<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.
This Report is Prepared & Printed on Recycled Paper. [logo]
EQ/EI/A/95
LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
EQUITY FUND
ANNUAL
REPORT
December 31, 1995
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
1995 was an excellent year for the U.S. stock and bond markets. Contrary to
many investors' expectations at the end of 1994, the year was characterized by
modest economic growth, low inflation and declining interest rates. This
combination of positive economic influences was a recipe for above-average gains
in the financial markets, and investors who exercised patience and discipline
during 1994's difficult market conditions reaped the rewards provided by
stronger markets in 1995.
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.
As of December 29, 1995, Portfolio Manager Dwight Hyde has retired from
Citibank. We are pleased to announce that his portfolio management duties have
been assumed by Grant Hobson and Richard Goldman, both of whom are experienced
investment managers and longstanding members of Mr. Hyde's equity management
team. We wish Dwight the very best in his retirement, and we congratulate Grant
and Rich on their new responsibilities.
This 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
January 20, 1996
- --------------------------------------------------------------------------------
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
o Are subject to investment risks, including possible loss of the principal
amount invested
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1 Letter to Shareholders
- --------------------------------------------------------------------------------
2 Market Environment
Fund Snapshot
- --------------------------------------------------------------------------------
Portfolio Managers
3 The Portfolio Managers Respond
Fund Quotes
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
12 Independent Auditors' Report
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
19 Independent Auditors' Report
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
As 1995 began, most stock market investors were cautious in an environment
of rising interest rates and declining stock prices. The Federal Reserve
increased key short-term interest rates six times in 1994 and once again in
February, 1995, in an effort to rein in a strong economy and prevent an
acceleration of inflation.
By Spring it was apparent that the Federal Reserve's tight monetary policy
had caused the economy to slow down. As the rate of economic growth moderated,
investors' fears of inflation diminished and new money began flowing into the
stock market at a record pace. At the same time, yields on fixed-income
investments declined rapidly as investors became convinced that the Federal
Reserve would reverse course and begin to lower interest rates in order to avoid
the possibility of a recession.
These economic conditions proved to be quite positive for the stocks of
large U.S. companies. Lower interest rates, benign inflation and increased
demand for equities from domestic and overseas investors helped broad measures
of stock market performance set several new records during the year. Investors
were particularly attracted to high-quality companies that are able to
consistently produce above-average earnings gains in a slow-growth economy.
- --------------------------------------------------------------------------------
FUND SNAPSHOT
COMMENCEMENT OF OPERATIONS
October 19, 1990
NET ASSETS AS OF 12/31/95
$213.7 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
o Standard & Poor's 500 Index
o 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
Consistent with our conservative management policies, we maintained a
cautious approach toward the stock market at the start of the year. While our
caution caused us to miss some early gains, especially in technology stocks, we
continued to adhere to our investment style in order to avoid excessive risks
and volatility. Rather than chase what we believed to be overvalued stocks in
the technology sector, we focused on putting funds to work in well established
growth companies with strong cash flows, seasoned management teams and
reasonable valuations.
At mid-year, this approach paid off handsomely as many technology stocks
began to pull back from their highs. Market leadership shifted to large, well
managed growth companies exactly the kinds of companies that comprise most of
our Portfolio. For example, we maintained diversified exposure in a number of
companies in the health care industry, a sector that offered excellent values as
the year began and performed quite well in the second half of the year. We also
favored consumer companies with growing worldwide markets as well as companies
that are expected to benefit from the outsourcing of corporate services and data
processing.
- --------------------------------------------------------------------------------
FUND QUOTES FROM THE PORTFOLIO MANAGERS
"Early in the year, we decided not to chase after technology stocks, preferring
instead to maintain our valuation discipline."
"The Fund is a core equity holding for many shareholders. We do not take
excessive risks and we want to minimize volatility as much as possible."
"It's been an excellent year for the markets: lower interest rates, low
inflation, good earnings and funds flowing into equities as people plan for
long-term goals."
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
Our long-term outlook remains positive. Despite recent data suggesting
economic weakness, we believe that interest rates will continue to decline
modestly, the rate of inflation will remain relatively low and investors in the
U.S. and overseas will continue to find U.S. stocks attractive. In addition,
progress in Washington toward a balanced federal budget should influence the
markets positively. However, as slower economic growth restrains the recent rise
in corporate earnings, it is possible that the market could experience a
temporary correction. In our view, any such declines should be viewed as
opportunities to buy well managed companies at attractive prices.
Our strategy looking forward is the same as the one that we have employed
for years: identifying the stocks of high-quality companies that we believe have
the potential for consistent, predictable earnings growth and are selling at
reasonable valuations. Regardless of the short-term fluctuations of the stock
market, we believe that this conservative, long-term approach provides an
excellent way to build wealth over time without assuming excessive risks.
Equity Portfolio
- --------------------------------------------------------------------------------
BY THE NUMBERS
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 12/31/95)
- --------------------------------------------------------------------------------
NAME INDUSTRY SECTOR % OF NET ASSETS
Pfizer Inc. Health Services/Technology 3.54%
Royal Dutch Petroleum Co. ADR's Energy/Minerals 2.79%
Exxon Corp. Energy/Minerals 2.67%
General Motors Corp. Class "E" Electronics/Tech. Services 2.65%
Amoco Corp. Energy/Minerals 2.47%
Praxair Inc. Commodities 2.38%
Kerr-McGee Corp. Energy/Minerals 2.38%
Kimberly Clark Corp. Consumer-Non Durables 2.35%
Philip Morris Inc. Consumer-Non Durables 2.35%
Pacificorp. Utilities 2.28%
CHANGES IN PORTFOLIO SECTORS
Portfolio of investments
as of 12/31/95
CASH/SHORT TERM/OTHER 5%
CONSUMER 34%
INDUSTRIAL 20%
CAPITAL GOODS 24%
FINANCIAL 17%
...Compared to 12/31/94
CASH/SHORT TERM/OTHER 18%
CONSUMER 28%
INDUSTRIAL 14%
CAPITAL GOODS 25%
FINANCIAL 15%
- -----------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1995
<TABLE>
<CAPTION>
TOTAL RETURNS
--------------------------------
SINCE
ONE FIVE 10/19/90
YEAR YEARS* INCEPTION*
------ ------- ----------
<S> <C> <C> <C>
Landmark Equity Fund without Sales Charge .................... 27.55% 14.94% 15.47%
Lipper Growth Funds Average .................................. 30.79% 16.01% 17.14%+
Standard & Poor's 500 Index .................................. 37.53% 16.56% 18.06%+
Landmark Equity Fund with Maximum Sales Charge of 4.75% ...... 21.49% 13.83% 14.39%
*Average Annual Total Return.
+ From 10/31/90
</TABLE>
30-Day SEC Yield 1.13%
Income Dividends Per Share $0.210
Capital Gain Distributions $0.582
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$20,128 with sales charge (as of 12/31/95). The graph shows how the Fund
compares to our benchmarks for the period October 31, 1990 to December 31, 1995.
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 Landmark
Equity - Equity - Lipper
Without With Growth S&p 500
Sales Sales Funds Index
Charge Charge Average (Unmanaged)
$10,000 $9,525
Oct-90 $9,847 $9,379 $10,000 $10,000
Nov-90 $10,438 $9,942 $10,660 $10,646
Dec-90 $10,534 $10,034 $11,014 $10,943
Jan-91 $10,996 $10,474 $11,690 $11,420
Feb-91 $11,811 $11,250 $12,534 $12,237
Mar-91 $11,888 $11,323 $12,938 $12,533
Apr-91 $11,635 $11,082 $12,922 $12,563
May-91 $12,427 $11,837 $13,456 $13,104
Jun-91 $11,723 $11,167 $12,795 $12,504
Jul-91 $12,412 $11,822 $13,430 $13,087
Aug-91 $13,111 $12,488 $13,838 $13,397
Sep-91 $12,667 $12,065 $13,712 $13,173
Oct-91 $12,956 $12,340 $13,993 $13,350
Nov-91 $12,401 $11,812 $13,435 $12,812
Dec-91 $13,772 $13,118 $14,921 $14,277
Jan-92 $13,549 $12,905 $14,997 $14,012
Feb-92 $13,883 $13,224 $15,208 $14,194
Mar-92 $13,515 $12,874 $14,755 $13,917
Apr-92 $13,571 $12,927 $14,656 $14,326
May-92 $13,538 $12,895 $14,738 $14,397
Jun-92 $13,106 $12,484 $14,310 $14,182
Jul-92 $13,665 $13,016 $14,822 $14,762
Aug-92 $13,285 $12,654 $14,500 $14,460
Sep-92 $13,576 $12,931 $14,725 $14,630
Oct-92 $13,923 $13,261 $15,022 $14,681
Nov-92 $14,694 $13,996 $15,771 $15,182
Dec-92 $14,818 $14,114 $16,062 $15,369
Jan-93 $14,897 $14,189 $16,260 $15,498
Feb-93 $14,684 $13,986 $16,005 $15,709
Mar-93 $15,535 $14,797 $16,448 $16,040
Apr-93 $15,289 $14,563 $15,938 $15,652
May-93 $15,726 $14,979 $16,517 $16,071
Jun-93 $15,572 $14,833 $16,566 $16,118
Jul-93 $15,370 $14,640 $16,526 $16,054
Aug-93 $16,066 $15,302 $17,225 $16,662
Sep-93 $16,110 $15,345 $17,401 $16,534
Oct-93 $16,335 $15,559 $17,643 $16,876
Nov-93 $16,133 $15,367 $17,297 $16,716
Dec-93 $16,635 $15,845 $17,797 $16,918
Jan-94 $16,973 $16,166 $18,322 $17,494
Feb-94 $16,703 $15,909 $18,036 $17,020
Mar-94 $15,961 $15,203 $17,187 $16,277
Apr-94 $16,253 $15,481 $17,244 $16,486
May-94 $16,579 $15,792 $17,309 $16,756
Jun-94 $16,103 $15,339 $16,726 $16,346
Jul-94 $16,607 $15,819 $17,167 $16,882
Aug-94 $17,020 $16,211 $17,954 $17,574
Sep-94 $16,584 $15,797 $17,630 $17,149
Oct-94 $16,894 $16,091 $17,909 $17,546
Nov-94 $16,333 $15,557 $17,237 $16,902
Dec-94 $16,568 $15,781 $17,396 $17,151
Jan-95 $16,674 $15,882 $17,518 $17,595
Feb-95 $17,260 $16,440 $18,171 $18,280
Mar-95 $17,682 $16,842 $18,676 $18,819
Apr-95 $17,870 $17,021 $19,059 $19,372
May-95 $18,444 $17,568 $19,614 $20,145
Jun-95 $18,736 $17,846 $20,418 $20,613
Jul-95 $19,328 $18,410 $21,369 $21,295
Aug-95 $19,139 $18,229 $21,534 $21,348
Sep-95 $19,719 $18,782 $22,154 $22,249
Oct-95 $19,778 $18,838 $21,822 $22,169
Nov-95 $20,843 $19,853 $22,581 $23,140
Dec-95 $21,132 $20,128 $22,660 $23,586
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>
<TABLE>
<CAPTION>
Landmark Equity Fund
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<S> <C>
ASSETS:
Investment in Equity Portfolio, at value (Note 1A) .................... $213,873,982
Receivable for shares of beneficial interest sold .................... 172,442
------------
Total assets ...................................................... 214,046,424
------------
LIABILITIES:
Payable for shares of beneficial interest repurchased ................. 236,627
Payable to affiliates--Shareholder servicing agents' fee (Note 2B)..... 45,303
Accrued expenses and other liabilities ................................ 35,976
------------
Total liabilities ................................................ 317,906
------------
NET ASSETS for 12,426,849 shares of beneficial interest outstanding ... $213,728,518
============
NET ASSETS CONSIST OF:
Paid-in capital ....................................................... $169,205,027
Unrealized appreciation ............................................... 43,341,685
Accumulated net realized gain ......................................... 1,111,998
Undistributed net investment income ................................... 69,808
------------
Total ............................................................. $213,728,518
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST $17.20
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge ($17.20/0.9525) $18.06
======
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Landmark Equity Fund
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Dividend Income from Equity Portfolio ................................. $3,451,594
Interest Income from Equity Portfolio ................................. 1,132,333
Other Income Foreign Tax reclaims ..................................... 24,544
Allocated Expenses from Equity Portfolio .............................. (1,178,859) $ 3,429,612
----------
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B)........................... 784,529
Administrative fees (Note 2A) ......................................... 294,337
Distribution fees (Note 3) ............................................ 98,112
Expense fees (Note 6) ................................................. 196,232
----------
Total expenses .................................................... 1,373,210
Less aggregate amount waived by Administrator and Shareholder
Servicing Agents (Note 2A and 2B).................................... (490,192)
----------
Net expenses ..................................................... 883,018
-----------
Net investment income ............................................ 2,546,594
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM EQUITY PORTFOLIO:
Net realized gain (loss) .............................................. 7,372,648
Net change in unrealized appreciation (depreciation) .................. 37,840,071
-----------
Net realized and unrealized gain (loss) from Equity Portfolio ......... 45,212,719
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $47,759,313
===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Landmark Equity Fund
- ------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ........................................... $ 2,546,594 $ 2,218,886
Net realized gain ............................................... 7,372,648 3,501,493
Net change in unrealized appreciation (depreciation)............. 37,840,071 (6,636,670)
------------ ------------
Net increase (decrease) in net assets resulting from operations 47,759,313 (916,291)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... (2,534,653) (2,171,477)
Net realized gain ............................................... (6,988,138) (5,539,727)
------------ ------------
Decrease in net assets from distributions to shareholders ..... (9,522,791) (7,711,204)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares ................................ 9,027,385 12,867,137
Net asset value of shares issued to shareholders
from reinvestment of distributions ............................ 9,521,722 7,710,057
Cost of shares repurchased ...................................... (27,032,148) (28,877,657)
------------ ------------
Net decrease in net assets from transactions in shares of
beneficial interest ......................................... (8,483,041) (8,300,463)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ........................... 29,753,481 (16,927,958)
NET ASSETS:
Beginning of period ............................................. 183,975,037 200,902,995
------------ ------------
End of period (including undistributed net investment income
of $69,808 and $0, respectively) .............................. $213,728,518 $183,975,037
============ ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Landmark Equity Fund
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994++ 1993++ 1992++ 1991++
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ..... $ 14.13 $ 14.80 $ 13.23 $ 12.36 $ 9.57
------- ------- ------- ------- ------
Income From Operations:
Net investment income .................... 0.211 0.173 0.071** 0.065 0.126
Net realized and unrealized gain (loss) on
investments ............................ 3.651 (0.245) 1.550** 0.868 2.797
------- ------- ------- ------- ------
Total from operations ............... 3.862 (0.072) 1.621 0.933 2.923
------- ------- ------- ------- ------
Less Distributions From:
Net investment income .................. (0.210) (0.169) (0.051) (0.063) (0.133)
Net realized gain on investments ....... (0.582) (0.429) -- -- --
------- ------- ------- ------- ------
Total from distributions ........... (0.792) (0.598) (0.051) (0.063) (0.133)
------- ------- ------- ------- ------
Net Asset Value, end of period ........... $ 17.20 $ 14.13 $ 14.80 $ 13.23 $12.36
======= ======= ======= ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $213,729 $183,975 $200,903 $10,973 $9,181
Ratio of expenses to average net assets .. 1.05%(A) 1.05%(A) 1.07% 1.40% 1.40%
Ratio of net investment income to average
net assets ............................. 1.30% 1.15% 0.52% 0.53% 1.12%
Portfolio turnover(B) .................... -- 1% 23% 79% 68%
Total return ............................. 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 ... $0.170 $0.136 $0.029** $(0.070) $0.002
Ratios:
Expenses to average net assets .......... 1.30%(A) 1.29%(A) 1.37% 2.50% 2.50%
Net investment income (loss) to
average net assets ...................... 1.05% 0.91% 0.21% (0.57)% 0.02%
<FN>
** 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.
++ On May 1, 1994 the fund began investing all of its investable assets in Equity Portfolio.
</TABLE>
See notes to financial statements
<PAGE>
Landmark Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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 (86.9% at
December 31, 1995) 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 reclassed $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 and the Portfolio,
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 0.20% of the Fund's average daily net assets and 0.05%
of the Portfolio's average daily net assets. Under the Administrative Services
Plan the Administrator received fees computed at an annual rate of 0.15% of the
Fund's average daily net assets which amounted to $294,337 of which $196,224 was
voluntarily waived for the year ended December 31, 1995. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund pays no
compensation directly to any Trustee or to any officer who is affiliated with
the Administrator, all of whom receive remuneration for their services to the
Fund from the Administrator or its affiliates. Certain of the officers and a
Trustee of the Fund are officers or directors of the Administrator or its
affiliates.
B. SHAREHOLDER SERVICING AGENTS' FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.40% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $784,529 of which $293,968 was voluntarily
waived for the year ended December 31, 1995.
(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 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. Under the
Administrative Services Plan distribution fees were computed at an annual rate
of 0.05% of the Fund's average daily net assets and amounted to $98,112 for the
year ended December 31, 1995.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended December 31, 1995 aggregated $8,976,510 and $27,975,876 respectively.
(5) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended
December 31, December 31,
1995 1994
---------- ----------
Shares sold ...................... 566,734 876,386
Shares issued to shareholders from
reinvestment of distributions .... 571,311 550,817
Shares repurchased ............... (1,731,639) (1,980,632)
---------- ----------
Net decrease ..................... (593,594) (553,429)
========== ==========
(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
would, on an annual basis, exceed an agreed upon rate, currently 1.05% of the
Fund's average daily net assets.
<PAGE>
Landmark Equity Fund
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To The Trustees and the Shareholders of Landmark Funds II (The Trust):
Landmark Equity Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Landmark Equity Fund (the "Fund"), a series of Landmark Funds II, at December
31, 1995, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1996
<PAGE>
Equity Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1995
ISSUER SHARES VALUE
- -----------------------------------------------------------------
COMMON STOCKS--95.1%
COMMERCIAL SERVICES - 1.9%
Sysco Corp. ....................... 140,000 $ 4,550,000
------------
COMMODITIES - 5.9%
EI Dupont De Nemours & Co. Inc. ... 50,000 3,493,750
Monsanto Co. ...................... 12,600 1,543,500
Praxair Inc. ...................... 174,000 5,850,750
Temple Inland Inc. ................ 79,900 3,525,587
------------
14,413,587
------------
CONSUMER-DURABLES - 3.3%
Eastman Kodak Co. ................. 81,000 5,427,000
Mattel Inc. ....................... 88,300 2,715,225
------------
8,142,225
------------
CONSUMER-NON DURABLES - 9.1%
Colgate-Palmolive Co. ............. 79,600 5,591,900
Kimberly Clark Corp. .............. 69,810 5,776,777
PepsiCo Inc. ...................... 96,000 5,364,000
Philip Morris Inc. ................ 63,800 5,773,900
------------
22,506,577
------------
CONSUMER SERVICES -6.6%
Capital Cities\ABC Inc. ........... 27,500 3,392,813
Carnival Corp. .................... 185,500 4,521,563
McDonald's Corp. .................. 112,000 5,054,000
Times Mirror Co. .................. 97,800 3,312,974
------------
16,281,350
------------
ELECTRONICS/TECHNICAL SERVICES - 13.6%
Cisco Systems, Inc. ............... 72,400 5,402,850
Computer Associates Intl. Inc. .... 86,550 4,922,531
DSC Communications ................ 108,900 4,015,688
First Data Corp. .................. 72,317 4,836,199
General Motors Corp. Class "E" .... 125,000 6,500,000
Intel Corp. ....................... 44,700 2,536,725
LSI Logic Corp. ................... 63,500 2,079,625
Silicon Graphics Inc.* ............ 117,100 3,220,250
------------
33,513,868
------------
ENERGY/MINERALS -11.7%
Amoco Corp. ....................... 84,500 $ 6,073,438
Exxon Corp. ....................... 82,100 6,578,263
Kerr-McGee Corp. .................. 92,000 5,842,000
Mobil Corp. ....................... 22,000 2,464,000
Royal Dutch Petroleum Co. ADRs .... 48,700 6,872,788
Union Pacific Resources Group. .... 43,000 1,091,124
------------
28,921,613
------------
FINANCE - 9.6%
American International
Group Inc. ...................... 52,500 4,856,250
BankAmerica Corp. ................. 60,000 3,885,000
Federal National Mortgage
Association ..................... 45,000 5,585,625
State Street Boston Corp. ......... 104,000 4,680,000
USF&G Corp. ....................... 276,500 4,665,938
------------
23,672,813
------------
HEALTH SERVICES/TECHNOLOGY - 8.7%
Community Health Systems .......... 64,500 2,297,813
Johnson & Johnson ................. 63,000 5,394,375
Manor Care Inc. ................... 142,000 4,970,000
Pfizer Inc. ....................... 138,500 8,725,500
------------
21,387,688
------------
INDUSTRIAL SERVICES - 3.4%
Fluor Corp. ....................... 62,000 4,092,000
WMX Technologies Inc. ............. 140,000 4,182,500
------------
8,274,500
------------
PRODUCER MANUFACTURING - 6.8%
Danaher Corp. ..................... 124,000 3,937,000
Emerson Electric Co. .............. 47,000 3,842,250
General Electric Co. .............. 51,000 3,672,000
Xerox Corp. ....................... 38,300 5,247,100
------------
16,698,350
------------
RETAIL TRADE - 4.7%
Gap Stores Inc. ................... 45,000 $ 1,890,000
Limited Inc. ...................... 122,400 2,126,700
Nine West Group Inc. .............. 80,800 3,030,000
Toys "R" Us Inc.* ................. 97,000 2,109,750
Wal-Mart Stores Inc................ 107,000 2,394,125
------------
11,550,575
------------
TRANSPORTATION - 2.0%
Norfolk Southern Corp. ............ 62,000 4,921,250
------------
UTILITIES - 7.8%
FPL Group Inc. .................... 75,000 3,478,125
GTE Corp. ........................ 111,000 4,884,000
Pacificorp ........................ 264,000 5,610,000
Texas Utilities ................... 126,000 5,181,750
------------
19,153,875
------------
TOTAL COMMON STOCK
(Identified Cost $187,466,195) .. 233,988,271
------------
PRINCIPAL
ISSUER AMOUNT VALUE
- -----------------------------------------------------------------
SHORT-TERM OBLIGATIONS--4.8%
Dresdner Bank
Repurchase Agreement
5.93%, due 1/2/96
proceeds at maturity $1,033,681
(secured by $1,053,463
U.S. Treasury Bond 11.25%,
due 2/15/15).................... $ 1,033,000 $ 1,033,000
United States Treasury Bill,
4.85% due 3/28/96 .............. 11,000,000 10,866,625
------------
TOTAL SHORT-TERM
OBLIGATIONS, AT
AMORTIZED COST ............... 11,899,625
------------
TOTAL INVESTMENTS ............... 99.9% 245,887,896
(Identified Cost $199,365,820)
OTHER ASSETS,
LESS LIABILITIES ............... 0.1 270,450
----- ------------
NET ASSETS ...................... 100.0% $246,158,346
===== ============
ADRs -- American Depositary Receipts
*Non-income producing security.
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Equity Portfolio
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<S> <C>
ASSETS:
Investments at value (Note 1A) (Identified Cost, $199,365,820)................ $245,887,896
Cash ......................................................................... 592
Dividends and interest receivable ............................................ 400,572
------------
Total assets ............................................................. 246,289,060
------------
LIABILITIES:
Payable to affiliates--Investment advisory fees (Note 2) ..................... 105,980
Accrued expenses and other liabilities ....................................... 24,734
------------
Total liabilities ........................................................ 130,714
------------
NET ASSETS ................................................................... $246,158,346
============
REPRESENTED BY:
Paid-in capital for beneficial interests ..................................... $246,158,346
============
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Equity Portfolio
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $61,341)..................... $ 3,688,624
Interest ................................................................. 1,191,030
-----------
Total Income ........................................................... $ 4,879,654
EXPENSES:
Investment advisory fees (Note 2) ........................................ 1,049,008
Administrative fees (Note 3) ............................................. 104,901
Expense fees (Note 6) .................................................... 104,901
-----------
Total expenses ......................................................... 1,258,810
-----------
Net investment income .................................................. 3,620,844
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions .................... 7,439,032
Unrealized appreciation (depreciation) of investments--
Beginning of period ................................................... 5,474,813
End of period ......................................................... 46,522,076
-----------
Net change in unrealized appreciation (depreciation) .................... 41,047,263
-----------
Net realized and unrealized gain (loss) on investments ................ 48,486,295
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $52,107,139
===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Equity Portfolio
- ------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
MAY 1, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ............................................. $ 3,620,844 $ 2,322,467
Net realized gain on investment transactions ...................... 7,439,032 2,731,272
Net change in unrealized appreciation (depreciation) of investments 41,047,263 (844,015)
------------ ------------
Net increase in net assets resulting from operations .......... 52,107,139 4,209,724
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ....................................... 43,731,563 199,044,676
Value of withdrawals .............................................. (36,365,840) (16,568,916)
------------ ------------
Net increase in net assets from capital transactions .......... 7,365,723 182,475,760
------------ ------------
NET INCREASE IN NET ASSETS: ....................................... 59,472,862 186,685,484
NET ASSETS:
Beginning of period ............................................... 186,685,484 --
------------ ------------
End of period ..................................................... $246,158,346 $186,685,484
============ ============
See notes to financial statements
<CAPTION>
Equity Portfolio
- ------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
MAY 1, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------- ----------------
<S> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) ......................... $246,158 $186,685
Ratio of expenses to average net assets ........................... 0.60% 0.60%*
Ratio of net investment income to average net assets .............. 1.73% 1.81%*
Portfolio turnover ................................................ 67% 35%
* Annualized
</TABLE>
See notes to financial statements
<PAGE>
Equity Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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 $1,049,008 for the year ended
December 31, 1995. 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
$104,901 for the year ended December 31, 1995. 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 $159,462,767 and $127,550,730, respectively, for the year ended
December 31, 1995.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1995, as computed on a federal income tax
basis, are as follows:
Aggregate cost ........................................ $199,365,820
============
Gross unrealized appreciation .......................... $ 50,907,238
Gross unrealized depreciation .......................... (4,385,162)
------------
Net unrealized appreciation ............................ $ 46,522,076
============
(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 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 year ended December 31, 1995, the
commitment fee allocated to the Portfolio was $1,404. Since the line of credit
was established, there have been no borrowings.
<PAGE>
Equity Portfolio
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, EQUITY PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Equity Portfolio (the "Portfolio"), a
series of The Premium Portfolios, as at December 31, 1995 and the related
statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at December 31, 1995 by correspondence with the custodian provide a reasonable
basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1995, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 7, 1996
- --------------------------------------------------------------------------------
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
<PAGE>
[logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
SMALL CAP
EQUITY FUND
ANNUAL
REPORT
December 31, 1995
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/A/95 Printed on Recycled Paper [GRAPHIC OMITTED]
<PAGE>
- -----------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
1995 was an excellent year for the U.S. stock and bond markets. Contrary to
many investors' expectations at the end of 1994, the year was characterized by
modest economic growth, low inflation and declining interest rates. This
combination of positive economic influences was a recipe for above-average gains
in the financial markets, and investors who exercised patience and discipline
during 1994's difficult market conditions reaped the rewards provided by
stronger markets in 1995.
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 Annual Report reviews the Portfolio's investment activities and
performance since commencement of operations in June, 1995, 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 Coolidge
Philip W. Coolidge
President
January 20, 1996
TABLE OF CONTENTS
1 Letter to Shareholders LANDMARK SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------
2 Market Environment 6 Statement of Assets and Liabilities
Fund Snapshot Statement of Operations
- ------------------------------------------------------------------------------
3 Portfolio Manager 7 Statement of Changes in Net Assets
The Portfolio Manager Responds ---------------------------------------
- --------------------------------------- 8 Financial Highlights
4 Fund Quotes --------------------------------------
Strategy and Outlook 9 Notes to Financial Statements
Small Cap Equity Portfolio --------------------------------------
By the Numbers 11 Independent Auditors' Report
- ------------------------------------------------------------------------------
5 Fund Data SMALL CAP EQUITY PORTFOLIO
Performance Highlights --------------------------------------
- --------------------------------------- 12 Portfolio of Investments
--------------------------------------
14 Statement of Assets and Liabilities
Statement of Operations
--------------------------------------
15 Statement of Changes in Net Assets
Financial Highlights
--------------------------------------
16 Notes to Financial Statements
--------------------------------------
18 Independent Auditors' Report
--------------------------------------
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
o Are subject to investment risks, including possible loss of the
principal amount invested
<PAGE>
- ------------------------------------------------------------------------------
MARKET ENVIRONMENT
As 1995 began, most investors in the U.S. stock market were cautious in an
environment of rising interest rates and declining stock prices. The Federal
Reserve increased key short-term interest rates six times in 1994 and once again
in February, 1995, in an effort to rein in a strong economy and prevent an
acceleration of inflation.
By Spring it was apparent that the Federal Reserve's tight monetary policy
had caused the economy to slow down. As the rate of economic growth moderated,
investors' fears of inflation diminished and new money began flowing into the
stock market and equity mutual funds at a record pace. At the same time, yields
on fixed income investments declined rapidly as investors became convinced that
the Federal Reserve would begin to lower interest rates in order to avoid the
possibility of a recession.
These economic conditions proved to be quite positive for the stocks of
many U.S. companies, including the small capitalization companies in which the
Portfolio invests. Lower interest rates, benign inflation and increased demand
for equities from domestic and overseas investors helped broad measures of stock
market performance set several new records during the year. More specifically,
investors were particularly attracted to companies that are able to consistently
produce above-average gains in a slow-growth economy.
- -------------------------------------------------------------------------------
FUND SNAPSHOT
COMMENCEMENT OF OPERATIONS
June 21, 1995
NET ASSETS AS OF 12/31/95
$5.1 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
Associates and has worked as a Manager, High Technology Programs for Coopers &
Lybrand.
- ------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
The Fund outperformed the Russell 2000, an index composed of small-cap
stocks, and the S&P 500, a large-cap index, through successful execution of a
"bottom-up" style of investment management which considers the strengths of
individual companies rather than broad market or economic conditions. After
conducting exhaustive fundamental analyses, including on-site visits with senior
management, we invest in companies that we believe are likely to achieve high
levels of sustainable earnings growth. In 1995 the Fund was able to invest in
companies with higher growth rates than the S&P 500 and Russell 2000 indices, at
very reasonable valuations. As these companies achieved their business plans,
the market rewarded them with exceptional price appreciation.
One key to our success was early recognition and participation in new areas
of the market. For example, our technology holdings were directed at emerging
areas such as the Internet, productivity enhancement software and help
information systems. In addition, the Portfolio was balanced by stocks in areas
such as consumer services, machinery and financial services. We also identified
high quality companies in the health care sector, which performed particularly
well during the second half of the year.
<PAGE>
- ------------------------------------------------------------------------------
FUND QUOTES FROM THE PORTFOLIO MANAGER
"1995 was an excellent year for stocks. Because the economy is slowing,
investors wanted stable growth stocks and were willing to pay higher valuations
than normal."
"The small, young companies we follow had stronger growth rates and more upwards
earnings revisions during the last six months of the year than larger
companies."
"The quality of the companies we see is still high. Earnings Consistency looks
good and a slower economy has not affected the stocks we own to any great
degree."
- ------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
Looking forward, we are optimistic about the prospects for small cap stocks
in 1996. We believe that interest rates will continue to decline modestly and
the rate of inflation will remain relatively low. In addition, progress in
Washington toward a balanced federal budget should influence the markets
positively. However, as slower economic growth restrains the recent rise in
corporate earnings, it is possible that the market could experience a temporary
correction. In our view, any such declines should be viewed as opportunities to
buy growing companies at attractive prices.
Regardless of market conditions, however, we will continue to employ our
bottom-up approach to stock selection. As of year-end 1995, we are still finding
small cap stocks with exceptional growth characteristics. Furthermore, we expect
small capitalization stocks to outperform their larger counterparts as investors
shift their focus to higher-growth, small-cap opportunities.
Small Cap Equity POrtfolio
- ------------------------------------------------------------------------------
BY THE NUMBERS
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 12/31/95)
==============================================================================
NAME INDUSTRY SECTOR % OF NET ASSETS
Network Appliance Inc. Technology 4.18%
Citrix Systems Inc. Technology 2.93%
Eagle USA AirFreight Inc. Autos & Transport 2.57%
Interneuron Pharmaceuticals Health Care 2.35%
Meadowbrook Insurance Group Financial Services 2.22%
Mecon Inc. Health Care 2.07%
Regal Cinemas Consumer Services 2.00%
Giant Industries Inc. Integrated Oils 1.99%
Applied Power Inc. CL "A" Producer Durables 1.98%
Roosevelt Financial Group Financial Services 1.94%
- -----------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1995
TOTAL RETURNS
SINCE
6/21/95
INCEPTION*
----------
Landmark Small Cap Equity Fund without Sales Charge ..... 44.78%
Lipper Small Company Growth Fund Average ..... 20.55%+
Russell 2000 Index ..... 18.09%+
Landmark Small Cap Equity Fund with Maximum Sales
Charge of 4.75% ....................................... 37.90%
* Not annualized
+ From 5/31/95
30-Day SEC Yield 1.10%
Income Dividends Per Share $0.050
Capital Gain Distribution $0.100
- -----------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$13,790 with sales charge (as of 12/31/95). The graph shows how the Fund
compares to our benchmarks for the period June 21, 1995 to December 31, 1995.
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.
[Plot points for graph]
SMALL CAP FUND
Landmark Landmark
Small Cap Small Cap
Fund - Fund Lipper Small
Without Income - Co. Growth Russell 2000
Sales With Sales Funds Index
Charge Charge Average (Unmanaged)
- ---------------------------------------------------------------------------
$10,000 $9,525 $10,000 $10,000
Jun-95 $10,050 $9,573 $10,597 $10,519
Jul-95 $10,970 $10,449 $11,390 $11,125
Aug-95 $11,640 $11,087 $11,578 $11,355
Sep-95 $12,000 $11,430 $11,855 $11,558
Oct-95 $11,980 $11,411 $11,457 $11,042
Nov-95 $13,550 $12,906 $11,881 $11,506
Dec-95 $14,478 $13,790 $12,054 $11,809
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>
<TABLE>
<CAPTION>
Landmark Small Cap Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<S> <C>
ASSETS:
Investment in Small Cap Equity Portfolio, at value (Note 1A) ........................ $4,989,277
Receivable for shares of beneficial interest sold .................................. 158,264
----------
Total Assets .................................................................... 5,147,541
----------
NET ASSETS for 359,566 shares of beneficial interest outstanding .................... $5,147,541
==========
NET ASSETS CONSIST OF:
Paid-in capital ..................................................................... $4,166,268
Unrealized appreciation ............................................................. 725,790
Accumulated net realized gain ....................................................... 255,483
----------
Total ........................................................................... $5,147,541
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ............... $14.32
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge ($14.32/0.9525) ...... $15.03
======
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
Landmark Small Cap Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Period June 21, 1995 (Commencement of Operations) to December 31, 1995
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Dividend Income from Small Cap Equity Portfolio ........................ $ 5,205
Interest Income from Small Cap Equity Portfolio ........................ 11,378 $ 16,583
-------
EXPENSES:
Auditing fees ........................................................... 15,000
Legal fees .............................................................. 7,170
Shareholder reports ..................................................... 6,197
Shareholder Servicing Agents' fees (Note 2B)............................. 5,497
Transfer agent fees ..................................................... 4,000
Custodian fees .......................................................... 3,750
Administrative fees (Note 2A) ........................................... 2,063
Distribution fees (Note 3) .............................................. 687
Trustees fees ........................................................... 400
Miscellaneous ........................................................... 2,500
-------
Total expenses 47,264
Less expenses assumed by the administrator .............................. (39,017)
Less aggregate amount waived by Administrator, Distributor and Shareholder
Servicing Agents (Note 2A, 2B and 3) .................................. (8,247)
-------
Net expenses ...................................................... --
----------
Net investment income .............................................. 16,583
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM SMALL CAP EQUITY PORTFOLIO:
Net realized gain (loss) ................................................ 288,370
Net change in unrealized appreciation (depreciation) .................... 725,790
----------
Net realized and unrealized gain (loss) from Small Cap Equity Portfolio 1,014,160
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $1,030,743
==========
</TABLE>
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
JUNE 21, 1995
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1995
----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .............................. $ 16,583
Net realized gain .................................. 288,370
Net change in unrealized appreciation .............. 725,790
----------
Net increase in net assets resulting from operations 1,030,743
----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (16,583)
Net realized gain .................................. (34,115)
----------
Decrease in net assets from distributions to shareholders (50,698)
----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares ................... 4,202,811
Net asset value of shares issued to shareholders from
reinvestment of distributions .................... 51,172
Cost of shares repurchased ......................... (86,487)
----------
Net increase in net assets from transactions in shares
of beneficial interest ........................... 4,167,496
----------
NET INCREASE IN NET ASSETS ......................... 5,147,541
NET ASSETS:
Beginning of period ................................ --
----------
End of period ...................................... $5,147,541
==========
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
JUNE 21, 1995
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1995
----------------
Net Asset Value, beginning of period .......... $10.00
------
Income From Operations:
Net investment income .......................... 0.05
Net realized and unrealized gain ............... 4.42
------
Total from operations ..................... 4.47
------
Less Distributions From:
Net investment income ........................ (0.05)
Net realized gain ............................ (0.10)
------
Total from distributions ................. (0.15)
------
Net Asset Value, end of period ................. $14.32
======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....... $5,148
Ratio of expenses to average net assets (A) .... 0%
Ratio of net investment income to average net assets 1.21%*
Total return ................................... 44.78%**
Note: If Agents of the Fund for the periods indicated and Agents of Small Cap
Equity Portfolio for the period June 21, 1995 (commencement of operations) to
December 31, 1995 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 ............. $(0.288)
Ratios:
Expenses to average net assets (A) .......... 2.50%*
Net investment income to average net assets (1.29)%*
* Annualized
** Not Annualized
(A) Includes the Fund's share of Small Cap Equity Portfolio allocated expenses
for the period indicated.
See notes to financial statements
<PAGE>
Landmark Small Cap Equity Fund
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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. On June 21, 1995 (commencement of operations),
the Fund began investing 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
December 31, 1995) 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 reclassed $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 and the Portfolio,
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 0.20% of the Fund's average daily net assets and 0.05%
of the Portfolio's average daily net assets. The administrative fees amounted to
$2,063, all of which was voluntarily waived from June 21, 1995 (Commencement of
Operations) to December 31, 1995. Citibank acts as Sub-Administrator and
performs such duties and receives such compensation from LFBDS as from time to
time is agreed to by LFBDS and Citibank. The Fund pays no compensation directly
to any Trustee or to any officer who is affiliated with the Administrator, all
of whom receive remuneration for their services to the Fund from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Fund are officers or directors of the Administrator or its affiliates.
B. SHAREHOLDER SERVICING AGENTS' FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.40% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $5,497, all of which was voluntarily waived
for the period June 21, 1995 (Commencement of Operations) to December 31, 1995.
(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 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. Under the
Administrative Services Plan distribution fees were computed at an annual rate
of 0.05% of the Fund's average daily net assets, which amounted to $687, all of
which was voluntarily waived for the period June 21, 1995 (Commencement of
Operations) to December 31, 1995.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the period
aggregated $4,044,549 and $86,015 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:
JUNE 21, 1995
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1995
----------------
Shares sold .............................. 362,453
Shares issued to shareholders from
reinvestment of distributions ........... 3,754
Shares repurchased ....................... (6,641)
-------
Net increase .............................. 359,566
=======
(6) ASSUMPTION OF EXPENSES
LFBDS has voluntarily agreed to pay a portion of the unwaived expenses of the
Fund for the period ended December 31, 1995, which amounted to $39,017.
<PAGE>
- ---------------------------------------------------------------------------
Landmark Small Cap Equity Fund
- ---------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF LANDMARK FUNDS II (THE TRUST): LANDMARK
SMALL CAP EQUITY FUND
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Landmark Small Cap Equity Fund (the "Fund"), a series of Landmark Funds II, at
December 31, 1995, the results of its operations, the changes in its net assets
and the financial highlights for the period June 21, 1995 (commencement of
operations) to December 31, 1995 in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of investments owned at December 31, 1995 by correspondence with
the custodian, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1996
<PAGE>
Small Cap Equity Portfolio
- ----------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1995
Issuer Shares Value
- ----------------------------------------------------------------------------
AUTOS AND TRANSPORT - 4.4%
COMMON STOCKS - 92.9%
Airborne Freight Corp. ...... 3,500 $ 93,188
Eagle USA AirFreight Inc.* .. 4,900 128,624
--------
221,812
--------
CONSUMER SERVICES - 16.5%
Bally Entertainment Corp.*... 6,000 84,000
Central Parking Corp. ....... 3,100 89,125
Davidson & Associates* ...... 4,400 96,800
Gadzooks Inc.* .............. 3,600 90,900
JPFoodservice Inc.* ......... 4,600 89,700
Logan's Roadhouse Inc.* ..... 4,800 82,800
Neostar Retail Group Inc.* .. 1,800 13,275
Red Lion Hotels Inc.* ....... 5,300 92,750
Regal Cinemas* .............. 3,350 99,662
Sports &Recreation Inc.* .... 12,100 86,213
--------
825,225
--------
CONSUMER STAPLES - 1.7%
Pete's Brewing Company* ..... 6,000 84,000
--------
FINANCIAL SERVICES - 15.3%
Affiliated Computer Services
Class A* ................. 2,300 86,250
CCB Financial Corp. ......... 1,450 80,475
Charter One Financial Inc. .. 2,300 70,438
First Empire State Corp. .... 350 76,300
Investors Financial
Services Corp.* ........... 3,900 80,925
Meadowbrook Insurance Group* 3,300 110,550
Roosevelt Financial Group ... 5,000 96,875
Susquehanna Bancshares Inc. . 3,300 87,450
Texas Regional Banc Shares "A" 4,300 72,025
--------
761,288
--------
HEALTH CARE - 15.8%
Community Health Systems* ... 2,600 92,625
Enterprise Systems Inc.* .... 3,100 94,550
Interneuron Pharmaceuticals* 4,600 117,300
Lunar Corp.* ................ 2,775 76,313
Mariner Health Group Inc.* .. 5,200 87,100
Mecon Inc.* ................. 6,500 103,188
Neuromedical Systems Inc.* .. 1,450 29,180
Sierra Health Services Inc.* 2,800 88,900
Vivus Inc.* ................. 3,100 96,875
---------
786,031
---------
INTEGRATED OILS - 3.7%
Giant Industries Inc. ....... 8,100 99,225
KCS Energy Inc............... 5,800 87,000
---------
186,225
---------
MATERIALS & PROCESSING - 3.7%
Carbide/Graphite Group* ..... 6,500 93,437
Intertape Polymer Group ..... 2,900 90,988
---------
184,425
---------
OTHER ENERGY - 3.4%
Input/Output Inc.* .......... 1,600 92,400
Lomak Petroleum Inc.* ....... 7,700 75,075
---------
167,475
---------
PRODUCER DURABLES - 5.7%
Applied Power Inc. Class "A" 3,300 99,000
Blount International Inc.
Class "A" ................. 3,500 91,875
Hardinge Inc.* .............. 3,600 93,600
---------
284,475
---------
TECHNOLOGY - 19.1%
C.I.S. Technologies Inc.* ... 21,500 69,875
Citrix Systems Inc.* ........ 4,500 146,250
Exar Corp.* ................. 5,700 84,075
McAfee Associates Inc.* ..... 1,700 74,588
Meta-Software Inc.* ......... 3,200 53,600
Network Appliance Inc.* ..... 5,200 208,650
Network General Corporation* 2,600 86,775
Remedy Corp.* ............... 1,400 82,950
Silicon Valley Research Inc.* 19,300 72,375
State of the Art Inc.* ...... 7,700 76,037
---------
955,175
---------
UTILITIES - 3.6%
Atlantic Tele-Network ....... 8,500 $ 91,906
Petersburg Long Distance
Inc. ADRs* ................ 18,600 88,350
---------
180,256
---------
TOTAL COMMON STOCK
(Identified Cost $3,910,567) 4,636,387
---------
- -----------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 15.8%
PRINCIPAL
AMOUNT
-------
Salomon Repurchase Agreement,
5.375% due 1/2/96 proceeds
at maturity $195,816
(secured by $182,343
US Teasury Bill 5.15%
due 6/13/96 and $17,788
US Treasury Bills
5.15% due 6/6/96) ........ $195,700 195,700
United States Treasury Bill
4.850% due 3/28/96 300,000 296,363
United States Treasury Bill
4.950% due 3/28/96 300,000 296,287
----------
TOTAL SHORT-TERM OBLIGATIONS,
AT AMORTIZED COST .......... 788,350
----------
TOTAL INVESTMENTS ........... 108.7% 5,424,737
(Identified Cost $4,698,917)
OTHER ASSETS,
LESS LIABILITIES ........... (8.7) (435,315)
----- ----------
NET ASSETS 100.0% $4,989,422
===== ==========
ADRs American Depositary Receipts
* Non income producing
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
ASSETS:
Investments at value (Note 1A) (Identified Cost, $4,698,917) $5,424,737
Cash ...................................................... 385
Interest receivable and other assets ...................... 1,528
----------
Total assets .......................................... 5,426,650
----------
LIABILITIES:
Payable for investments purchased ......................... 437,228
----------
NET ASSETS ................................................ $4,989,422
==========
REPRESENTED BY:
Paid-in capital for beneficial interests .................. $4,989,422
==========
See notes to financial statements
Small Cap Equity Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
From June 21, 1995 (Commencement of Operations) to December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividend Income ............................................... $ 5,205
Interest Income ............................................... 11,378 $ 16,583
--------
EXPENSES:
Auditing fees ................................................... 25,000
Investment advisory fees (Note 2) ............................... 10,222
Custodian fees .................................................. 7,363
Legal fees ...................................................... 3,368
Administrative fees (Note 3) .................................... 682
Trustee fees .................................................... 400
Miscellaneous ................................................... 1,300
--------
Total expenses ................................................ 48,335
Less expense assumed by the Administrator: ...................... (37,431)
Less aggregate amount waived by Investment
Adviser and Administrator (Notes 2 and 3) ...................... (10,904)
--------
Net Expenses .................................................. -0-
----------
Net investment income ......................................... 16,583
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions ........... 288,385
Unrealized appreciation (depreciation) of investments--
Beginning of period .......................................... --
End of period ................................................ 725,820
--------
Net change in unrealized appreciation (depreciation)............ 725,820
----------
Net realized and unrealized gain (loss) on investments ....... 1,014,205
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $1,030,788
==========
</TABLE>
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
JUNE 21, 1995
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1995
----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 16,583
Net realized gain on investment transactions .......... 288,385
Net change in unrealized appreciation of investments .. 725,820
----------
Net increase in net assets resulting from operations 1,030,788
----------
CAPITAL TRANSACTIONS:
Proceeds from contributions ........................... 4,044,649
Value of withdrawals .................................. (86,015)
----------
Net increase in net assets from capital transactions 3,958,634
----------
NET INCREASE IN NET ASSETS: ........................... 4,989,422
NET ASSETS:
Beginning of period ................................... --
----------
End of period ......................................... $4,989,422
==========
See notes to financial statements
Small Cap Equity Portfolio
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
JUNE 21, 1995
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1995
-----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted)................ $4,989
Ratio of expenses to average net assets ................ -0-
Ratio of net investment income to average net assets .... 1.22%*
Portfolio turnover ...................................... 41%
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 .......................... 2.50%*
Net investment income to average net assets ............. (1.28%)*
* Annualized
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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 $10,222 all of which was voluntarily
waived for the period June 21, 1995 (Commencement of Operations) to December 31,
1995. 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 $682
all of which was voluntarily waived for the period June 21, 1995 (Commencement
of Operations) to December 31, 1995. 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 $4,746,834 and $1,124,652, respectively, for the period June 21, 1995
(Commencement of Operations) to December 31, 1995.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1995, as computed on a federal income tax
basis, are as follows:
Aggregate cost .......................... $4,698,917
==========
Gross unrealized appreciation ........... $ 886,867
Gross unrealized depreciation ........... (161,047)
----------
Net unrealized appreciation $ 725,820
==========
(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 period June 21, 1995 (commencement
of operations) to December 31, 1995, no commitment fee was allocated to the
Portfolio. Since the line of credit was established, there have been no
borrowings.
<PAGE>
Small Cap Equity Portfolio
- -----------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, SMALL CAP EQUITY PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Equity Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at December 31, 1995 and
the related statements of operations and of changes in net assets and the
financial highlights for the period June 21, 1995 (commencement of operations)
to December 31, 1995. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of investments owned as
at December 31, 1995 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1995, the
results of its operations and the changes in its net assets and the financial
highlights for the period June 21, 1995 (commencement of operations) to December
31, 1995 in accordance with U.S. generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 7, 1996
<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
