<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- --------------------------------------| |--------------------------------------
INVESTMENT ADVISER
(OF BALANCED PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, 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
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
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.
EQ/BL/A/97 Printed on Recycled Paper [recycle logo]
[logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
BALANCED FUND
ANNUAL
REPORT
December 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
The positive economic influences that drove the stock and bond markets
higher during the first half of 1997 also produced market rallies during the
second half of the year. The U.S. economy continues to enjoy the effects of low
rates of inflation, moderate economic growth and high levels of employment. The
U.S. stock market continued to hit new highs over the summer, but experienced a
significant correction in late October in the wake of bad news from the emerging
economies of Southeast Asia. Bond prices, on the other hand, rose relatively
steadily as the low-inflation environment helped bring long-term interest rates
to their lowest levels in years.
In this environment, the Fund's investment adviser, Citibank, N.A.,
continued to manage the Landmark Balanced Fund with the goal of achieving its
investment objectives: to earn high current income by investing in a broad range
of securities, to preserve capital and to provide growth potential with reduced
risk. Through its investment in Balanced Portfolio, the Fund invests in a
broadly diversified portfolio of income-producing securities, including common
and preferred stocks and bonds.
This report reviews the Portfolio's investment activities and performance
during the 12-month period ended December 31, 1997, and provides a summary of
Citibank's perspective on and outlook for the U.S. stock and bond markets.
Effective January 14, 1998, portfolio management of the equity portion of
the Portfolio was assumed by Barbara Marcin, a Citibank Vice President and
portfolio manager with over 10 years of investment management experience. Ms.
Marcin will manage these assets using a value oriented approach, investing
primarily in the securities of companies that may, in the opinion of the
Adviser, be temporarily out of favor but have good longer term business
prospects. Although past performance is not indicative of future results, we
believe that this style change is in the best interests of shareholders based on
our analysis of the performance of large capitalization equity stocks which
indicates that value stocks have historically been less volatile and have paid
higher dividends than growth stocks. We believe that the value management style
is consistent with the profile of a balanced fund investor.
Additionally, effective March 2, 1998, the name of the Fund will be changed
to CitiFundsSM Balanced Portfolio. You will receive an updated prospectus
reflecting the Fund's new management style and name shortly.
On behalf of the Board of Trustees of the Funds, I want to thank you for
your confidence and participation.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
January 20, 1998
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or any of its affiliates
o Are subject to investment risks, including possible loss of the principal
amount invested
<PAGE>
TABLE OF CONTENTS
1 A Letter to Our Shareholders
- -------------------------------------------------------------------------------
2 Market Environment
Fund Snapshot
- -------------------------------------------------------------------------------
3 Portfolio Managers
Quotes from the Portfolio Managers
- -------------------------------------------------------------------------------
4 The Portfolio Managers Respond
Strategy and Outlook
- -------------------------------------------------------------------------------
5 Balanced Portfolio by the Numbers
- -------------------------------------------------------------------------------
6 Fund Data
Performance Highlights
LANDMARK BALANCED FUND
- -------------------------------------------------------------------------------
7 Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
8 Statement of Operations
- -------------------------------------------------------------------------------
9 Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
10 Financial Highlights
- -------------------------------------------------------------------------------
11 Notes to Financial Statements
- -------------------------------------------------------------------------------
13 Independent Auditors' Report
- -------------------------------------------------------------------------------
BALANCED PORTFOLIO
- -------------------------------------------------------------------------------
14 Portfolio of Investments
- -------------------------------------------------------------------------------
17 Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
18 Statement of Operations
- -------------------------------------------------------------------------------
19 Statement of Changes in Net Assets
Financial Highlights
- -------------------------------------------------------------------------------
20 Notes to Financial Statements
- -------------------------------------------------------------------------------
23 Independent Auditors' Report
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The forces that have driven the U.S. stock and bond markets higher over the
past two years continued to prevail during 1997. Yet, volatility in the
financial markets has been increasing, with the markets reacting to each new
release of global economic data as well as to statements by the Chairman of the
U.S. Federal Reserve Board.
While the U.S. stock market continued its spectacular climb, the rally was
interrupted several times during the course of 1997. In April, concerns about
the strength of the U.S. economy and its influence on inflationary pressures
caused a correction of nearly 10% in large-capitalization stocks. Stocks quickly
retraced their losses, however, when it became clear that the economy's growth
was not creating undue inflationary pressures. In late October, the stock market
experienced a decline of more than 10%, largely in response to financial
concerns and market declines in Asia. The sharp decline and subsequent recovery
was perhaps the most glaring evidence of the market's propensity for short-term
volatility on the way to long-term gains.
Bonds, on the other hand, experienced less volatility in the second half of
the year than in the first. The possibility of slower economic growth in 1998,
expected in part because of the economic crisis in Asia, made fixed-income
investors comfortable that inflation will remain low and the Federal Reserve
will see no need to raise short-term interest rates anytime soon.
- --------------------------------------------------------------------------------
FUND SNAPSHOT
COMMENCEMENT OF OPERATIONS
October 19, 1990
NET ASSETS AS OF 12/31/97
$226.8 million
FUND OBJECTIVE
To earn high current income by investing in a broad range of
securities, to preserve capital and to provide growth potential with reduced
risk.
DIVIDENDS
Paid quarterly, if any
CAPITAL GAINS
Distributed semi-annually, if any
BENCHMARKS
o Standard & Poor's Barra Growth Index
o Lehman Government/Corporate Bond Index
o Lipper Balanced Funds Average
INVESTMENT ADVISER,
BALANCED PORTFOLIO
Citibank, N.A.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
BARBARA G. MARCIN
Vice President, Citibank, N.A.
MARK LINDBLOOM
Vice President, Citibank, N.A.
Barbara G. Marcin and Mark Lindbloom are the managers of the Fund. Ms. Marcin, a
Senior Portfolio Manager responsible for managing over $730 million in U.S.
equity and balanced accounts for individuals, has managed the equity portion of
the portfolio since January 1998. She is a member of Citibank's Global
Investment Committee. Ms. Marcin has over ten years of investment experience.
Prior to joining Citibank as a Vice President and portfolio manager in 1993, she
was a Vice President and portfolio manager at Fiduciary Trust Company
International. She previously worked for three years in the Personal Financial
Management Group at E.F. Hutton. Mr. Lindbloom, a Vice President of Citibank,
N.A. and a portfolio manager, has managed the fixed income portion of the
portfolio since June 1993. He came to Citibank in 1986 from Brown Brothers
Harriman & Co., where he managed fixed income assets for discretionary corporate
portfolios.
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGERS
"Despite relatively strong economic growth, inflation remained low, fueling
further rallies in stocks and bonds."
"The stock portion of the Portfolio was overweighted in high-quality financial
and retail stocks, and we avoided utilities and the more erratic sub-sectors
within the technology industry."
"The bond portion of the Portfolio benefitted from our sector rotation strategy,
which favored corporate bonds and mortgage-backed securities for most of the
year."
<PAGE>
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGERS RESPOND
The stock market's leadership shifted during 1997 from large, multi-national
companies to businesses that derive most of their revenues from domestic
sources. This change was caused primarily by concerns over the effects of a
strong U.S. dollar on overseas earnings. While we have continued to maintain
many of our positions in well-known, global business leaders, we sold some
stocks that were not as attractive fundamentally as when we purchased them. We
shifted those assets to sectors with strong, visible earnings prospects. For
example, we increased our holdings in financial stocks, such as banks, which
benefitted from the combination of declining interest rates and active financial
markets. The Portfolio also profited from its holdings in the retail industry,
where we focused on specialty retailers with strong managements and rising
market shares.
In the bond market, we increased the Portfolio's average duration, a measure
of sensitivity to interest rates, in order to take advantage of declining
long-term interest rates. By keeping the average duration relatively long, we
were able to hold higher yielding securities for as long as possible. For most
of the year, the bond portion of the Portfolio focused on mortgage-backed
securities and investment-grade corporate bonds because of the incrementally
higher yields they offered compared to U.S. Treasury securities. Later in the
year, however, we shifted some assets to U.S. Treasury securities to take
advantage of a market-sector rally caused partly by increased demand from
overseas investors seeking very high-quality investments in the aftermath of the
Asian crisis.
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
We see no signs that positive economic conditions in the U.S. will end soon.
Although we expect the rate of economic growth to slow modestly, we see little
likelihood of a recession. As long as inflation remains low, as we expect,
favorable economic conditions should continue to prevail.
Nevertheless, we are cautious regarding the U.S. stock market, especially
after three consecutive years of stellar returns. Going forward, we will focus
on companies that are selling at good valuations relative to their longer term
ability to generate cash flow and earnings. With this approach we look for
companies which sell at low price to earnings, sales and cash flow ratios
because they may be temporarily out of favor, but which we believe have good
longer term prospects.
We are more optimistic about bonds, however. Lower interest rates and low
inflation should continue to support bond prices. Yet, we believe that certain
areas of the bond market will perform better than others in 1998. Currently, we
favor U.S. Treasury bonds and notes, which should continue to benefit from
strong demand and lower supply. We are concerned, however, about the near-term
prospects of mortgage-backed securities. Lower interest rates could increase
prepayment activity above expected levels, which would return principal early to
mortgage-backed bondholders.
Table of Contents A Letter to Our Shareholders Market Environment Fund
Snapshot Portfolio Managers Quotes from the Portfolio Managers The Portfolio
Managers Respond Strategy and Outlook Balanced Portfolio by the Numbers Fund
Data Performance Highlights
Landmark Balanced Fund Statement of Assets and Liabilities Statement of
Operations Statement of Changes in Net Assets Financial Highlights Notes to
Financial Statements Independent Auditors' Report Balanced Portfolio Portfolio
of Investments Statement of Assets and Liabilities Statement of Operations
Statement of Changes in Net Assets Financial Highlights Notes to Financial
Statements Independent Auditors' Report
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
BY THE NUMBERS
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of December 31, 1997)
% OF
NAME INDUSTRY SECTOR NET ASSETS
General Electric Co. Producer Manufacturing 3.4%
Merck & Co. Health Services/Technology 2.3%
Coca-Cola Co. Consumer Non-Durables 2.2%
Pfizer Inc. Health Services/Technology 2.1%
Wal Mart Stores Inc. Retail Trade 1.9%
Home Depot Retail Trade 1.8%
Ameritech Corp. Health Services/Technology 1.7%
Procter & Gamble Co. Consumer Non-Durables 1.5%
Federal National Mortgage Association Finance 1.5%
Gillette Co. Consumer Non-Durables 1.5%
CHANGES IN PORTFOLIO ASSET ALLOCATION
Portfolio of Investments
as of 12/31/97 . . .Compared to 12/31/96
CASH/SHORT TERM/OTHER 1% CASH/SHORT TERM/OTHER 3%
STOCKS 61% STOCKS 49%
TREASURIES 19% TREASURIES 20%
OTHER BONDS 19% OTHER BONDS 22%
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1997
Total Returns
----------------------------
Since
One Five 10/19/90
Year Years* Inception*
------ ------ ----------
Landmark Balanced Fund without Sales Charge ... 20.85% 11.12% 13.49%
Lipper Balanced Funds Average ................. 19.00% 13.20% 14.27%+
S&P Barra Growth Index ........................ 36.38% 19.62% 20.90%+
Lehman Government/Corporate Bond Index ........ 9.76% 7.61% 9.32%+
Landmark Balanced Fund with Maximum
Sales Charge of 4.75% ....................... 15.11% 10.05% 12.73%
* Average Annual Total Return.
+ From 10/31/90
30-Day SEC Yield 2.17%
Income Dividends Per Share $0.421
Capital Gain Distribution $2.566
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$23,709 with sales charge (as of December 31, 1997). The graph shows how the
Fund compares to our benchmarks for 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.
Lndmk
Lndmk Balanced
Balanced Fund - Lipper S&P Barra Lehman
Fund - Without Balanced Growth Government/Corporate
With Sales Sales Funds Index Bond Index
Charge Charge Average (unmanaged) (unmanaged)
10/31/90 9,826 9,359 10,000 10,000 10,000
11/30/90 10,369 9,877 10,435 10,604 10,218
12/31/90 10,609 10,106 10,677 10,941 10,372
01/31/91 11,105 10,578 11,034 11,396 10,488
02/28/91 11,673 11,119 11,520 12,280 10,579
03/31/91 11,816 11,255 11,724 12,744 10,652
04/30/91 11,827 11,265 11,752 12,720 10,774
05/31/91 12,264 11,681 12,098 13,200 10,824
06/30/91 11,837 11,275 11,725 12,649 10,812
07/31/91 12,403 11,814 12,122 13,325 10,947
08/31/91 12,886 12,274 12,433 13,754 11,199
09/30/91 12,713 12,109 12,449 13,453 11,433
10/31/91 12,945 12,330 12,632 13,617 11,535
11/30/91 12,723 12,119 12,353 13,270 11,650
12/31/91 13,751 13,098 13,357 15,140 12,042
01/31/92 13,496 12,855 13,241 14,608 11,864
02/29/92 13,698 13,048 13,400 14,695 11,927
03/31/92 13,530 12,887 13,202 14,354 11,862
04/30/92 13,583 12,938 13,322 14,506 11,933
05/31/92 13,658 13,009 13,460 14,619 12,164
06/30/92 13,417 12,780 13,315 14,316 12,342
07/31/92 13,868 13,210 13,712 14,962 12,658
08/31/92 13,664 13,015 13,582 14,790 12,770
09/30/92 13,910 13,249 13,753 14,964 12,945
10/31/92 14,115 13,445 13,754 15,189 12,747
11/30/92 14,569 13,877 14,094 15,803 12,737
12/31/92 14,690 13,992 14,355 15,907 12,955
01/31/93 14,798 14,095 14,548 15,735 13,237
02/28/93 14,776 14,075 14,644 15,608 13,513
03/31/93 15,288 14,562 14,920 15,828 13,559
04/30/93 15,091 14,375 14,736 15,098 13,663
05/31/93 15,331 14,603 14,978 15,636 13,656
06/30/93 15,326 14,598 15,146 15,503 13,966
07/31/93 15,206 14,484 15,170 15,183 14,056
08/31/93 15,688 14,943 15,628 15,737 14,379
09/30/93 15,677 14,933 15,681 15,497 14,429
10/31/93 15,809 15,059 15,822 16,073 14,488
11/30/93 15,644 14,901 15,591 16,062 14,325
12/31/93 15,935 15,178 15,867 16,174 14,388
01/31/94 16,282 15,509 16,253 16,520 14,603
02/28/94 15,958 15,200 15,934 16,225 14,285
03/31/94 15,350 14,621 15,348 15,475 13,935
04/30/94 15,440 14,707 15,377 15,545 13,819
05/31/94 15,643 14,899 15,449 15,798 13,795
06/30/94 15,282 14,556 15,167 15,462 13,763
07/31/94 15,702 14,957 15,509 15,955 14,038
08/31/94 16,020 15,259 15,906 16,807 14,044
09/30/94 15,590 14,849 15,618 16,567 13,832
10/31/94 15,818 15,067 15,711 16,953 13,816
11/30/94 15,430 14,697 15,324 16,397 13,792
12/31/94 15,607 14,866 15,453 16,680 13,883
01/31/95 15,804 15,053 15,644 17,094 14,149
02/28/95 16,300 15,526 16,115 17,761 14,477
03/31/95 16,602 15,813 16,391 18,318 14,574
04/30/95 16,811 16,012 16,691 18,794 14,778
05/31/95 17,450 16,621 17,228 19,467 15,398
06/30/95 17,624 16,787 17,550 20,213 15,521
07/31/95 17,847 16,999 17,954 20,858 15,460
08/31/95 17,835 16,988 18,109 20,789 15,658
09/30/95 18,233 17,367 18,512 21,816 15,818
10/31/95 18,256 17,389 18,468 21,990 16,050
11/30/95 18,892 17,995 19,033 22,782 16,315
12/31/95 19,144 18,235 19,292 23,039 16,555
01/31/96 19,474 18,549 19,639 23,920 16,658
02/29/96 19,291 18,374 19,710 24,137 16,305
03/31/96 19,339 18,421 19,787 24,036 16,168
04/30/96 19,327 18,409 19,992 24,505 16,056
05/31/96 19,511 18,584 20,238 25,406 16,029
06/30/96 19,746 18,808 20,259 25,724 16,242
07/31/96 19,190 18,279 19,706 24,538 16,279
08/31/96 19,400 18,479 20,064 24,901 16,239
09/30/96 20,130 19,174 20,807 26,629 16,528
10/31/96 20,304 19,340 21,194 27,207 16,913
11/30/96 21,025 20,026 22,141 29,240 17,224
12/31/96 20,597 19,619 21,908 28,564 17,033
01/31/97 21,270 20,260 22,509 30,801 17,053
02/28/97 21,204 20,197 22,536 31,059 17,089
03/31/97 20,449 19,478 21,909 29,585 16,886
04/30/97 21,563 20,539 22,507 31,972 17,132
05/31/97 22,226 21,170 23,462 33,868 17,292
06/30/97 22,973 21,882 24,144 35,585 17,499
07/31/97 24,168 23,020 25,497 38,404 18,034
08/31/97 23,014 21,921 24,831 35,850 17,832
09/30/97 23,823 22,692 25,762 37,678 18,112
10/31/97 23,727 22,600 25,319 36,544 18,402
11/30/97 24,569 23,402 25,694 38,528 18,500
12/31/97 24,891 23,709 26,030 39,002 18,694
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. Returns reflect
certain voluntary fee waivers. If the waivers were not in place, the Fund's
return would have been lower.
<PAGE>
Landmark Balanced Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1997
ASSETS:
Investment in Balanced Portfolio, at value (Note 1A) ...... $227,156,044
Receivable for shares of beneficial interest sold ......... 16,450
------------
Total assets ............................................. 227,172,494
------------
LIABILITIES:
Payable for shares of beneficial interest repurchased ..... 294,510
Payable to affiliates--Shareholder servicing agents'
fees (Note 2B) .......................................... 47,746
Accrued expenses and other liabilities .................... 39,775
------------
Total liabilities ....................................... 382,031
NET ASSETS for 14,376,665 shares of beneficial
interest outstanding .................................... $226,790,463
============
NET ASSETS CONSIST OF:
Paid-in capital .......................................... 191,718,429
Unrealized appreciation of investments .................... 28,827,866
Accumulated net realized gain ............................. 6,238,071
Undistributed net investment income ....................... 6,097
------------
Total .................................................... $226,790,463
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF
BENEFICIAL INTEREST .................................... $15.77
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75%
sales charge ($15.77/.9525) ............................. $16.56
======
See notes to financial statements
<PAGE>
Landmark Balanced Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Interest Income from Balanced Portfolio .......... $6,477,462
Dividend Income from Balanced Portfolio .......... 1,418,751
Allocated Expenses from Balanced Portfolio ....... (1,257,376) $ 6,638,837
-----------
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B) ..... 570,130
Administrative fees (Note 2A) .................... 570,130
Distribution fees (Note 3) ....................... 342,078
Expense fees (Note 6) ............................ 46,215
----------
Total expenses .................................. 1,528,553
Less aggregate amount waived by Administrator and
Distributor (Note 2A and 3) .................... (456,711)
----------
Net expenses .................................... 1,071,842
-----------
Net investment income ........................... 5,566,995
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
BALANCED PORTFOLIO:
Net realized gain ................................ 31,219,711
Net change in unrealized appreciation (depreciation) 6,454,406
-----------
Net realized and unrealized gain from Balanced Portfolio 37,674,117
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $43,241,112
===========
</TABLE>
See notes to financial statements
<PAGE>
Landmark Balanced Fund
- --------------------------------------------------------------------------------
Statement Of Changes In Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ............................ $ 5,566,995 $ 7,205,234
------------ ------------
Net realized gain ................................ 31,219,711 17,519,270
Net change in unrealized appreciation (depreciation) 6,454,406 (7,483,373)
------------ ------------
Net increase in net assets resulting from operations 43,241,112 17,241,131
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................ (5,565,112) (7,201,020)
Net realized gain ................................ (32,774,535) (10,892,398)
------------ ------------
Decrease in net assets from distributions to
shareholders ................................... (38,339,647) (18,093,418)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 5):
Net proceeds from sale of shares ................. 1,958,850 6,705,252
Net asset value of shares issued to shareholders
from reinvestment of distributions .............. 38,314,267 18,086,460
Cost of shares repurchased ....................... (48,766,609) (39,558,540)
------------ ------------
Net decrease in net assets from transactions in
shares of beneficial interest ................. (8,493,492) (14,766,828)
------------ ------------
NET DECREASE IN NET ASSETS ....................... (3,592,027) (15,619,115)
NET ASSETS:
Beginning of period .............................. 230,382,490 246,001,605
------------ ------------
End of period (including undistributed net investment
income of $6,097 and $4,214, respectively) ...... $226,790,463 $230,382,490
============ ============
</TABLE>
See notes to financial statements
<PAGE>
Landmark Balanced Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1997 1996 1995 1994+ 1993+
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period .... $ 15.61 $ 15.71 $ 13.52 $ 14.24 $ 13.54
-------- -------- -------- -------- --------
Income From Operations:
Net investment income ................... 0.421 0.497 0.486 0.399 0.336**
Net realized and unrealized gain (loss) . 2.726 0.680 2.540 (0.695) 0.803**
-------- -------- -------- -------- --------
Total from operations .................. 3.147 1.177 3.026 (0.296) 1.139
-------- -------- -------- -------- --------
Less Distributions From:
Net investment income .................. (0.421) (0.497) (0.495) (0.394) (0.319)
Net realized gain ...................... (2.566) (0.780) (0.341) (0.030) (0.120)
-------- -------- -------- -------- --------
Total distributions .................... (2.987) (1.277) (0.836) (0.424) (0.439)
-------- -------- -------- -------- --------
Net Asset Value, end of period .......... $ 15.77 $ 15.61 $ 15.71 $ 13.52 $ 14.24
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $226,790 $230,382 $246,002 $227,309 $265,216
Ratio of expenses to average net assets . 1.02%(A) 1.02%(A) 1.02%(A) 1.02%(A) 1.04%
Ratio of net investment income to average
net assets ............................. 2.44% 3.04% 3.21% 2.82% 2.46%
Portfolio turnover (B) .................. -- -- -- 29% 101%
Total return ............................ 20.85% 7.59% 22.66% (2.06)% 8.48%
Note: If Agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees the net investment income
per share and the ratios would have been as follows:
Net investment income ................... $ 0.387 $ 0.464 $ 0.463 $ 0.378 $ 0.310**
Ratios:
Expenses to average net assets .......... 1.22%(A) 1.22%(A) 1.17%(A) 1.17%(A) 1.23%
Net investment income to
average net assets ..................... 2.24% 2.84% 3.06% 2.67% 2.27%
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A) Includes the Fund's share of Balanced Portfolio allocated expenses for the periods indicated.
(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 of its investable assets in Balanced Portfolio.
</TABLE>
See notes to financial statements
<PAGE>
Landmark Balanced Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
The Landmark Balanced Fund (the "Fund") is a separate diversified series of
Landmark Funds I (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund invests all of its investable assets in
Balanced Portfolio (the "Portfolio"), a management investment company for which
Citibank, N.A. ("Citibank") serves as Investment Adviser. CFBDS, Inc ("CFBDS"),
(formerly Landmark Funds Broker-Dealer Services, Inc.) acts as the Fund's
Administrator and Distributor. Citibank also serves as Sub-Administrator and
makes Fund shares available to customers as Shareholder Servicing Agent.
The Trust seeks to achieve the Fund's investment objectives of earning high
current income, preservation of capital and providing growth potential with
reduced risk by investing all of its investable assets in the Portfolio, an
open-end, diversified management investment company having the same investment
objectives and policies and substantially the same investment restrictions as
the Fund. The value of such investment reflects the Fund's proportionate
interest (90.4% at December 31, 1997) in the net assets of the Portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The significant accounting
policies consistently followed by the Fund are 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.
D. EXPENSES -- The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect 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, 1997, the Fund reclassified $1,148,430 from paid-in capital to accumulated
net realized gain on investments.
F. OTHER -- All the net investment income, realized and unrealized gain and loss
of the Portfolio is allocated pro rata, based on respective ownership interests,
among the Fund and the other investors in the Portfolio at the time of such
determination. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined on the identified cost basis.
(2) ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") which provides that the Trust, on behalf of the Fund, may obtain
the services of an Administrator, one or more Shareholder Servicing Agents and
other Servicing Agents and may enter into agreements providing for the payment
of fees for such services. Under the Trust Administrative Services Plan, the
aggregate of the fee paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.65% of the Fund's average daily net assets on an
annualized basis for the Fund's then current fiscal year.
A. ADMINISTRATIVE 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 $570,130, of which $228,507 was voluntarily
waived for the year ended December 31, 1997. Citibank acts as Sub-Administrator
and performs such duties and receives such compensation from CFBDS as from time
to time is agreed to by CFBDS and Citibank. The Fund pays no compensation
directly to any officer who is affiliated with the Administrator, all of whom
receive remuneration for their services to the Fund from the Administrator or
its affiliates. Certain of the officers and a Trustee of the Fund are officers
or directors of the Administrator or its affiliates.
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 $570,130 for the year ended December 31,
1997.
(3) DISTRIBUTION FEES
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, in which the Fund compensates the
Distributor at an annual rate not to exceed 0.15% of the Fund's average daily
net assets. The Distributor may also receive an additional fee from the Fund at
an annual rate not to exceed 0.05% of the Fund's average daily net assets in
anticipation of, or as reimbursement for, advertising expenses incurred by the
Distributor in connection with the sale of shares of the Fund. No payment of
such additional fee has been made during the period. The Distributor has
voluntarily agreed to waive this fee through December 31, 1997. The distribution
fees amounted to $342,078, of which $228,204 was voluntarily waived for the year
ended December 31, 1997.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended December 31, 1997 aggregated $1,995,485 and $49,743,713, 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,
-----------------------------------
1997 1996
--------- ---------
Shares sold ....................... 118,898 420,667
Shares issued to share-
holders from reinvest-
ment of distribution ............ 2,424,021 1,153,025
Shares repurchased ................ (2,924,022) (2,477,838)
---------- -----------
Net decrease ...................... (381,103) (904,146)
========== ===========
(6) EXPENSE FEES
CFBDS has entered into an expense agreement with the Fund. CFBDS has agreed to
pay all of the ordinary operating expenses (excluding interest, taxes, brokerage
commissions, litigation costs or other extraordinary costs or expenses) of the
Fund, other than fees paid under the Administrative Services Agreement,
Distribution Agreement, and the Shareholder Servicing Agreements. The Agreement
may be terminated by either party upon not less than 30 days nor more than 60
days written notice.
The Fund has agreed to pay CFBDS 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 expenses of
the Fund including expenses allocated from the Portfolio less expenses waived by
the Administrator and Distributor would, on an annual basis, exceed an agreed
upon rate, currently 1.02% of average daily net assets.
(7) SUBSEQUENT EVENT
Effective March 2, 1998, the name of the Fund will be changed to CitiFundsSM
Balanced Portfolio and the Trust will change its name to CitiFundsSM Trust I.
Landmark Balanced Fund
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES OF LANDMARK FUNDS I (THE TRUST) AND THE SHAREHOLDERS OF
LANDMARK BALANCED FUND
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Landmark Balanced Fund (the "Fund"), a series of Landmark Funds I, at December
31, 1997, 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, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 2, 1998
<PAGE>
Balanced Portfolio
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1997
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES--0.6%
Interpublic Group, Inc. ...................... 31,700 $ 1,579,056
------------
CONSUMER DURABLES--0.8%
Leggett & Platt Inc. ......................... 47,000 1,968,125
------------
CONSUMER NON-DURABLES--7.0%
Clorox Co. ................................... 34,700 2,743,469
Coca-Cola Co. ................................ 81,800 5,449,925
Gillette Co. ................................. 37,000 3,716,188
Mattel Inc. .................................. 48,950 1,823,388
Procter & Gamble Co. ......................... 48,600 3,878,888
------------
17,611,858
------------
CONSUMER SERVICES--5.2%
Carnival Corp. ............................... 61,300 3,394,487
Clear Channel Communications* ................ 39,900 3,169,556
Cracker Barrel Old Country Store ............. 61,700 2,059,238
Gannett Inc. ................................. 46,250 2,858,828
Walt Disney Co. .............................. 15,300 1,515,656
------------
12,997,765
------------
ELECTRONICS/TECHNICAL SERVICES--6.1%
Adaptec Inc.* ................................ 30,200 1,121,175
Automatic Data Processing .................... 38,900 2,387,487
Cisco Systems Inc.* .......................... 50,400 2,809,800
Computer Association International Inc. ...... 51,900 2,744,212
Intel Corp. .................................. 31,600 2,219,900
Parametric Technology Corp.* ................. 32,700 1,549,163
Sun Guard Data Systems ....................... 81,000 2,511,000
------------
15,342,737
------------
FINANCE --8.9%
American International Group Inc. ............ 15,900 1,729,125
Chubb Corp. .................................. 31,900 2,412,437
Federal National Mortgage Association ........ 66,800 3,811,775
Franklin Resources Inc. ...................... 16,000 1,391,000
MGIC Investment Corp. ........................ 33,400 2,221,100
Norwest Corp. ................................ 53,000 2,047,125
State Street Corp. ........................... 36,600 2,129,663
Travelers Group Inc. ......................... 56,999 3,070,821
U.S. Bancorp ................................. 14,800 1,656,675
Zions Bancorp ................................ 40,200 1,824,075
------------
22,293,796
------------
HEALTH SERVICES/TECHNOLOGY--16.2%
Abbott Laboratories .......................... 48,200 3,160,112
Ameritech Corp. .............................. 51,800 4,169,900
Cardinal Health Inc. ......................... 30,600 2,298,825
HBO & Co. .................................... 52,000 2,496,000
Health Management Associates* ................ 75,650 1,910,163
Johnson & Johnson ............................ 51,050 3,362,919
Lilly, Eli & Co. ............................. 43,500 3,028,688
Lincare Holdings Inc.* ....................... 52,560 2,995,920
Merck & Co. .................................. 54,200 5,758,750
Pfizer Inc. .................................. 69,950 5,215,647
Schering Plough Corp. ........................ 49,000 3,044,125
Warner Lambert Co. ........................... 27,000 3,348,000
------------
40,789,049
------------
INDUSTRIAL SERVICES--0.5%
Schlumberger Ltd. ............................ 17,000 1,368,500
------------
PRODUCER MANUFACTURING--6.1%
Deere & Co. .................................. 27,770 1,619,338
General Electric Co. ......................... 116,000 8,511,500
Illinois Tool Works .......................... 50,900 3,060,363
Xerox Corp. .................................. 28,500 2,103,656
------------
15,294,857
------------
RETAIL TRADE--8.4%
Bed Bath and Beyond Inc.* .................... 65,200 2,510,200
Consolidated Stores* ......................... 45,500 1,999,156
Gap Inc. ..................................... 53,850 1,908,309
Home Depot ................................... 77,350 4,553,981
Kohls Corp.* ................................. 35,700 2,432,062
Wal Mart Stores Inc. ......................... 122,700 4,838,981
Walgreen Co. ................................. 88,470 2,775,746
------------
21,018,435
------------
TRANSPORTATION--1.0%
Southwest Airlines Co. ....................... 99,800 2,457,575
------------
TOTAL COMMON STOCK
(Identified Cost $125,308,274) .............. 152,721,753
------------
- --------------------------------------------------------------------------------
FIXED INCOME - 38.6%
PRINCIPAL
AMOUNT
-------
ASSET BACKED SECURITIES-2.6%
Aames Mortgage Trust
6.59% due 6/15/24 ............................ $1,040,000 $ 1,043,250
California Infrastructure 6.38% due 9/25/08 .. 725,000 732,363
Contimortgage Home Equity Loan 6.87% due 3/15/24 1,040,000 1,051,538
Green Tree Financial Corp. 8.05 % due 10/15/27 3,500,000 3,692,500
------------
6,519,651
------------
DOMESTIC CORPORATIONS-2.9%
Associates Corp. N.A. 5.96% due 5/15/37 ...... 1,750,000 1,799,648
Atlantic City Electric Co. 7.01% due 8/23/02 . 1,380,000 1,425,126
Equitable Life Assurance 6.95% due 12/01/05 .. 1,375,000 1,404,686
International Business Machines 6.22% due 8/01/27 1,700,000 1,714,178
Liberty Mutual Insurance Co. 8.20% due 5/04/07 830,000 919,848
------------
7,263,486
------------
MORTGAGE OBLIGATIONS--13.1%
Collateralized Mortgage Obligations-8.4%
Asset Securitization Corp. Series 95
7.384% due 8/13/29 .......................... 2,500,000 2,642,578
Asset Securitization Corp. Series 97
6.85% due 2/14/41 ........................... 600,000 614,531
Federal Home Loan Mortgage Corp. .............
6.00% due 3/15/09 ........................... 1,156,012 1,105,066
GMAC Commercial Mortgage
6.83% due 12/15/03 .......................... 2,351,704 2,390,286
7.22% due 10/15/28 .......................... 1,000,000 1,051,875
GTE North Inc. ...............................
6.40% due 2/05/15 ........................... 665,000 666,024
Independent National Mortgage Corp. ..........
7.50% due 9/25/14 ........................... 1,328,719 1,335,774
Lehman Brothers First Union
6.479% due 11/18/29 ......................... 991,563 996,985
6.65% due 11/18/29 .......................... 2,500,000 2,529,297
Merrill Lynch Mortgage Corp. .................
6.95% due 6/18/29 ........................... 1,385,213 1,413,783
Morgan Stanley Capital Investment Inc. .......
6.44% due 1/15/28 ........................... 1,000,000 1,002,969
Nomura Asset Securitization Corp. ............
8.15% due 4/04/27 ........................... 2,000,000 2,186,875
Residential Asset Securitization Trust
7.00% due 2/25/08 ........................... 1,218,952 1,225,047
Structured Asset Securities Corp. ............
6.79% due 10/15/34 .......................... 1,893,138 1,935,142
------------
21,096,232
------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS-1.5%
Federal Home Loan Mortgage Corp. .............
8.50% due 6/01/01 ........................... 16,458 16,779
9.50% due 2/01/01 ........................... 9,125 9,471
Federal National Mortgage Association
7.50% due 10/01/25 .......................... 265,969 272,700
7.50% due 11/01/25 .......................... 3,360,580 3,445,636
9.00% due 11/01/01 .......................... 14,584 14,992
------------
3,759,578
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-3.2%
Government National Mortgage Association
5.50% due 4/16/25 ........................... 1,600,000 1,466,000
7.25% due 10/16/22 .......................... 5,683,639 5,767,074
8.25% due 7/15/05 ........................... 713,603 739,694
------------
7,972,768
------------
Total Mortgage Obligations ................... 32,828,578
------------
YANKEE BONDS-1.3%
Embotelladora Andina SA 7.00 % due 10/01/07 .. 1,180,000 1,144,022
Interamerica Development Bank 6.95% due 8/01/26 2,000,000 2,169,840
------------
TOTAL YANKEE BONDS ........................... 3,313,862
------------
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS--18.7%
United States Treasury Bonds-3.3%
6.625% due 2/15/27 .......................... 6,750,000 7,327,935
6.375% due 8/15/27 .......................... 1,000,000 1,054,690
------------
8,382,625
------------
UNITED STATES TREASURY NOTES-14.7%
5.875% due 11/15/99 ......................... 200,000 200,718
6.625% due 6/30/01 .......................... 5,850,000 6,011,812
6.625% due 4/30/02 .......................... 5,500,000 5,680,455
6.50% due 5/31/02 ........................... 8,500,000 8,748,370
5.875% due 9/30/02 .......................... 3,000,000 3,016,410
5.75% due 11/30/02 .......................... 2,100,000 2,101,638
5.875% due 2/15/04 .......................... 7,000,000 7,061,250
6.50% due 10/15/06 .......................... 4,000,000 4,188,120
------------
37,008,773
------------
United States Agency Obligations-0.7%
Tennessee Valley Authority
5.88% due 4/01/36 ........................... 1,750,000 1,810,900
------------
TOTAL UNITED STATES
GOVERNMENT & AGENCY OBLIGATIONS ............. 47,202,298
------------
TOTAL FIXED INCOME
(Identified Cost $94,448,469)................ 97,127,875
------------
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 1,2%
Aubrey G. Lanston Repurchase Agreement
6.50% due 1/02/98, proceeds
at maturity $2,651,957 (collateralized
by $2,162,000 U.S. Treasury Bonds
valued at $2,679,191 10.00% due 5/15/10) .... 2,651,000
U.S. Treasury Bills
5.13% due 1/22/98 ........................... 122,632
5.33% due 2/19/98 ........................... 94,311
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified Cost $2,867,943) ................ 2,867,943
------------
TOTAL INVESTMENTS
(Identified Cost $222,624,686) .............. 100.6% 252,717,571
OTHER ASSETS
LESS LIABILITIES ............................ (0.6) (1,523,235)
------------
NET ASSETS ................................... 100.0% $251,194,336
===== ============
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
Futures contracts which were open at December 31,1997 are as follows:
Aggregate
Number of Face Value Expiration Unrealized
Contracts Contracts of Contracts Date Gain/Loss
- --------- --------- ------------ ---------- ----------
U.S. Treasury
20-year Bond
(Sell) 15 1,500,000 March 1998 $(4,219)
* Non-income producing
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $222,624,686) ................ $252,717,571
Cash ............................................. 54
Dividends and interest receivable ................ 1,343,766
Other assets ..................................... 1,012
------------
Total assets .................................... 254,062,403
------------
LIABILITIES:
Payable for investments purchased ................ 2,742,347
Payable to affiliates--Investment advisory fees (Note 2) 84,952
Payable for daily variation on futures contracts . 8,906
Accrued expenses and other liabilities ........... 31,862
------------
Total liabilities ............................... 2,868,067
------------
NET ASSETS ....................................... $251,194,336
============
REPRESENTED BY:
Paid-in capital for beneficial interests ......... $251,194,336
============
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
INVESTMENT INCOME:
Interest ..................................... $7,063,103
Dividends .................................... 1,548,998
----------
Total income ................................. $ 8,612,101
EXPENSES:
Investment advisory fees (Note 2) ............ 998,042
Administrative fees (Note 3) ................. 124,755
Expense fees (Note 6) ........................ 249,497
----------
Total expenses ............................... 1,372,294
------------
Net investment income ........................ 7,239,807
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions
and futures contracts ...................... 34,083,761
Unrealized appreciation (depreciation) of
investments and futures contracts
Beginning of period ........................ 23,092,617
End of period .............................. 30,088,666
----------
Net change in unrealized appreciation
(depreciation) of investments and
futures contracts .......................... 6,996,049
------------
Net realized and unrealized gain on
investments and futures contracts ......... 41,079,810
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................. $ 48,319,617
============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio
- -----------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .............................................. $ 7,239,807 $ 8,718,839
Net realized gain from investment transactions and futures contracts 34,083,761 17,739,660
Net change in unrealized appreciation (depreciation) of investments
and futures contracts ............................................ 6,996,049 (7,087,703)
------------- -------------
Net increase in net assets resulting from operations .............. 48,319,617 19,370,796
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ........................................ 7,417,240 18,210,247
Value of withdrawals ............................................... (52,068,589) (41,573,741)
------------- -------------
Net decrease in net assets from capital transactions .............. (44,651,349) (23,363,494)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS .............................. 3,668,268 (3,992,698)
NET ASSETS:
Beginning of period ................................................ 247,526,068 251,518,766
------------- -------------
End of period ...................................................... $ 251,194,336 $ 247,526,068
============= =============
</TABLE>
Balanced Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
May 1, 1994
Year Ended December 31, (Commencement
------------------------------- of Operations) to
1997 1996 1995 December 31, 1994
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) .......... $251,194 $247,526 $251,519 $228,948
Ratio of expenses to average net assets ............ 0.55% 0.55% 0.53% 0.51%*
Ratio of net investment income to average net assets 2.90% 3.50% 3.69% 3.53%*
Portfolio turnover ................................. 134% 241% 210% 105%
Average commission rate per share (A) .............. $ 0.0617 $ 0.0589 N/A N/A
(A) The average commission rate paid is applicable for Funds that invest greater than 10% of average net
assets in equity transactions on which commissions are charged. This disclosure is required for fiscal
periods beginning on or after September 1, 1995.
* Not annualized
</TABLE>
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Balanced Portfolio (the "Portfolio"), a separate series of The Premium
Portfolios (the "Portfolio Trust"), is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company which was organized as a trust under the laws of the State of New York.
The Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as
the Portfolio's Administrator.
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 and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. INVESTMENT SECURITY VALUATIONS -- Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less) are valued on the basis
of valuations furnished by pricing services 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 sixty
days or less are valued at amortized cost, which approximates market value.
Securities, if any, for which there are no such valuations or quotations are
valued at fair value as determined in good faith by or under guidelines
established by the Trustees.
B. INCOME -- Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for federal income tax purposes. Gain and loss from principal
paydowns are recorded as interest income. Dividend income is recorded on the
ex-dividend date.
C. U.S. FEDERAL TAXES -- The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
D. EXPENSES -- The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS -- It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.
F. TBA PURCHASE COMMITMENTS -- The Portfolio enters into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
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 Portfolios may engage in futures transactions. The
Portfolios 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. The underlying value of a futures contract is incorporated
within unrealized appreciation/depreciation in the Portfolio of Investments
under the caption "Futures Contracts". 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 Portfolio 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.
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 $998,042 for the year ended December
31, 1997. The investment advisory fees are computed at the annual rate of 0.40%
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, is computed at an annual rate of 0.05% of the
Portfolio's average daily net assets. The Administrative fees amounted to
$124,755 for the year ended December 31, 1997. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
SFG as from time to time is agreed to by SFG and Citibank. The Portfolio pays no
compensation directly to any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.
(4) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $343,925,191 and $360,783,716, respectively, for the year ended
December 31, 1997. Purchases and sales of U.S. Government securities aggregated
to $89,413,600 and $114,602,631, respectively.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:
Aggregate cost $222,718,879
============
Gross unrealized appreciation $ 31,666,134
Gross unrealized depreciation (1,667,442)
------------
Net unrealized appreciation $ 29,998,692
============
(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 0.55% of average daily net assets.
(7) LINE OF CREDIT
The Portfolio, along with the other Landmark Funds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $60
million for temporary or emergency purposes. Interest on the borrowings, if any,
is charged to the specific fund executing the borrowing at the base rate of the
bank. In addition, the $15 million committed portion of the line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the year ended December 31, 1997, the
commitment fee allocated to the Portfolio was $1,005. Since the line of credit
was established, there have been no borrowings.
Balanced Portfolio
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INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, BALANCED PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Balanced Portfolio (the "Portfolio"), a series
of The Premium Portfolios, as at December 31, 1997 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, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, 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, 1997, 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 2, 1998
