<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- ---------------------------------------| |-------------------------------------
INVESTMENT ADVISER
(OF LARGE CAP GROWTH PORTFOLIO FORMERLY 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 AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
- ---------------------------------------| |-------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside Cover)
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
EQ/EI/A/97 Printed on Recycled Paper. [recycle symbol]
[logo] LANDMARK(SM) FUNDS
ADVISED BY CITIBANK, N.A.
LANDMARK
EQUITY FUND
ANNUAL
REPORT
OCTOBER 31, 1997
<PAGE>
- -------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Shareholder:
The U.S. stock market continued its remarkable advance during the first ten
months of 1997, interrupted occasionally by high volatility. The market's
strength can be attributed to the economic conditions the nation has enjoyed for
almost seven years, including moderate rates of growth, enhanced productivity,
high levels of employment and low rates of inflation. These influences have
created an environment in which interest rates have declined and corporate
profits have grown, supporting the dramatic rise in stocks.
Over the last ten months, the Landmark Funds' investment adviser, Citibank,
N.A., continued to manage the Landmark Equity Fund to achieve its investment
objective: 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.
This report reviews the Fund's investment activities and performance during
the ten-month period ended October 31, 1997, and provides a summary of
Citibank's perspective on and outlook for the U.S. stock market. We are sending
you this Annual Report as of October 31 because the fiscal year-end date of the
Fund has been changed from December 31 to October 31. From this point forward,
you will receive shareholder reports for the Fund every six months, dated April
30 and October 31 of each year.
In addition to the fiscal year-end change, the Fund held a Special Meeting
of Shareholders in October to consider certain proposals seeking increased
flexibility to invest in more than one investment company, consistent with the
Fund's investment objectives. Shareholders were also asked to vote on certain
changes to the Fund's investment restrictions and governing documents, as well
as certain other matters, to permit these changes. Also considered were
proposals to approve a Service Plan pursuant to Rule 12b-1 under the federal
Investment Company Act of 1940, to authorize certain technical amendments to the
Fund's investment restrictions and to approve selection of the Fund's
accountants. All proposals were approved by shareholders. Furthermore, as of
November 1, 1997, the name of Equity Portfolio was changed to Large Cap Growth
Portfolio.
On behalf of the Board of Trustees of the Landmark Funds, I want to thank
you for your confidence and participation.
/s/ Philip Coolidge
Philip W. Coolidge
President
November 18, 1997
TABLE OF CONTENTS
1 A Letter To Our Shareholders
- ----------------------------------------------------------------------------
2 Market Environment
Fund Snapshot
- ----------------------------------------------------------------------------
Portfolio Managers
3 The Portfolio Managers Respond
Quotes From The Portfolio Managers
- ----------------------------------------------------------------------------
4 Strategy And Outlook
Equity Portfolio By The Numbers
- ----------------------------------------------------------------------------
5 Fund Data
Performance Highlights
LANDMARK EQUITY FUND
- ----------------------------------------------------------------------------
6 Statement of Assets and Liabilities
- ----------------------------------------------------------------------------
7 Statement of Operations
- ----------------------------------------------------------------------------
8 Statement of Changes in Net Assets
- ----------------------------------------------------------------------------
9 Financial Highlights
- ----------------------------------------------------------------------------
10 Notes to Financial Statements
- ----------------------------------------------------------------------------
12 Independent Auditors' Report
- ----------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO
(FORMERLY 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
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or any of its affiliates
o Are subject to investment risks, including possible loss of the principal
amount invested
<PAGE>
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
- -------------------------------------------------------------------------------
The forces that have driven the U.S. stock market higher over the past two
years continued to prevail during the first ten months of 1997. The U.S. economy
remains characterized by low inflation, moderate growth and modestly declining
interest rates. Yet, volatility in the financial markets has been increasing,
with the markets continuing to react to each new release of economic data as
well as to statements by the Chairman of the U.S. Federal Reserve Board.
While the U.S. stock market has continued its spectacular climb, the rally
has been interrupted several times during the course of 1997 so far. In April,
concerns about the strength of the U.S. economy and its influence on
inflationary pressures caused a correction of nearly 10% in large-capitalization
stocks, and small-cap stocks declined even more sharply. Stocks quickly retraced
their losses, however, when it became clear that the economy's growth was not
creating undue inflationary pressures. The stock market added to its gains in
the ensuing months.
At the end of the reporting period, in late October, the stock market
experienced a decline of more than 10%, largely in response to financial
concerns and market declines in Asia. The 554-point decline in the Dow Jones
Industrial Average on October 27, when stocks lost 7.2% of their value in a
single day, was perhaps the most glaring evidence of the market's propensity for
short-term volatility on the way to long-term gains.
- -------------------------------------------------------------------------------
FUND SNAPSHOT
- -------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
October 19, 1990
NET ASSETS AS OF 10/31/97
$248.2 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 Standard & Poor's Barra Growth Index
o Lipper Growth Funds Average
INVESTMENT ADVISER,
LARGE CAP GROWTH PORTFOLIO
(FORMERLY 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
- -------------------------------------------------------------------------------
Although stocks continued to advance, the market's leadership shifted
during 1997 from large, multi-national companies to businesses that derive most
of their revenues from domestic sources. This change, which was caused primarily
by concerns over the effects of a strong U.S. dollar on overseas earnings,
affected some of the globally dominant companies in which the Portfolio invests.
As a result, some of the Fund's large-cap holdings, which had previously led the
market's rise, "took a breather" and advanced less than the overall market.
We have continued to maintain our positions in these well known, global
business leaders because we believe that they represent some of the world's
highest quality investments. At the same time, however, we sold some stocks that
were not as attractive fundamentally as when we purchased them. We believe these
moves positioned the Portfolio well, because we were able to shift assets to
some of the market's top-performing sectors, such as the financial industry. The
Portfolio's positions in financial stocks, such as banks and brokerage firms,
benefitted from the combination of declining interest rates and active financial
markets. The Portfolio also profited from its holdings in the retail industry,
where we focused on specialty retailers with strong managements and rising
market shares.
In addition, the Portfolio benefitted from reduced exposure to certain
market sectors. For example, we avoided electric utilities because of ongoing
problems related to the deregulation of power providers.
- -------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
"Globally dominant companies with recognizable consumer names have lagged the
market recently, and although we're cautious due to our concerns about Asia, we
believe their management strengths and market shares will provide them with
upside potential in the long run."
"The Portfolio benefitted from our security selection strategy. We were
overweighted in high-quality financial and retail stocks, and we avoided
utilities and the more erratic sub-sectors within the technology industry."
"The Portfolio does best when quality does best. Over a full market cycle, we
think that quality companies will outperform."
<PAGE>
- -------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
- -------------------------------------------------------------------------------
Although we see no signs that positive economic conditions will end soon,
we remain cautious in the wake of the late-October sell-off. We would not be
surprised to see further declines if economic conditions change or if
corporations fail to meet earnings growth expectations.
In this environment, we are particularly aware of the importance of stock
selection. We will continue to focus on companies with rising sales, visible and
accelerating earnings, high returns on equity and strong balance sheets. This
approach often leads us to the high-quality, global leaders that outperformed
the market throughout most of the current expansion, but that have recently
fallen out of favor. Our preference under any market conditions is to act
according to an investment's prospects over a full market cycle rather than to
its week-by-week or month-to-month fluctuations. Consequently, we intend to
continue to emphasize the high-quality companies that have served the Portfolio
well in the past.
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
BY THE NUMBERS
- -------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 10/31/97)
- -------------------------------------------------------------------------------
NAME INDUSTRY SECTOR % OF NET ASSETS
General Electric Co. Producer/Manufacturer 5.63%
Microsoft Corp. Electronics/Technical Services 4.03%
Pfizer Inc. Health Services/Technology 3.52%
Intel Corp. Electronics/Technical Services 3.32%
Wal Mart Stores, Inc. Retail Trade 2.81%
Home Depot Inc. Retail Trade 2.79%
Merck & Co. Inc. Health Services/Technology 2.79%
Carnival Corp. Consumer Services 2.75%
Eli Lilly & Company Health Services/Technology 2.45%
Gillette Co. Consumer Non Durables 2.19%
CHANGES IN PORTFOLIO SECTORS
PORTFOLIO OF INVESTMENTS
AS OF 10/31/97
CASH/SHORT TERM/OTHER 4%
CONSUMER 54%
INDUSTRIAL 2%
CAPITAL GOODS 28%
FINANCIAL 12%
...COMPARED TO 12/31/96
CASH/SHORT TERM/OTHER 3%
CONSUMER 40%
INDUSTRIAL 14%
CAPITAL GOODS 28%
FINANCIAL 15%
<PAGE>
- -------------------------------------------------------------------------------
FUND DATA ALL PERIODS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
TOTAL RETURNS
---------------------------------------------------
TEN MONTHS ENDED SINCE
ONE FIVE 10/19/90
(NOTE 1F)** YEAR YEARS* INCEPTION*
-------------- ------ ------ ---------
<S> <C> <C> <C> <C>
Landmark Equity Fund without Sales Charge.............. 22.27% 24.83% 16.14% 16.57%
Lipper Growth Funds Average............................ 21.73% 27.28% 17.28% 18.50%+
S&P 500 Index.......................................... 25.31% 32.10% 19.85% 20.22%+
S&P Barra Growth Index................................. 27.94% 32.34% 19.20% 20.32%+
Landmark Equity Fund with Maximum Sales Charge of 4.75% 16.46% 18.90% 15.01% 15.76%
</TABLE>
* Average Annual Total Return.
** Not Annualized
+ From 10/31/90
30-Day SEC Yield 0.10%
Income Dividends Per Share $0.030
Capital Gain Distributions $1.127
IMPORTANT TAX INFORMATION
The Fund designates for income tax purposes $13,051,223 of its capital gains
distribution as long-term capital gains.
- -------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
- -------------------------------------------------------------------------------
A $10,000 investment in the Fund made on inception date would have grown to
$28,018 with sales charge (as of 10/31/97). The graph shows how the Fund
compares to our benchmarks over the same period.
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Landmark Landmark Lipper S&P S&P
Equity Fund Equity Fund Growth 500 Barra Growth
- Without - With Funds Index Index
sales charge sales charge Average (unmanged) (unmanged)
----------------------------------------------------------------------------
10/31/90 9,846.83 9,379.10 10,000.00 10,000.00 10,000.00
11/30/90 10,437.64 9,941.85 10,660.00 10,646.00 10,604.00
12/31/90 10,534.12 10,033.75 11,014.00 10,943.02 10,941.21
1/31/91 10,996.43 10,474.10 11,690.00 11,420.14 11,396.36
2/28/91 11,810.98 11,249.96 12,534.00 12,236.68 12,279.58
3/31/91 11,888.03 11,323.35 12,938.00 12,532.81 12,743.75
4/30/91 11,634.86 11,082.20 12,922.00 12,562.89 12,719.54
5/31/91 12,427.40 11,837.09 13,456.00 13,104.35 13,200.34
6/30/91 11,723.49 11,166.62 12,795.00 12,504.17 12,648.57
7/31/91 12,411.80 11,822.24 13,430.00 13,086.86 13,325.27
8/31/91 13,111.21 12,488.43 13,838.00 13,397.02 13,754.34
9/30/91 12,667.14 12,065.45 13,712.00 13,173.29 13,453.12
10/31/91 12,955.78 12,340.38 13,993.00 13,349.81 13,617.25
11/30/91 12,400.69 11,811.66 13,435.00 12,811.81 13,270.01
12/31/91 13,771.77 13,117.61 14,921.00 14,277.49 15,139.75
1/31/92 13,548.92 12,905.35 14,997.00 14,011.92 14,608.34
2/29/92 13,883.19 13,223.74 15,208.00 14,194.08 14,694.53
3/31/92 13,515.50 12,873.51 14,755.00 13,917.29 14,353.62
4/30/92 13,571.21 12,926.58 14,656.00 14,326.46 14,505.77
5/31/92 13,537.78 12,894.74 14,738.00 14,396.66 14,618.92
6/30/92 13,106.19 12,483.65 14,309.00 14,182.15 14,316.31
7/31/92 13,665.33 13,016.23 14,821.00 14,762.20 14,961.98
8/31/92 13,285.12 12,654.07 14,499.00 14,459.58 14,789.92
9/30/92 13,575.87 12,931.02 14,724.00 14,630.20 14,964.44
10/31/92 13,922.54 13,261.21 15,021.00 14,681.41 15,188.91
11/30/92 14,694.15 13,996.17 15,769.00 15,182.04 15,802.54
12/31/92 14,818.29 14,114.42 16,061.00 15,368.78 15,906.84
1/31/93 14,896.70 14,189.10 16,259.00 15,497.88 15,735.05
2/28/93 14,683.89 13,986.40 16,004.00 15,708.65 15,607.60
3/31/93 15,535.13 14,797.21 16,447.00 16,040.10 15,827.67
4/30/93 15,288.71 14,562.50 15,937.00 15,651.93 15,098.01
5/31/93 15,725.53 14,978.57 16,516.00 16,071.40 15,635.50
6/30/93 15,572.27 14,832.58 16,566.00 16,118.01 15,502.60
7/31/93 15,370.47 14,640.37 16,526.00 16,053.54 15,183.25
8/31/93 16,065.56 15,302.44 17,225.00 16,661.97 15,737.44
9/30/93 16,110.40 15,345.16 17,401.00 16,534.17 15,496.66
10/31/93 16,334.62 15,558.73 17,643.00 16,876.43 16,073.14
11/30/93 16,132.82 15,366.52 17,297.00 16,716.10 16,061.89
12/31/93 16,635.43 15,845.25 17,797.00 16,918.37 16,174.32
1/31/94 16,972.64 16,166.44 18,322.00 17,493.59 16,520.45
2/28/94 16,702.87 15,909.49 18,036.00 17,019.52 16,224.73
3/31/94 15,961.02 15,202.87 17,187.00 16,277.46 15,475.15
4/30/94 16,253.27 15,481.24 17,244.00 16,485.82 15,544.79
5/31/94 16,579.23 15,791.72 17,310.00 16,756.18 15,798.17
6/30/94 16,103.44 15,338.53 16,727.00 16,345.66 15,461.67
7/31/94 16,607.39 15,818.54 17,169.00 16,881.79 15,954.90
8/31/94 17,019.71 16,211.28 17,955.00 17,573.95 16,806.89
9/30/94 16,584.48 15,796.72 17,632.00 17,149.19 16,566.55
10/31/94 16,893.73 16,091.27 17,911.00 17,545.85 16,952.55
11/30/94 16,332.51 15,556.72 17,239.00 16,902.26 16,396.51
12/31/94 16,568.01 15,781.03 17,398.00 17,151.07 16,680.17
1/31/95 16,673.54 15,881.54 17,520.00 17,595.28 17,093.84
2/28/95 17,259.81 16,439.96 18,173.00 18,279.73 17,760.50
3/31/95 17,681.92 16,842.03 18,678.00 18,818.99 18,318.18
4/30/95 17,869.53 17,020.72 19,061.00 19,372.27 18,794.45
5/31/95 18,444.07 17,567.98 19,616.00 20,145.22 19,467.29
6/30/95 18,736.15 17,846.18 20,420.00 20,612.59 20,212.89
7/31/95 19,327.94 18,409.86 21,372.00 21,294.86 20,857.68
8/31/95 19,138.56 18,229.48 21,537.00 21,348.10 20,788.85
9/30/95 19,718.52 18,781.89 22,157.00 22,248.99 21,815.82
10/31/95 19,777.70 18,838.26 21,825.00 22,168.90 21,990.35
11/30/95 20,842.93 19,852.89 22,585.00 23,139.89 22,782.00
12/31/95 21,132.21 20,128.43 22,664.00 23,586.49 23,039.44
1/31/96 21,685.09 20,655.05 23,149.00 24,388.43 23,919.55
2/29/96 21,820.24 20,783.78 23,672.00 24,615.25 24,137.22
3/31/96 22,213.39 21,158.26 23,883.00 24,851.55 24,035.84
4/30/96 22,385.40 21,322.09 24,669.00 25,216.87 24,504.54
5/31/96 22,790.84 21,708.28 25,323.00 25,864.94 25,406.31
6/30/96 23,042.20 21,947.70 24,958.00 25,963.23 25,723.89
7/31/96 21,726.92 20,694.89 23,475.00 24,815.66 24,538.02
8/31/96 22,310.11 21,250.38 24,304.00 25,339.27 24,901.18
9/30/96 23,550.94 22,432.27 25,682.00 26,763.33 26,629.32
10/31/96 23,563.35 22,444.09 25,857.00 27,502.00 27,207.18
11/30/96 24,878.63 23,696.89 27,398.00 29,578.40 29,239.56
12/31/96 24,057.36 22,914.63 27,001.00 28,992.75 28,564.13
1/31/97 25,481.03 24,270.68 28,381.00 30,801.90 30,800.70
2/28/97 25,309.66 24,107.45 27,969.00 31,045.23 31,059.43
3/31/97 23,978.27 22,839.30 26,646.00 29,772.38 29,584.73
4/30/97 26,021.49 24,785.47 27,637.00 31,546.81 31,972.22
5/31/97 27,313.34 26,015.96 29,682.00 33,474.32 33,868.17
6/30/97 28,649.57 27,288.72 30,851.00 34,963.93 35,585.29
7/31/97 30,653.23 29,197.20 33,446.00 37,743.56 38,403.64
8/31/97 28,593.91 27,235.70 32,336.00 35,629.92 35,849.80
9/30/97 29,929.69 28,508.03 34,134.00 37,578.88 37,678.14
10/31/97 29,414.86 28,017.65 32,840.00 36,323.74 36,544.03
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.
If the waivers were not in place, the fund's returns would have been lower.
<PAGE>
- -------------------------------------------------------------------------------
LANDMARK EQUITY FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997 (NOTE 1F)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Large Cap Growth Portfolio, at value (Note 1A)................................. $248,345,607
Receivable for shares of beneficial interest sold............................................ 96,314
------------
Total assets............................................................................. 248,441,921
------------
LIABILITIES:
Payable for shares of beneficial interest repurchased........................................ 183,196
Payable to affiliates--Shareholder servicing agents' fee (Note 2B)........................... 54,459
Accrued expenses and other liabilities....................................................... 43,558
------------
Total liabilities........................................................................ 281,213
------------
NET ASSETS for 11,741,347 shares of beneficial interest outstanding.......................... $248,160,708
============
NET ASSETS CONSIST OF:
Paid-in capital.............................................................................. $152,430,607
Unrealized appreciation...................................................................... 45,338,938
Accumulated net realized gain................................................................ 50,255,883
Undistributed net investment income.......................................................... 135,280
------------
Total.................................................................................... $248,160,708
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ...................... $21.14
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge ($21.14/0.9525)............... $22.19
======
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LANDMARK EQUITY FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
-------------- -----------
INVESTMENT INCOME (NOTE 1B):
<S> <C> <C>
Dividend Income from Large Cap Growth Portfolio............................ $ 2,144,141 $ 3,308,036
Interest Income from Large Cap Growth Portfolio............................ 353,939 522,929
Other Income: Foreign Tax reclaims......................................... -- 26,953
Allocated Expenses from Large Cap Growth Portfolio......................... (1,224,008) (1,349,323)
----------- -----------
1,274,072 2,508,595
----------- -----------
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B)............................... 509,037 561,584
Administrative fees (Note 2A).............................................. 508,746 561,584
Distribution fees (Note 3)................................................. 305,247 336,950
Expense fees (Note 6)...................................................... 203,592 224,619
----------- -----------
Total expenses......................................................... 1,526,622 1,684,737
Less aggregate amount waived by Administrator and Distributor
(Notes 2A and 3)......................................................... (610,379) (673,900)
----------- -----------
Net expenses.......................................................... 916,243 1,010,837
----------- -----------
Net investment income................................................. 357,829 1,497,758
----------- -----------
NET REALIZED AND UNREALIZED GAIN FROM LARGE CAP GROWTH PORTFOLIO:
Net realized gain.......................................................... 46,948,909 26,516,316
Net change in unrealized appreciation...................................... 934,665 1,062,588
----------- -----------
Net realized and unrealized gain from Large Cap Growth Portfolio ..... 47,883,574 27,578,904
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $48,241,403 $29,076,662
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LANDMARK EQUITY FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, 1997 ----------------------------
(NOTE 1F) 1996 1995
-------------- --------- ---------
INCREASE IN NET ASSETS FROM:
OPERATIONS:
<S> <C> <C> <C>
Net investment income................................ $ 357,829 $ 1,497,758 $ 2,546,594
Net realized gain ................................... 46,948,909 26,516,316 7,372,648
Net change in unrealized appreciation................ 934,665 1,062,588 37,840,071
------------ ------------ ------------
Net increase in net assets resulting from operations 48,241,403 29,076,662 47,759,313
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (347,415) (1,433,073) (2,534,653)
Net realized gain.................................... (13,051,223) (14,330,626) (6,988,138)
------------ ------------ ------------
Decrease in net assets from distributions to shareholders (13,398,638) (15,763,699) (9,522,791)
------------ ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares..................... 6,434,759 13,950,013 9,027,385
Net asset value of shares issued to shareholders
from reinvestment of distributions................. 13,398,487 15,763,320 9,521,722
Cost of shares repurchased........................... (35,469,550) (27,800,567) (27,032,148)
------------ ------------ ------------
Net increase (decrease) in net assets from
transactions in shares of beneficial interest.... (15,636,304) 1,912,766 (8,483,041)
------------ ------------ ------------
NET INCREASE IN NET ASSETS .......................... 19,206,461 15,225,729 29,753,481
NET ASSETS:
Beginning of period.................................. 228,954,247 213,728,518 183,975,037
------------ ------------ ------------
End of period (including undistributed net investment
income of $135,280, $124,866 and $69,808 respectively) $248,160,708 $228,954,247 $213,728,518
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LANDMARK EQUITY FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, 1997 --------------------------------------------------
(NOTE 1F) 1996 1995 1994++ 1993++ 1992++
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period. $ 18.25 $ 17.20 $ 14.13 $ 14.80 $ 13.23 $ 12.36
-------- -------- -------- -------- -------- -------
Income From Operations:
Net investment income................ 0.031 0.122 0.211 0.173 0.071** 0.065
Net realized and unrealized gain
(loss) on investments.............. 4.016 2.250 3.651 (0.245) 1.550** 0.868
-------- -------- -------- -------- -------- -------
Total from operations........... 4.047 2.372 3.862 (0.072) 1.621 0.933
-------- -------- -------- -------- -------- -------
Less Distributions From:
Net investment income.............. (0.030) (0.118) (0.210) (0.169) (0.051) (0.063)
Net realized gain on investments... (1.127) (1.204) (0.582) (0.429) -- --
-------- -------- -------- -------- -------- -------
Total from distributions ...... (1.157) (1.322) (0.792) (0.598) (0.051) (0.063)
-------- -------- -------- -------- -------- -------
Net Asset Value, end of period....... $ 21.14 $ 18.25 $ 17.20 $ 14.13 $ 14.80 $ 13.23
======== ======== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted) .......................... $248,161 $228,954 $213,729 $183,975 $200,903 $10,973
Ratio of expenses to average net
assets............................. 1.05%(A)* 1.05%(A) 1.05%(A) 1.05%(A) 1.07% 1.40%
Ratio of net investment income to
average net assets................. 0.18%* 0.67% 1.30% 1.15% 0.52% 0.53%
Portfolio turnover(B)................ -- -- -- 1% 23% 79%
Total return......................... 22.27%+ 13.84% 27.55% (0.41)% 12.26% 7.60%
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 for the year ended
December 31, 1992, the net investment income (loss) per share and the ratios would have been as follows:
Net investment income (loss) per share $ (0.023) $ 0.067 $ 0.170 $ 0.136 $ (0.029)** $(0.070)
Ratios:
Expenses to average net assets....... 1.35%(A)* 1.35%(A) 1.30%(A) 1.29%(A) 1.37% 2.50%
Net investment income (loss) to
average net assets.................. (0.12)%* 0.37% 1.05% 0.91% 0.21% (0.57%)
* Annualized.
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A) Includes the Fund's share of Large Cap Growth Portfolio (formerly Equity Portfolio) allocated expenses for
the periods subsequent to May 1, 1994.
(B) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are
included elsewhere in this report.
+ Not Annualized.
++ On May 1, 1994 the fund began investing all of its investable assets in Equity Portfolio.
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LANDMARK EQUITY FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
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 currently invests all of its investable assets in
Large Cap Growth Portfolio (the "Portfolio"), (formerly Equity 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 (76.4% at
October 31, 1997) 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 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 ten months ended
October 31, 1997, the Fund reclassified $3,325,755 from paid-in capital to
accumulated net realized gain on investments.
F. CHANGE IN FISCAL YEAR END -- During fiscal year 1997, the Fund changed its
fiscal year end from December 31 to October 31.
G. 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
(SEE NOTE 7)
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") which provides that the Trust, on behalf of the Fund, may obtain
the services of an Administrator, one or more Shareholder Servicing Agents and
other Servicing Agents, and may enter into agreements providing for the payment
of fees for such services. Under the Trust Administrative Services Plan, the
aggregate of the fees paid to the Administrator from the Fund, the fees paid to
the Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.65% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year.
A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative fees payable to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.25% of the Fund's average daily net assets. The
Administrative fees amounted to $508,746 of which $406,939 was voluntarily
waived for the ten months ended October 31, 1997. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund pays no
compensation directly to any Trustee or to any officer who is affiliated with
the Administrator, all of whom receive remuneration for their services to the
Fund from the Administrator or its affiliates. Certain of the officers and a
Trustee of the Fund are officers or directors of the Administrator or its
affiliates.
B. SHAREHOLDER SERVICING AGENTS' FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $509,037 for the ten months ended October 31,
1997.
(3) DISTRIBUTION FEES (SEE NOTE 7)
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, in which the Fund compensates the
Distributor at an annual rate not to exceed 0.15% of the Fund's average daily
net assets. The Distribution fees amounted to $305,247 of which $203,440 was
voluntarily waived for the ten months ended October 31, 1997. The Distributor
may also receive an additional fee from the Fund at an annual rate not to exceed
0.05% of the Fund's average daily net assets in anticipation of, or as
reimbursement for, advertising expenses incurred by the Distributor in
connection with the sale of shares of the Fund. No payment of such additional
fee has been made during the period. The Distributor has voluntarily agreed to
waive this fee through October 31, 1997.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the ten
months ended October 31, 1997 aggregated $5,915,837 and $36,114,618,
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:
TEN MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
---------------- ------------
Shares sold............................ 318,860 770,660
Shares issued to
shareholders from reinvestment of
distributions ...................... 643,230 862,316
Shares repurchased..................... (1,766,046) (1,514,522)
---------- ----------
Net increase (decrease)............... (803,956) 118,454
========== ==========
(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 less expenses waived by the Administrator and Distributor
would, on an annual basis, exceed an agreed upon rate, currently 1.05% of the
Fund's average daily net assets.
(7) SUBSEQUENT EVENT
At a Special Meeting on October 24, 1997, the Shareholders of the Fund approved
certain proposals to allow the assets of the Fund to be invested in one or more
investment companies. Additionally, the shareholders approved a Management
Agreement with Citibank, to provide administrative services, and a new Rule
12b-1 Service Plan. These new agreements simplify and terminate the Fund's
existing Administration, Distribution and Service Plan Agreements. Effective
November 1, 1997, the Management fees and Service Plan fees may not exceed, on
an annual basis, an amount equal to 0.30% and 0.25%, respectively, of the
average daily net assets of the Fund.
- -------------------------------------------------------------------------------
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 October 31,
1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at October 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 10, 1997
<PAGE>
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS--96.3%
COMMERCIAL SERVICES - 1.7%
Interpublic Group Inc. ....... 117,200 $ 5,567,000
------------
CONSUMER-NON DURABLES - 8.7%
Clorox Co. ................... 54,900 3,843,000
Coca-Cola Co. ................ 104,700 5,915,550
Colgate-Palmolive Co. ........ 73,100 4,733,225
Gillette Co. ................. 79,900 7,116,094
Procter & Gamble Co. ......... 97,700 6,643,600
------------
28,251,469
------------
CONSUMER SERVICES - 8.8%
Carnival Corp. ............... 183,900 8,919,150
Clear Channel
Communications* ........... 77,000 5,082,000
Gannett Co. Inc. ............. 76,900 4,042,055
Leggett & Platt Inc. ......... 148,000 6,179,000
Mattel Inc. .................. 112,700 4,381,213
------------
28,603,418
------------
ELECTRONICS/TECHNICAL SERVICES - 15.8%
Adaptec Inc.* ................ 100,500 4,867,969
Amp Inc. ..................... 111,800 5,031,000
Applied Material Inc.* ....... 68,500 2,286,187
Cisco Systems Inc.* .......... 74,500 6,111,328
Computer Associates
International Inc. ........ 78,900 5,882,981
Intel Corp. .................. 140,000 10,780,000
Microsoft Corp.* ............. 100,600 13,078,000
Parametic Technology Corp.* .. 72,800 3,212,300
------------
51,249,765
------------
FINANCE - 12.4
American International
Group Inc. ................ 34,550 $ 3,526,259
Chubb Corp. .................. 67,400 4,465,250
Federal National Mortgage
Association ............... 146,000 7,071,875
Franklin Resources Inc. ...... 50,600 4,547,675
Norwest Corp. ................ 112,000 3,591,000
State Street Corp. ........... 77,900 4,342,925
Travelers Group Inc. ......... 78,700 5,509,000
U.S. Bancorp ................. 34,400 3,498,050
Zions Bancorp ................ 94,100 3,658,138
------------
40,210,172
------------
HEALTH SERVICES/TECHNOLOGY - 20.7%
Abbott Laboratories .......... 82,200 5,039,888
Cardinal Health Inc. ......... 67,200 4,989,600
Eli Lilly & Company .......... 118,800 7,944,750
Health Management
Associates* ............... 225,900 5,506,312
Johnson & Johnson ............ 84,400 4,842,450
Lincare Holdings Inc.* ....... 118,600 6,359,925
Merck & Co. Inc. ............. 101,400 9,049,950
Pfizer Inc. .................. 161,600 11,433,200
Schering Plough Corp. ........ 108,400 6,077,175
Warner Lambert Co. ........... 42,000 6,013,875
------------
67,257,125
------------
INDUSTRIAL SERVICES - 1.4%
Schlumberger Ltd. ............ 50,600 4,427,500
------------
PRODUCER/MANUFACTURER - 10.3%
Deere & Co. .................. 56,000 2,947,000
General Electric Co. ......... 283,500 18,303,469
Illinois Tool Works Inc. ..... 116,500 5,730,344
Xerox Corp. .................. 80,900 6,416,381
------------
33,397,194
------------
RETAIL TRADE - 14.5%
Bed Bath and Beyond Inc.* .... 165,600 5,257,800
Consolidated Stores Corp.* ... 126,000 5,024,250
Cracker Barrel
Old Country Store ......... 133,700 3,944,150
Gap Stores ................... 80,900 4,302,869
Home Depot Inc. .............. 163,000 9,066,875
Kohls Corporation* ........... 77,900 5,229,038
Walgreen Co. ................. 192,000 5,400,000
Wal Mart Stores Inc. ......... 259,800 9,125,475
------------
47,350,457
------------
TRANSPORTATION - 2.0%
Southwest Airlines Co. ....... 203,600 6,642,450
------------
TOTAL COMMON STOCK
(Identified Cost $260,460,317) 312,956,550
------------
SHORT-TERM OBLIGATIONS--4.4%
Fuji Repurchase Agreement 14,221,000
------------
5.72% due 11/03/97 proceeds
at maturity $14,227,779
(collateralized by $17,254,000
U.S. Treasury Notes 8.50%
due 11/15/00)
TOTAL INVESTMENTS
(Identified Cost $274,681,317) 100.7% 327,177,550
Other Assets,
Less Liabilities ..... (0.7) (2,264,814)
----- ------------
Net Assets............... 100.0% $324,912,736
===== ============
* Non income producing
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997 (NOTE 1F)
- -------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $274,681,317)... $327,177,550
Cash............................................................. 745
Dividends and interest receivable................................ 194,639
Receivable for investments sold.................................. 4,090,069
------------
Total assets................................................. 331,463,003
------------
LIABILITIES:
Payable for investments purchased................................ 6,380,045
Payable to affiliates--Investment advisory fees (Note 2)......... 141,851
Accrued expenses and other liabilities........................... 28,371
------------
Total liabilities............................................ 6,550,267
------------
NET ASSETS ...................................................... $324,912,736
============
REPRESENTED BY:
Paid-in capital for beneficial interests......................... $324,912,736
============
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
-------------- -----------
INVESTMENT INCOME:
<S> <C> <C>
Dividend income............................................................ $ 2,759,579 $ 4,073,000
Interest income............................................................ 455,623 641,497
----------- -----------
Total investment income.................................................. 3,215,202 4,714,497
----------- -----------
EXPENSES:
Investment advisory fees (Note 2).......................................... 1,312,700 1,387,227
Administrative fees (Note 3)............................................... 131,270 138,723
Expense fees (Note 6)...................................................... 131,237 138,757
----------- -----------
Total expenses........................................................... 1,575,207 1,664,707
----------- -----------
Net investment income.................................................... 1,639,995 3,049,790
----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions............................. 60,297,277 28,518,761
Net change in unrealized appreciation of investments...................... 1,141,934 4,832,223
----------- -----------
Net realized and unrealized gain on investments......................... 61,439,211 33,350,984
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $63,079,206 $36,400,774
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, 1997 -----------------------------
(NOTE 1F) 1996 1995
---------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
<S> <C> <C> <C>
Net investment income................................ $ 1,639,995 $ 3,049,790 $ 3,620,844
Net realized gain on investment transactions........ 60,297,277 28,518,761 7,439,032
Net change in unrealized appreciation of investments. 1,141,934 4,832,223 41,047,263
------------ ------------ ------------
Net increase in net assets resulting from
operations.................................... 63,079,206 36,400,774 52,107,139
------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions.......................... 38,002,991 61,756,061 43,731,563
Value of withdrawals................................. (64,731,733) (55,752,909) (36,365,840)
------------ ------------ ------------
Net increase (decrease) in net assets from
capital transactions ......................... (26,728,742) 6,003,152 7,365,723
------------ ------------ ------------
NET INCREASE IN NET ASSETS: ......................... 36,350,464 42,403,926 59,472,862
NET ASSETS:
Beginning of period.................................. 288,562,272 246,158,346 186,685,484
------------ ------------ ------------
End of period........................................ $324,912,736 $288,562,272 $246,158,346
============ ============ ============
</TABLE>
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS MAY 1, 1994
ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT
OCTOBER 31, 1997 ------------------------- OF OPERATIONS) TO
(NOTE 1F) 1996 1995 DECEMBER 31, 1994
-------------- ---------- --------- ---------------
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C> <C> <C>
Net assets, end of period (000's omitted) $324,913 $288,562 $246,158 $186,685
Ratio of expenses to average net assets.. 0.60%* 0.60% 0.60% 0.60%*
Ratio of net investment income to
average net assets .................. 0.62%* 1.10% 1.73% 1.81%
*
Portfolio turnover....................... 103% 90% 67% 35%
Average commission rate per share (A).... $0.0578 $0.0585 N/A N/A
* Annualized
(A) The average commission rate paid is applicable for Funds that invest greater than 10% of average
net assets in equity transactions on which commissions are charged. This disclosure is required
for fiscal periods beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO) (SEE NOTE 8)
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Large Cap Growth Portfolio (the "Portfolio"), (formerly Equity Portfolio), a
separate series of The Premium Portfolios (the "Portfolio Trust"), is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Adviser of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Administrator.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. INVESTMENT SECURITY VALUATIONS -- Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by 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 constitutes fair value as
determined by the Trustees. 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. CHANGE IN FISCAL YEAR END -- During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. 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 (SEE NOTE 8)
The investment advisory fees paid to Citibank, as compensation for overall
investment management services, amounted to $1,312,700 for the ten months ended
October 31, 1997. The investment advisory fees are computed at the annual rate
of 0.50% of the Portfolio's average daily net assets.
(3) ADMINISTRATIVE FEES (SEE NOTE 8)
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
$131,270 for the ten months ended October 31, 1997. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
SFG as from time to time is agreed to by SFG and Citibank. The Portfolio pays no
compensation directly to any 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 $342,476,668 and $310,865,099, respectively, for the ten months ended
October 31, 1997.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 1997, as computed on a federal income tax basis,
are as follows:
Aggregate cost...................... $274,833,623
============
Gross unrealized appreciation....... $ 57,608,702
Gross unrealized depreciation....... (5,264,775)
------------
Net unrealized appreciation......... $ 52,343,927
============
(6) EXPENSE FEES
SFG has entered into an expense agreement with the Portfolio. SFG has agreed to
pay all of the ordinary operating expenses (excluding interest, taxes, brokerage
commissions, litigation costs or other extraordinary costs or expenses) of the
Portfolio, other than fees paid under the Advisory Agreement and Administrative
Services Agreement. The Agreement may be terminated by either party upon not
less than 30 days nor more than 60 days written notice.
The Portfolio has agreed to pay SFG an expense fee on an annual basis accrued
daily and paid monthly; provided, however, that such fee shall not exceed the
amount such that immediately after any such payment the aggregate ordinary
expenses of the Portfolio less expenses waived by the Administrator would, on an
annual basis, exceed an agreed upon rate, currently 0.60% 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 $60
million for temporary or emergency purposes. Interest on the borrowings, if any,
is charged to the specific fund executing the borrowing at the base rate of the
bank. 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 ten months
ended October 31, 1997, the commitment fee allocated to the Portfolio was
$1,249. Since the line of credit was established, there have been no borrowings.
(8) SUBSEQUENT EVENT
Effective November 1, 1997, the Portfolio changed its name from Equity Portfolio
to Large Cap Growth Portfolio. In addition, at a Special Meeting on October 24,
1997, the Investors in the Portfolio approved a new Management Agreement, which
became effective November 1, 1997. Under the new Management Agreement, Citibank
will be responsible for the overall management of the Portfolio's business
affairs, and will provide investment advisory, as well as administrative
services, including the provision of general office facilities and supervision
of the overall administration of the Portfolio. The existing Investment Advisory
and Administration Agreement has been terminated. For these services, the
Portfolio will pay Citibank management fees equal to an annual rate of 0.60% of
the Portfolio's average daily net assets.
<PAGE>
- -------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO (FORMERLY EQUITY PORTFOLIO)
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, LARGE CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Large Cap Growth Portfolio (the
"Portfolio", formerly Equity Portfolio), a series of The Premium Portfolios, as
at October 31, 1997, 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 October 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1997, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
December 10, 1997
<PAGE>
- -------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
- -------------------------------------------------------------------------------
FOR NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
(212) 820-2383 or (800) 846-5300
FOR CITIGOLD CUSTOMERS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or, in NY or CT, (800) 285-1701, or for
all other States, (800) 285-1707
FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer
Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR CITIBANK NORTH AMERICAN
INVESTOR SERVICES CLIENTS:
Citibank, N.A.
Master Trust Accounts
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9659
FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 820-2380 in New York City
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- --------------------------------------|_|---------------------------------------
INVESTMENT ADVISER
(OF SMALL CAP GROWTH PORTFOLIO
FORMERLY 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 AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
- --------------------------------------|_|---------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside Cover)
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
EQ/SC/A/97 Printed on Recycled Paper [Recycle Logo]
[Logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
SMALL CAP
EQUITY FUND
ANNUAL
REPORT
October 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
After underperforming large-capitalization, blue-chip stocks since the
fourth quarter of 1994, small-cap stocks appear to have resumed their
market-leadership position. In the third quarter of 1997 alone, small-cap stocks
produced absolute returns approaching 15%. As this report explains in greater
detail, this is primarily the result of a shift in investor sentiment and assets
from large-cap stocks to the securities of smaller capitalization companies.
During the period, the Landmark Funds' investment adviser, Citibank, N.A.,
continued to manage the Landmark Small Cap Equity Fund to achieve its investment
objective: long-term capital growth. Through its investment in Small Cap Equity
Portfolio, the Fund participated primarily in the ownership of common stocks
issued by domestic companies with market capitalizations of $750 million or
less.
This report reviews the Fund's investment activities and performance during
the ten-month period ended October 31, 1997, and provides a summary of
Citibank's perspective on and outlook for the U.S. small-capitalization stock
market. We are sending you this Annual Report as of October 31 because the
fiscal year-end date of the Fund has been changed from December 31 to October
31. From this point forward, you will receive shareholder reports for the Fund
every six months, dated April 30 and October 31 of each year.
In addition to the fiscal year-end change, the Fund held a Special Meeting
of Shareholders in October to consider certain proposals seeking increased
flexibility to invest in more than one investment company, consistent with the
Fund's investment objectives. Shareholders were also asked to vote on certain
changes to the Fund's investment restrictions and governing documents, as well
as certain other matters, to permit these changes. Also considered were
proposals to approve a Service Plan pursuant to Rule 12b-1 under the federal
Investment Company Act of 1940, to authorize certain technical amendments to the
Fund's investment restrictions and to approve selection of the Fund's
accountants. All proposals were approved by shareholders. Furthermore, as of
November 1, 1997, the name of Small Cap Equity Portfolio was changed to Small
Cap Growth Portfolio.
On behalf of the Board of Trustees of the Landmark Funds, I want to thank
you for your confidence and participation.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
November 18, 1997
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or any of its affiliates
o Are subject to investment risks, including possible loss of the principal
amount invested
TABLE OF CONTENTS
1 A Letter To Our Shareholders
- --------------------------------------------------------------------------------
2 Market Environment
Fund Snapshot
- --------------------------------------------------------------------------------
Portfolio Manager
3 The Portfolio Manager Responds
Quotes From The Portfolio Manager
- --------------------------------------------------------------------------------
Strategy And Outlook
4 Small Cap Equity Portfolio
By The Numbers
- --------------------------------------------------------------------------------
5 Fund Data
Performance Highlights
LANDMARK SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
6 Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
7 Statement of Operations
8 Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
9 Financial Highlights
- --------------------------------------------------------------------------------
10 Notes to Financial Statements
- --------------------------------------------------------------------------------
12 Independent Auditors' Report
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO
(FORMERLY SMALL CAP 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
- --------------------------------------------------------------------------------
Small-capitalization stocks began 1997 with relatively poor performance. This
was the result of several factors, including investors' preference for large-cap
stocks with visible earnings growth and the issuance of an inordinately large
number of initial public offerings, which diverted some investors' assets from
existing investments in small-cap stocks. When investors became concerned that
the U.S. economy was growing too quickly early in the year and that inflationary
pressures might increase, many small-cap stocks declined sharply.
In the second half of the year, with strong second quarter earnings reports
for smaller companies, small-cap stocks started to outperform large-cap stocks.
A strong U.S. dollar coupled with a higher earnings picture and attractive
valuations enabled the small cap indices to reach new record highs. Many
investors shifted assets from large-cap stocks to small-cap stocks when they
became concerned that the largest multinational corporations' overseas earnings
may suffer because of a strong U.S. dollar. This trend of small-cap
outperformance continued through October as investors have sought to take
advantage of the superior growth potential the small-cap market has historically
provided.
While it may be too early to proclaim a clear shift of market leadership to
small-cap stocks, positive fundamentals remain in place. Earnings growth has
accelerated for smaller companies, the stronger U.S. dollar constrains earnings
of large-cap multinationals, and some large global growth companies have warned
that their profits may not meet analysts' expectations. Barring other
developments, the stage appears to be set for a period of excellent performance
for small-cap growth companies. Of course, investors should be aware that
small-cap stocks may have more risks and may be subject to greater fluctuations
in value than securities of larger capitalization companies.
- --------------------------------------------------------------------------------
FUND SNAPSHOT
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
June 21, 1995 Distributed annually, if any
NET ASSETS AS OF 10/31/97 BENCHMARK
$25.8 million o Lipper Small Company Growth Funds
Average
FUND OBJECTIVE o Russell 2000(R) Index
Long-term capital growth; dividend o Russell 2000 Growth Index
income, if any, is incidental to this
investment objective. INVESTMENT ADVISER,
SMALL CAP GROWTH PORTFOLIO
DIVIDENDS (FORMERLY SMALL CAP EQUITY PORTFOLIO)
Paid semi-annually, if any Citibank, N.A.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
LINDA J. INTINI
Vice President, Citibank, N.A.
Linda J. Intini has managed the Portfolio since February 24, 1997. Ms. Intini
has over ten years of experience specializing in the management of small cap
equities, including over $750 million of Citibank's small cap portfolios for
trusts, individuals and institutions. Prior to joining Citibank, she was a
Portfolio Manager and Research Analyst with Manufacturers Hanover in the Special
Equity area. She also specialized in equity research at Eberstadt Fleming.
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
- --------------------------------------------------------------------------------
When small-cap stocks experienced difficulties early in the year, we took
advantage of the opportunity to buy the stocks of fast-growing companies at
attractive prices. We sharpened our focus on growth companies, selling some
holdings that may have been more attractive from a value perspective than from
an earnings-growth standpoint. We used the proceeds from those sales to invest
in several companies that met our criteria for management strength, market
leadership and growth potential. We also increased the average market
capitalization of the companies in the Portfolio from approximately $350 million
to about $570 million, and we increased the number of holdings in the Portfolio
for greater diversification.
By maintaining our investment discipline during these times, we were able to
position the Portfolio for the rally to come. We found particularly compelling
opportunities in financial companies, which we believed would benefit from the
continuation of low inflation and declining interest rates. In fact, the
financial sector has ranked among the top performers in the Russell 2000, an
unmanaged index of small-capitalization stocks. In addition, some of our
existing positions in the health care stocks have done quite well as this market
sector benefitted from renewed investor interest. Similarly, our technology
holdings, particularly among microchip manufacturers and networking companies,
have provided healthy returns.
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
"After three years of underperformance, market dynamics are in place for a cycle
of outperformance for small-cap stocks."
"Small-cap stock valuations remain inexpensive relative to larger cap stocks,
which should help support a sustained rally."
"We continue to find opportunities to buy quality growth companies at attractive
prices."
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
- --------------------------------------------------------------------------------
We remain quite optimistic regarding the potential of the small-cap market.
We expect the economy to remain on its present low-inflation, moderate-growth
course. The U.S. dollar should remain strong relative to other currencies, which
should support continued investor interest in small companies that are able to
produce higher levels of earnings growth than large, multi-national companies
whose overseas earnings may be eroded.
In addition, recent changes in the tax laws should benefit small-cap
investments. The reduction of the maximum long-term capital gains rate from 28%
to 20% is expected to produce greater demand for pure growth companies -- those
that provide virtually all of their returns as price appreciation -- than for
larger companies that pay dividends which are taxable as regular income.
Investors, having received above average returns in the large cap market over
the last few years, may now turn to small cap stocks which could offer the
greatest opportunities for investment gains in the months ahead.
- --------------------------------------------------------------------------------
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
- --------------------------------------------------------------------------------
BY THE NUMBERS
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS OF THE PORTFOLIO
(As of 10/31/97)
- --------------------------------------------------------------------------------
NAME INDUSTRY SECTOR % OF NET ASSETS
Snyder Communications Inc. ........... Commercial Services 2.88%
Suiza Foods Corp. .................... Consumer Non-Durables 2.58%
Suburban Lodges of America Inc. ...... Consumer Services 2.48%
Heftel Broadcasting Corp. ............ Consumer Services 2.46%
Premier Parks Inc. ................... Consumer Services 2.45%
Central Parking Corp. ................ Consumer Services 2.45%
Sirrom Capital Corp. ................. Finance 2.41%
Parexel International Corp. .......... Health Services/Technology 2.40%
Executive Risk Inc. .................. Finance 2.39%
Lamar Advertising Co. ................ Commercial Services 2.39%
CHANGES IN PORTFOLIO SECTORS
Portfolio of investments
as of 10/31/97
Cash/Short Term/Other ... 3%
Consumer ................ 57%
Industrial .............. 13%
Capital Goods ........... 17%
Financial ............... 10%
...Compared to 12/31/96
Cash/Short Term/Other ... 5%
Consumer ................ 43%
Industrial .............. 6%
Capital Goods ........... 30%
Financial ............... 16%
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS
-------------------------------------------
TEN MONTHS
ENDED SINCE
OCTOBER 31, 1997 ONE 6/21/95
(NOTE 1F)** YEAR INCEPTION*
-------------- ------ -----------
<S> <C> <C> <C>
Landmark Small Cap Equity Fund without Sales Charges ............ 17.05% 16.32% 43.15%
Lipper Small Company Growth Funds Average ....................... 21.40% 26.45% 23.74%+
Russell 2000(R)Index ............................................ 21.04% 29.33% 21.70%+
Russell 2000 Growth Index ....................................... 15.53% 21.06% 17.30%+
Landmark Small Cap Equity Fund with Maximum Sales Charge of 4.75% 11.49% 10.79% 40.23%
* Average Annualized Total Return
** Not Annualized
+ From 6/30/95
Capital Gain Distribution $0.068
IMPORTANT TAX INFORMATION
The Fund designates for income tax purposes $88,390 of its capital gains
distribution as long-term capital gains.
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
- --------------------------------------------------------------------------------
A $10,000 investment in the Fund made on inception date would have grown to
$22,243 with sales charge (as of 10/31/97). The graph shows how the Fund
compares to our benchmarks over the same period.
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
LANDMARK
SMALL CAP LANDMARK
EQUITY SMALL CAP LIPPER SMALL
FUND - EQUITY COMPANY
WITHOUT FUND - WITH GROWTH RUSSELL 2000 RUSSELL 2000
SALES SALES FUNDS INDEX GROWTH INDEX
CHARGE CHARGE AVERAGE (UNMANAGED) (UNMANAGED)
-------- ----------- ------------ ------------ ------------
6/30/95 10,050 9,573 10,000 10,000 10,000
7/31/95 10,970 10,449 10,748 10,576 10,779
8/31/95 11,640 11,087 10,925 10,795 10,912
9/30/95 12,000 11,430 11,188 10,988 11,136
10/31/95 11,980 11,411 10,812 10,497 10,588
11/30/95 13,550 12,906 11,212 10,938 11,055
12/31/95 14,478 13,790 11,375 11,227 11,301
1/31/96 14,842 14,137 11,295 11,214 11,207
2/29/96 16,297 15,523 11,763 11,564 11,718
3/31/96 17,126 16,313 12,077 11,800 11,950
4/30/96 19,199 18,287 12,980 12,431 12,868
5/31/96 20,584 19,606 13,547 12,921 13,528
6/30/96 19,963 19,015 13,023 12,390 12,649
7/31/96 17,674 16,835 11,903 11,308 11,104
8/31/96 19,870 18,927 12,624 11,965 11,926
9/30/96 20,712 19,728 13,265 12,433 12,540
10/31/96 20,076 19,122 13,000 12,242 12,000
11/30/96 20,445 19,474 13,378 12,746 12,333
12/31/96 19,950 19,002 13,582 13,080 12,574
1/31/97 20,804 19,816 13,929 13,342 12,878
2/28/97 19,599 18,668 13,333 13,019 12,100
3/31/97 18,416 17,541 12,634 12,404 11,246
4/30/97 17,868 17,019 12,538 12,439 11,115
5/31/97 20,497 19,524 14,062 13,822 12,786
6/30/97 21,615 20,588 14,804 14,415 13,220
7/31/97 22,352 21,290 15,727 15,086 13,896
8/31/97 22,681 21,604 16,014 15,431 14,313
9/30/97 24,627 23,458 17,228 16,663 15,456
10/31/97 23,352 22,243 16,463 15,931 14,527
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.
If the waivers were not in place, the fund's returns would have been lower.
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES October 31, 1997 (Note 1F)
- --------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investment in Small Cap Growth Portfolio, at value (Note 1A) ................. $26,089,065
Receivable for shares of beneficial interest sold ............................ 11,441
Receivable from the Administrator ............................................ 59,550
-----------
Total assets ................................................................ 26,160,056
-----------
LIABILITIES:
Payable for shares of beneficial interest repurchased ........................ 319,481
Payable to affiliates - Shareholder servicing agents' fees (Note 2B) ......... 5,855
Accrued expenses and other liabilities ....................................... 35,415
-----------
Total liabilities ........................................................... 360,751
-----------
NET ASSETS for 1,214,393 shares of beneficial interest outstanding ........... $25,799,305
===========
NET ASSETS CONSIST OF:
Paid-in capital .............................................................. $18,672,341
Unrealized appreciation ...................................................... 6,119,193
Accumulated net realized gain ................................................ 1,007,771
-----------
Total ....................................................................... $25,799,305
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ........ $21.24
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.75% sales charge ($21.24/0.9525) $22.30
======
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Landmark Small Cap Equity Fund
- -----------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
---------------- ----------
<S> <C> <C>
INVESTMENT INCOME/LOSS (Note 1B):
Dividend Income from Small Cap Growth Portfolio ............................. $ 65,945 $ 61,549
Interest Income from Small Cap Growth Portfolio ............................. 35,958 58,104
Allocated Expenses from Small Cap Growth Portfolio .......................... (178,701) (88,233)
----------- -----------
(76,798) 31,420
----------- -----------
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B) ................................ 52,561 39,957
Administrative fees (Note 2A) ............................................... 52,561 39,957
Distribution fees (Note 3) .................................................. 31,537 23,974
Shareholder reports ......................................................... 18,588 10,817
Auditing fees ............................................................... 13,500 16,100
Transfer agent fees ......................................................... 13,000 12,000
Legal fees .................................................................. 9,987 5,853
Trustees fees ............................................................... 8,516 5,251
Custodian fees .............................................................. 7,500 3,750
Registration fees ........................................................... 3,340 2,035
Miscellaneous ............................................................... 5,069 2,943
----------- -----------
Total expenses ............................................................. 216,159 162,637
Less expenses assumed by the Administrator (Note 6) ......................... (26,930) (32,620)
Less aggregate amount waived by Administrator and Distributor (Note 2A and 3) (84,098) (77,762)
----------- -----------
Net expenses ............................................................... 105,131 52,255
----------- -----------
Net investment loss ........................................................ (181,929) (20,835)
----------- -----------
NET REALIZED AND UNREALIZED GAIN FROM SMALL CAP GROWTH PORTFOLIO:
Net realized gain ........................................................... 299,622 1,458,685
Net change in unrealized appreciation ....................................... 3,648,039 1,745,364
----------- -----------
Net realized and unrealized gain from Small Cap Growth Portfolio ........... 3,947,661 3,204,049
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $ 3,765,732 $ 3,183,214
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
Landmark Small Cap Equity Fund
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
JUNE 21, 1995
TEN MONTHS ENDED (COMMENCEMENT OF
OCTOBER 31, 1997 YEAR ENDED OPERATIONS) TO
(NOTE 1F) DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment gain/(loss) ............................... $ (181,929) $ (20,835) $ 16,583
Net realized gain ........................................ 299,622 1,458,685 288,370
Net change in unrealized appreciation .................... 3,648,039 1,745,364 725,790
------------ ------------ -----------
Net increase in net assets resulting from operations .... 3,765,732 3,183,214 1,030,743
------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................... -- -- (16,583)
Net realized gain ........................................ (88,390) (1,756,057) (34,115)
------------ ------------ -----------
Decrease in net assets from distributions to shareholders (88,390) (1,756,057) (50,698)
------------ ------------ -----------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (Note 5):
Net proceeds from sale of shares ......................... 5,626,760 20,246,660 4,202,811
Net asset value of shares issued to shareholders
from reinvestment of distributions ...................... 86,659 1,743,625 51,172
Cost of shares repurchased ............................... (7,902,725) (4,253,714) (86,487)
------------ ------------ -----------
Net increase (decrease) in net assets from transactions in
shares of beneficial interest ........................... (2,189,306) 17,736,571 4,167,496
------------ ------------ -----------
NET INCREASE IN NET ASSETS ............................... 1,488,036 19,163,728 5,147,541
NET ASSETS:
Beginning of period ...................................... 24,311,269 5,147,541 --
------------ ------------ -----------
End of period (undistributed net investment
income of $0, $0 and $0 respectively) ................... $ 25,799,305 $ 24,311,269 $ 5,147,541
============ ============ ===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
Landmark Small Cap Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
JUNE 21, 1995
TEN MONTHS ENDED (COMMENCEMENT OF
OCTOBER 31, 1997 YEAR ENDED OPERATIONS) TO
(NOTE 1F) DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, beginning of period ................................... $ 18.21 $ 14.32 $10.00
------- ------- ------
Income From Operations:
Net investment income (loss) ........................................... (0.138)(+) (0.016) 0.05
Net realized and unrealized gain ....................................... 3.236(+) 5.407 4.42
------- ------- ------
Total from investment operations ...................................... 3.098 5.391 4.47
------- ------- ------
Less Distributions From:
Net investment income ................................................. -- -- (0.05)
Net realized gain ..................................................... (0.068) (1.501) (0.10)
------- ------- ------
Total from distributions .............................................. (0.068) (1.501) (0.15)
------- ------- ------
Net Asset Value, end of period ......................................... $ 21.24 $ 18.21 $14.32
======= ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) .............................. $25,799 $24,311 $5,148
Ratio of expenses to average net assets (A) ............................ 1.35%* 0.88% 0%
Ratio of net investment income (loss) to average net assets ............ (0.87)%* (0.13)% 1.21%*
Total return ........................................................... 17.05%** 37.80% 44.78%**
Note: If Agents of the Fund and Agents of Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio) had not
voluntarily waived a portion of their fees, assumed Fund expenses for the periods indicated and had expenses been limited to
that required by certain state securities laws for the period ended December 31, 1995, the net investment income (loss) per
share and the ratios would have been as follows:
Net investment loss per share .......................................... $(0.252)(+) $(0.133) $0.288)
Ratios:
Expenses to average net assets (A) ..................................... 2.06%* 1.83% 2.50%*
Net investment loss to average net assets .............................. (1.58)%* (1.08)% (1.29)%*
** Annualized
** Not Annualized
+ The per share amounts were computed using a monthly average number of shares
outstanding during the period.
(A)Includes the Fund's share of Small Cap Growth Portfolio (formerly Small Cap
Equity Portfolio) allocated expenses for the periods indicated.
See notes to financial statements
</TABLE>
<PAGE>
Landmark Small Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Landmark Small Cap Equity Fund (the "Fund") is a separate diversified series of
Landmark Funds II (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund invests all of its investable assets in
Small Cap Growth Portfolio (the "Portfolio"), (formerly Small Cap Equity
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 (52.6% at
October 31, 1997) 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 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 ten months ended
October 31, 1997, the Fund reclassified $181,929 to undistributed net investment
income, $796,539 to accumulated net gain on investments and $978,468 from
paid-in-capital.
F. CHANGE IN FISCAL YEAR END -- During fiscal year 1997, the Fund changed its
fiscal year end from December 31 to October 31.
G. 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 (SEE NOTE 7) The Trust has adopted an
Administrative Services Plan (the "Administrative Services Plan") which provides
that the Trust, on behalf of the Fund, may obtain the services of an
Administrator, one or more Shareholder Servicing Agents and other Servicing
Agents, and may enter into agreements providing for the payment of fees for such
services. Under the Trust Administrative Services Plan, the aggregate of the fee
paid to the Administrator from the Fund, the fees paid to the Shareholder
Servicing Agents from the Fund under such Plan and the Basic Distribution Fee
paid from the Fund to the Distributor under the Distribution Plan may not exceed
0.65% of the Fund's average daily net assets on an annualized basis for the
Fund's then-current fiscal year.
A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative fees payable to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.25% of the Fund's average daily net assets. The
Administrative fees amounted to $52,561, all of which was voluntarily waived for
the ten months ended October 31, 1997. Citibank acts as Sub-Administrator and
performs such duties and receives such compensation from LFBDS as from time to
time is agreed to by LFBDS and Citibank. The Fund pays no compensation directly
to any Trustee or to any officer who is affiliated with the Administrator, all
of whom receive remuneration for their services to the Fund from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Fund are officers or directors of the Administrator or its affiliates.
B. SHAREHOLDER SERVICING AGENTS' FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $52,561 for the ten months ended October 31,
1997.
(3) DISTRIBUTION FEES (SEE NOTE 7)
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, in which the Fund compensates the
Distributor at an annual rate not to exceed 0.15% of the Fund's average daily
net assets. The Distribution fees amounted to $31,537, all of which was
voluntarily waived for the ten months ended October 31, 1997. The Distributor
may also receive an additional fee from the Fund at an annual rate not to exceed
0.05% of the Fund's average daily net assets in anticipation of, or as
reimbursement for, advertising expenses incurred by the Distributor in
connection with the sale of shares of the Fund. No payment of such additional
fee has been made during the period. The Distributor has voluntarily agreed to
waive this fee through October 31, 1997.
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the period
aggregated $5,362,237 and $7,486,823, 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:
TEN MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
---------------- ------------
Shares sold ................................ 295,369 1,099,302
Shares issued to shareholders from
reinvestment of distributions ............. 4,540 96,298
Shares repurchased ......................... (420,429) (220,253)
-------- ----------
Net increase (decrease) .................... (120,520) 975,347
======== ==========
(6) ASSUMPTION OF EXPENSES
LFBDS has voluntarily agreed to pay a portion of the unwaived expenses of the
Fund for the ten months ended October 31, 1997, which amounted to $26,930.
(7) SUBSEQUENT EVENT
At a Special Meeting on October 24, 1997, the Shareholders of the Fund approved
a certain proposals to allow the assets of the Fund to be invested in one or
more investment companies. Additionally, the shareholders approved a Management
Agreement with Citibank, to provide administrative services, and a new Rule
12b-1 Service Plan. These new agreements simplify and terminate the Fund's
existing Administration, Distribution and Service Plan Agreements. Effective
November 1, 1997, the Management fees and Service Plan fees may not exceed, on
an annual basis, an amount equal to 0.35% and 0.30%, respectively, of the
average daily net assets of the Fund.
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
October 31, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereinafter 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 October 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 10, 1997
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS October 31, 1997
- --------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS--97.6%
COMMERCIAL SERVICES - 22.5%
Abacus Direct Corp.* .......................... 25,400 $ 933,450
AHL Services Inc. ............................. 8,160 145,860
Intelliquest Information Group* ............... 26,800 455,600
ITEQ Inc.* .................................... 39,430 492,875
Lamar Advertising Co.* ........................ 34,980 1,184,947
Metro Networks Inc.* .......................... 17,910 555,210
NFO Research Inc.* ............................ 56,580 1,018,440
Probusiness Services Inc.* .................... 17,800 356,000
Profit Recovery Group
International* ............................... 34,300 535,938
Registry Inc.* ................................ 21,260 882,290
Rental Services Corp.* ........................ 42,730 1,143,028
Snyder Communications Inc.* ................... 48,400 1,427,800
Whittman-Hart Inc.* ........................... 33,980 985,420
Wilmar Industries Inc.* ....................... 39,510 1,037,138
-----------
11,153,996
-----------
COMMODITIES & PROCESSING - 3.7%
Om Group Inc. ................................. 27,120 1,023,780
Synthetic Industries Inc.* .................... 28,290 792,120
-----------
1,815,900
-----------
CONSUMER DURABLES - 1.4%
Tower Automotive* ............................. 16,680 698,475
-----------
CONSUMER NON-DURABLES - 5.0%
General Cigar Holdings Inc.* .................. 16,400 474,575
Performance Food Group Co.* ................... 38,200 706,700
Suiza Foods Corp.* ............................ 25,400 1,279,525
-----------
2,460,800
-----------
CONSUMER SERVICES - 11.0%
Central Parking Corp. ......................... 22,200 1,212,675
Gray Communication Systems Inc. ............... 23,400 583,537
Heftel Broadcasting Corp.* .................... 18,340 1,219,610
Premier Parks Inc.* ........................... 30,330 1,213,200
Suburban Lodges America Inc.* ................. 49,610 1,227,848
-----------
5,456,870
-----------
ELECTRONICS/TECHNOLOGICAL SERVICES - 13.1%
Claremont Technology
Group Inc.* .................................. 25,020 553,568
ETEC Systems Inc.* ............................ 12,800 571,200
E Trade Group Inc.* ........................... 14,690 453,554
Harbinger Corp.* .............................. 17,200 511,700
Imnet Systems Inc.* ........................... 28,300 516,475
Inacom Corp.* ................................. 15,150 466,809
Lernout and Hauspie Speech
Products* .................................... 18,300 887,550
QAD Inc.* ..................................... 46,400 655,400
Sipex Corp.* .................................. 23,660 777,823
Speedfam International Inc. ................... 7,800 289,575
Xionics Document Technologies* ................ 53,450 815,113
-----------
6,498,767
-----------
ENERGY/MINERAL - 7.1%
Dawson Production Services Inc.* .............. 27,600 669,300
Forcenergy Gas Exploration* ................... 31,270 1,020,184
Key Energy Group Inc.* ........................ 24,700 774,962
Lomak Petroleum Inc. .......................... 57,340 1,064,374
-----------
3,528,820
-----------
FINANCE - 10.3%
Allied Group .................................. 22,620 1,068,795
Executive Risk Inc. ........................... 18,030 1,187,726
Metris Companies Inc. ......................... 21,430 905,417
Sirrom Capital Corp. .......................... 23,760 1,196,910
WestAmerica Bancorp ........................... 8,510 748,880
-----------
5,107,728
-----------
HEALTH SERVICES/TECHNOLOGY - 11.5%
Concentrate Managed Care Inc.* ................ 27,760 $ 905,670
Henry Schein Inc.* ............................ 29,080 956,005
Human Genome Sciences Inc.* ................... 23,480 962,680
Parexel International Corp.* .................. 32,900 1,188,512
Renal Treatment Centers* ...................... 30,140 1,000,271
Viropharma Inc.* .............................. 30,600 673,200
-----------
5,686,338
-----------
MISCELLANEOUS - 0.9%
American Disposal Services Inc. ............... 13,300 468,825
-----------
PRODUCER MANUFACTURING - 3.0%
Hardinge Brothers Inc. ........................ 31,100 1,061,287
Miller Industries Inc./Tenn.* ................. 45,230 457,954
-----------
1,519,241
-----------
RETAIL TRADE - 5.3%
CDW Computer Centers Inc.* .................... 15,590 966,580
Men's Wearhouse Inc.* ......................... 24,260 940,075
Wholesale Foods Market Inc.* .................. 18,900 741,825
-----------
2,648,480
-----------
TRANSPORTATION - 2.8%
Eagle USA Airfreight Inc.* .................... 30,790 931,397
Hub Group Inc.* ............................... 14,600 445,300
-----------
1,376,697
-----------
TOTAL COMMON STOCK
(Identified Cost $39,977,533) .................................. 48,420,937
-----------
SHORT-TERM--3.1%
State Street Bank Repurchase Agreement 4.00%
due 11/03/97 proceeds at maturity
$1,544,642 (collateralized by $1,580,000
U.S. Treasury Note 5.25% due 1/31/01) .......................... $ 1,544,000
-----------
TOTAL INVESTMENTS
(Identified Cost $41,521,533) ................ 100.7% 49,964,937
OTHER ASSETS
LESS LIABILITIES ............................. (0.7) (366,920)
------ -----------
NET ASSETS .................................... 100.0% $49,598,017
====== ===========
* Non income producing securities.
See notes to financial statements
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES October 31, 1997
ASSETS:
Investments at value (Note 1A) (Identified Cost, $41,521,533) ... $49,964,937
Cash ............................................................ 624
Receivable for securities sold .................................. 75,335
Dividend and interest receivable ................................ 14,129
-----------
Total assets ................................................... 50,055,025
-----------
LIABILITIES:
Payable for investments purchased ............................... 394,160
Payable to affiliates - Investment advisory fees (Note 2) ....... 33,607
Accrued expenses and other liabilities .......................... 29,241
-----------
Total liabilities .............................................. 457,008
-----------
NET ASSETS ...................................................... $49,598,017
===========
REPRESENTED BY:
Paid-in capital for beneficial interests ........................ $49,598,017
===========
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
-------------- -----------
INVESTMENT INCOME:
Dividend income .............................. $ 118,059 $ 75,339
Interest income .............................. 64,937 73,749
------- -------
182,996 149,088
------- -------
EXPENSES:
Investment advisory fees (Note 2) .............. 284,285 147,259
Custodian fees ................................. 58,867 31,705
Auditing fees .................................. 22,700 28,800
Administrative fees (Note 3) ................... 18,952 9,817
Legal fees ..................................... 4,199 5,853
Trustee fees ................................... 1,847 5,001
Miscellaneous .................................. 1,538 2,022
---------- ----------
Total expenses ............................... 392,388 230,457
Less aggregate amount waived by Investment
Adviser and Administrator (Notes 2 and 3) ... (70,133) (109,905)
---------- ----------
Net expenses ................................. 322,255 120,552
---------- ----------
Net investment income/loss ................... (139,259) 28,536
---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions . 785,204 1,063,995
Net change in unrealized appreciation of
investments ................................. 6,200,702 1,516,882
---------- ----------
Net realized and unrealized gain on
investments ................................. 6,985,906 2,580,877
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................... $6,846,647 $2,609,413
========== ==========
See notes to financial statements
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JUNE 21, 1995
TEN MONTHS ENDED (COMMENCEMENT
OCTOBER 31, 1997 YEAR ENDED OF OPERATIONS) TO
(NOTE 1F) DECEMBER 31, 1996 DECEMBER 31, 1995
----------- ----------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) ........................ $ (139,259) $ 28,536 $ 16,583
Net realized gain on investment transactions ........ 785,204 1,063,995 288,385
Net change in unrealized appreciation of investments 6,200,702 1,516,882 725,820
----------- ----------- ----------
Net increase in net assets resulting from operations 6,846,647 2,609,413 1,030,788
----------- ----------- ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions ......................... 18,404,723 45,631,942 4,044,649
Value of withdrawals ................................ (22,795,675) (6,088,455) (86,015)
----------- ----------- ----------
Net increase (decrease) in net assets from
capital transactions ............................. (4,390,952) 39,543,487 3,958,634
----------- ----------- ----------
NET INCREASE IN NET ASSETS: ......................... 2,455,695 42,152,900 4,989,422
NET ASSETS:
Beginning of period ................................. 47,142,322 4,989,422 --
----------- ----------- ----------
End of period ....................................... $49,598,017 $47,142,322 $4,989,422
=========== =========== ==========
</TABLE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 21, 1995
TEN MONTHS ENDED (COMMENCEMENT
OCTOBER 31, 1997 YEAR ENDED OF OPERATIONS) TO
(NOTE 1F) DECEMBER 31, 1996 DECEMBER 31, 1995
----------- ----------- ----------
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) ................. $49,598 $47,142 $4,989
Ratio of expenses to average net assets ................... 0.85%* 0.61% 0%
Ratio of net investment income (loss) to average net assets (0.37)%* 0.15% 1.22%*
Portfolio turnover ........................................ 108% 89% 41%
Average commission rate per share (A) ..................... $0.0460 $0.0467 N/A
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and assumed Portfolio expenses
for the periods indicated and had expenses been limited to that required by certain state securities law for
the period ended December 31, 1995, the ratios would have been as follows:
RATIOS:
Expenses to average net assets ............................ 1.04%* 1.17% 2.50%*
Net investment loss to average net assets ................. (0.56)%* (0.41)% (1.28)%*
(A) The average commission rate paid is applicable for Funds that invest greater than 10% of average net assets in
equity transactions on which commissions are charged. This disclosure is required for fiscal periods beginning
on or after September 1, 1995. * Annualized
See notes to financial statements
</TABLE>
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio) (See Note 7)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Small Cap Growth Portfolio (the "Portfolio"), (formerly Small Cap Equity
Portfolio), a separate series of The Premium Portfolios (the "Portfolio Trust"),
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Adviser of the Portfolio is Citibank N.A., ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Administrator.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles 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
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. CHANGE IN FISCAL YEAR END -- During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. 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 (SEE NOTE 7)
The investment advisory fees paid to Citibank, as compensation for overall
investment management services, amounted to $284,285 of which $57,125 was
voluntarily waived for the ten months ended October 31, 1997. 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
$18,952 of which $13,008, was voluntarily waived for the ten months ended
October 31, 1997. Citibank acts as Sub-Administrator and performs such duties
and receives such compensation from SFG as from time to time is agreed to by SFG
and Citibank. The Portfolio pays no compensation directly to any 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 $48,193,730 and $53,039,703, respectively, for the ten months ended
October 31, 1997.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 1997, as computed on a federal income tax basis,
are as follows:
Aggregate cost ........................... $41,521,533
===========
Gross unrealized appreciation ............ $ 9,809,981
Gross unrealized depreciation ............ (1,366,577)
-----------
Net unrealized appreciation .............. $ 8,443,404
===========
(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 $60
million for temporary or emergency purposes. Interest on the borrowings, if any,
is charged to the specific fund executing the borrowing at the base rate of the
bank. 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 ten months
ended October 31, 1997, the commitment fee allocated to the Portfolio was $187.
Since the line of credit was established, there have been no borrowings.
(7) SUBSEQUENT EVENT
Effective November 1, 1997, the Portfolio changed its name from Small Cap Equity
Portfolio to Small Cap Growth Portfolio. In addition, at a Special Meeting on
October 24, 1997, the investors in the Portfolio approved a new Management
Agreement, which became effective November 1, 1997. Under the new Management
Agreement, Citibank will be responsible for the overall management of the
Portfolio's business affairs, and will provide investment advisory as well as
administrative services, including the provision of general office facilities
and supervision of the overall administration of the Portfolio. The existing
Investment Advisory and Administration Agreements have been terminated. For
these services, the Portfolio will pay Citibank management fees equal to an
annual rate of 0.75% of the Portfolio's average daily net assets.
<PAGE>
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Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
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INDEPENDENT AUDITORS' REPORT
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TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, SMALL CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Growth Portfolio (the
"Portfolio", formerly Small Cap Equity Portfolio), a series of The Premium
Portfolios, as at October 31, 1997, 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 October 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1997, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
December 10, 1997
<PAGE>
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SHAREHOLDER
SERVICING AGENTS
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FOR NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
(212) 820-2383 or (800) 846-5300
FOR CITIGOLD CUSTOMERS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or, in NY or CT, (800) 285-1701,
or for all other states, (800) 285-1707
FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Investment Specialist or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR CITIBANK NORTH AMERICAN
INVESTOR SERVICES CLIENTS:
Citibank, N.A.
Master Trust Accounts
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100
FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 820-2380 in New York City
