneficial interest outstanding .......... $43,918,612 =========== NET ASSETS CONSIST OF: Paid-in capital ............................................................. $46,771,575 Accumulated net realized loss on investments ................................ (3,259,962) Unrealized appreciation of investments ...................................... 371,315 Undistributed net investment income ......................................... 35,684 ----------- Total ................................................................... $43,918,612 =========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ....... $9.48 ===== COMPUTATION OF OFFERING PRICE: Maximum Offering Price per share based on a 4.00% sales charge ($9.48 / 0.96) $9.88 =====
See notes to financial statements Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended December 31, 1996 INVESTMENT INCOME (Note 1B) $3,073,610 EXPENSES: Investment advisory fees (Note 2) ....................................... $162,525 Shareholder servicing agents' fees (Note 3B) ............................ 116,090 Administrative fees (Note 3A) ........................................... 116,090 Distribution fees (Note 4) .............................................. 69,654 Custodian fees .......................................................... 69,159 Auditing services ....................................................... 28,300 Shareholder reports ..................................................... 23,959 Trustees fees ........................................................... 20,746 Legal services .......................................................... 13,825 Transfer agent fees ..................................................... 12,000 Miscellaneous ........................................................... 11,135 --------- Total expenses ................................................. 643,483 Less aggregate amount waived by Investment Adviser, Administrator and Distributor (Notes 2, 3A, and 4) ................................... (221,639) Less fees paid indirectly (Note 1I) ..................................... (3,909) --------- Net expenses .................................................... 417,935 ---------- Net investment income ........................................... 2,655,675 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investment transactions .......................... (869,098) Net realized gain on future transactions ................................ 38,159 Unrealized appreciation (depreciation) of investments: Beginning of period ............................................... 1,014,631 End of period ..................................................... 371,315 --------- Net change in unrealized appreciation (depreciation) of investments ..... (643,316) ---------- Net realized and unrealized gain (loss) on investments .................. (1,474,255) ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $1,181,420 ==========
See notes to financial statements Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, ---------------------------- 1996 1995 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income .................................................... $ 2,655,675 $ 2,919,822 Net realized gain (loss) from investment transactions .................... (830,939) 2,369,867 Net change in unrealized appreciation (depreciation) of investments ...... (643,316) 2,122,816 ----------- ----------- Net increase in net assets resulting from operations ............. 1,181,420 7,412,505 ----------- ----------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS FROM: Net investment income .................................................... (2,638,684) (2,928,567) ----------- ----------- Decrease in net assets from distributions declared to shareholders (2,638,684) (2,928,567) ----------- ----------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6): Net proceeds from sale of shares ......................................... 1,467,543 902,835 Net asset value of shares issued to shareholders from reinvestment of distributions ........................ 2,602,603 2,894,283 Cost of shares repurchased ............................................... (8,312,092) (6,244,911) ----------- ----------- Net decrease in net assets from transactions in shares of beneficial interest ......................................... (4,241,946) (2,447,793) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS .................................... (5,699,210) 2,036,145 NET ASSETS: Beginning of period ...................................................... 49,617,822 47,581,677 ----------- ----------- End of period (including undistributed net investment income of $35,684 and $18,693, respectively) ..................................... $43,918,612 $49,617,822 =========== ===========
See notes to financial statements Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
FOR THE PERIOD YEAR ENDED JUNE 25, 1993 DECEMBER 31, (COMMENCEMENT OF -------------------------------------- OPERATIONS) TO 1996 1995 1994 DECEMBER 31, 1993 ----- ------ ------ -------------------- Net Asset Value, beginning of period ...................... $9.77 $ 8.91 $ 9.88 $10.00 ----- ------ ------ ------ Income From Operations: Net investment income ..................................... 0.54 0.57 0.521 0.261 Net realized and unrealized gain (loss) on investments .... (0.29) 0.86 (0.959) 0.037 ----- ------ ------ ------ Total income from operations ...................... 0.25 1.43 (0.438) 0.298 ----- ------ ------ ------ Less Distributions From: Net investment income ................................. (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 ................................... (0.54) (0.57) (0.532) (0.418) ----- ------ ------ ------ Net Asset Value, end of period ........................ $9.48 $ 9.77 $ 8.91 $ 9.88 ===== ====== ====== ====== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) ................. $43,919 $49,618 $47,582 $61,183 Ratio of expenses to average net assets ................... 0.90% 0.90% 0.90% 0.90%* Ratio of net investment income to average net assets ...... 5.72% 5.97% 5.52% 4.95%* Portfolio turnover ........................................ 495% 396% 291% 103% Total return .............................................. 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 $0.50 $0.52 $0.475 $0.236 Ratios: Expenses to average net assets ............................ 1.39% 1.42% 1.39% 1.38%* Net investment income to average net assets ............... 5.23% 5.45% 5.03% 4.47%* *Annualized +Not annualized
See notes to financial statements Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (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 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. The underlying value of a futures contract is incorporated within unrealized appreciation/depreciation in the Portfolio of Investments under the caption "Futures Contracts". The Fund had no open Futures Contracts at December 31, 1996. 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 $162,525, of which $80,994 was voluntarily waived for the year ended December 31, 1996. 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 $116,090, of which $72,966 was voluntarily waived for year ended December 31, 1996. 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 $116,090 for the year ended December 31, 1996. (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 reimburses the Distributor for expenses incurred or anticipated in connection with sales of shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's average daily net assets 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 $69,654, of which $67,679 was voluntarily waived for the year ended December 31, 1996. (5) PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities, other than short-term obligations, aggregated $223,065,836 and $224,138,147, respectively, for the year ended December 31, 1996. (6) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares of beneficial interest were as follows: YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 ------- ------- Shares sold ....................... 155,635 94,442 Shares issued to shareholders from reinvestment of distributions ... 276,737 306,199 Shares repurchased ................ (881,410) (662,943) ------- ------- Net decrease ...................... (449,038) (262,302) ======= ======= (7) FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at December 31, 1996, as computed on a federal income tax basis, are as follows: Aggregate cost ........................... $43,086,142 =========== Gross unrealized appreciation ............ $ 461,806 Gross unrealized depreciation ............ (92,679) ----------- Net unrealized appreciation ............ $ 369,127 =========== (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 $40 million for temporary or emergency purposes. Interest on borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the year ended December 31, 1996, the commitment fee allocated to the Fund was $184. Since the line of credit was established there have been no borrowings. Landmark Intermediate Income Fund - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND SHAREHOLDERS OF LANDMARK INTERMEDIATE INCOME FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Landmark Intermediate Income Fund (the "Fund"), a separate series of Landmark Fixed Income Funds (the "Trust") (a Massachusetts business trust), as of December 31, 1996, the related statement of operations for the year then ended, the statement of changes in net assets for the years ended December 31, 1996 and 1995 and the financial highlights for each of the years in the three year period ended December 31, 1996 and for the period from June 25, 1993 (Commencement of Operations) to December 31, 1993. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned as of December 31, 1996, by correspondence with the Custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Landmark Intermediate Income Fund at December 31, 1996, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts January 31, 1997 - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENTS FOR CITIBANK 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. 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9100 FOR CITICORP INVESTMENT SERVICES CUSTOMERS: Citicorp Investment Services One Court Square, Long Island City, NY 11120 Call Your Investment Consultant or (800) 846-5200 (212) 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 Funds 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 H. B. Alvord 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/A/96 Printed on Recycled Paper [recycle symbol] [logo] LANDMARK(SM) FUNDS Advised by Citibank, N.A. LANDMARK U.S. GOVERNMENT INCOME FUND ANNUAL REPORT December 31, 1996 - -------------------------------------------------------------------------------- A LETTER TO OUR SHAREHOLDERS Dear Shareholder: U.S. government securities produced modestly positive total rates of return in 1996 despite a sharp rise in interest rates early in the year. Bond yields subsequently retraced much of their rise during the second half as it became clearer that the economic environment would likely continue to be one of subdued growth, unchanged monetary policy and low inflation, albeit with a moderately upward bias. However, for the year as a whole, the largest interest rate increases could be found in the short and intermediate sectors of the bond market, which is the maturity range in which the Landmark U.S. Government Income Fund invests. In this environment, the Landmark U.S. Government Income Fund continued to be managed with the goal of achieving its investment objectives: generating current income and preserving the value of its shareholders' investment. Through its investment in the 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 year ended December 31, 1996, 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 January 17, 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 LANDMARK U.S. GOVERNMENT 1 Letter to Shareholders INCOME FUND - -------------------------------------- ----------------------------------------- 2 Market Environment 6 Statement of Assets and Liabilities Fund Snapshot ----------------------------------------- - -------------------------------------- 7 Statement of Operations 3 Portfolio Manager ----------------------------------------- The Portfolio Manager Responds 8 Statement of Changes in Net Assets - -------------------------------------- ----------------------------------------- 4 Quotes from the Portfolio Manager 9 Financial Highlights Strategy and Outlook ----------------------------------------- - -------------------------------------- 10 Notes to Financial Statements 5 Fund Data ----------------------------------------- Performance Highlights 12 Independent Auditors' Report ----------------------------------------- GOVERNMENT INCOME PORTFOLIO ----------------------------------------- 13 Portfolio of Investments ----------------------------------------- 14 Statement of Assets and Liabilities Statement of Operations ----------------------------------------- 15 Statement of Changes in Net Assets Financial Highlights ----------------------------------------- 16 Notes to Financial Statements ----------------------------------------- 19 Independent Auditors' Report - -------------------------------------------------------------------------------- MARKET ENVIRONMENT The economic and market environments of 1996 defied the forecasts of most investment strategists, including the Landmark Funds' investment adviser, Citibank, N.A. At the start of the year, many investors expected U.S. economic growth to slow substantially. Instead, the pace of economic growth accelerated during the first half of the year, with second quarter Gross Domestic Product reaching 4.7%. This raised concern that the rate of inflation might rise and that the environment for bonds would become less attractive. The market's inflation fears were not realized, however, as economic growth moderated during the second half of the year. Sustainable, non-inflationary economic growth proved to be a formula for positive performance for many financial assets. In the bond market, weaker economic growth during the second half of the year supported the Federal Reserve Board's decision to hold monetary policy steady after their most recent rate cut in January. The prospect of moderate economic growth produced lower yields for U.S. government securities during the second half of the year. Government- guaranteed mortgage-backed securities performed especially well during the year as the risk of residential mortgage prepayments remained relatively low and yields remained attractive relative to U.S. Treasury securities. - -------------------------------------------------------------------------------- FUND SNAPSHOT COMMENCEMENT OF OPERATIONS September 8, 1986 NET ASSETS AS OF 12/31/96 $26.7 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 THOMAS HALLEY Vice President, Citibank, N.A. Mr. Halley has been responsible for managing the Portfolio since its inception after serving as the manager of the Fund since December 1988. He also manages other commingled investment funds at Citibank as well as institutional insurance portfolios. Mr. Halley authors the commentary on economic trends for Citibank Global Asset Management publications. Prior to joining Citibank in 1988, Mr. Halley was a Senior Fixed Income Portfolio Manager with Brown Brothers Harriman & Company. He has more than 20 years of experience in the management of taxable fixed income investments. - -------------------------------------------------------------------------------- THE PORTFOLIO MANAGER RESPONDS The Landmark Funds' investment adviser, Citibank, N.A., manages Government Income Portfolio using a conservative strategy. To reduce the potential for capital losses during difficult market conditions, the securities in the Portfolio may not exceed an average life of three years. Consequently, we were unable to participate fully in the opportunities provided by longer maturity fixed-income securities during the declining interest-rate environment of the second half of 1996. Yet, by employing the average-duration and sector-rotation strategies available to us, the Fund provided a competitive total rate of return for the year as a whole. The Portfolio contains two primary types of U.S. government securities: U.S. Treasury securities and mortgage-backed securities issued by the Government National Mortgage Association, a government-guaranteed Federal agency. At the beginning of the 12 month period, the Portfolio was allocated 79% to U.S. Treasury securities and 15% to GNMA mortgage-backed securities, reflecting our positive outlook for mortgages in the prevailing economic environment. By the end of the year, those proportions changed to 61% U.S. Treasury securities and 18% GNMA mortgage-backed securities as we increased our cash exposure due to our concerns about the pace of macroeconomic activity in the opening months of 1997. - -------------------------------------------------------------------------------- QUOTES FROM THE PORTFOLIO MANAGER "Bond prices rose during the second half of the year as investors realized that economic growth would slow and inflation would not be a problem." "As long as the economy continues to grow at a moderate rate, we expect no changes in monetary policy from the Federal Reserve Board through the first half of the year." - -------------------------------------------------------------------------------- STRATEGY AND OUTLOOK We are optimistic about the prospect for the U.S. bond market in 1997. The economy appears to be on a steady course in which it should neither overheat to inflationary levels nor deteriorate into a recession. Current indicators suggest that the first part of the year will see an unchanged monetary policy, modestly lower interest rates and low rates of inflation. The prospect of lower interest rates should be good news for the bond market, where prices will rise if yields fall. In addition, the prospect of continued moderate inflation as we enter the seventh year of an economic recovery should make investors more comfortable investing in bonds for the longer term as the potential for erosion in buying power is reduced. The bond market could become particularly attractive if President Clinton and the Republican Congress make substantial progress toward further reducing the federal budget deficit. - -------------------------------------------------------------------------------- FUND DATA All Periods Ended December 31, 1996
TOTAL RETURNS ----------------------------------- ONE FIVE TEN YEAR YEARS* YEARS* ------ ------ ------ Landmark U.S. Government Income Fund without Sales Charge ............................ 3.02% 4.80% 6.61% Lipper Short U.S. Government Funds Average ........ 4.35% 4.72% 5.95% Lehman 1-3 Year U.S. Government Index ............. 5.10% 5.56% 7.19% Landmark U.S. Government Income Fund with Maximum Sales Charge of 1.50% .............. 1.47% 4.48% 6.45% *Average Annual Total Return. 30-DAY SEC YIELD 5.14% Income Dividends Per Share $0.514
- -------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS A $10,000 investment in the Fund made on inception date would have grown to $18,466 with sales charge (as of 12/31/96). 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. Landmark Landmark Lipper Lehman U.S. Gov't. U.S. Gov't Short 1-3 Years Income Income U.S. Gov't. U.S. Gov't. w/o sales chg. w/ sales chg. Funds Avg. Index -------------- ------------- ---------- --------- Sep-86 9,660 9,515 10,000 10,000 Oct-86 9,682 9,537 10,110 10,088 Nov-86 9,847 9,700 10,218 10,148 Dec-86 9,881 9,733 10,251 10,171 Jan-87 9,982 9,832 10,348 10,242 Feb-87 10,053 9,902 10,409 10,287 Mar-87 9,985 9,835 10,399 10,309 Apr-87 9,792 9,646 10,234 10,237 May-87 9,788 9,641 10,238 10,252 Jun-87 9,909 9,761 10,352 10,366 Jul-87 9,904 9,755 10,380 10,422 Aug-87 9,866 9,718 10,375 10,438 Sep-87 9,655 9,511 10,290 10,399 Oct-87 9,965 9,816 10,519 10,611 Nov-87 10,025 9,874 10,582 10,680 Dec-87 10,151 9,999 10,661 10,752 Jan-88 10,479 10,322 10,887 10,913 Feb-88 10,619 10,459 10,993 11,006 Mar-88 10,523 10,365 10,981 11,029 Apr-88 10,495 10,337 10,984 11,042 May-88 10,455 10,298 10,965 11,036 Jun-88 10,633 10,473 11,088 11,146 Jul-88 10,592 10,433 11,090 11,152 Aug-88 10,574 10,415 11,107 11,179 Sep-88 10,744 10,583 11,250 11,309 Oct-88 10,869 10,706 11,369 11,423 Nov-88 10,780 10,618 11,322 11,395 Dec-88 10,785 10,624 11,341 11,420 Jan-89 10,922 10,758 11,441 11,510 Feb-89 10,818 10,656 11,435 11,511 Mar-89 10,856 10,693 11,480 11,560 Apr-89 11,044 10,878 11,635 11,748 May-89 11,305 11,136 11,810 11,914 Jun-89 11,595 11,421 12,025 12,136 Jul-89 11,818 11,641 12,196 12,315 Aug-89 11,596 11,422 12,109 12,242 Sep-89 11,628 11,453 12,168 12,314 Oct-89 11,955 11,776 12,365 12,505 Nov-89 12,061 11,880 12,468 12,618 Dec-89 12,080 11,899 12,517 12,667 Jan-90 11,867 11,689 12,498 12,680 Feb-90 11,880 11,702 12,555 12,747 Mar-90 11,864 11,686 12,593 12,786 Apr-90 11,671 11,496 12,607 12,816 May-90 12,059 11,878 12,795 13,013 Jun-90 12,265 12,081 12,926 13,150 Jul-90 12,441 12,254 13,077 13,309 Aug-90 12,260 12,077 13,098 13,357 Sep-90 12,357 12,172 13,195 13,462 Oct-90 12,523 12,336 13,330 13,611 Nov-90 12,807 12,615 13,477 13,743 Dec-90 13,034 12,839 13,628 13,904 Jan-91 13,183 12,985 13,752 14,035 Feb-91 13,258 13,059 13,830 14,125 Mar-91 13,309 13,110 13,906 14,220 Apr-91 13,442 13,240 14,034 14,356 May-91 13,510 13,307 14,114 14,442 Jun-91 13,454 13,252 14,144 14,496 Jul-91 13,659 13,454 14,281 14,621 Aug-91 13,982 13,772 14,482 14,820 Sep-91 14,324 14,109 14,650 14,977 Oct-91 14,459 14,242 14,799 15,139 Nov-91 14,535 14,317 14,940 15,295 Dec-91 14,833 14,610 15,191 15,527 Jan-92 14,733 14,512 15,101 15,506 Feb-92 14,802 14,580 15,062 15,553 Mar-92 14,777 14,555 14,975 15,548 Apr-92 14,863 14,640 15,098 15,690 May-92 15,058 14,832 15,257 15,835 Jun-92 15,215 14,987 15,416 15,994 Jul-92 15,410 15,179 15,601 16,179 Aug-92 15,512 15,279 15,729 16,310 Sep-92 15,649 15,414 15,858 16,462 Oct-92 15,502 15,270 15,734 16,368 Nov-92 15,483 15,251 15,709 16,344 Dec-92 15,657 15,422 15,860 16,497 Jan-93 15,866 15,628 16,060 16,669 Feb-93 16,022 15,781 16,213 16,802 Mar-93 16,078 15,837 16,265 16,854 Apr-93 16,177 15,934 16,356 16,956 May-93 16,125 15,883 16,336 16,915 Jun-93 16,303 16,059 16,488 17,041 Jul-93 16,295 16,051 16,533 17,078 Aug-93 16,534 16,286 16,695 17,220 Sep-93 16,600 16,351 16,742 17,275 Oct-93 16,637 16,387 16,770 17,313 Nov-93 16,555 16,307 16,721 17,316 Dec-93 16,609 16,359 16,781 17,385 Jan-94 16,709 16,458 16,895 17,494 Feb-94 16,524 16,276 16,755 17,388 Mar-94 16,330 16,085 16,582 17,300 Apr-94 16,208 15,965 16,464 17,234 May-94 16,240 15,997 16,434 17,257 Jun-94 16,238 15,995 16,432 17,300 Jul-94 16,408 16,162 16,565 17,456 Aug-94 16,441 16,194 16,603 17,513 Sep-94 16,353 16,108 16,545 17,474 Oct-94 16,369 16,123 16,555 17,514 Nov-94 16,280 16,036 16,489 17,441 Dec-94 16,324 16,079 16,525 17,475 Jan-95 16,569 16,320 16,730 17,712 Feb-95 16,797 16,545 16,969 17,953 Mar-95 16,884 16,631 17,057 18,055 Apr-95 17,060 16,804 17,204 18,216 May-95 17,452 17,190 17,543 18,527 Jun-95 17,540 17,277 17,631 18,627 Jul-95 17,520 17,258 17,652 18,701 Aug-95 17,646 17,381 17,781 18,812 Sep-95 17,735 17,469 17,882 18,904 Oct-95 17,879 17,611 18,041 19,061 Nov-95 18,061 17,790 18,214 19,223 Dec-95 18,198 17,925 18,365 19,369 Jan-96 18,327 18,052 18,497 19,532 Feb-96 18,175 17,902 18,412 19,457 Mar-96 18,098 17,827 18,390 19,442 Apr-96 18,059 17,788 18,394 19,461 May-96 18,056 17,786 18,416 19,505 Jun-96 18,169 17,896 18,539 19,647 Jul-96 18,228 17,955 18,600 19,723 Aug-96 18,268 17,994 18,650 19,796 Sep-96 18,424 18,148 18,810 19,976 Oct-96 18,639 18,359 19,008 20,202 Nov-96 18,777 18,495 19,156 20,352 Dec-96 18,747 18,466 19,150 20,356 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 December 31, 1996 ASSETS: Investment in Government Income Portfolio, at value (Note 1) .............. $26,852,889 Receivable for shares of beneficial interest sold ......................... 87,644 Receivable from the Administrator ......................................... 39,302 ----------- Total assets .......................................................... 26,979,835 ----------- LIABILITIES: Payable for shares of beneficial interest repurchased ..................... 197,762 Payable to affiliates--Shareholder servicing agents' fees (Note 2B) ....... 6,127 Accrued expenses and other liabilities .................................... 31,566 ----------- Total liabilities ..................................................... 235,455 ----------- NET ASSETS for 2,799,549 shares of beneficial interest outstanding ........ $26,744,380 =========== NET ASSETS CONSIST OF: Paid-in capital ........................................................... $29,571,338 Accumulated net realized loss ............................................. (2,516,454) Unrealized depreciation ................................................... (332,045) Undistributed net investment income ....................................... 21,541 ----------- Total ................................................................. $26,744,380 =========== 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 Year Ended December 31, 1996 INVESTMENT INCOME (Note 1B): Interest Income from Government Income Portfolio ............................ $1,811,956 Allocated Expenses from Government Income Portfolio ......................... (104,066) ---------- Net investment income from Government Income Portfolio .................. $1,707,890 EXPENSES: Shareholder Servicing Agents' fees (Note 2B) ................................ 74,177 Administrative fees (Note 2A) ............................................... 74,177 Distribution fees (Note 3) .................................................. 44,506 Shareholder reports ......................................................... 22,502 Auditing fees ............................................................... 19,100 Legal fees .................................................................. 15,480 Trustees' fees .............................................................. 13,019 Transfer agent fees ......................................................... 12,000 Custodian fees .............................................................. 7,500 Miscellaneous ............................................................... 9,044 ---------- Total expenses .......................................................... 291,505 Less aggregate amount waived by Administrator and Distributor (Notes 2A and 3) (118,683) Expenses Assumed by the Administrator (Note 6) .......................... (39,302) ---------- Net expenses ............................................................ 133,520 ---------- Net investment income ................................................... 1,574,370 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM GOVERNMENT INCOME PORTFOLIO: Net realized gain (loss) .................................................... (451,894) Net change in unrealized appreciation (depreciation) ........................ (298,599) ---------- Net realized and unrealized gain (loss) from Government Income Portfolio (750,493) ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $ 823,877 ==========
See notes to financial statements Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ............................................. $ 1,574,370 $ 2,428,120 Net realized gain (loss) .......................................... (451,894) 696,470 Net change in unrealized appreciation (depreciation) .............. (298,599) 2,013,487 ----------- ----------- Net increase (decrease) in net assets resulting from operations . 823,877 5,138,077 ----------- ----------- DISTRIBUTION TO SHAREHOLDERS FROM: Net investment income ............................................. (1,571,638) (2,440,326) ----------- ----------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): Net proceeds from sale of shares .................................. 1,803,128 3,008,033 Net asset value of shares issued to shareholders from reinvestment of dividends .................................. 1,549,810 2,420,954 Cost of shares repurchased ........................................ (11,186,181) (25,734,586) ----------- ----------- Net decrease in net assets from transactions in shares of beneficial interest ............................................. (7,833,243) (20,305,599) ----------- ----------- NET DECREASE IN NET ASSETS ........................................ (8,581,004) (17,607,848) NET ASSETS: Beginning of period ............................................... 35,325,384 52,933,232 ----------- ----------- End of period (including undistributed net investment income of $21,541 and $18,809, respectively) .................... $26,744,380 $35,325,384 =========== ===========
See notes to financial statements Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
FOUR MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, ------------------------------ 1993++ ------------------ 1996 1995 1994++ (NOTE 1F) 1993++ 1992++ ------ ------ ------ ------ ------ ------ Net Asset Value, beginning of period .... $ 9.78 $ 9.28 $ 9.91 $10.01 $ 9.85 $ 9.42 ------ ------ ------ ------ ------ ------ Income From Operations: Net investment income ................... 0.516 0.543 0.466 0.183 0.448 0.591 Net realized and unrealized gain (loss) . (0.232) 0.500 (0.635) (0.138) 0.183 0.413 ------ ------ ------ ------ ------ ------ Total from operations .............. 0.284 1.043 (0.169) 0.045 0.631 1.004 ------ ------ ------ ------ ------ ------ Less Distributions From: Net investment income ................. (0.514) (0.543) (0.461) (0.145) (0.464) (0.574) In excess of net investment income .... -- -- -- -- (0.007) -- ------ ------ ------ ------ ------ ------ Total from distributions .......... (0.514) (0.543) (0.461) (0.145) (0.471) (0.574) ------ ------ ------ ------ ------ ------ Net Asset Value, end of period .......... $ 9.55 $ 9.78 $ 9.28 $ 9.91 $10.01 $ 9.85 ====== ====== ====== ====== ====== ====== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) ........................ $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%+ 0.80% 0.51% Ratio of net investment income to average net assets ............................ 5.31% 5.38% 4.72% 4.34%+ 4.46% 6.03% Portfolio turnover (B) .................. -- -- 22% 26% 111% 161% Total return ............................ 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 period May 1, 1994 to December 31, 1994, for the year ended December 31, 1995 and 1996 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 ......... $0.460 $0.499 $0.421 $0.164 $0.400 $0.503 Ratios: Expenses to average net assets .......... 1.38%(A) 1.23%(A) 1.26%(A) 1.27%+ 1.27% 1.41% Net investment income to average net assets ..................... 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 (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 (50.2% at December 31, 1996) 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 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 $74,177, all of which was voluntarily waived for the year ended December 31, 1996. 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 $74,177, for the year ended December 31, 1996. (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 reimburses the Distributor for expenses incurred or anticipated in connection with sales of shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's average daily net assets. The Distribution fees amounted to $44,506, all of which was voluntarily waived for the year ended December 31, 1996. 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 year endedDecember 31, 1996 aggregated $1,765,467 and $11,402,089, 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: YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Shares sold ...................... 187,460 311,521 Shares issued to shareholders from reinvestment of dividends.. 161,737 251,882 Shares repurchased ............... (1,160,835) (2,655,041) ---------- ---------- Net decrease (811,638) (2,091,638) ========== ========== (6) ASSUMPTION OF EXPENSES LFBDS has voluntarily agreed to pay a portion of the expenses of the Fund for the year ended December 31, 1996 which amounted to $39,302. Landmark U.S. Government Income Fund - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND THE SHAREHOLDERS OF LANDMARK FIXED INCOME FUNDS (THE TRUST): LANDMARK U.S. GOVERNMENT INCOME FUND In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Landmark U.S. Government Income Fund (the "Fund"), a series of Landmark Fixed Income Funds, at December 31, 1996, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at December 31, 1996 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts February 4, 1997 Government Income Portfolio - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 1996 PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--18.4% - -------------------------------------------------------------------------------- 6.50%, 2009 ................ $ 265 $ 263,355 6.50%, 2011 ................ 4,580 4,518,142 6.50%, 2019 ................ 1,430 1,401,830 7.00%, 2008 ................ 1,945 1,896,000 8.00%, 2006 ................ 222 229,359 8.00%, 2007 ................ 233 240,602 8.00%, 2017 ................ 555 574,262 8.00%, 2021 ................ 232 238,669 8.00%, 2022 ................ 189 194,494 9.50%, 2016 ................ 3 2,902 9.50%, 2017 ................ 60 64,687 9.50%, 2018 ................ 47 51,169 9.50%, 2019 ................ 65 70,036 9.50%, 2020 ................ 55 59,223 ----------- 9,804,730 ----------- - -------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--61.1% - -------------------------------------------------------------------------------- United States Treasury Notes, 5.125% due 2/28/98 ........ 8,000 7,948,720 6.125% due 5/15/98 ........ 8,000 8,038,720 5.375% due 5/31/98 ........ 1,675 1,666,357 6.875% due 3/31/00 ........ 8,100 8,282,250 6.375% due 5/15/99 ........ 6,700 6,757,553 ----------- 32,693,600 ----------- ISSUER VALUE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS--19.7% - -------------------------------------------------------------------------------- Morgan Stanley Repurchase Agreement 5.90% due 1/02/97 proceeds at maturity $15,247 (collateralized by $2,358 U.S. Treasury Note 9.125% due 5/15/18, $6,660 U.S. Treasury Note 12.00% due 8/15/13 and $6,564 U.S. Treasury Note 10.625% due 8/15/15) ...................... $ 15,247 United States Treasury Bill due 04/03/97 ...................... 10,535,736 ----------- 10,550,983 ----------- TOTAL INVESTMENTS (Identified Cost $53,675,856) 99.2% 53,049,313 OTHER ASSETS LESS LIABILITIES ............ 0.8 449,504 ----- ----------- NET ASSETS ................... 100.0% $53,498,817 ===== =========== See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1996 ASSETS: Investments at value (Note 1A) (Identified Cost, $53,675,856) .............. $53,049,313 Cash ....................................................................... 28 Interest receivable ........................................................ 466,769 ----------- Total assets ........................................................... 53,516,110 ----------- LIABILITIES: Payable to affiliates--Investment advisory fees (Note 2) ................... 17,293 ----------- NET ASSETS ................................................................. $53,498,817 =========== REPRESENTED BY: Paid-in capital for beneficial interests ................................... $53,498,817 ===========
See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended December 31, 1996 INTEREST INCOME (Note 1B): $3,448,841 EXPENSES: Investment advisory fees (Note 2) .......................................... $ 198,024 Administrative fees (Note 3) ............................................... 28,289 Expense fees (Note 6) ...................................................... 1,406 --------- Total expenses ........................................................... 227,719 Less aggregate amount waived by the Investment Adviser and Administrator (Note 2 and Note 3) ........................................ (29,693) --------- Net expense ................................................................ 198,026 ---------- Net investment income .................................................... 3,250,815 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investment transactions and futures contracts ....... (673,824) Unrealized appreciation (depreciation) of investments-- Beginning of period ..................................................... 55,675 End of period ........................................................... (626,543) --------- Net change in unrealized appreciation (depreciation) of investments ..... (682,218) ---------- Net realized and unrealized loss on investments ......................... (1,356,042) ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... $1,894,773 ==========
See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1995 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ................................................. $ 3,250,815 $ 2,972,965 Net realized gain (loss) on investment transactions ................... (673,824) 883,687 Net change in unrealized appreciation (depreciation) of investments ... (682,218) 2,133,343 ----------- ----------- Net increase (decrease) in net assets resulting from operations ... 1,894,773 5,989,995 ----------- ----------- CAPITAL TRANSACTIONS: Proceeds from contributions ........................................... 26,210,981 18,686,471 Value of withdrawals .................................................. (27,752,230) (27,204,245) ----------- ----------- Net increase (decrease) in net assets from capital transactions ... (1,541,249) (8,517,774) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS: ................................ 353,524 (2,527,779) NET ASSETS: Beginning of period ................................................... 53,145,293 55,673,072 ----------- ----------- End of period ......................................................... $53,498,817 $53,145,293 =========== ===========
See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
FOR THE PERIOD MAY 1, 1994 YEAR ENDED DECEMBER 31, (COMMENCEMENT OF ---------------------------- OPERATIONS) TO 1996 1995 DECEMBER 31, 1994 ------- ------- ----------------- RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (000's omitted) ............ $53,499 $53,145 $55,673 Ratio of expenses to average net assets .............. 0.35% 0.36% 0.43%* Ratio of net investment income to average net assets.. 5.75% 5.80% 5.27%* Portfolio turnover ................................... 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 ....................... 0.40% 0.40% 0.44%* Net investment income to average net assets .......... 5.70% 5.76% 5.26%* * Annualized
See notes to financial statements Government Income Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES Government Income Portfolio (the "Portfolio"), a separate series of The Premium Portfolios (the "Portfolio Trust"), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. The Investment Adviser of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Administrator. 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 December 31, 1996. 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 $198,024, of which $2,044 was voluntarily waived for the year ended December 31, 1996. 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 $28,289 of which $27,649 was voluntarily waived, for the year ended December 31, 1996. 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 $52,134,308 and $48,960,407, respectively, for the year ended December 31, 1996. (5) FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at December 31, 1996, as computed on a federal income tax basis, are as follows: Aggregate cost ..................... $53,675,856 =========== Gross unrealized appreciation ...... $ 49,941 Gross unrealized depreciation ...... (676,484) ----------- Net unrealized depreciation ........ $ (626,543) =========== (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 $40 million for temporary or emergency purposes. Interest on borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the year ended December 31, 1996 the commitment fee allocated to the Portfolio was $232. Since the line of credit was established, there have been no borrowings. Government Income Portfolio - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH RESPECT TO ITS SERIES, GOVERNMENT INCOME PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Government Income Portfolio (the "Portfolio"), a series of The Premium Portfolios, as at December 31, 1996 and the related statements of operations and of changes in net assets and the financial highlights for the periods indicated. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned as at December 31, 1996 by correspondence with the custodian, provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Portfolio as at December 31, 1996, the results of its operations and the changes in its net assets and the financial highlights for the periods indicated in accordance with U.S. generally accepted accounting principles. PRICE WATERHOUSE Chartered Accountants Toronto, Ontario February 4, 1997 - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENTS FOR CITIBANK 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. 111 Wall Street, New York, NY 10043 Call Your Account Manager or (212) 657-9100 FOR CITICORP INVESTMENT SERVICES CUSTOMERS: Citicorp Investment Services One Court Square, Long Island City, NY 11120 Call Your Investment Consultant or (800) 846-5200 (212) 820-2380 in New York City -----END PRIVACY-ENHANCED MESSAGE-----