<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
H. B. Alvord
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- --------------------------------------|-|--------------------------------------
INVESTMENT ADVISER
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
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL Bingham,
Dana & Gould 150 Federal Street, Boston, MA 02110
- --------------------------------------|-|--------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside Cover)
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
NYTFI/A/96 Printed on Recycled Paper [recycle logo]
[LOGO] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
NEW YORK TAX FREE
INCOME FUND
ANNUAL
REPORT
December 31, 1996
<PAGE>
- -------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
New York State's municipal bond market produced modestly positive returns in
1996, the result of developments within the tax-exempt marketplace and an
economic environment characterized by moderate growth. Persistently low
inflation and an unchanged monetary policy also contributed to positive returns
for many fixed-income securities, including municipal bonds.
In this environment, the Landmark Funds' investment adviser, Citibank, N.A.,
continued to manage the Landmark New York Tax Free Income Fund with the goal of
achieving its investment objectives: generating high levels of current income
exempt from federal, New York State and New York City personal income taxes, and
preserving the value of its shareholders' investment. Consistent with this
objective, the Fund seeks to provide an attractive yield from a quality
investment portfolio consisting of municipal obligations primarily of New York
State, its municipalities and their agencies.
This report reviews the Fund's investment activities and performance during
the year ended December 31, 1996, and provides a summary of Citibank's
perspective on and outlook for the New York municipal bond market. 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
January 17, 1997
- -------------------------------------------------------------------------------
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
o Are subject to investment risks, including possible loss of the
principal amount invested.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
1 A Letter to Our Shareholders 5 Fund Data
- -------------------------------------- Performance Highlights
2 Market Environment -----------------------------------------
Fund Snapshot 6 Portfolio of Investments
- -------------------------------------- -----------------------------------------
Portfolio Manager 8 Statement of Assets and Liabilities
3 The Portfolio Manager Responds -----------------------------------------
Quotes From the Portfolio Manager 9 Statement of Operations
- -------------------------------------- -----------------------------------------
4 Strategy and Outlook 10 Statement of Changes in Net Assets
Landmark New York Tax Free -----------------------------------------
Income Fund--By the Numbers 11 Financial Highlights
- -------------------------------------- -----------------------------------------
12 Notes to Financial Statements
-----------------------------------------
15 Independent Auditors' Report
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The economic and market environments of 1996 defied the forecasts of most
investment strategists, including the Landmark Funds' investment manager,
Citibank, N.A. At the start of the year, many investors expected U.S. economic
growth to slow substantially. Instead, the pace of economic growth accelerated
during the first half of the year, raising concern that the rate of inflation
might rise and that the environment for municipal bonds would become less
attractive. The market's inflation fears were not realized, however, as economic
growth moderated during the second half of the year.
Sustainable, non-inflationary economic growth proved to be a formula for
positive performance for taxable and tax-exempt securities alike. Weaker
economic growth during the second half of the year supported the Federal Reserve
Board's decision to hold monetary policy steady after their last rate cut in
January, 1996.
In the municipal bond market, investors' fears of a "flat" federal personal
income tax dissipated with the unsuccessful candidacy of the plan's chief
proponent. The resolution of this issue, which had constrained municipal bond
prices relative to U.S. Treasury securities, allowed that relationship to return
closer to historical averages. As a result, in 1996, municipal bonds
outperformed their taxable counterparts in the U.S. Treasury securities
marketplace. Favorable economic conditions within New York State supported the
state's municipal bond prices as well.
- --------------------------------------------------------------------------------
FUND SNAPSHOT
COMMENCEMENT OF OPERATIONS
September 8, 1986
NET ASSETS AS OF 12/31/96
$82.2 million
FUND OBJECTIVE
To generate high levels of current income exempt from federal, New York State
and New York City personal income taxes+ and to preserve the value of its
shareholders' investment through investing in debt obligations consisting
primarily of municipal bonds and notes.
DIVIDENDS
Paid monthly, if any
CAPITAL GAINS
Distributed annually, if any
BENCHMARKS
o Lipper New York State Municipal Bond Funds Average
o Lehman Municipal Bond Index
INVESTMENT ADVISER
Citibank, N.A.
+A portion of the income may be subject to the Federal Alternative Minimum
Tax. Consult your personal tax advisor.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
CARLA WROCKLAGE
Vice President, Citibank, N.A.
Ms. Wrocklage assumed responsibility for the management of the Fund on July 1,
1995. Ms. Wrocklage has over 9 years of tax exempt portfolio management
experience. Prior to joining the Adviser in 1995, she was a municipal bond fund
portfolio manager for Prudential Insurance Company of America. She began her
career with Keystone Group.
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
When the year began, several factors were working against municipal bonds in
New York and elsewhere: the possibility of replacing the graduated federal
personal income tax with a flat tax, investors' preference for equity
investments and uncertainty regarding the economy. However, the Fund's
investment adviser, Citibank, N.A., correctly believed that these influences
would wane, and consequently positioned the portfolio appropriately.
As soon as it became apparent in the first quarter of 1996 that the economy
was not slowing as expected, we reduced the Fund's average duration to a range
considered neutral, thereby reducing the sensitivity of the portfolio to
potentially higher interest rates. We maintained this position until the fourth
quarter, when the prospect of a slowing economy and falling interest rates
prompted us to lengthen the fund's average duration in an attempt to maintain
prevailing yields for as long as practical.
Unlike other segments of the national municipal bond market, there is no
shortage of municipal bonds in New York. Consequently, we had a broad array of
quality investments from which to choose, enabling us to reduce our holdings of
tax-exempt bonds from Puerto Rico, one of the few non-New York securities that
provides double tax-free income to New York residents. We also enhanced the
Fund's yield by maintaining a portion of the Fund's assets in BBB-rated
tax-exempt bonds that are becoming increasingly rare as more issuers insure
their securities. We avoided certain sectors of the marketplace because of
potential risks, including some of the state's electric utilities, which are in
the midst of deregulation and about to face greater competition.
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGER
"Interest rates declined and municipal bond prices rose during the second
half of the year as investors realized that economic growth would slow,
inflation would not be a problem and a flat income tax was not imminent." "New
York State is projecting a multi-million dollar budget surplus for fiscal year
1997. If the 1998 budget is reasonable in its tax revenue and spending
projections, New York municipal bonds could receive a higher credit rating."
"Absent an unexpected recession or an acceleration of inflation, 1997 should be
a positive year for municipal bond investors in New York and elsewhere."
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
We are optimistic about the prospect for New York's municipal bond market in
1997. The national and state economies appear to be on a steady course in which
they should neither overheat to inflationary levels nor deteriorate into a
recession. Current indicators suggest that the first part of the year will see
an unchanged monetary policy, modestly lower interest rates and low rates of
inflation. If the New York State economy improves further in 1997, its bond
rating could be upgraded modestly.
The prospect of lower interest rates should be good news for the tax-exempt
bond market, where prices will rise if yields fall. In addition, continued low
inflation should make New York residents more comfortable investing in municipal
bonds for the longer term as the potential for erosion of buying power is
reduced. Fixed-income securities, both taxable and tax-exempt, could become
particularly attractive if President Clinton and the Republican Congress make
substantial progress toward further reducing the federal budget deficit.
In the municipal bond market, resumption of demand from individual investors
is expected when equity returns moderate closer to their historical norms. The
combination of increasing demand and stable supply should be favorable for New
York's municipal bonds.
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
BY THE NUMBERS
CHANGES IN PORTFOLIO COMPOSITION
Portfolio of Investments
as of 12/31/96
General Obligation Bonds ........ 10%
Cash/Short Term/Other ........... 2%
Other Revenue ................... 17%
State Agencies .................. 20%
Water/Sewer Revenue ............. 14%
Transportation Revenue .......... 10%
Power Revenue ................... 2%
Housing Revenue ................. 10%
Gtd. Prerefunded ................ 15%
Compared to 12/31/95
General Obligation Bonds ........ 12%
Cash/Short Term/Other ........... 2%
Other Revenue ................... 16%
State Agencies .................. 17%
Water/Sewer Revenue ............. 13%
Transportation Revenue .......... 13%
Power Revenue ................... 5%
Housing Revenue ................. 9%
Gtd. Prerefunded ................ 13%
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ending December 31, 1996
TOTAL RETURNS
-----------------------------
ONE FIVE TEN
YEAR YEARS* YEARS*
---- ------ ------
Landmark New York Tax Free Income Fund
without Sales Charge ....................... 3.01% 6.31% 6.67%
Lipper New York State Municipal Bond
Funds Average .............................. 3.15% 6.73% 6.84%
Lehman Municipal Bond Index .................. 4.43% 7.28% 7.80%
Landmark New York Tax Free Income Fund
with Maximum Sales Charge of 4.00% ......... (1.11)% 5.44% 6.23%
* Average annual total return
30-Day SEC Yield .............. 5.01%
Income Dividends Per Share .... $0.588
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$18,910 with sales charge (as of 12/31/96). The graph shows how this compares to
our benchmark over the same period.
The graph includes the initial 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 N.Y. Lehman
NY Inc. w/o NY Inc. w/ State Muni Muni Bond
sales charg. sales charg. Funds Avg. Index
----------- ------------ ---------- ---------
Sep-86 9,900 9,504 10,000 10,000
Oct-86 10,141 9,735 10,243 10,173
Nov-86 10,329 9,915 10,416 10,375
Dec-86 10,331 9,917 10,421 10,346
Jan-87 10,535 10,113 10,633 10,658
Feb-87 10,603 10,179 10,727 10,710
Mar-87 10,556 10,134 10,679 10,596
Apr-87 9,731 9,342 9,931 10,064
May-87 9,608 9,224 9,823 10,014
Jun-87 9,973 9,574 10,064 10,308
Jul-87 10,042 9,641 10,166 10,413
Aug-87 10,053 9,651 10,204 10,436
Sep-87 9,453 9,075 9,725 10,051
Oct-87 9,430 9,052 9,769 10,087
Nov-87 9,804 9,412 10,037 10,350
Dec-87 9,996 9,596 10,252 10,500
Jan-88 10,399 9,983 10,657 10,874
Feb-88 10,514 10,094 10,758 10,989
Mar-88 10,187 9,779 10,528 10,861
Apr-88 10,219 9,810 10,577 10,944
May-88 10,249 9,839 10,583 10,912
Jun-88 10,431 10,014 10,014 11,072
Jul-88 10,490 10,071 10,815 11,144
Aug-88 10,523 10,102 10,854 11,154
Sep-88 10,737 10,308 11,062 11,356
Oct-88 11,011 10,571 11,306 11,556
Nov-88 10,879 10,444 11,173 11,450
Dec-88 11,111 10,666 11,344 11,567
Jan-89 11,250 10,800 11,506 11,806
Feb-89 11,082 10,639 11,405 11,671
Mar-89 11,120 10,675 11,388 11,643
Apr-89 11,443 10,986 11,678 11,919
May-89 11,713 11,245 11,900 12,167
Jun-89 11,862 11,388 12,057 12,332
Jul-89 12,017 11,536 12,182 12,500
Aug-89 11,837 11,363 12,063 12,378
Sep-89 11,696 11,228 12,009 12,341
Oct-89 11,862 11,387 12,112 12,492
Nov-89 12,073 11,591 12,297 12,711
Dec-89 12,191 11,704 12,397 12,815
Jan-90 12,058 11,576 12,266 12,754
Feb-90 12,111 11,627 12,370 12,868
Mar-90 12,115 11,630 12,339 12,872
Apr-90 11,924 11,447 12,185 12,779
May-90 12,246 11,756 12,498 13,058
Jun-90 12,415 11,919 12,645 13,173
Jul-90 12,691 12,183 12,880 13,367
Aug-90 12,389 11,893 12,615 13,173
Sep-90 12,319 11,826 12,563 13,181
Oct-90 12,485 11,986 12,687 13,420
Nov-90 12,888 12,372 12,976 13,690
Dec-90 12,915 12,398 13,019 13,750
Jan-91 13,131 12,606 13,196 13,935
Feb-91 13,114 12,589 13,269 14,056
Mar-91 13,113 12,588 13,318 14,061
Apr-91 13,318 12,785 13,526 14,249
May-91 13,432 12,895 13,632 14,376
Jun-91 13,420 12,883 13,618 14,362
Jul-91 13,618 13,073 13,839 14,537
Aug-91 13,816 13,264 14,038 14,728
Sep-91 14,036 13,474 14,249 14,920
Oct-91 14,183 13,616 14,386 15,054
Nov-91 14,197 13,629 14,406 15,096
Dec-91 14,508 13,928 14,703 15,420
Jan-92 14,457 13,879 14,622 15,455
Feb-92 14,493 13,914 14,676 15,460
Mar-92 14,449 13,871 14,723 15,466
Apr-92 14,542 13,961 14,879 15,604
May-92 14,787 14,195 15,096 15,788
Jun-92 15,086 14,482 15,408 16,053
Jul-92 15,605 14,981 15,972 16,534
Aug-92 15,379 14,764 15,729 16,373
Sep-92 15,431 14,814 15,776 16,480
Oct-92 15,153 14,547 15,514 16,318
Nov-92 15,498 14,878 15,894 16,610
Dec-92 15,648 15,022 16,097 16,780
Jan-93 15,896 15,260 16,295 16,975
Feb-93 16,505 15,845 16,940 17,589
Mar-93 16,369 15,714 16,767 17,403
Apr-93 16,494 15,834 16,951 17,579
May-93 16,531 15,869 17,070 17,678
Jun-93 16,804 16,132 17,357 17,973
Jul-93 16,810 16,138 17,352 17,996
Aug-93 17,099 16,415 17,730 18,370
Sep-93 17,297 16,605 17,927 18,579
Oct-93 17,327 16,634 17,961 18,614
Nov-93 17,170 16,483 17,760 18,450
Dec-93 17,530 16,829 18,133 18,839
Jan-94 17,701 16,993 18,325 19,054
Feb-94 17,264 16,574 17,865 18,561
Mar-94 16,482 15,823 17,061 17,806
Apr-94 16,513 15,852 17,078 17,957
May-94 16,652 15,986 17,245 18,113
Jun-94 16,450 15,792 17,124 18,008
Jul-94 16,778 16,104 17,425 18,338
Aug-94 16,856 16,182 17,483 18,395
Sep-94 16,526 15,865 17,147 18,125
Oct-94 16,209 15,561 16,773 17,802
Nov-94 15,845 15,211 16,317 17,480
Dec-94 16,221 15,572 16,769 17,865
Jan-95 16,672 16,005 17,242 18,376
Feb-95 17,157 16,471 17,797 18,911
Mar-95 17,353 16,659 17,948 19,128
Apr-95 17,368 16,673 17,970 19,151
May-95 18,024 17,303 18,549 19,762
Jun-95 17,777 17,065 18,300 19,590
Jul-95 17,863 17,148 18,413 19,776
Aug-95 18,097 17,373 18,621 20,027
Sep-95 18,148 17,422 18,718 20,153
Oct-95 18,551 17,809 19,021 20,445
Nov-95 18,956 18,198 19,386 20,784
Dec-95 19,126 18,361 19,586 20,984
Jan-96 19,212 18,443 19,674 21,143
Feb-96 18,972 18,213 19,509 20,999
Mar-96 18,681 17,934 19,187 20,730
Apr-96 18,595 17,851 19,106 20,672
May-96 18,629 17,884 19,104 20,664
Jun-96 18,839 18,085 19,307 20,889
Jul-96 19,010 18,250 19,490 21,077
Aug-96 18,953 18,195 19,443 21,073
Sep-96 19,285 18,514 19,744 21,368
Oct-96 19,459 18,681 19,941 21,609
Nov-96 19,812 19,020 20,300 22,004
Dec-96 19,702 18,914 20,196 21,912
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors.
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1996
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--98.5%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS -- 10.0%
Baa1 New York City, NY Series F, 7.65% due 2/1/06 ..... $3,000 $ 3,333,360
Baa1 New York City, NY Series F, 8.40% due 11/15/06 ... 175 203,282
Baa1 New York City, NY Series B, 6.375% due 8/15/11 ... 1,500 1,533,405
Baa1 New York City, NY Series A, 6.25% due 8/01/12 .... 3,200 3,229,920
-----------
8,299,967
-----------
GUARANTEED/PREREFUNDED AND ETM -- 14.6%
Aaa New York City, NY Series F, 8.40% due 11/15/06 .... 1,825 2,154,394
Aaa New York State Housing Finance Agency, ETM,
7.90% due 11/1/06 ............................... 5,750 6,673,910
Aaa Puerto Rico Commonwealth Highway Authority,
8.00% due 7/1/05 ................................ 2,900 3,126,983
-----------
11,955,287
-----------
HOUSING REVENUE -- 9.8%
Aa New York State Mortgage Agency Revenue, AMT,
7.25% due 10/1/07 ............................... 6,075 6,470,240
Aa New York State Mortgage Agency Revenue, AMT,
7.75% due 10/1/23 ............................... 1,470 1,557,862
-----------
8,028,102
-----------
POWER REVENUE -- 2.4%
Baa1 Puerto Rico Electric Power Authority,
6.125% due 7/1/09 ............................... 1,000 1,065,840
Baa1 Puerto Rico Electric Power Authority,
5.25% due 7/1/21 ................................ 1,000 929,760
-----------
1,995,600
-----------
STATE AGENCIES -- 20.3%
Baa1 New York State Dormitory Authority,
6.50% due 2/15/11 ............................... 1,610 1,726,306
Baa1 New York State Dormitory Authority,
5.25% due 5/15/13 ............................... 2,000 1,883,660
Baa1 New York State Dormitory Authority,
Dept. of Health, 5.75% due 7/01/17 .............. 2,000 1,931,880
Aaa New York State Dormitory Authority,
City University 5.75% due 7/1/18 ................ 3,000 3,101,610
Aaa New York State Dormitory Authority,
City University 5.00% due 7/1/20 ................ 2,000 1,841,760
Baa1 New York State Dormitory Authority,
5.25% due 5/15/21 ............................... 1,000 890,310
Baa1 New York State Dormitory Authority,
5.70% due 7/1/21 ................................ 750 711,135
Baa1 New York State Dormitory Authority,
5.40% due 5/15/23 ............................... 1,690 1,541,787
Baa1 New York State Urban Development Revenue,
5.875% due 4/1/09 ............................... 1,245 1,258,122
Baa1 New York State Urban Development Revenue,
5.25% due 1/1/21 ................................ 2,000 1,807,880
-----------
16,694,450
-----------
TRANSPORTATION REVENUE --10.4%
Baa1 Metropolitan Transportation
Authority, NY, 5.75% due 7/1/13 ................. 1,000 997,480
Baa1 Metropolitan Transportation
Authority, NY, 5.75% due 7/1/13 ................. 3,000 2,992,440
Baa1 New York State Thruway
Authority, 5.875% due 4/1/14 .................... 1,000 999,700
Aaa Puerto Rico Commonwealth
Highway Authority,
5.50% due 7/1/13................................. 1,125 1,146,870
Aaa Puerto Rico Commonwealth
Highway Authority,
5.50% due 7/1/15 ................................ 1,000 1,016,210
Baa1 Puerto Rico Commonwealth
Highway Authority,
5.50% due 7/1/26 ................................ 500 482,400
Aa Triborough Bridge & Tunnel
Authority, 5.00% due 1/1/20 ..................... 1,000 936,420
-----------
8,571,520
-----------
WATER AND SEWER REVENUE -- 13.8%
Aaa New York City Municipal Water
Finance, 5.75% due 6/15/26 ...................... 2,000 2,008,320
Aa New York State Environmental
Facilities, 7.00% due 6/15/12 ................... 3,360 3,697,008
Aa New York State Environmental
Facilities, 7.50% due 6/15/12 ................... 3,000 3,303,990
A1 New York State Environmental
Facilities, 7.125% due 7/1/12 ................... 2,100 2,276,820
-----------
11,286,138
-----------
OTHER REVENUE -- 17.2%
Aa Municipal Assistance Corp.,
Series E, 6.00% due 7/1/06 ...................... 1,000 1,089,660
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bond due 7/15/11 ................... 500 224,175
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bond due 1/15/12 .................... 400 173,184
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bond due 1/15/13 .................... 800 325,056
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bond due 1/15/14 .................... 1,405 539,689
N/R New York City Industrial
Development Agency,
7.00% due 5/1/08 ................................ 800 827,792
A New York State Local Government
Assist Series "E",
6.00% due 4/1/14................................. 2,000 2,147,020
A New York State Local Government
Assist Series "A",
5.25% due 4/1/19................................. 4,000 3,783,640
Aaa New York State Medical
Care Facilities,
6.90% due 8/15/34 ............................... 1,000 1,106,310
N/R Port Authority New York and
New Jersey Special Obligation,
6.75% due 10/1/19 ............................... 3,850 3,935,547
-----------
14,152,073
-----------
TOTAL MUNICIPAL BONDS
(Identified Cost $76,616,400) ......................... $80,983,137
-----------
- -------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES*
AT AMORTIZED COST--0.4%
- -------------------------------------------------------------------------------
New York, NY, due 8/1/23 ............................... 300 300,000
-----------
TOTAL INVESTMENTS
(Identified Cost $76,916,400) ........................ 98.9% 81,283,137
OTHER ASSETS,
LESS LIABILITIES....................................... 1.1 898,869
------ -----------
NET ASSETS.............................................. 100.0% $82,182,006
====== ===========
AMT - Subject to Alternative Minimum Tax
ETM - Escrow to Maturity for timely payment of principal
*Variable rate demand notes have a demand feature under which
the Fund could tender them back to the issuer on no more than
7 days' notice.
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
ASSETS:
Investments, at value (Note 1A)
(Identified Cost, $76,916,400) ...................... $81,283,137
Cash.................................................. 6,978
Interest receivable................................... 1,533,077
-----------
Total assets...................................... 82,823,192
-----------
LIABILITIES:
Payable for shares of beneficial interest repurchased 540,660
Payable to affiliates:
Investment advisory fees (Note 2)................... $ 4,479
Shareholder servicing agents' fees (Note 3B)........ 18,729 23,208
-------
Accrued expenses and other liabilities................ 77,318
-----------
Total liabilities................................. 641,186
-----------
NET ASSETS for 7,486,395 shares of beneficial
interest outstanding ............................... $82,182,006
===========
NET ASSETS CONSIST OF:
Paid-in capital....................................... $83,377,324
Accumulated net realized loss on investments.......... (5,593,561)
Unrealized appreciation of investments................ 4,366,737
Undistributed net investment income................... 31,506
-----------
Total............................................. $82,182,006
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF
BENEFICIAL INTEREST ................................ $10.98
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a
4.00% sales charge ($10.98 / 0.96) ............... $11.44
======
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
INVESTMENT INCOME (Note 1B):
Interest............................................. $5,258,222
EXPENSES:
Investment advisory fees (Note 2).................... $ 342,600
Administrative fees (Note 3A)........................ 214,125
Shareholder servicing agents' fees (Note 3B)......... 214,125
Distribution fees (Note 4)........................... 128,475
Custodian fees....................................... 77,069
Auditing services.................................... 29,800
Trustee fees......................................... 21,785
Shareholder reports.................................. 19,547
Legal services....................................... 14,672
Transfer agent fees.................................. 12,000
Miscellaneous........................................ 14,184
----------
Total expenses.................................... 1,088,382
Less aggregate amount waived by Investment Adviser,
Administrator and Distributor (Notes 2, 3A, (400,774)
Less fees paid indirectly (Note 1G).................. (2,401)
----------
Net expenses...................................... 685,207
----------
Net investment income............................. 4,573,015
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions......... 348,515
Unrealized appreciation (depreciation) of investments--
Beginning of period............................... 6,911,315
End of period..................................... 4,366,737
----------
Net change in unrealized appreciation (depreciation). (2,544,578)
----------
Net realized and unrealized gain (loss) on investments (2,196,063)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. $2,376,952
==========
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
---- ----
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income............................. $ 4,573,015 $44,973,561
Net realized gain on investment transactions...... 348,515 2,495,369
Net change in unrealized appreciation
(depreciation) of investments ................... (2,544,578) 7,077,868
----------- -----------
Net increase in net assets resulting from
operations .................................... 2,376,952 14,546,798
----------- -----------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income............................. (4,598,756) (4,916,314)
----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(Note 6):
Net proceeds from sale of shares.................. 7,081,700 3,497,861
Net asset value of shares issued to
shareholders from reinvestment of dividends...... 4,543,061 4,906,229
Cost of shares repurchased........................ (17,485,191) (14,169,410)
----------- -----------
Net decrease in net assets from
transactions in shares of beneficial interest. (5,860,430) (5,765,320)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ............ (8,082,234) 3,865,164
NET ASSETS:
Beginning of period............................... 90,264,240 86,399,076
----------- -----------
End of period (including undistributed net
investment income of $31,506 and
$57,247, respectively)........................... $82,182,006 $90,264,240
=========== ===========
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED AUGUST 31,
------------------------- 1993 ----------------------
1996 1995 1994 (NOTE 1D) 1993 1992
----- ---- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period....................... $ 11.25 $ 10.09 $ 11.54 $ 11.44 $ 10.82 $ 10.27
------- ------- ------- ------- ------- -------
Income From Operations:
Net investment income.......... 0.585 0.607 0.566 0.210 0.567 0.589
Net realized and unrealized
gain (loss) on investments .. (0.267) 1.153 (1.415) 0.076 0.610 0.541
------- ------- ------- ------- ------- -------
Total from operations ..... 0.318 1.760 (0.849) 0.286 1.177 1.130
------- ------- ------- ------- ------- -------
Less Dividends From:
Net investment income ....... (0.588) (0.600) (0.601) (0.186) (0.557) (0.580)
------- ------- ------- ------- ------- -------
Net Asset Value,
end of period ............. $ 10.98 $ 11.25 $ 10.09 $ 11.54 $ 11.44 $ 10.82
======= ======= ======= ======= ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).............. $82,182 $90,264 $86,399 $120,824 $111,583 $81,185
Ratio of expenses to average
net assets................... 0.80% 0.80% 0.80% 0.80%+ 0.80% 0.80%
Ratio of net investment income
to average net assets........ 5.34% 5.62% 5.52% 4.84%+ 5.11% 5.58%
Portfolio turnover............. 47% 98% 150% 46%+ 149% 143%
Total return................... 3.01% 17.89% (7.47)% 2.52%** 11.19% 11.31%
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees
for the periods indicated and the expenses were not reduced for fees paid indirectly for the
years after December 31, 1994, the net investment income per share and the ratios would have
been as follows:
Net investment income
per share ................... $ 0.534 $0.555 $0.508 $0.191 $0.51 $0.537
Ratios:
Expenses to average net assets. 1.27% 1.27% 1.27% 1.23%+ 1.27% 1.30%
Net investment income to
average net assets........... 4.87% 5.15% 5.05% 4.40%+ 4.64% 5.09%
+ Annualized
**Not annualized
See notes to financial statements
</TABLE>
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
The Landmark New York Tax Free Income Fund (the "Fund") is a separate
non-diversified series of Landmark Tax Free Income Funds (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 Investment Adviser of the Fund is Citibank, N.A. ("Citibank"). The Landmark
Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the Fund's Administrator
and Distributor. Citibank also serves as Sub-Administrator and makes shares
available to customers as Shareholder Servicing Agent.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. INVESTMENT SECURITY VALUATIONS -- Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service which takes 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 upon 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 60 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 is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or discount on long-term
debt securities when required for federal income tax purposes.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code available 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. Dividends by the Fund from net interest received on
tax-exempt municipal bonds are not includable by shareholders as gross income
for federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt interest dividends. The
portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item to shareholders. At
December 31, 1996, the Fund, for federal income tax purposes, had a capital loss
carryover of $5,593,561 which will expire on December 31, 2002. Such capital
loss carryover will reduce the Fund's taxable income arising from future net
realized gain on investment transactions, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax.
D. CHANGE IN FISCAL YEAR END -- Effective September 1, 1993, the Fund changed
its fiscal year end from August 31 to December 31.
E. Distributions -- The Fund distinguishes between distributions on a tax basis
and a financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
G. FEES PAID INDIRECTLY -- The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
H. 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.
(2) INVESTMENT ADVISORY FEES
The investment advisory fee paid to Citibank, as compensation for overall
investment management services, amounted to $342,600, of which $254,015 was
voluntarily waived for the year ended December 31, 1996. The investment advisory
fee is computed at the annual rate of 0.40% of average daily net assets.
(3) ADMINISTRATIVE SERVICES PLAN
The Trust, on behalf of the Fund, has adopted an Administrative Services Plan
(the "Administrative Services Plan") which provides that the Trust 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 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 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 fee paid to the Administrator, as compensation for
overall administrative services and general office facilities, is accrued daily
and paid monthly at an annual rate of 0.25% of the Fund's average daily net
assets. The Administrative fees amounted to $214,125, of which $18,284 was
voluntarily waived for the year ended December 31, 1996. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
LFBDS as from time to time is agreed to by LFBDS and Citibank. The Fund pays no
compensation directly to any Trustee or 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 and 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, but 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 $214,125 for the year ended December 31,
1996.
(4) DISTRIBUTION FEES
The Trust, on behalf of the Fund, has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund reimburses the Distributor for expenses incurred or anticipated in
connection with sales of shares of the Fund, at an annual rate not to exceed
0.15% of the Fund's average daily net assets. The Distribution fees amounted to
$128,475, all of which was voluntarily waived for the year ended December 31,
1996. The Distributor may also receive an additional fee from the Fund at an
annual rate not to exceed 0.05% of the Fund's average daily net assets in
anticipation of, or as reimbursement for, advertising expenses incurred by the
Distributor in connection with the sale of shares of the Fund. No payment of
such additional fees has been made during the period.
(5) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $33,557,589 and $38,888,762, respectively.
(6) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value).
Transactions in shares of beneficial interest were as follows:
Year Ended December 31,
------------------------
1996 1995
----- ----
Shares sold.................... 642,528 323,585
Shares issued to
shareholders from
reinvestment of
dividends.................... 417,595 457,160
Shares repurchased ............ (1,595,467) (1,319,122)
--------- ---------
Net decrease................... (535,344) (538,377)
========= =========
(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1996, as computed on a federal income tax
basis, are as follows:
Aggregate cost.................................. $76,916,400
===========
Gross unrealized appreciation .................. $ 4,442,531
Gross unrealized depreciation .................. (75,794)
-----------
Net unrealized appreciation .................. $ 4,366,737
===========
(8) LINE OF CREDIT
The Fund, along with other Landmark Funds, entered into an ongoing agreement
with a bank which allows the Funds collectively to borrow up to $40 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. In
addition, the committed portion of the line of credit requires a quarterly
payment of a commitment fee based on the average daily unused portion of the
line of credit. For the year ended December 31, 1996, the commitment fee
allocated to the Fund was $338. Since the line of credit was established there
have been no borrowings.
<PAGE>
Landmark New York Tax Free Income Fund
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF LANDMARK
NEW YORK TAX FREE INCOME FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Landmark New York Tax Free Income
Fund, a separate series of Landmark Tax Free Income Funds (the "Trust") (a
Massachusetts business trust), as of December 31, 1996, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended December 31, 1996 and 1995, and the financial highlights for
each of the years in the three year period ended December 31, 1996, the four
months ended December 31, 1993 and for each of the years in the two year period
ended August 31, 1993. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1996, by correspondence with the Custodian. 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Landmark New York
Tax Free Income Fund at December 31, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
FOR CITIBANK 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:
Citibank, N.A.
Citigold
P.O. Box 5130, New York, NY 10150-5130
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.
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
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
H. B. Alvord
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- --------------------------+-------------------------
INVESTMENT ADVISER
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
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110
- --------------------------+-------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside Cover)
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
NTFI/A/96 Printed on Recycled Paper [Recycle Symbol)
[Logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
NATIONAL TAX FREE
INCOME FUND
ANNUAL
REPORT
December 31, 1996
<PAGE>
- -------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
The U.S. municipal bond market produced modestly positive returns in
1996, the result of developments within the tax-exempt marketplace and an
economic environment characterized by moderate growth. Persistently low
inflation and an unchanged monetary policy contributed to positive total
returns for many fixed-income securities, including municipal bonds.
In this environment, the Landmark Funds' investment adviser, Citibank, N.A.,
continued to manage the Landmark National Tax Free Income Fund with the goal of
achieving its investment objectives: generating high levels of current income
exempt from federal personal income taxes, and preserving the value of its
shareholders' investment. Consistent with this objective, the Fund seeks to
provide an attractive yield from a high-quality investment portfolio consisting
of municipal obligations primarily of states, municipalities and their agencies.
This report reviews the Fund's investment activities and performance during
the year ended December 31, 1996, and provides a summary of Citibank's
perspective on and outlook for the municipal bond market. 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
January 17, 1997
- -------------------------------------------------------------------------------
Remember that Mutual Fund Shares:
o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
o Are subject to investment risks, including possible loss of the
principal amount invested.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
1 A Letter to Our Shareholders 5 Fund Data
- -------------------------------------- Performance Highlights
2 Market Environment -----------------------------------------
Fund Snapshot 6 Portfolio of Investments
- -------------------------------------- -----------------------------------------
Portfolio Manager 7 Statement of Assets and Liabilities
3 The Portfolio Manager Responds -----------------------------------------
Quotes From the Portfolio Manager 8 Statement of Operations
- -------------------------------------- -----------------------------------------
4 Strategy and Outlook 9 Statement of Changes in Net Assets
Landmark National Tax Free -----------------------------------------
Income Fund--By the Numbers 10 Financial Highlights
- -------------------------------------- -----------------------------------------
11 Notes to Financial Statements
-----------------------------------------
14 Independent Auditors' Report
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The economic and market environments of 1996 defied the forecasts of most
investment strategists, including the Landmark Funds' investment manager,
Citibank, N.A. At the start of the year, many investors expected U.S. economic
growth to slow substantially. Instead, the pace of economic growth accelerated
during the first half of the year, raising concern that the rate of inflation
might rise and that the environment for both stocks and bonds would become less
attractive. The market's inflation fears were not realized, however, as economic
growth moderated during the second half of the year.
Sustainable, non-inflationary economic growth proved to be a formula for
modestly positive performance for fixed-income securities of most types and
maturities. Weaker economic growth during the second half of the year supported
the Federal Reserve Board's decision to hold monetary policy steady after their
most recent rate cut in January.
In the municipal bond market, investors' fears of a "flat" federal
income tax dissipated with the unsuccessful candidacy of the plan's chief
proponent. The resolution of this issue, which had constrained municipal bond
prices relative to U.S. Treasury securities, allowed that relationship to return
closer to historical averages. As a result, in 1996, municipal bonds
outperformed their taxable counterparts in the U.S. Treasury securities
marketplace.
- --------------------------------------------------------------------------------
FUND SNAPSHOT
COMMENCEMENT OF OPERATIONS
August 17, 1995
NET ASSETS AS OF 12/31/96
$2.1 million
FUND OBJECTIVE
To generate high levels of current income exempt from federal
income taxes+ and to preserve the value of its shareholders' investment. The
Fund invests primarily in municipal obligations that pay interest that is exempt
from federal income taxes.
DIVIDENDS
Paid monthly
CAPITAL GAINS
Distributed annually, if any
BENCHMARKS
o Lipper General Municipal Bond Funds Average
o Lehman Municipal 4 Years Plus Bond Index
INVESTMENT ADVISER
Citibank, N.A.
+A portion of the income may be subject to the Federal Alternative Minimum
Tax. Consult your personal tax advisor.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
CARLA WROCKLAGE
Vice President, Citibank, N.A.
Ms. Wrocklage has been responsible for the management of the Fund since the
Fund's commencement of operations August 17, 1995. Ms. Wrocklage has over 9
years of tax exempt portfolio management experience. Prior to joining the
Adviser in 1995, she was a municipal bond fund portfolio manager for Prudential
Insurance Company of America. She began her career at Keystone Group.
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
When the year began, several factors were working against municipal bonds:
the possibility of replacing the graduated federal personal income tax with
a flat tax, investors' preference for equity investments and uncertainty
regarding the economy. However, the Fund's investment adviser, Citibank, N.A.,
correctly believed that these influences would wane, and consequently
positioned the portfolio appropriately.
As soon as it became apparent in the first quarter of 1996 that the economy
was not slowing as expected, we reduced the Fund's average duration to a range
considered neutral, thereby reducing the sensitivity of the fund to higher
interest rates. We maintained this position until the fourth quarter, when a
slowing economy and falling interest rates prompted us to lengthen the fund's
average duration in an attempt to maintain prevailing yields for as long as
practical.
We also benefited early from our security selection strategy. By emphyasizing
positions in bonds from high-tax speciality states such as New York and Arizona,
we were able to obtain better values than were available in the general
marketplace. We enhanced the Fund's yield by maintaining a portion of the Fund's
assets in BBB- rated tax-exempt bonds that are becoming increasingly rare as
more issuers insure their securities. We avoided certain sectors of the
marketplace because of potential risks, including electric utilities, which are
in the midst of deregulation and about to face greater competition, and
uninsured bonds of California localities, because of political developments.
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGER
"Muncipal bond prices rose during the second half of the year as investors
realized that economic growth would slow, inflation would not be a problem and a
flat income tax was not imminent."
"We focused on the bonds of high-tax, specialty states because we expect demand
for municipal bonds to be greatest there when returns stabilize in the equity
markets."
"Absent an unexpected recession or an acceleration of inflation, 1997 should be
a positive year for municipal bond investors."
<PAGE>
- --------------------------------------------------------------------------------
STRAGEGY AND OUTLOOK
We are optimistic about the prospect for the municipal bond market in 1997.
The economy appears to be on a steady course in which it should neither overheat
to inflationary levels nor deteriorate into a recession. Current indications
suggest that the first part of the year will see an unchanged monetary policy,
modestly lower interest rates and low rates of inflation.
The prospect of lower interest rates should be good news for the tax-exempt
bond market, where prices will rise if yields fall. In addition, the prospect of
continued low inflation should make investors more comfortable investing in
municipal bonds for the longer term as the potential for erosion of buying power
is reduced. Fixed-income securities, both taxable and tax exempt, could become
particularly attractive if President Clinton and the Republican Congress make
substantial progress toward further reducing the federal budget deficit.
In the municipal bond market, resumption of demand from individual investors
is expected when equity returns moderate to more normal levels. The combination
of increasing demand and stable supply should be favorable for future gains in
the municipal bond market.
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
BY THE NUMBERS
- --------------------------------------------------------------------------------
CHANGES IN PORTFOLIO COMPOSITION
Portfolio of Investments
as of 12/31/96 ...Compared to 12/31/95
General Obligation Bonds 30% General Obligation Bonds 31%
Transportation Revenue 17% Transportation Revenue 16%
Other Revenue 13% Other Revenue 15%
Housing Revenue 9% Water/Sewer Revenue 12%
Cash/Short Term/Other 7% Cash/Short Term/Other 10%
Water/Sewer Revenue 6% State Agencies 7%
Power Revenue 6% Power Revenue 5%
Education 5% Housing Revenue 4%
State Agencies 4%
Hospital Revenue 3%
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA Period Ending December 31, 1996
TOTAL RETURNS
------------------------------
SINCE
ONE 8/17/95
YEAR (INCEPTION)*
------- -----------
Landmark National Tax Free Income Fund
without Sales Charge ................ 3.31% 7.88%
Lipper General Municipal Bond Funds
Average ............................. 3.30% 4.65%+
Lehman Municipal 4 Years Plus Bond Index 4.45% 7.25%+
Landmark National Tax Free Income Fund
with Maximum Sales Charge of 4.00% . (0.82)% 4.72%
* Total Return from 8/17/95 (Commencement of Operations) to December 31, 1996
+ From 8/31/95
30-Day SEC Yield 5.38%
Income Dividends Per Share $0.54
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
A $10,000 investment in the Fund made on inception date would have grown to
$10,655 with sales charge (as of 12/31/96). The graph shows how this compares to
our benchmark over the same period.
The graph includes the initial 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 Lehman
National National General Municipal
Tax Free Tax Free Municipal 4 Yrs
w/o sales w. sales Bond Plus
chrg. chrg. Avg. index
- --------------------------------------------------------------------------------
Aug-95 10,190 9,782 10,000 10,000
Sep-95 10,248 9,838 10,059 10,065
Oct-95 10,456 10,038 10,215 10,223
Nov-95 10,636 10,211 10,412 10,405
Dec-95 10,743 10,314 10,529 10,513
Jan-96 10,840 10,407 10,580 10,593
Feb-96 10,712 10,283 10,497 10,514
Mar-96 10,491 10,072 10,329 10,366
Apr-96 10,434 10,017 10,280 10,332
May-96 10,398 9,982 10,284 10,326
Jun-96 10,549 10,127 10,381 10,444
Jul-96 10,670 10,243 10,472 10,544
Aug-96 10,643 10,217 10,466 10,539
Sep-96 10,817 10,385 10,617 10,696
Oct-96 10,938 10,502 10,732 10,824
Nov-96 11,158 10,712 10,920 11,034
Dec-96 11,099 10,655 10,873 10,981
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors.
<PAGE>
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1996
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--92.8%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS -- 30.5%
Aaa Johnston County, North Carolina,
5.10% due 2/1/05 ............... $ 100 $ 101,600
Aaa Massachusetts State, Construction
Loan, 5.625% due 8/1/13 ........ 50 50,689
Aa Metro, Oregon Open Spaces
Program Series "A",
5.50% due 9/1/10 ............... 50 50,558
Aaa Montgomery, New Jersey,
5.45% due 8/1/06 ............... 70 72,843
Baa1 New York, New York,
6.25% due 8/1/12 ............... 50 50,468
Baa1 New York, New York,
6.25% due 8/1/17 ............... 200 200,574
Aaa San Anselmo, California,
5.60% due 8/1/11 ............... 50 50,638
Aa1 Winston Salem, North Carolina,
5.40% due 6/1/11 ............... 50 50,573
----------
627,943
----------
EDUCATION -- 4.7%
Aaa Pleasanton, California School
District, 5.60% due 8/1/11 ..... 50 51,253
AAA University of Montana
5.00% due 11/15/17 ............. 50 46,154
----------
97,407
----------
HOSPITAL REVENUE -- 3.2%
Aaa Michigan State Hospital Finance
Authority, 5.25% due 5/15/26 ... 70 65,348
----------
HOUSING -- 9.2%
Aa Pennsylvania Housing Finance
Agency, AMT, 7.45% due 10/1/10 . 80 84,387
A1 Tennessee Housing Development
Agency, AMT, 6.90% due 7/1/25 .. 100 105,446
----------
189,833
----------
POWER REVENUE -- 5.7%
A1 New York State Energy Research &
Development Authority, AMT,
7.50% due 7/1/25 ............... 60 64,228
Aaa Sikeston, Missouri, Electrical
Revenue, 6.00% due 6/1/14 ..... 50 53,585
----------
117,813
----------
STATE AGENCIES -- 4.5%
Baa1 New York State Dormitory
Authority, 5.50% due 5/15/23 ... 100 91,923
----------
TRANSPORTATION REVENUE -- 16.8%
Baa Arapahoe County, Colorado
Capital Improvement,
7.00% due 8/31/26 .............. 150 165,223
Aaa Delaware River and Bay Authority,
6.00% due 1/1/06 ............... 90 97,081
Aaa Puerto Rico Commonwealth,
Highway Series "Y,"
6.25% due 7/1/05 ............... 75 82,925
----------
345,229
----------
WATER AND SEWER REVENUE -- 5.5%
Aaa Bexar, Texas Metropolitan Water
District, 6.00% due 5/1/15 ..... 50 51,642
Aa Charlotte North Carolina
Water & Sewer Systems,
5.25% due 12/1/21 .............. 65 62,050
----------
113,692
----------
OTHER REVENUE -- 12.7%
Aa Municipal Assistance Corp.,
Series E, 6.00% due 7/1/05 ..... 100 108,906
NR Port Authority New York &
New Jersey Special Obligation,
AMT, 6.75% due 10/1/19 ......... 150 153,333
----------
262,239
----------
TOTAL MUNICIPAL BONDS
(Identified Cost $1,857,566) ....... 1,911,427
----------
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES AT AMORTIZED COST*--2.4%
- --------------------------------------------------------------------------------
New York, NY, 5.00% due 8/1/22 ..... 50 50,000
----------
Total Investments
(Identified Cost $1,907,566) ....... 95.2% 1,961,427
Other Assets, Less Liabilities ....... 4.8 98,875
-------- ----------
Net Assets ........................... 100.0% $2,060,302
======== ==========
* Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than 7 days' notice.
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $1,907,566)................................... $1,961,427
Cash............................................................................................ 63,409
Interest receivable............................................................................. 38,716
----------
Total assets................................................................................ 2,063,552
----------
LIABILITIES:
Dividends payable............................................................................... 3,250
NET ASSETS for 199,218 shares of beneficial interest outstanding................................ $2,060,302
==========
NET ASSETS CONSIST OF:
Paid-in capital................................................................................. $2,021,898
Unrealized appreciation of investments.......................................................... 53,861
Accumulated net realized loss on investments.................................................... (17,548)
Undistributed net investment income............................................................. 2,091
----------
Total....................................................................................... $2,060,302
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST........................... $10.34
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.00% sales charge ($10.34 / 0.96).................. $10.77
======
</TABLE>
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Interest.................................................. $102,970
Expenses:
Custodian fees............................................. $51,234
Auditing services.......................................... 29,800
Trustee fees............................................... 12,894
Shareholder reports........................................ 12,056
Transfer agent fees........................................ 12,000
Legal services............................................. 10,966
Investment advisory fees (Note 2).......................... 7,598
Administrative fees (Note 3A).............................. 7,598
Shareholder servicing agents' fees (Note 3B)............... 4,748
Distribution fees (Note 4)................................. 949
Miscellaneous.............................................. 6,500
-------
Total expenses......................................... 156,343
Less aggregate amount waived by Investment Adviser,
Administrator, Shareholder Servicing Agents and Distributor
(Notes 2, 3A, 3B, and 4) ............................... (20,893)
Less fees paid indirectly (Note 1E)........................ (2,698)
Expenses Assumed by the Administrator (Note 8)............. (132,752)
-------
Net expenses............................................ --
--------
Net investment income................................... 102,970
--------
NET REALIZED AND UNREALIZED GAIN LOSS) ON INVESTMENTS:
Net realized loss on investment transactions................ (17,548)
Unrealized appreciation (depreciation) of investments--
Beginning of period..................................... 62,916
End of period........................................... 53,861
-------
Net change in unrealized appreciation (depreciation)........ (9,055)
--------
Net realized and unrealized gain (loss) on investments.. (26,603)
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... $ 76,367
========
</TABLE>
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AUGUST 17, 1995
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income........................................................ $ 102,970 $ 22,587
Net realized loss on investment transactions................................. (17,548) --
Net change in unrealized appreciation (depreciation) of investments.......... (9,055) 62,916
---------- -----------
Net increase in net assets resulting from operations......................... 76,367 85,503
---------- ----------
Dividends Declared to Shareholders from:
Net investment income........................................................ (100,879) (22,707)
---------- ----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6):
Net proceeds from sale of shares............................................. 950,184 1,477,019
Net asset value of shares issued to shareholders from
reinvestment of dividends.................................................. 99,169 21,014
Cost of shares repurchased................................................... (270,666) (254,702)
---------- -----------
Net increase in net assets from
transactions in shares of beneficial interest............................ 778,687 1,243,331
---------- -----------
NET INCREASE IN NET ASSETS .................................................. 754,175 1,306,127
NET ASSETS:
Beginning of period.......................................................... 1,306,127 --
---------- -----------
End of period (Including undistributed net investment income
of $2,091 and $0, respectively)............................................ $2,060,302 $1,306,127
========== ===========
</TABLE>
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR AUGUST 17, 1995
ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1996 DECEMBER 31, 1995
----------- -----------------
<S> <C> <C>
Net Asset Value, beginning of period....................................... $10.55 $ 10.00
------ -------
Income From Operations:
Net investment income...................................................... 0.562 0.187
Net realized and unrealized gain (loss)
on investments........................................................... (0.232) 0.551
v ------ -------
Total from operations.............................................. 0.330 0.738
------ -------
Less Dividends From:
Net investment income.................................................... (0.540) (0.188)
------ -------
Net Asset Value, end of period........................................... $10.34 $ 10.55
====== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).................................... $2,060 $1,306
Ratio of expenses to average net assets...................................... 0% 0%
Ratio of net investment income to
average net assets......................................................... 5.42% 5.20%+
Portfolio turnover........................................................... 52% 0%
Total return................................................................. 3.31% 7.43%**
Note: If Agents of the Fund had not voluntarily agreed to waive all of their
fees for the period, the expenses were not reduced for fees paid indirectly
and had expenses been limited to that required by certain state securities
law in 1995, the net investment income per share and the ratios would have
been as follows:
Net investment income (loss) per share....................................... $(0.291) $0.098
Ratios:
Expenses to average net assets............................................... 8.23% 2.50%+
Net investment income (loss) to
average net assets......................................................... (2.81)% 2.70%+
+ Annualized
** Not annualized
</TABLE>
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
The Landmark National Tax Free Income Fund (the "Fund") is a separate
non-diversified series of Landmark Tax Free Income Funds (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 Investment Adviser of the Fund is Citibank, N.A. ("Citibank"). The Landmark
Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the Fund's Administrator
and Distributor. Citibank also serves as Sub-Administrator and makes shares
available to customers as Shareholder Servicing Agent.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. INVESTMENT SECURITY VALUATIONS -- Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service which takes 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 upon 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 60 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 is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or discount on long-term
debt securities when required for federal income tax purposes.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code available 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. At December 31, 1996, the Fund, for federal income tax
purposes, had a capital loss carryover of $17,548 which will expire December 31,
2004. Dividends by the Fund from net interest received on tax-exempt municipal
bonds are not includable by shareholders as gross income for federal income tax
purposes because the Fund intends to meet certain requirements of the Internal
Revenue Code applicable to regulated investment companies which will enable the
Fund to pay exempt interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986, may be considered
a tax preference item to shareholders.
D. DISTRIBUTIONS -- The Fund distinguishes between distributions on a tax basis
and a financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
E. FEES PAID INDIRECTLY -- The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expense on the Statement of Operations.
F. 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.
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. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
(2) INVESTMENT ADVISORY FEES
The investment advisory fee paid to Citibank, as compensation for overall
investment management services amounted to $7,598, all of which was voluntarily
waived for the year ended December 31, 1996. The investment advisory fee is
computed at the annual rate of 0.40% of average daily net assets.
(3) ADMINISTRATIVE SERVICES PLAN
The Trust, on behalf of the Fund, has adopted an Administrative Services Plan
(the "Administrative Services Plan") which provides that the Trust 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 Administrative Services Plan, the aggregate
of the fee paid to the Administrator from the Fund and of the fees paid to the
Shareholder Servicing Agents from the Fund under such 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 fee paid to the Administrator, as compensation for
overall administrative services and general office facilities, is accrued daily
and paid monthly at an annual rate of 0.40% of the Fund's average daily net
assets. The Administrative fee amounted to $7,598, all of which was voluntarily
waived for the year ended December 31, 1996. Citibank acts as Sub-Administrator
and performs such duties and receives such compensation from LFBDS as from time
to time is agreed to by LFBDS and Citibank. The Fund pays no compensation
directly to any Trustee or 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 and 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, but 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 $4,748, all of which was voluntarily waived
for the year ended December 31, 1996.
(4) DISTRIBUTION FEES
The Trust, on behalf of the Fund, has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund reimburses the Distributor for expenses incurred or anticipated in
connection with sales of shares of the Fund, at an annual rate not to exceed
0.05% of the Fund's average daily net assets. The Distributor may also receive
an additional fee from the Fund at an annual rate not to exceed 0.05% of the
Fund's average daily net assets in anticipation of, or as reimbursement for,
advertising expenses incurred by the Distributor in connection with the sale of
shares of the Fund. No payment of such additional fees has been made during the
period. The Distribution fee amounted to $949, all of which was voluntarily
waived for the year ended December 31, 1996.
(5) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $1,638,753 and $883,655, respectively.
(6) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value).
Transactions in shares of beneficial interest were as follows:
AUGUST 17, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1996 DECEMBER 31, 1995
------------ -----------------
Shares sold................. 92,257 146,053
Shares issued to shareholders
from reinvestment of dividends 9,709 2,033
Shares repurchased.......... (26,521) (24,313)
------ -------
Net increase................ 75,445 123,773
====== =======
(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1996, as computed on a federal income tax
basis, are as follows:
Aggregate cost............................ $1,907,566
==========
Gross unrealized appreciation............. $ 57,535
Gross unrealized depreciation............. (3,674)
----------
Net unrealized appreciation............... $ 53,861
==========
(8) ASSUMPTION OF EXPENSES
LFBDS has voluntarily agreed to pay a portion of the unwaived expenses of the
Fund for the year ended December 31, 1996 which amounted to $132,752.
(9) LINE OF CREDIT
The Fund, along with other Landmark Funds, entered into an ongoing agreement
with a bank which allows the Funds collectively to borrow up to $40 million for
temporary or emergency purposes. Interest on 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 year ended December 31,
1996, the commitment fee allocated to the Fund was $8. Since the line of credit
was established there have been no borrowings.
<PAGE>
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF LANDMARK NATIONAL TAX FREE INCOME FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Landmark National Tax Free Income Fund, a
separate series of Landmark Tax Free Income Funds (the "Trust") (a Massachusetts
business trust), as of December 31, 1996, the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights for the year ended December 31, 1996 and for the period
August 17, 1995 (commencement of operations) to December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1996, by correspondence with the Custodian. 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Landmark National
Tax Free Income Fund at December 31, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENTS
FOR CITIBANK 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 10150-5130
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.
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
[Logo]
LANDMARK FUNDS
MONEY MARKET FUNDS:
Cash Reserves
Premium Liquid Reserves
Institutional Liquid Reserves
U.S. Treasury Reserves
Premium U.S. Treasury Reserves
Institutional U.S. Treasury Reserves
Tax Free Reserves
Institutional Tax Free Reserves
California Tax Free Reserves
Connecticut Tax Free Reserves
New York Tax Free Reserves
STOCK & BOND FUNDS:
U.S. Government Income Fund
Intermediate Income Fund
National Tax Free Income Fund
New York Tax Free Income Fund
Balanced Fund
Equity Fund
International Equity Fund
Small Cap Equity Fund
Emerging Asian Markets Equity Fund
