LANDMARK FUNDS II, N-30B-2, 1995-03-08

LANDMARK FUNDS II
N-30B-2, 1995-03-08

Previous: LANDMARK FUNDS I, N-30B-2, 1995-03-08

Next: LANDMARK GRAPHICS CORP, S-8, 1995-03-08

<PAGE>

[Logo] LANDMARK (SM) FUNDS
Advised by Citibank, N.A.

---------------------------------
Landmark
Equity Fund
---------------------------------

ANNUAL
REPORT
December 31, 1994

<PAGE>

- - --------------------------------------------------------------------------------
A Letter To Our Shareholders
- - --------------------------------------------------------------------------------

Dear Shareholder:

1994 was a difficult year for financial markets. A stronger-than-expected
economy and higher interest rates adversely affected many types of investments,
especially the bond market, where prices declined almost 10% since the beginning
of 1994. The stock market fell just over 8% from its highs in the first half of
the year, but later recouped those losses on the strength of strong corporate
earnings and finished the year with a small gain.

Throughout the period, the Landmark Funds' investment adviser, Citibank,
N.A., managed the underlying Equity Portfolio in a manner consistent with the
objective stated in the Landmark Equity Fund's prospectus: to provide long-term
capital growth. The Portfolio participates in the ownership of common stocks
issued by domestic companies, with emphasis on medium- to large-capitalization
companies with seasoned management teams.

This Annual Report for the period ended December 31, 1994 reviews the
Fund's investment activities and performance over the past twelve months and
provides a summary of Citibank's perspective on the financial markets and
outlook for the foreseeable future. On behalf of the Board of Trustees of the
Landmark Funds, I want to thank our shareholders for their participation and
support. We look forward to serving you in the months and years ahead.

/s/Philip W. Coolidge

Philip W. Coolidge
President
January 20, 1995

- - --------------------------------------------------------------------------------
Remember that Mutual Fund Shares:
* Are not bank deposits or FDIC insured
* Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
* Are subject to investment risks, including possible loss of the principal
amount invested

- - --------------------------------------------------------------------------------

TABLE OF CONTENTS
- - ----------------------------------------
1 Letter to Shareholders
- - ----------------------------------------
2 Market Environment
Fund Snapshot
- - ----------------------------------------
3 Portfolio Manager
The Portfolio Responds
- - ----------------------------------------
4 Fund Quotes
Strategy and Outlook
- - ----------------------------------------
5 Equity Portfolio by the Numbers
- - ----------------------------------------
6 Fund Data
Performance Highlights
- - ----------------------------------------
LANDMARK EQUITY FUND
- - ----------------------------------------
7 Statement of Assets and Liabilities
- - ----------------------------------------
8 Statement of Operations
- - ----------------------------------------
9 Statement of Changes in Net Assets
- - ----------------------------------------
10 Financial Highlights
- - ----------------------------------------
11 Notes to Financial Statements
- - ----------------------------------------
14 Independent Auditors' Report
- - ----------------------------------------
EQUITY PORTFOLIO
- - ----------------------------------------
15 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
- - ----------------------------------------
22 Independent Auditors' Report

<PAGE>

- - --------------------------------------------------------------------------------
MARKET ENVIRONMENT
- - --------------------------------------------------------------------------------

In our semi-annual report six months ago, we advised a cautious approach to
stocks over the short term in order to participate in the long-term gains that
we believe lie ahead. Our caution proved to be prudent. While the large
capitalization stocks that comprise the Standard & Poor's 500 index produced
positive total returns for all of 1994 of about 1.31%, medium- and
small-capitalization stocks lagged, finishing slightly below their year-ago
levels. However, these results should be viewed in the context of the stock
market's historical performance: since 1926, the S&P 500 has gained an average
of approximately 10% per year and smaller stocks have produced annual returns of
about 12%.

We attribute the stock market's underperformance relative to historical
averages to tighter monetary policy on the part of the Federal Reserve Board,
which attempted to slow the U.S. economy. During 1994, the Federal Reserve
raised the federal funds rate (the rate banks charge each other for overnight
loans) six times, from 3.0% to 5.5%. The three-quarters of a percentage point
rate hike in November represented the largest single increase since 1981.

The Federal Reserve raised short-term interest rates in an effort to
prevent an acceleration of inflation before it affects the economy. Because
inflation is the result of excessive economic growth in which demand for labor
and materials exceeds supply, the Federal Reserve aims to slow the economy to
more sustainable levels by increasing the cost of borrowing for expansion by
corporations and individuals.

- - --------------------------------------------------------------------------------
FUND SNAPSHOT
- - --------------------------------------------------------------------------------

COMMENCEMENT OF OPERATIONS
October 19, 1990

NET ASSETS AS OF 12/31/94
$184.0 million

FUND OBJECTIVE
Long-term growth of capital through
investing primarily in common stocks
of U.S. companies

DIVIDENDS
Paid semi-annually, if any

CAPITAL GAINS
Distributed annually, if any

BENCHMARKS
* Standard & Poor's 500 Index
* Lipper Growth Funds Average

INVESTMENT ADVISER,
EQUITY PORTFOLIO
Citibank, N.A.

<PAGE>

- - --------------------------------------------------------------------------------
PORTFOLIO MANAGER
- - --------------------------------------------------------------------------------

A. DWIGHT HYDE, JR.

Vice President, Citibank, N.A.
U.S. Chief Investment Officer
Citibank Global Asset Management

Mr. Hyde has been responsible for managing the Portfolio since its inception
after serving as the manager of the Fund since January 1993. He serves as U.S.
Chief Investment Officer for Citibank Global Asset Management and personally
manages over $3.5 billion of equity assets for Citibank, including the equity
portion of the Balanced Portfolio. He also serves as head of the Equity Strategy
Committee and is a member of the Citibank Investment Policy Committee. Mr. Hyde
joined Citibank in 1980. He has also served as Chief Investment Officer at Dean
Witter Asset Management and Paribas Asset Management. Mr. Hyde is a member of
the New York Society of Security Analysts and the Financial Analysts Foundation.

- - --------------------------------------------------------------------------------
THE PORTFOLIO RESPONDS
- - --------------------------------------------------------------------------------

Consistent with our risk-averse investment management style and cautious
approach to the financial markets during the past year, we have looked for
companies that have demonstrated stability in uncertain markets and solid future
earnings prospects. Accordingly, we have been more conservative than usual with
regard to the types of companies in which we are investing. For example, in 1994
we focused mainly on large- and medium-capitalization growth stocks, with
particular emphasis on those in the economically sensitive capital spending and
technology industries. We also found attractive values in the stocks of
commodity, energy, health care and transportation companies. Moreover, in
September, we began looking at certain closed-end mutual funds as a way to
further diversify the Portfolio through a modest participation in international
equity markets.

On the other hand, we avoided stocks that we believed to be overvalued or
speculative, including some of 1993's market leaders such as initial public
offerings. We also tended to avoid the stocks of companies that are sensitive to
interest rates, such as banks and utilities. Furthermore, we sold companies from
the Portfolio that we believe became relatively expensive on a valuation basis,
including taking profits in some companies that have done quite well for our
shareholders.

<PAGE>

- - --------------------------------------------------------------------------------
FUND QUOTES FROM THE PORTFOLIO MANAGER
- - --------------------------------------------------------------------------------

"Although the major stock indices have held up fairly well in 1994, the list of
stocks reaching new highs has become smaller and smaller. We've become more
cautious as a result."

"We've been investing in companies where we feel earnings prospects are solid,
and we've been trying to trim companies that have high price-earnings ratios,
including some positions that have done quite well."

"Looking into 1995, we think that corporate earnings growth will remain strong
as the U.S. economy continues to grow."

- - --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
- - --------------------------------------------------------------------------------

Looking forward, we believe that the level of economic growth and the
Federal Reserve's monetary policy decisions will continue to dominate the stock
market over the next several months. If the Federal Reserve feels compelled to
raise short-term interest rates further because of concerns about inflation, the
stock market is likely to remain under pressure over the near term as returns
from high-yielding, fixed-income investments compete favorably with returns from
stocks.

If, on the other hand, economic growth begins to moderate to more
sustainable levels, the stock market should do quite well. Rising corporate
earnings and declining bond yields should prove to be positive for the stock
market over the longer term. In fact, we believe that the stock market has the
potential to reach new highs in 1995, most likely in the latter part of the
year.

Finally, we expect the new Republican-controlled Congress to be positive
for stocks. If initiatives such as a capital-gains tax cut and the balanced
budget amendment are successful, capital should flow into stocks, driving prices
higher. Perhaps most significantly, deficit-reduction measures should help shore
up the dollar relative to other currencies, making the U.S. markets more
attractive to overseas investors. We expect the combination of moderate economic
growth, low inflation, lower taxes on capital gains and foreign investment to be
a powerful foundation for stock market gains in 1995 and beyond.

<PAGE>

TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 12/31/94)

Name Industry Sector % of Net Assets

General Motors Corp. Class "E" Information Processing 2.58%
General Motors Corp. Cyclicals-Durables 2.55%
General Electric Co. Electronic 2.43%
Royal Dutch Petroleum Co. Energy 2.42%
Texas Instruments Inc. Electronic 2.23%
American Telephone &
Telegraph Co. Information Processing 2.19%
Praxair Inc. Commodities 2.14%
Eastman Kodak Co. Cyclicals-Non Durables 2.07%
Unocal Corp. Energy 2.04%
Xerox Corporation Information Processing 2.03%

- - --------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SECTORS
- - --------------------------------------------------------------------------------
Portfolio of investments as of 12/31/94
- - --------------------------------------------------------------------------------

Capital Goods ......................... 25%
Cash/Short Term/Other ................. 18%
Consumer .............................. 28%
Financial ............................. 15%
Industrial ............................ 14%

Capital Goods ......................... 21%
Cash/Short Term/Other ................. 9%
Consumer .............................. 35%
Financial ............................. 16%
Industrial ............................ 19%

5
<PAGE>
- - --------------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1994
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Returns
-------------
Since
10/19/90
One Inception
Year (annualized)
--------- ----------
<S> <C> <C>
Landmark Equity Fund without Sales Charge ........................... (0.41)% 12.76%
Lipper Growth Funds Average ......................................... (2.17)% 14.46%*
Standard & Poor's 500 Index ......................................... 1.31% 13.77%*
Landmark Equity Fund with Maximum Sales Charge of 4.75% ............. (5.15)% 11.47%
</TABLE>

*From 10/31/90

30-Day SEC Yield 1.40%
Income Dividends Per Share $0.169
Capital Gain Distributions $0.429

<PAGE>
- - --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
- - --------------------------------------------------------------------------------
A $10,000 investment in the Fund made on inception date would have grown to
$15,781 with sales charge (as of 12/31/94). The graph shows how the Fund
compares to our benchmarks for the period October 31, 1990 to December 31, 1994.

The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.

The following is presented as a graph in the printed report.
Landmark Landmark
Equity - Equity - Lipper
Without With Growth S&P 500
Sales Sales Funds Index
Charge Charge Average (Unmanaged)
------------ ------------ ------------ -----------
Oct. 90 $10,000 $ 9,525 $10,000 $10,000
$10,600 $10,097 $10,660 $10,646
- - -----------------------------------------------------------------
Dec. 90 $10,698 $10,190 $11,014 $10,943
$11,167 $10,637 $11,690 $11,420
$11,995 $11,425 $12,534 $12,237
$12,073 $11,499 $12,938 $12,533
$11,816 $11,255 $12,922 $12,563
$12,621 $12,021 $13,456 $13,104
$11,906 $11,340 $12,795 $12,504
$12,605 $12,006 $13,430 $13,087
$13,315 $12,683 $13,838 $13,397
$12,864 $12,253 $13,712 $13,173
$13,157 $12,532 $13,993 $13,350
$12,594 $11,995 $13,435 $12,812
- - -----------------------------------------------------------------
Dec. 91 $13,986 $13,322 $14,921 $14,277
$13,760 $13,106 $14,997 $14,012
$14,099 $13,429 $15,208 $14,194
$13,726 $13,074 $14,755 $13,917
$13,782 $13,128 $14,656 $14,326
$13,748 $13,095 $14,738 $14,397
$13,310 $12,678 $14,310 $14,182
$13,878 $13,219 $14,822 $14,762
$13,492 $12,851 $14,500 $14,460
$13,787 $13,132 $14,725 $14,630
$14,139 $13,468 $15,022 $14,681
$14,923 $14,214 $15,771 $15,182
- - -----------------------------------------------------------------
Dec. 92 $15,049 $14,334 $16,062 $15,182
$15,128 $14,410 $16,260 $15,498
$14,912 $14,204 $16,005 $15,709
$15,777 $15,027 $16,448 $16,040
$15,527 $14,789 $15,938 $15,652
$15,970 $15,212 $16,517 $16,071
$15,815 $15,063 $16,566 $16,118
$15,610 $14,868 $16,526 $16,054
$16,315 $15,540 $17,225 $16,662
$16,361 $15,584 $17,401 $16,534
$16,589 $15,801 $17,643 $16,876
$16,384 $15,606 $17,297 $16,716
- - -----------------------------------------------------------------
Dec. 93 $16,894 $16,092 $17,797 $16,918
$17,237 $16,418 $18,322 $17,494
$16,963 $16,157 $18,036 $17,020
$16,209 $15,439 $17,187 $16,277
$16,506 $15,722 $17,244 $16,486
$16,837 $16,037 $17,309 $16,756
$16,354 $15,577 $16,726 $16,346
$16,866 $16,065 $17,167 $16,882
$17,284 $16,463 $17,954 $17,574
$16,842 $16,042 $17,630 $17,149
$17,157 $16,342 $17,909 $17,546
$16,587 $15,799 $17,237 $16,902
- - -----------------------------------------------------------------
Dec. 94 $16,826 $16,027 $17,396 $17,151

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.

<PAGE>

ASSETS:
Investment in Equity Portfolio, at value (Note 1A) .................. $184,255,561
Receivable for shares of beneficial interest sold ................... 84,912
------------
Total assets .................................................... 184,340,473
------------

LIABILITIES:
Payable for shares of beneficial interest repurchased ............... 296,163
Payable to affiliates--Shareholder servicing agents' fee (Note 3B) .. 38,483
Accrued expenses .................................................... 30,790
------------
Total liabilities ............................................... 365,436
------------

NET ASSETS for 13,020,443 shares of beneficial interest outstanding . $183,975,037
============

NET ASSETS CONSIST OF:
Paid-in capital ..................................................... $177,636,380
Unrealized appreciation of investments .............................. 5,501,614
Accumulated net realized gain on investments ........................ 837,043
------------
Total ........................................................... $183,975,037
============

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST $14.13
======

COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge
(14.13/0.9525) .................................................... $14.83
======
</TABLE>

See notes to financial statements
7
<PAGE>

INVESTMENT INCOME (Note 1B):
<S> <C> <C>
Dividends ....................................................................... $ 916,281
Interest ........................................................................ 241,446 $ 1,157,727
-----------

Dividend Income from Equity Portfolio ........................................... 2,494,205
Interest Income from Equity Portfolio ........................................... 581,772
Other Income Foreign Tax reclaim ................................................ 4,715
Allocated Expenses from Equity Portfolio ........................................ (763,284) 2,317,408
----------- -----------
3,475,135

EXPENSES:
Shareholder Servicing Agents' fees (Note 3B) .................................... 768,306
Investment advisory fees (Note 2) ............................................... 326,242
Administrative fees (Note 3A) ................................................... 320,872
Distribution fees (Note 4) ...................................................... 96,083
Expense reimbursement fees (Note 7) ............................................. 222,126
----------
Total expenses .............................................................. 1,733,629
Less aggregate amount waived by Investment Adviser, Administrator and Shareholder
Servicing Agents (Note 2, 3A and 3B) .......................................... (477,380)
-----------
Net expenses ............................................................... 1,256,249
-----------
Net investment income ...................................................... 2,218,886
-----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain/(loss) from investment transactions ........................... 3,501,493
Net change in unrealized appreciation/(depreciation) ............................ (6,636,670)
-----------
Net realized and unrealized gain/(loss) on investments .......................... (3,135,177)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................ $ (916,291)
============
</TABLE>

See notes to financial statements
8
<PAGE>

- - --------------------------------------------------------------------------------
Landmark Equity Fund
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1994 1993
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
Operations:
Net investment income ................................................ $ 2,218,886 $ 548,920
Net realized gain on investment transactions ......................... 3,501,493 5,588,794
Net change in unrealized appreciation (depreciation) of investments .. (6,636,670) 8,472,063
------------- -----------
Net increase (decrease) in net assets resulting from operations .... (916,291) 14,609,777
------------- -----------
EQUALIZATION (Note 1E) ............................................... -- (5,335)
------------- -----------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................ (2,171,477) (524,969)
Net realized gain on investments ..................................... (5,539,727) --
------------- -----------
Decrease in net assets from distributions to shareholders .......... (7,711,204) (524,969)
------------- -----------

TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6):
Net proceeds from sale of shares ..................................... 12,867,137 12,550,613
Net asset value of shares issued to shareholders
from reinvestment of distributions ................................. 7,710,057 524,176
Net asset value of shares issued in connection
with the acquisition of Citibank IRA Equity Portfolio (Note 8) ..... -- 183,372,284
Cost of shares repurchased ........................................... (28,877,657) (20,596,954)
------------- -----------
Net increase (decrease) in net assets from transactions in shares of
beneficial interest .............................................. (8,300,463) 175,850,119
------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ................................ (16,927,958) 189,929,592

NET ASSETS:
Beginning of period .................................................. 200,902,995 10,973,403
------------- -----------
End of period (including undistributed net investment income
of $0 and $25,006, respectively) ................................... $ 183,975,037 $200,902,995
============= ===========
</TABLE>

See notes to financial statements
9
<PAGE>

<TABLE>
- - --------------------------------------------------------------------------------------------------------------------
Landmark Equity Fund
- - --------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, October 19, 1990
-------------------------------------------------- (Commencement of
Operations) to
1994 1993 1992 1991 December 31,1990
---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ............ $ 14.80 $ 13.23 $ 12.36 $ 9.57 $ 9.14
------- ------- ------- ------- ------
Income From Operations:
Net investment income ........................... 0.173 0.071<F2> 0.065 0.126 0.065
Net realized and unrealized gain (loss) on
investments ................................... (0.245) 1.550 0.868 2.797 0.423
------- ------- ------- ------- ------
Total from operations ...................... (0.072) 1.621 0.933 2.923 0.488
------- ------- ------- ------- ------
Less Distributions From:
Net investment income ......................... (0.169) (0.051) (0.063) (0.133) (0.058)
Net realized gain on investments .............. (0.429) -- -- -- --
------- ------- ------- ------- ------
Total from distributions .................. (0.598) (0.051) (0.063) (0.133) (0.058)
------- ------- ------- ------- ------
Net Asset Value, end of period .................. $ 14.13 $ 14.80 $ 13.23 $12.36 $ 9.57
======= ======= ======= ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) ....... $183,975 $200,903 $10,973 $9,181 $6,026
Ratio of expenses to average net assets ......... 1.05%<F3> 1.07% 1.40% 1.40% 1.40%<F1>
Ratio of net investment income to average
net assets .................................... 1.15% 0.52% 0.53% 1.12% 3.48%<F1>
Portfolio turnover .............................. 1%<F4> 23% 79% 68% 0%
Total return .................................... (0.41)% 12.26% 7.60% 30.73% 5.34%

Note: If Agents of the Fund for the periods indicated and Agents of Equity
Portfolio for the period May 1, 1994 to December 31, 1994 had not waived a
portion of their fees and an expense reimbursement agreement had not been in
effect and had expenses not been limited to that required by certain state
securities laws, the net investment income (loss) per share and the ratios
would have been as follows:

<CAPTION>
<S> <C> <C> <C> <C> <C>
Net investment income (loss) per share ....... $0.136 $0.029<F2> $(0.070) $0.002 $0.044
Ratios:
Expenses to average net assets ............... 1.29%<F3> 1.37% 2.50% 2.50% 2.50%<F1>
Net investment income (loss) to
average net assets ........................... 0.91% 0.21% (0.57)% 0.02% 2.38%<F1>
<FN>
<F1> Annualized
<F2> Because of the significant increase in fund shares outstanding during the
year ended December 31, 1993, the per share amount for net investment
income was computed using a monthly average number of shares outstanding
during the year.
<F3> Includes the Fund's share of Equity Portfolio allocated expenses for the
period May 1, 1994 to December 31, 1994.
<F4> Portfolio turnover represents the 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.
</TABLE>

See notes to financial statements

10
<PAGE>

(1) SIGNIFICANT ACCOUNTING POLICIES

The Landmark Equity Fund (the "Fund") is a separate diversified series of
Landmark Funds II (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. On May 1, 1994, the Fund began investing all of
its investable assets in Equity Portfolio (the "Portfolio"), a management
investment company for which Citibank, N.A. ("Citibank") serves as Investment
Adviser. The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the
Fund's Administrator and Distributor. Citibank also serves as Sub-Administrator
and makes Fund shares available to customers as Shareholder Servicing Agent.

The Trust seeks to achieve the Fund's investment objective of long-term capital
growth 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 (98.7% at
December 31, 1994) in the net assets of the Portfolio.

The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.

The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:

A. INVESTMENT VALUATION -- Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report.

B. INVESTMENT INCOME -- The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments which were
held directly interest income was determined on the basis of interest accrued
and discount earned, adjusted for amortization of premium or discount on
long-term debt securities when required for federal income tax purposes.
Dividend income was recorded on the ex-dividend date.

C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. The Fund hereby designates $2,169,167 of its capital
gain distribution as long-term.

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, 1994, the fund reclassed $71,360 from undistributed net investment income,
$5,690 from paid-in capital and $77,050 to accumulated net realized gain on
investment.

Prior to January 1, 1994, the Fund followed equalization accounting by which a
portion of the proceeds from sales and cost of repurchases of Fund shares was
credited or charged to undistributed net investment income on the date of the
transaction so that undistributed net investment income per share was unaffected
by Fund shares sold or repurchased. The Fund discontinued equalization
accounting as of January 1, 1994 and reclassified net equalization credits in
the amount of $1,055 from undistributed net investment income to paid-in
capital. In management's opinion, discontinuance of equalization accounting will
result in less distortion of undistributed net investment income as compared to
income available for distribution for federal income tax purposes. This change
has no effect on the Fund's net asset, results of operations or net asset value

11
<PAGE>
- - --------------------------------------------------------------------------------
Landmark Equity Fund
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS continued
- - --------------------------------------------------------------------------------

per share, and did not have a material effect on the per share amounts in the
Financial Highlights.

F. OTHER -- All the net investment income, realized and unrealized gain and loss
of the Portfolio is allocated pro rata, based on respective ownership interests,
among the Fund and the other investors in the Portfolio at the time of such
determination. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined on the identified cost basis.

(2) INVESTMENT ADVISORY FEE

Prior to May 1, 1994 (when the Fund transferred all of its investable assets to
the Portfolio in exchange for an interest in the Portfolio), the Fund retained
Citibank, as its Investment Adviser. The investment advisory fee paid to
Citibank, as compensation for overall investment management services, amounted
to $326,242, of which $62,569 was voluntarily waived for the four months ended
April 30, 1994. The investment advisory fee was computed at the annual rate of
0.50% of the Fund's average daily net assets. The Portfolio has engaged Citibank
to render investment advisory services. See Note 2 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report.

(3) ADMINISTRATIVE SERVICES PLAN

The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") which provides that the Trust, on behalf of the Fund, may obtain
the services of an Administrator, one or more Shareholder Servicing Agents and
other Servicing Agents, and may enter into agreements providing for the payment
of fees for such services. Under the Trust Administrative Services Plan, the
aggregate of the fee paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.65% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year.

A. ADMINISTRATIVE FEE -- Under the terms of an Administrative Services
Agreement, the administrative fee payable to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.20% of the Fund's average daily net assets. Prior to
May 1, 1994 (when the Fund transferred all of its investable assets to the
Portfolio in exchange for an interest in the Portfolio), the Administrator
received fees computed at the annualized rate of 0.20% of the Fund's average
daily net assets which amounted to $130,497 for the four months ended April 30,
1994. For the period May 1, 1994 to December 31, 1994, under the Administrative
Services Plan the Administrator received fees computed at an annual rate of
0.15% of the Fund's average daily net assets which amounted to $190,375 of which
$126,917 was voluntarily waived. Citibank acts as Sub-Administrator and performs
such duties and receives such compensation from LFBDS as from time to time is
agreed to by LFBDS and Citibank. The Fund pays no compensation directly to any
Trustee or 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
0.40% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $768,306 of which $287,894 was voluntarily
waived for the year ended December 31, 1994.

(4) DISTRIBUTION FEES

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, in which the Fund reimburses the
Distributor for expenses incurred or anticipated in connection with sales of
shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's average
daily net assets. The Distributor may also receive an additional fee from the

<PAGE>
- - --------------------------------------------------------------------------------
Landmark Equity Fund
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS continued
- - --------------------------------------------------------------------------------

Fund at an annual rate not to exceed 0.05% of the Fund's average daily net
assets in anticipation of, or as reimbursement for, advertising expenses
incurred by the Distributor in connection with the sale of shares of the Fund.
No payment of such additional fee has been made during the period. Under the
Administrative Services Plan distribution fees were computed at an annual rate
of 0.05% of the Fund's average daily net assets, which amounted to $96,083 for
the year ended December 31, 1994.

(5) INVESTMENT TRANSACTIONS

On May 1, 1994 the Fund transferred all of its investable assets ($191,734,923)
to the Portfolio in exchange for an interest in the Portfolio. Increases and
decreases in the Fund's investment in the Portfolio for the period May 1, 1994
to December 31, 1994 aggregated $4,814,531 and $16,504,839, respectively.

Purchases and sales of investments, other than short-term obligations during the
period January 1, 1994 to April 30, 1994 aggregated $1,878,210 and $8,562,718,
respectively.

(6) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:

Year Ended December 31,
-------------------------------
1994 1993
----------- -----------
[S] [C] [C]
Shares sold .............................. 876,386 882,771
Shares issued to
shareholders from rein-
vestment of distributions ............... 550,817 35,835
Shares issued in connection
with the acquisition of
Citibank IRA Equity
Portfolio (Note 8) ...................... -- 13,282,683
Shares repurchased ....................... (1,980,632) (1,456,687)
----------- -----------
Net increase (decrease) .................. (553,429) 12,744,602
=========== ===========

(7) EXPENSE REIMBURSEMENT FEE

LFBDS has entered into an expense reimbursement agreement with the Fund. LFBDS
has agreed to pay all of the ordinary operating expenses (excluding interest,
taxes, brokerage commissions, litigation costs or other extraordinary costs or
expenses) of the Fund, other than fees paid under the Administrative Services
Agreement, Distribution Agreement, and the Shareholder Servicing Agreements. The
Agreement shall terminate on May 31, 2000, unless sooner terminated by either
party upon not less than 30 days nor more than 60 days written notice to the
other party.

The Trust has agreed to pay LFBDS an expense reimbursement fee from the Fund, in
addition to the administrative and distribution fees, accrued daily and paid
monthly; provided, however, that such fee shall not exceed the amount such that
immediately after any such payment the aggregate ordinary operating expenses of
the Fund including expenses allocated from the Portfolio would, on an annual
basis, exceed an agreed upon rate, currently 1.05% of the Fund's average daily
net assets.

(8) ACQUISITION OF CITIBANK IRA EQUITY PORTFOLIO

On June 25, 1993, the Fund acquired all of the net assets of the Equity
Portfolio of the Collective Investment Trust for Citibank IRAs pursuant to an
Agreement and Plan of Reorganization approved by Citibank IRA Equity Portfolio
participants on February 18, 1993. The acquisition was accomplished by a
tax-free exchange of 13,282,683 shares of the Fund (valued at $183,372,284) in
exchange for the Citibank IRA Equity Portfolio's net assets on June 25, 1993.
The Citibank IRA Equity Portfolio's net assets at that date ($183,372,284),
including $1,885,516 of unrealized appreciation, were combined with those of the
Fund. The aggregate net assets of the Fund after the acquisition were
$194,290,650.
13
<PAGE>
- - --------------------------------------------------------------------------------
Landmark Equity Fund
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- - --------------------------------------------------------------------------------

TO THE TRUSTEES AND THE SHAREHOLDERS OF LANDMARK FUNDS II (THE TRUST): LANDMARK
EQUITY 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 Equity Fund (the "Fund"), a series of the Landmark Funds II, at
December 31, 1994, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of investments owned at December 31, 1994,
provides a reasonable basis for the opinion expressed above. The statement of
changes in net assets for the period ended December 31, 1993 and the financial
highlights for each of the periods then ended were audited by other independent
accountants whose report dated February 2, 1994 expressed an unqualified opinion
on those statements.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 3, 1995

<PAGE>

Issuer Shares Value
- - --------------------------------------------------------------------------------
COMMON STOCKS--82.3%
- - --------------------------------------------------------------------------------

COMMODITIES - 5.1 %
Lubrizol Corp. ................................. 83,000 $ 2,811,625
Nucor Corp. .................................... 49,800 2,763,900
Praxair Inc. ................................... 195,000 3,997,500
-----------
9,573,025
-----------
CYCLICALS - DURABLES - 4.4%
Cooper Tire & Rubber Co. ....................... 13,800 326,025
Ford Motor Co. ................................. 113,000 3,164,000
General Motors Corp. ........................... 112,500 4,753,125
-----------
8,243,150
-----------
CYCLICALS - NON DURABLES - 2.1%
Eastman Kodak Co. .............................. 81,000 3,867,750
-----------

ELECTRONICS - 7.6%
Emerson Electric Co. ........................... 47,000 2,937,500
General Electric Co. ........................... 89,000 4,539,000
Hewlett Packard Co. ............................ 25,000 2,496,875
Texas Instruments Inc. ......................... 55,700 4,170,537
-----------
14,143,912
-----------
ENERGY - 5.2%
Royal Dutch Petroleum Co. ......................
ADR's ......................................... 42,000 4,515,000
Schlumberger LTD ............................... 28,200 1,420,575
Unocal Corp. ................................... 140,000 3,815,000
-----------
9,750,575
-----------
ENTERTAINMENT/MEDIA - 2.6%
Carnival Corp. ................................. 29,500 626,875
Gaylord Entertainment Co. ...................... 113,000 2,570,750
Tele-Communications Inc. Class "A" ............. 80,000 1,740,000
-----------
4,937,625
-----------

FINANCE BANKS - 4.5%
BankAmerica Corp................................ 60,000 2,370,000
First Fidelity Bancorp ......................... 67,500 3,029,063
Signet Banking Corp. ........................... 102,000 2,919,750
-----------
8,318,813
-----------

Issuer Shares Value
- - --------------------------------------------------------------------------------

FINANCE - NON BANKS - 8.7%
American International Group Inc. .................... 35,000 $3,430,000
Asia Tigers Fund ..................................... 37,700 353,438
Avalon Properties Inc. ............................... 99,500 2,288,500
Chile Fund ........................................... 15,800 728,775
Emerging Germany Fund Inc. ........................... 30,800 227,150
Emerging Tiger Fund Inc. ............................. 43,800 498,225
Federal National
Mortgage Association ................................ 45,000 3,279,375
First Australia Fund Inc. ............................ 11,400 101,175
France Growth Fund ................................... 17,900 163,338
Future Germany Fund .................................. 15,600 224,250
Irish Investment Fund Inc. ........................... 4,700 40,538
Malaysia Fund ........................................ 26,500 457,125
Pakistan Investment Fund ............................. 45,500 409,500
Thai Capital Fund .................................... 24,700 410,637
The India Fund, Inc. ................................. 56,200 597,125
The New Germany Fund ................................. 38,100 438,150
The Thai Fund Inc. ................................... 18,500 413,937
Travelers Inc. ....................................... 60,000 1,950,000
United Kingdom Fund Inc. ............................. 21,500 233,812
----------
16,245,050
----------
GROWTH STAPLES - 5.5%
McDonald's Corp. ..................................... 112,000 3,276,000
PepsiCo Inc. ......................................... 96,000 3,480,000
Sysco Corp. .......................................... 140,000 3,605,000
----------
10,361,000
----------
HEALTH CARE - 7.5%
Coastal Healthcare Group ............................. 63,400 1,735,575
Community Health Systems ............................. 44,500 1,212,625
FHP Group ............................................ 63,000 1,622,250
Johnson& Johnson ..................................... 63,000 3,449,250
Pfizer Inc. .......................................... 47,500 3,669,375
United Health Care Co. ............................... 13,500 609,188
Value Health Inc. .................................... 44,000 1,639,000
----------
13,937,263
----------

<PAGE>
- - --------------------------------------------------------------------------------
Equity Portfolio
- - --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1994 continued
- - --------------------------------------------------------------------------------

Issuer Shares Value
- - --------------------------------------------------------------------------------

INFORMATION PROCESSING - 12.3%
American Telephone &
Telegraph Co. ........................... 81,192 $ 4,079,898
Cisco Systems, Inc. ........................ 80,000 2,810,000
DSC Communications ......................... 56,000 2,009,000
General Motors Corp. Class "E" ............. 125,000 4,812,500
Silicon Graphics Inc.* ..................... 70,000 2,161,250
Stratus Computer Inc.* ..................... 85,000 3,230,000
Xerox Corp ................................. 38,300 3,791,700
-----------
22,894,348
-----------
MACHINERY - 5.2%
Cooper Industries Inc. ..................... 59,000 2,013,375
Deere & Co. ................................ 40,000 2,650,000
Fluor Corp. ................................ 62,000 2,673,750
WMX Technologies Inc. ...................... 92,000 2,415,000
-----------
9,752,125
-----------
RETAIL SALES - 6.1%
Home Depot Inc. ............................ 65,000 2,990,000
Limited Inc. ............................... 75,000 1,359,375
May Department Stores Co. .................. 75,000 2,531,250
Toys "R" Us Inc.* .......................... 97,000 2,958,500
Wal-Mart Stores Inc. ....................... 70,000 1,487,500
-----------
11,326,625
-----------
TRANSPORTATION - 3.4%
Consolidated Rail Inc. ..................... 53,000 2,676,500
Norfolk Southern Co. ....................... 62,000 3,758,750
-----------
6,435,250
-----------
UTILITIES - 2.1 %
FPL Group Inc. ............................. 50,000 1,756,250
Telefonos de Mexico ADRs ................... 51,400 2,107,400
-----------
3,863,650
-----------

TOTAL COMMON STOCK
(Identified Cost $148,175,348) ............ 153,650,161
-----------

Principal
Issuer Amount Value
- - --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--20.6%
- - --------------------------------------------------------------------------------
Salomon Brothers Repurchase Agreement
6.00 %, due 1/03/95,
proceeds at maturity $38,540,677 ............$38,515,000 $ 38,515,000
-------------
(secured by $43,061,000
U.S. Treasury Note 4.75%
due 9/30/98)
TOTAL INVESTMENTS ............................. 102.9% 192,165,161
(Identified Cost $186,690,348)
OTHER ASSETS,
LESS LIABILITIES ............................. (2.9%) (5,479,677)
----- -------------
NET ASSETS .................................... 100.0% $ 186,685,484
===== =============

*Non-income producing security.

See notes to financial statements

<PAGE>

ASSETS:
Investments at value (Note 1A) (Identified Cost, 186,690,348) .. $ 192,165,161
Cash ........................................................... 222
Receivable for investments sold ................................ 594,799
Dividends and interest receivable .............................. 467,533
-------------
Total assets ............................................... 193,227,715
-------------

LIABILITIES:
Payable for investments purchased .............................. 6,447,049
Payable to affiliates--Investment advisory fee (Note 2) ........ 78,401
Accrued expenses and other liabilities ......................... 16,781
-------------
Total liabilities .......................................... 6,542,231
-------------
NET ASSETS ..................................................... $ 186,685,484
=============

REPRESENTED BY:
Paid-in capital for beneficial interests ....................... $ 186,685,484
=============

See notes to financial statements

<PAGE>

- - --------------------------------------------------------------------------------
Equity Portfolio
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Period May 1, 1994 (Commencement of Operations) to December 31, 1994
- - --------------------------------------------------------------------------------
<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $39,717) ................ $2,505,018
Interest ............................................................. 585,374
----------
Total Income ....................................................... $3,090,392

EXPENSES:
Investment advisory fees (Note 2) .................................... 639,988
Administrative fees (Note 3) ......................................... 63,999
Expense reimbursement fees (Note 6) .................................. 63,938
----------
Total expenses ..................................................... 767,925
----------
Net investment income .............................................. 2,322,467
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions ................ 2,731,272
Unrealized appreciation (depreciation) of investments--
Beginning of period ............................................... ---
End of period ..................................................... 5,474,813
Less unrealized appreciation acquired in connection with
Landmark Equity Fund contribution (Note 1) ........................ (6,318,828)
----------
Net change in unrealized appreciation (depreciation) ................ (844,015)
----------
Net realized and unrealized gain (loss) on investments ............ 1,887,257
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................. $4,209,724
==========
</TABLE>

See notes to financial statements

<PAGE>

<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
Operations:
Net investment income ............................................. $ 2,322,467
Net realized gain on investment transactions ...................... 2,731,272
Net change in unrealized appreciation (depreciation) of investments (844,015)
-------------
Net increase in net assets resulting from operations .......... 4,209,724
-------------

CAPITAL TRANSACTIONS:
Proceeds from contributions ....................................... 199,044,676
Value of withdrawals .............................................. (16,568,916)
-------------
Net increase (decrease) in net assets from capital transactions 182,475,760
-------------

NET INCREASE (DECREASE) IN NET ASSETS: ............................ 186,685,484
Net Assets:
Beginning of period ............................................... --
-------------
End of period ..................................................... $ 186,685,484
=============
</TABLE>

- - --------------------------------------------------------------------------------
Equity Portfolio
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
May 1, 1994
(Commencement
of Operations) to
December 31, 1994
---------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted) .......................... $186,685
Ratio of expenses to average net assets .......................... 0.60%*
Ratio of net investment income to average net assets ............. 1.81%*
Portfolio turnover ............................................... 35%

* Annualized

See notes to financial statements

<PAGE>

(1) SIGNIFICANT ACCOUNTING POLICIES

Equity Portfolio (the "Portfolio"), a separate series of The Premium Portfolios
(the "Portfolio Trust"), is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York. The Declaration of
Trust permits the Trustees to issue beneficial interests in the Portfolio. The
Investment Adviser of the Portfolio is Citibank N.A. (Citibank"). Signature
Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's
Administrator. On May 1, 1994 (commencement of operations of the Portfolio) the
Landmark Equity Fund transferred all of its investable assets ($191,734,923
including $6,318,828 of unrealized appreciation) to the Portfolio in exchange
for an interest in the Portfolio.

The significant accounting policies consistently followed by the Portfolio are
in conformity with generally accepted accounting principles and are as follows:

A. INVESTMENT SECURITY VALUATIONS -- Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services which take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, and other market data,
without exclusive reliance on quoted prices or exchange or over-the-counter
prices, since such valuations are believed to reflect more accurately the fair
value of the securities. Short-term obligations, maturing in sixty days or less,
are valued at amortized cost, which approximates market value. Securities, if
any, for which there are no such valuations or quotations are valued at fair
value as determined in good faith by or under guidelines established by the
Trustees.

B. INCOME -- Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.

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. 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.

E. 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.

F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.

(2) INVESTMENT ADVISORY FEES

The investment advisory fee paid to Citibank, as compensation for overall
investment management services, amounted to $639,988 for the period May 1, 1994
(Commencement of Operations) to December 31, 1994. The investment advisory fee
is computed at the annual rate of 0.50% of the Portfolio's average daily net
assets.

(3) ADMINISTRATIVE FEE

Under the terms of an Administrative Services Agreement, the administrative fee

<PAGE>
- - --------------------------------------------------------------------------------
Equity Portfolio
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS continued
- - --------------------------------------------------------------------------------

paid to the Administrator, as compensation for overall administrative services
and general office facilities, is computed at an annual rate of 0.05% of the
Portfolio's average daily net assets. The administrative fee amounted to $63,999
for the period May 1, 1994 (commencement of operations) to December 31, 1994.
Citibank acts as Sub-Administrator and performs such duties and receives such
compensation from SFG as from time to time is agreed to by SFG and Citibank. The
Portfolio pays no compensation directly to any Trustee or any officer who is
affiliated with the Administrator, all of whom receive remuneration for their
services to the Portfolio from the Administrator or its affiliates. Certain of
the officers and a Trustee of the Portfolio are officers or directors of the
Administrator or its affiliates.

(4) PURCHASES AND SALES OF INVESTMENTS

Purchases and sales of investments, other than short-term obligations,
aggregated $60,111,839 and $78,476,934, respectively, for the period May 1, 1994
(commencement of operations) to December 31, 1994

(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS

The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1994, as computed on a federal income tax
basis, are as follows:

Aggregate cost ............................. $186,690,348
============
Gross unrealized appreciation .............. $ 11,848,166
Gross unrealized depreciation .............. (6,373,353)
------------
Net unrealized appreciation ................ $ 5,474,813
============

(6) EXPENSE REIMBURSEMENT FEES

SFG has entered into an expense reimbursement agreement with the Portfolio. SFG
has agreed to pay all of the ordinary operating expenses (excluding interest,
taxes, brokerage commissions, litigation costs or other extraordinary costs or
expenses) of the Portfolio, other than fees paid under the Advisory Agreement
and Administrative Services Agreement. The Agreement shall terminate on April
30, 2004, unless sooner terminated by either party upon not less than 30 days
nor more than a 60 days written notice to the other party.

The Portfolio has agreed to pay SFG an expense reimbursement fee from the
Portfolio, in addition to the administrative fee, accrued daily and paid
monthly; provided, however, that such fee shall not exceed the amount such that
immediately after any such payment the aggregate ordinary expenses of the
Portfolio would, on an annual basis, exceed an agreed upon rate, currently 0.60%
of average daily net assets.

(7) LINE OF CREDIT

As of May 1, 1994 the Portfolio, along with the other Landmark Funds, entered
into an agreement with a bank which allows the Funds collectively to borrow up
to $40 million for temporary or emergency purposes. Interest on the borrowings,
if any, is charged to the specific fund executing the borrowing at the base rate
of the bank. In addition, the $15 million committed portion of the line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the period May 1, 1994
(commencement of operations) to December 31, 1994, the commitment fee allocated
to the Portfolio was $837. Since the line of credit was established, there have
been no borrowings.

<PAGE>

TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, EQUITY PORTFOLIO:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Equity Portfolio (the "Portfolio"), a
series of The Premium Portfolios, as at December 31, 1994 and the related
statements of operations and of changes in net assets and the financial
highlights for the period May 1, 1994 (Commencement of Operations) to December
31, 1994. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of investments owned at
December 31, 1994, by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provides a reasonable basis for our opinion.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1994, the
results of its operations and the changes in its net assets and the financial
highlights for the period May 1, 1994 (Commencement of Operations) to December
31, 1994 in accordance with U.S. generally accepted accounting principles.

PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 3, 1995

<PAGE>

- - --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
- - --------------------------------------------------------------------------------

FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
450 West 33rd Street, New York, NY 10001
(212) 564-3456 or (800) 846-5300

FOR CITIGOLD CUSTOMERS:
Citibank, N.A.
Citigold
P.O. Box 5130, New York, NY 10150-5130
Call Your Citigold Executive or (212) 974-0900 or (800) 285-1701

FOR PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Investment Specialist or (212) 559-5959

FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117

FOR NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100

FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 736-8170 in New York City

- - --------------------------------------------------------------------------------
[LOGO] LANDMARK
FUNDS
- - --------------------------------------------------------------------------------

MONEY MARKET FUNDS:
Cash Reserves
Premium Liquid Reserves
Institutional Liquid Reserves

U.S. Treasury Reserves
Premium U.S. Treasury Reserves
Institutional U.S. Treasury Reserves

Tax Free Reserves
California Tax Free Reserves
Connecticut Tax Free Reserves
New York Tax Free Reserves

STOCK & BOND FUNDS:
U.S. Government Income Fund
Intermediate Income Fund
New York Tax Free Income Fund

Balanced Fund
Equity Fund
International Equity Fund

<PAGE>

TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
H. B. Alvord
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong, Jr.
Donald B. Otis
E. Kirby Warren
William S. Woods, Jr.

SECRETARY AND TREASURER
James B. Craver*

ASSISTANT TREASURER
Barbara M. O'Dette*

ASSISTANT SECRETARY
Molly S. Mugler*
*Affiliated Person of Administrator and Distributor

- - --------------------------------------------------------------------------------
INVESTMENT ADVISER
(OF EQUITY PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043

ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679

TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

CUSTODIAN
Investors Bank and Trust Company
One Lincoln Plaza, Boston, MA 02111

AUDITORS
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110

LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110

- - --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside Cover)

This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.

This Report is Prepared & Printed on Recycled Paper [GRAPHIC OMITTED]

EQ/EI/A/94