<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
The first half of 1996 saw U.S. stocks continue to rise, and many stock
indexes established new highs during the period. Yet, the domestic equity
markets experienced more volatility during the six-month period than they have
in several years. In this environment, selectivity became more important than
ever, and the managers of Landmark Equity Fund worked hard to help Fund
shareholders participate in some of the most promising opportunities the U.S.
stock market offers.
As the Fund's prospectus explains, The Landmark Funds' investment adviser,
Citibank, N.A., manages the Landmark Equity Fund to provide long-term capital
growth. Through its investment in Equity Portfolio, the Fund invests primarily
in common stocks of U.S. issuers, with an emphasis on established companies with
medium to large capitalizations and seasoned management teams.
The six-months ended June 30, 1996 represents a full semi-annual reporting
period in which Equity Portfolio was managed by Grant Hobson and Richard
Goldman. While the Portfolio's investment objectives remain unchanged, Messrs.
Goldman and Hobson bring with them a uniquely disciplined approach to
growth-oriented investing.
In addition, this Semi-Annual Report reviews the Portfolio's investment
activities and performance and provides a summary of Citibank's perspective on
and outlook for the U.S. financial markets. On behalf of the Board of Trustees
of the Landmark Funds, I want to thank you for your confidence and
participation. We look forward to serving you in the months and years ahead.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
July 19, 1996
- ----------------------------------------------
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
- ----------------------------------------------
Portfolio Managers
3 The Portfolio Managers Respond
Quotes from the Portfolio Managers
- ----------------------------------------------
4 Strategy and Outlook
Equity Portfolio by the Numbers
- ----------------------------------------------
5 Fund Data
Performance Highlights
LANDMARK EQUITY FUND
- ----------------------------------------------
6 Statement of Assets and Liabilities
- ----------------------------------------------
7 Statement of Operations
- ----------------------------------------------
8 Statement of Changes in Net Assets
- ----------------------------------------------
9 Financial Highlights
- ----------------------------------------------
10 Notes to Financial Statements
- ----------------------------------------------
EQUITY PORTFOLIO
- ----------------------------------------------
13 Portfolio of Investments
- ----------------------------------------------
15 Statement of Assets and Liabilities
Statement of Operations
- ----------------------------------------------
16 Statement of Changes in Net Assets
Financial Highlights
- ----------------------------------------------
17 Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
When the year began, many market-watchers, including Citibank, called for
slow economic growth during the first half of 1996. We expected inflation
pressures to remain low, giving the officials at the Federal Reserve the
elbow-room they needed to lower short-term interest rates further. We believe
that such a scenario would have created a positive environment for most
financial instruments, including stocks.
The consensus economic forecast proved to be wrong, but our market forecast
was right. The economy grew faster than we expected, fueled by higher spending
among both businesses and consumers. In addition, stronger-than-expected
employment figures caused concern that the rate of inflation would accelerate.
Yet, despite these concerns and weakness in the bond market, stock prices
continued to advance, prolonging one of the most persistent bull markets in
history.
Significantly, the stock market's leadership shifted several times during
the period as investors strove to identify the most promising industries and
sectors. In 1995, investments in blue-chip companies were the recipe for
success. So far in 1996, individual stock selection has been the key as no
single group has emerged as the dominant sector.
- --------------------------------------------------------------------------------
FUND SNAPSHOT
COMMENCEMENT OF OPERATIONS
October 19, 1990
NET ASSETS AS OF 6/30/96
$228.7 million
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is
incidental to this investment objective.
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 MANAGERS
GRANT HOBSON
Vice President, Citibank, N.A.
RICHARD GOLDMAN
Vice President, Citibank, N.A.
Grant D. Hobson and Richard Goldman are the managers of the Portfolio. Mr.
Hobson is responsible for managing U.S. equity portfolios for trust and pension
accounts of Citibank Global Asset Management and currently manages more than $1
billion of total assets at Citibank. Prior to joining Citibank in 1993, Mr.
Hobson was a Sector Portfolio Manager for Axe Houghton, formerly a division of
USF&G, where he was responsible for equity investments for pension accounts and
mutual funds. Mr. Goldman is responsible for managing approximately $600 million
of total assets and for quantitative equity research for the U.S. institutional
business of Citibank Global Asset Management. He joined Citicorp's Investment
Management Division in 1985 and from 1988 to 1994 was responsible for running
Citicorp's Institutional Investor Relations Department.
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGERS RESPOND
As growth-oriented portfolio managers, we tend to de-emphasize
macroeconomic conditions in favor of a company-by-company investment approach.
Simply stated, we were not overly concerned with the market's rapid sector
rotation because market conditions are not the primary criteria by which we make
investment decisions. Unlike many other portfolio managers, who were confused by
the market's conflicting signals, we simply adhered to our well-founded
investment discipline.
Rather than try to assess and respond to market conditions, we strive to
maintain a market-neutral weighting among the different market sectors in order
to avoid taking large bets on any one group of stocks. The value we add is
through stock selection -- identifying and investing in individual companies
that meet our stringent standards. Our approach begins with a review of more
than 9,000 publicly-traded U.S. companies to find those that have historically
exceeded the averages on several criteria. We perform fundamental analyses on
the stocks that meet these standards to identify those that are expected to
provide above-average investment returns. We choose the best of these finalists
for inclusion in the Portfolio.
This disciplined approach has helped us assemble a diverse portfolio of
high-quality growth companies generally characterized by consistent revenue
growth, earnings growth and profitability. During the first half of the year, we
found such stocks primarily in the non-fashion retail, technology and
pharmaceutical industries. Conversely, few stocks in the finance, utilities,
commodities and transportation sectors passed our screens.
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGERS
"The stock market has been quite turbulent so far in 1996, with sector
leadership rotating on almost a daily basis."
"As long as corporate earnings remain strong and investors continue to commit
more money to long-term financial assets, the longest bull market in history
should continue."
"Our disciplined 'bottom-up' investment approach allows us to focus on solid
growth companies regardless of changes in the economy."
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
We are cautiously optimistic about the continued rise of U.S. stock prices
over the intermediate term. We are optimistic because we expect corporate
earnings to remain strong, and inflows of new funds from individuals and
institutions should continue to outweigh the negatives of a
stronger-than-expected economy. Yet, we temper that optimism with caution
because of the possibility of a short-term market correction. A correction is
especially likely if the Federal Reserve reverses direction and raises
short-term interest rates later this year.
Regardless of the twists and turns of the economy, however, we will
continue to focus on finding high-quality stocks with superior growth
characteristics. In good economic times and bad, we believe that our disciplined
approach to equity investing will help long-term investors achieve their
financial goals in a way that provides a workable balance between risks and
rewards.
Equity Portfolio
- --------------------------------------------------------------------------------
BY THE NUMBERS
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 6/30/96)
- --------------------------------------------------------------------------------
NAME INDUSTRY SECTOR OF NET ASSETS
Pfizer Inc. Health Services/Technology 3.24%
Praxair Inc. Commodities & Processing 2.55%
Sysco Corp. Commercial Services 2.44%
PepsiCo Inc. Consumer-Non Durables 2.36%
Royal Dutch Petroleum Co. Energy Minerals 2.34%
Colgate-Palmolive Co. Consumer-Non Durables 2.34%
Electronic Data Systems Corp. Electronics/Technical/Services 2.33%
Cisco Systems, Inc. Electronics/Technical Services 2.18%
Johnson & Johnson Health Services/Technology 2.16%
Computer Associates Int'l. Inc. Electronics/Technical Services 2.14%
CHANGES IN PORTFOLIO SECTORS
Portfolio of investments
as of 6/30/96 ...Compared to 12/31/95
Consumer 43% Consumer 34%
Industrial 13% Industrial 20%
Capital Goods 28% Capital Goods 24%
Financial 13% Financial 17%
Cash/Short Term/Other 3% Cash/Short Term/Other 5%
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ended June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
TOTAL RETURNS
----------------------------------------------------
SINCE
SIX ONE FIVE 10/19/90
MONTHS** YEAR YEARS* INCEPTION*
-------- ---- ------ ----------
<S> <C> <C> <C> <C>
Landmark Equity Fund without Sales Charge.............. 9.04% 22.98% 14.47% 15.77%
Lipper Growth Funds Average............................ 10.08% 22.20% 14.55% 17.51%
Standard & Poor's 500 Index............................ 10.09% 25.98% 15.71% 18.33%
Landmark Equity Fund with Maximum Sales Charge of 4.75% 3.86% 17.14% 13.36% 14.78%
* Average Annual Total Return.
** Not Annualized
+ From 10/31/90
30-Day SEC Yield 0.72%
Income Dividends Per Share $0.090
Capital Gain Distributions $0.092
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$21,948 with sales charge (as of 6/30/96). The graph shows how the Fund compares
to our benchmarks for the period October 31, 1990 to June 30, 1996.
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Landmark Equity - Landmark Lipper S&P 500 Index
Without Sales Charge Equity - Growth Funds (Unmanaged)
With Sales Average
Charge
9/30/90 10,000.00 9,525.00
10/31/90 9,847.00 9,379.00 10,000.00 10,000.00
11/30/90 10,438.00 9,942.00 10,660.00 10,646.00
12/31/90 10,534.00 10,034.00 11,014.00 10,943.00
1/31/91 10,996.00 10,474.00 11,690.00 11,420.00
2/28/91 11,811.00 11,250.00 12,534.00 12,237.00
3/31/91 11,888.00 11,323.00 12,938.00 12,533.00
4/30/91 11,635.00 11,082.00 12,922.00 12,563.00
5/31/91 12,427.00 11,837.00 13,456.00 13,104.00
6/30/91 11,723.00 11,167.00 12,795.00 12,504.00
7/31/91 12,412.00 11,822.00 13,430.00 13,087.00
8/31/91 13,111.00 12,488.00 13,838.00 13,397.00
9/30/91 12,667.00 12,065.00 13,712.00 13,173.00
10/31/91 12,956.00 12,340.00 13,993.00 13,350.00
11/30/91 12,401.00 11,812.00 13,435.00 12,812.00
12/31/91 13,772.00 13,118.00 14,921.00 14,277.00
1/31/92 13,549.00 12,905.00 14,997.00 14,012.00
2/29/92 13,883.00 13,224.00 15,208.00 14,194.00
3/31/92 13,515.00 12,874.00 14,755.00 13,917.00
4/30/92 13,571.00 12,927.00 14,656.00 14,326.00
5/31/92 13,538.00 12,895.00 14,738.00 14,397.00
6/30/92 13,106.00 12,484.00 14,310.00 14,182.00
7/31/92 13,665.00 13,016.00 14,822.00 14,762.00
8/31/92 13,285.00 12,654.00 14,500.00 14,460.00
9/30/92 13,576.00 12,931.00 14,725.00 14,630.00
10/31/92 13,923.00 13,261.00 15,022.00 14,681.00
11/30/92 14,694.00 13,996.00 15,771.00 15,182.00
12/31/92 14,818.00 14,114.00 16,062.00 15,369.00
1/31/93 14,897.00 14,189.00 16,260.00 15,498.00
2/28/93 14,684.00 13,986.00 16,005.00 15,709.00
3/31/93 15,535.00 14,797.00 16,448.00 16,040.00
4/30/93 15,289.00 14,563.00 15,938.00 15,652.00
5/31/93 15,726.00 14,979.00 16,517.00 16,071.00
6/30/93 15,572.00 14,833.00 16,566.00 16,118.00
7/31/93 15,370.00 14,640.00 16,526.00 16,054.00
8/31/93 16,066.00 15,302.00 17,225.00 16,662.00
9/30/93 16,110.00 15,345.00 17,401.00 16,534.00
10/31/93 16,335.00 15,559.00 17,643.00 16,876.00
11/30/93 16,133.00 15,367.00 17,297.00 16,716.00
12/31/93 16,635.00 15,845.00 17,797.00 16,918.00
1/31/94 16,973.00 16,166.00 18,322.00 17,494.00
2/28/94 16,703.00 15,909.00 18,036.00 17,020.00
3/31/94 15,961.00 15,203.00 17,187.00 16,277.00
4/30/94 16,253.00 15,481.00 17,244.00 16,486.00
5/31/94 16,579.00 15,792.00 17,309.00 16,756.00
6/30/94 16,103.00 15,339.00 16,726.00 16,346.00
7/31/94 16,607.00 15,819.00 17,167.00 16,882.00
8/31/94 17,020.00 16,211.00 17,954.00 17,574.00
9/30/94 16,584.00 15,797.00 17,630.00 17,149.00
10/31/94 16,894.00 16,091.00 17,909.00 17,546.00
11/30/94 16,333.00 15,557.00 17,237.00 16,902.00
12/31/94 16,568.00 15,781.00 17,396.00 17,151.00
1/31/95 16,674.00 15,882.00 17,518.00 17,595.00
2/28/95 17,260.00 16,440.00 18,171.00 18,280.00
3/31/95 17,682.00 16,842.00 18,676.00 18,819.00
4/30/95 17,870.00 17,021.00 19,059.00 19,372.00
5/31/95 18,444.00 17,568.00 19,614.00 20,145.00
6/30/95 18,736.00 17,846.00 20,418.00 20,613.00
7/31/95 19,328.00 18,410.00 21,369.00 21,295.00
8/31/95 19,139.00 18,229.00 21,534.00 21,348.00
9/30/95 19,719.00 18,782.00 22,154.00 22,249.00
10/31/95 19,778.00 18,838.00 21,822.00 22,169.00
11/30/95 20,843.00 19,853.00 22,581.00 23,140.00
12/31/95 21,132.00 20,128.00 22,660.00 23,586.00
1/31/96 21,685.00 20,655.00 23,145.00 24,388.00
2/29/96 21,820.00 20,784.00 23,668.00 24,615.00
3/31/96 22,213.00 21,158.00 23,879.00 24,852.00
4/30/96 22,385.00 21,322.00 24,665.00 25,217.00
5/31/96 22,791.00 21,708.00 25,318.00 25,865.00
6/30/96 23,042.00 21,948.00 24,954.00 25,963.00
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>
Landmark Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investment in Equity Portfolio, at value (Note 1A).............................. $229,211,015
Receivable for shares of beneficial interest sold............................... 86,886
Other assets.................................................................... 12,735
------------
Total assets................................................................ 229,310,636
------------
LIABILITIES:
Payable for shares of beneficial interest repurchased........................... 494,754
Payable to affiliates--Shareholder servicing agents' fee (Note 2B).............. 46,670
Accrued expenses and other liabilities.......................................... 37,762
------------
Total liabilities........................................................... 579,186
------------
NET ASSETS for 12,319,292 shares of beneficial interest outstanding............. $228,731,450
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................. $167,223,448
Unrealized appreciation......................................................... 55,327,716
Accumulated net realized gain................................................... 6,178,431
Undistributed net investment income............................................. 1,855
------------
Total....................................................................... $228,731,450
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ......... $18.57
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge ($18.57 / 0.9525) $19.50
======
See notes to financial statements
</TABLE>
<PAGE>
Landmark Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (unaudited)
INVESTMENT INCOME (Note 1B):
<TABLE>
<CAPTION>
<S> <C> <C>
Dividend Income from Equity Portfolio......................... $1,876,016
Interest Income from Equity Portfolio......................... 305,945
Other Income Foreign Tax reclaims............................. 12,735
Allocated Expenses from Equity Portfolio...................... (663,796) $ 1,530,900
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B).................. 276,515
Administrative fees (Note 2A)................................. 276,515
Distribution fees (Note 3).................................... 165,909
Expense fees (Note 6)......................................... 110,635
----------
Total expenses............................................ 829,574
Less aggregate amount waived by Administrator and Distributor
(Notes 2A and 3)............................................ (331,818)
----------
Net expenses............................................. 497,756
-----------
Net investment income.................................... 1,033,144
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM EQUITY PORTFOLIO:
Net realized gain (loss)...................................... 6,191,998
Net change in unrealized appreciation (depreciation).......... 11,986,031
-----------
Net realized and unrealized gain (loss) from Equity
Portfolio ............................................. 18,178,029
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $19,211,173
===========
See notes to financial statements
</TABLE>
<PAGE>
Landmark Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income....................................... $ 1,033,144 $ 2,546,594
Net realized gain .......................................... 6,191,998 7,372,648
Net change in unrealized appreciation....................... 11,986,031 37,840,071
------------ ------------
Net increase in net assets resulting from operations...... 19,211,173 47,759,313
============ ============
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (1,101,097) (2,534,653)
Net realized gain........................................... (1,125,565) (6,988,138)
------------ ------------
Decrease in net assets from distributions to shareholders (2,226,662) (9,522,791)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares............................ 9,635,966 9,027,385
Net asset value of shares issued to shareholders
from reinvestment of distributions........................ 2,225,673 9,521,722
Cost of shares repurchased.................................. (13,843,218) (27,032,148)
------------ ------------
Net decrease in net assets from transactions in shares of
beneficial interest..................................... (1,981,579) (8,483,041)
------------ ------------
NET INCREASE IN NET ASSETS ................................. 15,002,932 29,753,481
NET ASSETS:
Beginning of period......................................... 213,728,518 183,975,037
------------ ------------
End of period (including undistributed net investment income
of $1,855 and $69,808, respectively)...................... $228,731,450 $213,728,518
============ ============
See notes to financial statements
</TABLE>
<PAGE>
Landmark Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------------------------------------
(UNAUDITED) 1995 1994++ 1993++ 1992++ 1991++
-------- -------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period...... $ 17.20 $ 14.13 $ 14.80 $ 13.23 $ 12.36 $ 9.57
-------- -------- -------- -------- ------- ------
Income From Operations:
Net investment income..................... 0.085 0.211 0.173 0.071** 0.065 0.126
Net realized and unrealized gain (loss) on
investments............................. 1.467 3.651 (0.245) 1.550** 0.868 2.797
-------- -------- -------- -------- ------- ------
Total from operations................ 1.552 3.862 (0.072) 1.621 0.933 2.923
-------- -------- -------- -------- ------- ------
Less Distributions From:
Net investment income................... (0.090) (0.210) (0.169) (0.051) (0.063) (0.133)
Net realized gain on investments........ (0.092) (0.582) (0.429) -- -- --
-------- -------- -------- -------- ------- ------
Total from distributions ........... (0.182) (0.792) (0.598) (0.051) (0.063) (0.133)
-------- -------- -------- -------- ------- ------
Net Asset Value, end of period............ $ 18.57 $ 17.20 $ 14.13 $ 14.80 $ 13.23 $12.36
======== ======== ======== ======== ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted). $228,731 $213,729 $183,975 $200,903 $10,973 $9,181
Ratio of expenses to average net assets... 1.05%(A)* 1.05%(A) 1.05%(A) 1.07% 1.40% 1.40%
Ratio of net investment income to average
net assets.............................. 0.93%* 1.30% 1.15% 0.52% 0.53% 1.12%
Portfolio turnover(B)..................... -- -- 1% 23% 79% 68%
Total return.............................. 9.04%+ 27.55% (0.41)% 12.26% 7.60% 30.73%
Note: If Agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees and had expenses 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:
Net investment income (loss) per share.... $0.058 $0.170 $0.136 $0.029** $(0.070) $0.002
Ratio:
Expenses to average net assets............ 1.35%(A)* 1.30%(A) 1.29%(A) 1.37% 2.50% 2.50%
Net investment income (loss) to
average net assets....................... 0.63%* 1.05% 0.91% 0.21% (0.57)% 0.02%
<FN>
* Annualized
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A) Includes the Fund's share of Equity Portfolio allocated expenses for the periods subsequent to May 1, 1994.
(B) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly
in securities. The portfolio turnover rate for the period since the Fund transferred all of its investable assets to the
Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report.
+ Not annualized
++ On May 1, 1994 the fund began investing all of its investable assets in Equity Portfolio.
See notes to financial statements
</TABLE>
<PAGE>
Landmark Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
(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. The Fund invests 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 (79.5% at
June 30, 1996) in the net assets of the Portfolio.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
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.
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 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, 1995, the fund reclassified $57,867 to undistributed net investment income,
$51,688 to paid-in capital and $109,555 from 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 fees paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.65% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year.
A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative fees payable 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 $276,515 of which $221,212 was voluntarily
waived for the six months ended June 30, 1996. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund pays no
compensation directly to any Trustee or 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 $276,515 for the six months ended June 30,
1996.
(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 reimburses the
Distributor for expenses incurred or anticipated in connection with sales of
shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's average
daily net assets. The distribution fees amounted to $165,909, of which $110,606
was voluntarily waived for the six months ended June 30, 1996. 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.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the six
months ended June 30, 1996 aggregated $9,721,520 and $14,080,681 respectively.
(5) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
----------- ------------
Shares sold.............. 537,596 566,734
Shares issued to
shareholders from rein-
vestment of distributions 121,553 571,311
Shares repurchased (766,706) (1,731,639)
--------- ----------
Net decrease............ (107,557) (593,594)
========= ==========
(6) EXPENSE FEES
LFBDS has entered into an expense 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
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 LFBDS 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
operating expenses of the Fund including expenses allocated from the Portfolio
and expenses waived by the Administrator and Distributor would, on an annual
basis, exceed an agreed upon rate, currently 1.05% of the Fund's average daily
net assets.
<PAGE>
Equity Portfolio
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited)
ISSUER SHARES VALUE
COMMERCIAL SERVICES - 4.1%
Interpublic Group Inc. 105.000 $ 4,921,875
Sysco Corp. ................... 205,800 7,048,650
------------
11,970,525
------------
COMMODITIES & PROCESSING - 4.4%
Praxair Inc. ................. 174,000 7,351,500
Sigma Aldrich Corp. .......... 101,215 5,415,001
------------
12,766,501
------------
CONSUMER-DURABLES - 1.9%
Mattel Inc. .................. 199,375 5,707,109
------------
CONSUMER-NON DURABLES - 9.3%
Colgate-Palmolive Co. ........ 79,600 6,746,100
Gillette Co. ................. 47,000 2,931,624
PepsiCo Inc. ................. 192,000 6,792,000
Procter & Gamble Co. ......... 63,500 5,754,688
Sara Lee Corp. ............... 148,500 4,807,688
------------
27,032,100
------------
CONSUMER SERVICES -3.6%
Carnival Corp. ............... 185,500 5,356,313
McDonald's Corp. ............. 112,000 5,236,000
------------
10,592,313
============
ELECTRONICS/TECHNICAL SERVICES - 16.3%
Affiliated Computer Services*. 26,900 1,264,299
Andrew Corporation*........... 100,000 5,375,000
Applied Materials Inc. ....... 68,700 2,095,350
Cisco Systems, Inc.* ......... 111,100 6,291,036
Computer Associates Intl. Inc. 86,550 6,166,688
Electronic Data Systems Corp. 125,000 6,718,750
First Data Corp. ............. 72,317 5,758,241
Oracle Corp.*. ............... 84,150 3,318,666
Parametric Technology Corp.* . 72,800 3,157,700
Solectron Corp. .............. 97,600 3,696,600
Sungard Data Systems, Inc.* .. 77,800 3,121,725
------------
46,964,055
------------
ENERGY/MINERALS - 7.0%
Amoco Corp. .................. 74,700 5,406,413
Exxon Corp. .................. 65,400 5,681,625
Mobil Corp. .................. 22,000 2,466,750
Royal Dutch Petroleum Co.
ADRs. ....................... 43,900 6,749,625
------------
20,304,413
------------
FINANCE - 5.7%
American International
Group Inc. ................. 52,500 5,177,813
Federal National Mortgage
Association ................ 80,000 6,030,000
State Street Boston Corp. .... 104,000 5,304,000
------------
16,511,813
------------
HEALTH SERVICES/TECHNOLOGY - 12.0%
Cardinal Health Inc. ......... 55,700 4,017,363
Health Management Associates*. 243,450 4,929,863
Johnson & Johnson ............ 126,000 6,237,000
Manor Care Inc. .............. 142,000 5,591,250
Pacificare Health Systems .... 25,275 1,712,381
Pfizer Inc. .................. 130,900 9,342,988
Schein Henry Inc.* ........... 77,000 2,945,250
------------
34,776,095
------------
INDUSTRIAL SERVICES - 3.0%
Fluor Corp. .................. 93,800 6,132,175
WMX Technologies Inc. ........ 80,000 2,620,000
------------
8,752,175
------------
PRODUCER MANUFACTURING - 9.1%
Danaher Corp. ................ 124,000 5,394,000
Emerson Electric Co. ......... 63,100 5,702,663
Federal Signal Corp. ......... 189,400 4,450,900
General Electric Co. ......... 51,000 4,411,500
Xerox Corp. .................. 114,900 6,147,150
------------
26,106,213
------------
RETAIL TRADE - 12.4%
Autozone Inc.* ............... 154,500 5,368,875
Gap stores Inc. .............. 90,000 2,891,250
Hannaford Brothers Co. ....... 40,800 1,331,100
Home Depot ................... 105,200 5,680,800
Kohls Corporation* ........... 146,800 5,376,550
Nine West Group Inc.* ........ 110,000 5,623,750
Viking Office Products Inc.* . 137,800 4,323,475
Walgreen Co. ................. 116,900 3,916,150
------------
34,511,950
------------
TRANSPORTATION - 1.8%
Wisconsin Central Transport*.. 160,000 5,200,000
------------
UTILITIES - 6.8%
FPL Group Inc. ............... 102,800 4,728,800
GTE Corp. .................... 111,000 4,967,250
Pacificorp ................... 264,000 5,874,000
Texas Utilities Company ...... 95,700 4,091,175
------------
19,661,225
------------
TOTAL COMMON STOCK
(Identified Cost $218,560,629) 280,856,487
------------
SHORT-TERM OBLIGATIONS AT
AMORTIZED COST -- 2.6%
Lehman Brothers Repurchase Agreement
5.25% due 7/01/96,
Proceeds at maturity $7,523,290
(Collateralized by $6,685,000 U.S. Treasury
Bond 8.125% due 8/15/19) $ 7,520,000
------------
TOTAL INVESTMENTS ............ 100.0% 288,376,487
(Identified Cost $226,080,629)
OTHER ASSETS,
LESS LIABILITIES ............ 0.0% (55,274)
------ ------------
NET ASSETS ................... 100.0% $288,321,213
====== ============
ADRs -- American Depositary Receipts
*Non-income producing
See notes to financial statements
<PAGE>
Equity Portfolio
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (unaudited)
ASSETS:
Investments at value (Note 1A) (Identified Cost, $226,080,629).... $288,376,487
Cash.............................................................. 982
Receivable for investments sold................................... 3,129,596
Dividends and interest receivable................................. 329,606
------------
Total assets.................................................. 291,836,671
------------
LIABILITIES:
Payable for investments purchased................................. 3,372,935
Payable to affiliates--Investment advisory fees (Note 2).......... 117,360
Accrued expenses and other liabilities............................ 25,163
------------
Total liabilities............................................. 3,515,458
------------
NET ASSETS ....................................................... $288,321,213
============
REPRESENTED BY:
Paid-in capital for beneficial interests.......................... $288,321,213
============
See notes to financial statements
<PAGE>
Equity Portfolio
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (unaudited)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $40,158). $2,277,931
Interest.............................................. 368,917
-----------
Total Income........................................ $ 2,646,848
EXPENSES:
Investment advisory fees (Note 2)..................... 669,901
Administrative fees (Note 3).......................... 66,990
Expense fees (Note 6)................................. 67,073
-----------
Total expenses...................................... 803,964
-----------
Net investment income............................... 1,842,884
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions. 6,198,948
Unrealized appreciation (depreciation) of investments--
Beginning of period................................ 46,522,076
End of period...................................... 62,295,858
-----------
Net change in unrealized appreciation (depreciation). 15,773,782
-----------
Net realized and unrealized gain (loss)
on investments.................................... 21,972,730
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. $23,815,614
===========
See notes to financial statements
<PAGE>
Equity Portfolio
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .................... $ 1,842,884 $ 3,620,844
Net realized gain on investment
transactions............................. 6,198,948 7,439,032
Net change in unrealized appreciation
(depreciation) of investments ........... 15,773,782 41,047,263
------------ ------------
Net increase in net assets resulting
from operations...................... 23,815,614 52,107,139
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............... 38,951,429 43,731,563
Value of withdrawals...................... (20,604,176) (36,365,840)
------------ ------------
Net increase in net assets from
capital transactions................. 18,347,253 7,365,723
------------ ------------
NET INCREASE IN NET ASSETS: .............. 42,162,867 59,472,862
NET ASSETS:
Beginning of period....................... 246,158,346 186,685,484
------------ ------------
End of period............................. $288,321,213 $246,158,346
============ ============
See notes to financial statements
Equity Portfolio
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS MAY 1, 1994
ENDED (COMMENCEMENT
JUNE 30, 1996 YEAR ENDED OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) ........................ $288,321 $246,158 $186,685
Ratio of expenses to average net assets .......................... 0.60%* 0.60% 0.60%*
Ratio of net investment income to average net assets ............. 1.38%* 1.73% 1.81%*
Portfolio turnover................................................ 38% 67% 35%
Average Commission rate per share (A) ............................ $0.058 N/A N/A
* Annualized
(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.
</TABLE>
See notes to financial statements
<PAGE>
Equity Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
(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.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosure in the financial statements.
Actual results could differ from those estimates.
The significant accounting policies consistently followed by the 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 approved by 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 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 agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
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 fees paid to Citibank, as compensation for overall
investment management services, amounted to $669,901 for the six months ended
June 30, 1996. The investment advisory fees are computed at the annual rate of
0.50% 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
$66,990 for the six months ended June 30, 1996. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
SFG as from time to time is agreed to by SFG and Citibank. The Portfolio pays no
compensation directly to any Trustee or any officer who is affiliated with the
Administrator, all of whom receive remuneration for their services to the
Portfolio from the Administrator or its affiliates. Certain of the officers and
a Trustee of the Portfolio are officers or directors of the Administrator or its
affiliates.
(4) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $124,361,243 and $97,882,358, respectively, for the six months ended
June 30, 1996.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at June 30, 1996, as computed on a federal income
tax basis, are as follows:
Aggregate cost ........................................ $ 226,080,629
=============
Gross unrealized appreciation ......................... $ 65,346,880
Gross unrealized depreciation ......................... (3,051,022)
-------------
Net unrealized appreciation ........................... $ 62,295,858
=============
(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 and expenses waived by the Administrator would, on an
annual basis, exceed an agreed upon rate, currently 0.60% 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 $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 six months ended June 30, 1996,
the commitment fee allocated to the Portfolio was $723. Since the line of credit
was established, there have been no borrowings.
<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 10126-5130
Call Your Citigold Executive or, in NY or CT, (800) 285-1701,
For all other states, (800) 285-1707
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,
Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR 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
National Tax Free Income Fund
New York Tax Free Income Fund
Balanced Fund
Equity Fund
International Equity Fund
Small Cap Equity Fund
Emerging Asian Markets Equity Fund
<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
Thomas M. Lenz*
TREASURER
John R. Elder*
*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.
EQ/EI/S/96 Printed on Recycled Paper [Recycle Symbol]
[Logo]
LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
EQUITY FUND
SEMI-ANNUAL
REPORT
June 30, 1996
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
The first half of 1996 saw U.S. stocks continue to rise, prolonging one of
the most persistent bull markets in recent history. Significantly, the stock
market's leadership shifted early in the year from large, blue-chip companies
(which led 1995's rally) to mid-sized and small companies. As a result,
while broad stock market measures such as the Dow Jones Industrial Average
set new records during the first half of the year, small-capitalization
indexes such as the Russell 2000 rose even more dramatically.
The Landmark Funds' investment adviser, Citibank, N.A., manages the
Landmark Small Cap Equity Fund to provide long-term capital growth. Through
its investment in Small Cap Equity Portfolio, the Fund participates primarily
in the ownership of common stocks issued by domestic companies with market
capitalizations of $750 million or less.
This report reviews the Portfolio's investment activities and performance
for the semi-annual period ended June 30, 1996, and provides a summary of
Citibank's perspective on and outlook for the U.S. financial markets. On
behalf of the Board of Trustees of the Landmark Funds, I want to thank you
for your confidence and participation. We look forward to serving you in the
months and years ahead.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
July 19, 1996
- -----------------------------------------------
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
- -----------------------------------------------
Portfolio Manager
3 The Portfolio Manager Responds
Quotes from the Portfolio Manager
- -----------------------------------------------
Strategy and Outlook
4 Small Cap Equity Portfolio
by the Numbers
- -----------------------------------------------
5 Fund Data
Performance Highlights
LANDMARK SMALL CAP EQUITY FUND
6 Statement of Assets and Liabilities
- -----------------------------------------------
7 Statement of Operations
- -----------------------------------------------
8 Statement of Changes in Net Assets
- -----------------------------------------------
9 Financial Highlights
- -----------------------------------------------
10 Notes to Financial Statements
SMALL CAP EQUITY PORTFOLIO
12 Portfolio of Investments
- -----------------------------------------------
14 Statement of Assets and Liabilities
- -----------------------------------------------
15 Statement of operations
- -----------------------------------------------
16 Statement of Changes in Net Assets
Financial Highlights
- -----------------------------------------------
17 Notes to Financial Statements
<PAGE>
MARKET ENVIRONMENT
- --------------------------------------------------------------------------------
When the year began, many market-watchers, including Citibank,
called for slow economic growth during the first half of 1996. We expected
inflation pressures to remain low, giving officials at the Federal Reserve
the elbow-room they needed to lower short-term interest rates further. We
believe that such a scenario would have created a positive environment for
most financial instruments, including stocks.
The consensus economic forecast proved to be wrong, but our market
forecast was right. The economy grew faster than we expected, fueled by
higher spending among both businesses and consumers. In addition,
stronger-than-expected employment figures caused concern that the rate of
inflation would accelerate. Yet, despite these concerns and weakness in the
bond market, stock prices continued to advance.
Significantly, the stock market's leadership shifted several times
during the period as investors strove to identify the most promising
industries and sectors. In 1995, investments in blue-chip companies were the
recipe for success. So far in 1996, small capitalization companies have
outperformed their larger counterparts, benefitting from the premium
investors are placing on companies that can demonstrate consistent earnings
growth.
FUND SNAPSHOT
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
June 21, 1995
NET ASSETS AS OF 6/30/96
$17.7 million
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective.
DIVIDENDS
Paid semi-annually, if any
CAPITAL GAINS
Distributed annually, if any
BENCHMARK
o Lipper Small Company Growth Fund Average
o Russell 2000(R) Index
INVESTMENT ADVISER,
SMALL CAP EQUITY PORTFOLIO
Citibank, N.A.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
DAVID N. PEARL
Vice President, Citibank, N.A.
Mr. Pearl is a Portfolio Manager of U.S. Equity Assets for
institutional clients, with a focus on small and medium capitalization
stocks.
Prior to joining Citibank in 1994, Mr. Pearl was a Portfolio Manager at
Fleming Capital Management where he managed a $125 million unit trust and
invested over $750 million in small capitalization growth stocks. Prior to
this he was with Bankers Trust Company, managing over $2 billion for
institutional equity clients. Mr. Pearl has also held the position of
Research Analyst with BEA Association and has worked as a Manager, High
Technology Programs for Coopers & Lybrand.
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
As growth-oriented portfolio managers, we tend to de-emphasize
macroeconomic conditions in favor of a company-by-company investment
approach. Simply stated, we were not overly concerned with the market's
volatility or the economy's strength because these are not the primary
criteria by which we make investment decisions. By adhering to our
company-by-company investment style, we avoided the common trap of responding
inappropriately to conflicting macroeconomic signals.
We strive to maintain a representative weighting among the
different market sectors in order to avoid taking large bets on any one group
of small-capitalization stocks. We add value through disciplined stock
selection-identifying individual companies that meet our stringent standards
and are selling at reasonable valuations. This approach has helped us
assemble a diverse portfolio of 50 to 55 high-quality growth companies
generally characterized by consistent revenue growth, earnings growth and
profitability.
During the first half of the year, we found new opportunities in
the energy, technology and medical products industries, among others. These
stocks included companies benefitting from acquisitions, companies with
innovative new products and companies with superior management teams. Most
important, each of these companies, in our opinion, is capable of maintaining
sustainable earnings growth regardless of the economy's near-term direction.
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGER
"Because small companies usually grow faster than mature companies, they
often do particularly well in earnings-driven markets such as this one."
"While the market has been volatile as investors look for the areas of
greatest growth, we have been finding attractive growth companies with our
bottom-up investment style."
"Our strict valuation discipline should help protect the Portfolio from the
effects of rising interest rates."
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
We are quite optimistic about the prospects for
small-capitalization stocks over the foreseeable future. Unlike recent
market environments which were driven by declining interest rates, today's
market rewards companies with superior earnings growth. What's more,
small-capitalization stocks currently appear to be more attractively valued
than large-cap stocks. Both of these factors are integral to our investment
discipline, which is specifically designed to identify companies with such
characteristics.
In addition to finding investment opportunities on a
company-by-company basis, we manage the risks of small-cap stock investing by
maintaining a well-diversified portfolio, and our valuation discipline helps to
reduce the portfolio's vulnerability to market declines. We are confident that
these strategies will position the Portfolio to generate highly competitive
returns for its shareholders.
SMALL CAP EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
BY THE NUMBERS
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 6/30/96)
- -----------------------------------------------------------------------------
NAME INDUSTRY SECTOR % OF NET ASSETS
Petersburg Long Distance Inc. ADR Utilities 2.26%
Heftel Broadcasting Corp. Consumer Services 2.25%
Neostar Retail Group Inc. Consumer Services 2.15%
Bally Entertainment Corp. Consumer Services 2.15%
Vivus Inc. Health Care 2.12%
Sunrise Assisted Living Health Care 2.09%
American Homepatient Health Care 2.06%
Dupont Photomasks Producer Durables 1.97%
Lomak Petroleum. Inc. Other Energy 1.96%
American Homestar Corp. Producer Durables 1.95%
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ended June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Total Returns
-----------------------------------------
Since
Six One 6/21/95
Months** Year Inception*
-------- ------ ----------
<S> <C> <C> <C>
Landmark Small Cap Equity Fund without Sales Charge .................. 37.89% 98.64% 95.98%
Lipper Small Company Growth Fund Average ............................. 15.12% 29.71% 29.71%+
Russell 2000 Index ................................................... 10.36% 23.89% 23.89%+
Landmark Small Cap Equity Fund with Maximum Sales Charge of 4.75% .... 31.34% 89.20% 86.92%
</TABLE>
* Average Annualized Total Return
** Not Annalized.
+ From 6/30/95
30-Day SEC Yield 0.59%
Income Dividends Per Share $0.000
Capital Gain Distribution $0.294
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$19,015 with sales charge (as of 6/30/96). The graph shows how the Fund
compares to our benchmarks for the period June 21, 1995 to June 30, 1996.
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions
from the Fund are reinvested at Net Asset Value.
Landmark Landmark Lipper Rusell
Small Cap Small Cap Small Co. 2000 Index
Fund - Fund Growth (Unmanaged)
Without Income - Funds
Sales With Sales Average
Charge Charge
May-95 $10,000 $9,525
Jun-95 $10,050 $9,573 $10,000 $10,000
Jul-95 $10,970 $10,449 $10,748 $10,576
Aug-95 $11,640 $11,087 $10,925 $10,795
Sep-95 $12,000 $11,430 $11,188 $10,988
Oct-95 $11,980 $11,411 $10,812 $10,497
Nov-95 $13,550 $12,906 $11,212 $10,938
Dec-95 $14,478 $13,790 $11,375 $11,227
Jan-96 $14,842 $14,137 $11,295 $11,214
Feb-96 $16,297 $15,523 $11,763 $11,564
Mar-96 $17,126 $16,313 $12,077 $11,804
Apr-96 $19,199 $18,287 $12,980 $12,435
May-96 $20,584 $19,606 $13,547 $12,925
Jun-96 $19,963 $19,015 $13,023 $12,394
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>
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (unaudited)
ASSETS:
Investment in Small Cap Equity Portfolio, at value (Note 1A) ..... $17,416,388
Receivable for shares of beneficial interest sold ................ 288,838
-----------
Total Assets ................................................. 17,705,226
-----------
LIABILITIES:
Payable for shares of beneficial interest repurchased ............ 1,819
-----------
NET ASSETS for 910,374 shares of beneficial interest
outstanding .................................................... $17,703,407
===========
NET ASSETS CONSIST OF:
Paid-in capital .................................................. $13,781,557
Unrealized appreciation .......................................... 2,542,658
Accumulated net realized gain .................................... 1,336,195
Undistributed net investment income .............................. 42,997
-----------
Total ........................................................ $17,703,407
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL
INTEREST ........................................................ $19.45
===========
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge
($19.45 / 0.9525) .............................................. $20.42
===========
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Dividend Income from Small Cap Equity Portfolio................................. $22,728
Interest Income from Small Cap Equity Portfolio................................. 20,269 $ 42,997
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B).................................... 13,830
Administrative fees (Note 2A)................................................... 13,830
Distribution fees (Note 3)...................................................... 8,299
Auditing fees................................................................... 7,500
Transfer agent fees............................................................. 6,000
Shareholder reports............................................................. 5,000
Custodian fees.................................................................. 4,500
Legal fees...................................................................... 3,675
Trustees fees................................................................... 1,500
Miscellaneous................................................................... 1,275
-------
Total expenses............................................................... 65,409
Less expenses assumed by the administrator ..................................... (29,450)
Less aggregate amount waived by Administrator, Distributor and Shareholder
Servicing Agents (Note 2A, 2B and 3).......................................... (35,959)
-------
Net expenses............................................................... --
----------
Net investment income...................................................... 42,997
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM SMALL CAP EQUITY PORTFOLIO:
Net realized gain............................................................... 1,336,654
Net change in unrealized appreciation (depreciation)............................ 1,816,868
----------
Net realized and unrealized gain (loss) from Small Cap Equity Portfolio 3,153,522
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................... $3,196,519
==========
</TABLE>
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .............................................................. $ 42,997 $ 16,583
Net realized gain .................................................................. 1,336,654 288,370
Net change in unrealized appreciation .............................................. 1,816,868 725,790
----------- ----------
Net increase in net assets resulting from operations ............................. 3,196,519 1,030,743
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................................................. -- (16,583)
Net realized gain .................................................................. (255,942) (34,115)
----------- ----------
Decrease in net assets from distributions to shareholders ........................ (255,942) (50,698)
----------- ----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares.................................................... 11,585,511 4,202,811
Net asset value of shares issued to shareholders from reinvestment of distributions 255,038 51,172
Cost of shares repurchased.......................................................... (2,225,260) (86,487)
----------- ----------
Net increase in net assets from transactions in shares of beneficial interest....... 9,615,289 4,167,496
----------- ----------
NET INCREASE IN NET ASSETS ......................................................... 12,555,866 5,147,541
NET ASSETS:
Beginning of period................................................................. 5,147,541 --
----------- ----------
End of period (including undistributed investment income of
$42,997 and $0, respectively)..................................................... $17,703,407 $5,147,541
=========== ==========
</TABLE>
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT OF
JUNE 30, 1996 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995
------------- ------------------
<S> <C> <C>
Net Asset Value, beginning of period..................................... $14.32 $10.00
------- -------
Income From Operations:
Net investment income.................................................... 0.05 0.05
Net realized and unrealized gain......................................... 5.37 4.42
------- -------
Total from operations............................................... 5.42 4.47
------- -------
Less Distributions From:
Net investment income.................................................. -- (0.05)
Net realized gain...................................................... (0.29) (0.10)
------- -------
Total from distributions .......................................... (0.29) (0.15)
------- -------
Net Asset Value, end of period........................................... $19.45 $14.32
======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................ $17,703 $5,148
Ratio of expenses to average net assets (A).............................. 0% 0%
Ratio of net investment income to average net assets..................... 0.78%* 1.21%*
Total return............................................................. 37.89%** 44.78%**
Note: If Agents of the Fund and the Agents of Small Cap Equity Portfolio for
the period's indicated had not voluntarily waived all of their fees, assumed
Fund expenses and had expenses 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:
Net investment income per share....................................... $(0.103) $(0.288)
Ratios:
Expenses to average net assets (A)................................... 2.48%* 2.50%*
Net investment income to average net assets................. (1.70)%* (1.29)%*
* Annualized
** Not Annualized
(A) Includes the Fund's share of Small Cap Equity Portfolio allocated expenses
for the period indicated.
</TABLE>
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
The Landmark Small Cap 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. The Fund invests all of its
investable assets in Small Cap 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 (99.9% at June 30, 1996) in the net assets of the
Portfolio.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles require management to make estimates and assumptions
that affect the reported amounts and disclosure in the financial statements.
Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are 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.
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 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, 1995, the Fund reclassified $1,703 from
paid-in capital to accumulated net 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 payable 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 $13,830, all of which
was voluntarily waived for the six months ended June 30, 1996. Citibank acts
as Sub-Administrator and performs such duties and receives such compensation
from LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund
pays no compensation directly to any Trustee or 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 $13,830, all of which was
voluntarily waived for the six months ended June 30, 1996.
(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 reimburses the
Distributor for expenses incurred or anticipated in connection with sales of
shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's
average daily net assets. The Distribution fee amounted to $8,299, all of
which was voluntarily waived for the six months ended June 30, 1996. 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.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the
period aggregated $11,455,045 and $2,224,398 respectively.
<PAGE>
(5) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:
SIX MONTHS JUNE 21, 1995
ENDED COMMENCEMENT OF
JUNE 30, 1996 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
Shares sold ................................ 362,453 653,153
Shares issued to shareholders from
reinvestment of distributions ............ 3,754 13,183
Shares repurchased ......................... (6,641) (115,528)
------- ---------
Net increase ............................... 359,566 550,808
------- ---------
(6) ASSUMPTION OF EXPENSES
LFBDS has voluntarily agreed to pay the unwaived expenses of the Fund for the
six months ended June 30, 1996, which amounted to $29,450.
<PAGE>
Small Cap Equity Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited)
Issuer Shares Value
- --------------------------------------------------------------------------------
AUTOS AND TRANSPORT - 1.8%
Eagle USA AirFreight Inc.* ................... 8,600 $ 318,200
----------
CONSUMER SERVICES - 22.3%
Activision Inc.* ............................. 22,600 293,800
Bally Entertainment Corp.* ................... 8,800 374,000
Casino Data Systems* ......................... 18,750 283,594
Forensic Technologies* ....................... 35,000 323,750
Gadzooks Inc.* ............................... 9,100 293,475
Heftel Broadcasting Corp. .................... 13,200 391,050
Neostar Retail Group Inc.* ................... 74,000 379,250
Regal Cinemas* ............................... 6,400 292,800
Sports & Recreation Inc.* .................... 31,500 287,438
Suburban Lodges America* ..................... 7,500 173,438
The Men's Warehouse Inc.* .................... 9,200 296,700
Whittmann-Hart Inc.* ......................... 7,800 280,800
Wyndham HotelCorp.* .......................... 10,200 212,925
----------
3,883,020
----------
CONSUMER STAPLES - 5.1%
Performance Food Group Co.* .................. 11,800 306,800
Pete's Brewing Company* ...................... 16,600 249,000
Worthington Foods Inc. ....................... 19,000 327,750
----------
883,550
----------
FINANCIAL SERVICES - 17.2%
Affiliated Computer Services* .................. 6,400 300,800
First Empire State Corp. ....................... 1,300 313,300
Interwest Bancorp Inc. ......................... 12,900 307,988
Investors Financial Services Corp.* ............ 13,900 323,175
Meadowbrook Insurance Group .................... 9,200 282,900
Olympic Financial Inc.* ........................ 13,000 299,000
Roosevelt Financial Group ...................... 14,100 271,425
Sirrom Capital Corp. ........................... 10,000 272,500
Susquehanna Bancshares Inc. .................... 11,200 299,600
Texas Regional Bank Shares "A" ................. 12,700 317,500
---------
2,988,188
---------
HEALTH CARE - 16.6%
American HomePatient* ........................ 8,100 358,425
Cytyc Corporation* ........................... 12,100 313,088
Eclipse Surgical Tech* ....................... 20,800 286,000
ESC Medical Systems Ltd.* .................... 11,275 318,519
Imagyn Medical Inc.* ......................... 22,800 250,800
Interneuron Pharmaceuticals* ................. 10,000 300,000
NCS Healthcare Inc. Class "A"* ............... 10,700 323,675
Sunrise Assisted Living* ..................... 15,200 364,798
Vivus Inc.* .................................. 11,300 370,075
---------
2,885,380
---------
INTEGRATED OILS - 3.6%
Giant Industries Inc. ........................ 22,100 320,450
KCS Energy Inc. .............................. 10,800 310,500
---------
630,950
---------
MATERIALS & PROCESSING - 3.6%
Carbide/Graphite Group* ........................ 16,000 300,000
Intertape Polymer Group ........................ 16,400 332,100
---------
632,100
---------
OTHER ENERGY - 5.2%
Belco Oil & Gas Corporation .................... 8,550 303,525
Input/Output Inc.* ............................. 8,200 265,475
Lomak Petroleum Inc. ........................... 24,000 342,000
---------
911,000
---------
PRODUCER DURABLES - 9.1%
American Homestar Corp.* ....................... 13,100 340,600
Blount International Inc. Class "A" ............ 9,800 308,700
Dupont Photomasks* ............................. 16,700 342,350
Hardings Inc. .................................. 9,900 314,325
Polycom Inc.* .................................. 40,000 280,000
---------
1,585,975
---------
TECHNOLOGY - 9.9%
Insignia Solutions Adv* .................... 36,000 306,000
Logal Educational Software* ................ 36,700 243,138
Network General Corporation* ............... 12,400 266,600
Phoenix Technology Ltd.* ................... 17,800 298,150
Silicon Valley Research Inc.* .............. 46,150 271,131
State of the Art Inc.* ..................... 17,800 329,299
------------
1,714,318
------------
UTILITIES - 3.6%
Atlantic Tele-Network* ..................... 10,000 240,000
Petersburg Long Distance Inc. ADRs* ........ 48,100 393,819
------------
633,819
------------
TOTAL COMMON STOCK
(Identified Cost $14,523,812) ............. 17,066,500
------------
SHORT-TERM OBLIGTIONS, AT AMORTIZED COST -- 1.1%
Salomon Repurchase Agreement,
4.98% due 7/01/96 proceeds at
maturity $196,784 (collateralized by
$29,589 US Teasury Note
6.375% due 6/30/97,
$16,491 US Teasury Note
7.50% due 10/31/99,
$59,959 US Teasury Note
7.25% due 8/15/20,
$26,261 US Teasury Note
7.50% due 1/31/97 and
$69,569 US Treasury Note
11.25% due 2/15/15) ...................... 196,757
------------
TOTAL INVESTMENTS .......................... 99.1% 17,263,257
(Identified Cost $14,720,569)
OTHER ASSETS,
LESS LIABILITIES........................... 0.9 153,332
----- -----------
NET ASSETS ................................. 100.0% $17,416,589
===== ===========
ADRs American Depositary Receipts
* Non income producing
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (unaudited)
ASSETS:
Investments at value (Note 1A) (Identified Cost, $14,720,569) ... $17,263,257
Cash ............................................................ 223,546
Interest receivable and other assets ............................ 4,636
-----------
Total assets ................................................ 17,491,439
-----------
LIABILITIES:
Payable for investments purchased ............................... 74,850
-----------
NET ASSETS ...................................................... $17,416,589
-----------
REPRESENTED BY:
Paid-in capital for beneficial interests ........................ $17,416,589
===========
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (unaudited)
INVESTMENT INCOME:
Dividend Income ................................. $ 22,728
Interest Income ................................. 20,269 $ 42,997
----------
EXPENSES:
Investment advisory fees (Note 2) ................. 40,898
Auditing fees ..................................... 12,500
Custodian fees .................................... 10,180
Legal fees ........................................ 2,800
Administrative fees (Note 3) ...................... 2,727
Trustee fees ...................................... 1,500
Miscellaneous ..................................... 1,100
---------
Total expenses .................................. 71,705
Less expense assumed by the Administrator: ........ (28,080)
Less aggregate amount waived by Investment
Adviser and Administrator (Notes 2 and 3) ........ (43,625)
---------
Net Expenses .................................... -0-
----------
Net investment income ........................... 42,997
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from investment
transactions .................................... 1,336,654
Unrealized appreciation (depreciation) of
investments--
Beginning of period............................. 725,820
End of period................................... 2,542,688
---------
Net change in unrealized appreciation
(depreciation)............................ 1,816,868
----------
Net realized and unrealized gain (loss)
on investments ........................ 3,153,522
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................... $3,196,519
==========
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995
----------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ...................................................... $ 42,997 $ 16,583
Net realized gain on investment transactions ............................... 1,336,654 288,385
Net change in unrealized appreciation of investments ....................... 1,816,868 725,820
------------ ----------
Net increase in net assets resulting from operations ................... 3,196,519 1,030,788
------------ ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions ................................................ 11,455,045 4,044,649
Value of withdrawals ....................................................... (2,224,397) (86,015)
------------ ----------
Net increase in net assets from capital transactions ................... 9,230,648 3,958,634
------------ ----------
NET INCREASE IN NET ASSETS: ................................................ 12,427,167 4,989,422
NET ASSETS:
Beginning of period ........................................................ 4,989,422 --
------------ ----------
End of period .............................................................. $ 17,416,589 $4,989,422
============ ==========
</TABLE>
See notes to financial statements
Small Cap Equity Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) .............................................. $17,417 $4,989
Ratio of expenses to average net assets ................................................ -0- -0-
Ratio of net investment income to average net assets ................................... 0.79%* 1.22%*
Portfolio turnover ..................................................................... 39% 41%
Average commission rate per share (A) .................................................. $0.046 N/A
Note: If Agents of the Portfolio had not voluntarily waived all of their fees
and assumed Fund expenses for the period indicated and had expenses been
limited to that required by certain state securities law, the ratios would
have been as follows:
RATIOS:
Expenses to average net assets.......................................................... 1.31%* 2.50%*
Net investment income to average net assets............................................. (0.52%)* (1.28%)*
(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 begining on or
after September 1, 1995.
* Annualized
</TABLE>
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Small Cap 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.
The preparation of financial statements in accordance with generally
accepted accounting principles require 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 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. EXPENSES -- The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except
when allocations of direct expenses to each portfolio can otherwise be made
fairly. Expenses directly attributable to a portfolio are charged to that
portfolio.
E. REPURCHASE AGREEMENTS -- It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor,
on a daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. 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 $40,898 all of which was
voluntarily waived for the six months ended June 30, 1996. The investment
advisory fees are computed at the annual rate of 0.75% 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 $2,727 all of which was voluntarily waived for the six months
ended June 30, 1996. Citibank acts as Sub-Administrator and performs such
duties and receives such compensation from SFG as from time to time is agreed
to by SFG and Citibank. The Portfolio pays no compensation directly to any
Trustee or any officer who is affiliated with the Administrator, all of whom
receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.
(4) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $15,944,923 and $4,069,874, respectively, for the six months ended
June 30, 1996.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at June 30, 1996, as computed on a federal income
tax basis, are as follows:
Aggregate cost ......................................... $14,720,569
===========
Gross unrealized appreciation .......................... $ 2,878,463
Gross unrealized depreciation .......................... (335,775)
-----------
Net unrealized appreciation ............................ $ 2,542,688
===========
(6) 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 $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 six months ended June 30,
1996, the commitment fee was allocated to the Portfolio was $20. Since the
line of credit was established, there have been no borrowings.
(7) ASSUMPTION OF EXPENSES
SFG has voluntarily agreed to pay a portion of the unwaived expenses of the
Portfolio for the six months ended June 30, 1996, which amounted to $28,080.
<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 10126-5130
Call Your Citigold Executive or, in NY or CT, (800) 285-1701,
For all other states, (800) 285-1707
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,
Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR 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
National Tax Free Income Fund
New York Tax Free Income Fund
Balanced Fund
Equity Fund
International Equity Fund
Small Cap Equity Fund
Emerging Asian Markets Equity Fund
<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
Thomas M. Lenz*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
(OF SMALL CAP 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.
EQ/SC/S/96 Printed on Recycled Paper [Recycle Logo]
[Logo] LANDMARK (SM) FUNDS
Advised by Citibank, N.A.
Landmark
Small Cap
Equity Fund
SEMI-ANNUAL
REPORT
June 30, 1996
