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[logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
NEW YORK TAX FREE
INCOME FUND
ANNUAL
REPORT
December 31, 1997
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
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
CFBDS, 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 LLP
150 Federal Street, Boston, MA 02110
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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/97 Printed on Recycled Paper
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A LETTER TO OUR SHAREHOLDERS
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Dear Shareholder:
The positive economic influences that drove municipal bond prices higher
during the first half of 1997 also produced market rallies during the second
half of the year. The U.S. and New York economies continued to enjoy the effects
of low rates of inflation, even when the pace of economic activity increased to
levels that historically have triggered inflationary pressures. When
fixed-income investors became convinced that the U.S. economy was more resilient
than they originally believed and that low inflation would persist, long-term
interest rates fell to their lowest levels in years.
In this environment, the Fund's investment adviser, Citibank, N.A.,
continued to manage the Landmark New York Tax Free Income Fund with the goal of
achieving its investment objectives: 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. Consistent with this
objective, the Fund invests in debt securities consisting primarily of
obligations issued by state and municipal governments and by other qualifying
issuers that pay interest that is exempt from federal, New York State and New
York City personal income taxes.
This report reviews the Fund's investment activities and performance during
the 12-month period ended December 31, 1997, and provides a summary of
Citibank's perspective on and outlook for New York's municipal bond market.
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 new Management
Agreement with Citibank, N.A., a Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, to authorize certain technical amendments to the
Fund's investment restrictions, to approve selection of the Fund's accountants
and to elect trustees. All proposals were approved by shareholders.
Additionally, effective March 2, 1998, the name of the Fund will be changed to
CitiFundsSM New York Tax Free Income Portfolio. You will receive an updated
prospectus reflecting the Fund's new name shortly.
On behalf of the Board of Trustees of the Funds, I want to thank you for
your confidence and participation.
/S/ Philip W. Coolidge
Philip W. Coolidge
President
January 20, 1998
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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.
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TABLE OF CONTENTS
1 A Letter to Our Shareholders
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2 Market Environment
Fund Snapshot
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Portfolio Manager
3 The Portfolio Manager Responds
Quotes From the Portfolio Manager
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Strategy and Outlook
4 Landmark New York Tax Free
Income Fund--By the Numbers
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5 Fund Data
Performance Highlights
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6 Portfolio of Investments
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8 Statement of Assets and Liabilities
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9 Statement of Operations
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10 Statement of Changes in Net Assets
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11 Financial Highlights
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12 Notes to Financial Statements
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15 Independent Auditors' Report
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<PAGE>
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MARKET ENVIRONMENT
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Like their taxable counterparts, municipal bonds enjoyed the benefits of a
positive U.S. economic environment. Despite periods of relatively strong
economic growth, the rate of inflation remained at historically low levels. Even
high rates of employment, traditionally a harbinger of inflationary pressures,
failed to create an acceleration of inflation. Another important indicator of
inflationary pressures, commodity prices, actually declined over the year.
In this environment, New York benefitted from the tax revenues that high
levels of employment and heightened economic activity tend to produce. The State
achieved a large budget surplus for the fiscal year. As a result, prices of
existing municipal bonds rose. New York City was also a beneficiary of the
vibrant economy, particularly within the financial services sector. Increased
taxes from Wall Street firms and employees helped the City achieve its revenue
goals. In addition, the formation of the Transitional Finance Authority relieved
the City government of some of the burden of public borrowing, a positive
development for the city's existing debt.
In the second half of the year, however, municipal bonds lagged the rally
in comparable U.S. Treasury securities. Debt obligations of the federal
government benefitted from positive economic developments that occurred
simultaneously with sharp reductions in the federal budget deficit, a
combination that resulted in less issuance of U.S. Treasury securities. On the
other hand, the tax-exempt markets saw an increase in the available supply of
new municipal bonds when local governments rushed to take advantage of low
interest rates to refinance existing debt and finance new projects. As of
year-end 1997, municipal bonds provided attractive values relative to U.S.
Treasury securities.
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FUND SNAPSHOT
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COMMENCEMENT OF OPERATIONS
September 8, 1986
NET ASSETS AS OF 12/31/97
$76.0 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 semi-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>
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PORTFOLIO MANAGER
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JOHN C. MOONEY
Vice President, Citibank N.A.
Mr. Mooney has managed the Landmark New York Tax Free Income Fund since
June 1997. Mr. Mooney is a Senior Portfolio Manager responsible for managing
tax-exempt fixed income funds. He is also part of the team responsible for
fixed-income strategy, research and trading. Prior to joining Citibank in 1997,
Mr. Mooney served as a tax-exempt portfolio manager at SunAmerica for over three
years and also served as a tax-exempt portfolio manager at First Investors for
three years. Prior experience also includes Alliance Capital Management L.P. and
The Boston Company.
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THE PORTFOLIO MANAGER RESPONDS
- -------------------------------------------------------------------------------
When it became clear that inflation would remain low despite periods of
strong economic growth, the Fund's investment adviser, Citibank, N.A., extended
the portfolio's average duration, a measure of sensitivity to changes in
interest rates. By extending the portfolio's average duration while interest
rates declined, we were able to maintain higher yields for a longer period as
well as take advantage of the effects of rising prices for higher yielding
securities. The strategy became especially important as the differences in
yields between long-term municipal bonds and short-term securities narrowed. To
take maximum advantage of the greater interest-rate declines for longer term
municipal bonds, we tended to focus on investments in longer-dated securities.
For most of the year, we were rewarded for investing in those sectors of
New York's municipal bond market that provided the highest yields. For example,
we found opportunities in high-yielding bonds from New York City, where bonds
traditionally carry higher yields because of the City's lower credit rating
relative to other areas of the state. We also focused on municipal bonds without
early redemption, or "call," features, which gave us greater assurance that our
holdings would maintain their yields as interest rates declined.
We maintained a portfolio structure of laddered intermediate maturities
throughout the year in an effort to capture the benefits from the shape of the
municipal yield curve. The municipal yield curve is much steeper through the
intermediate maturities until it reaches twenty years where it flattens out
dramatically. By investing in the steeper intermediate section of the yield
curve, the fund is able to capture almost the same income levels as longer dated
bonds with less interest rate risk.
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QUOTES FROM THE PORTFOLIO MANAGER
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"1997 was a good year for New York's municipal bonds, and we took advantage of
opportunities for both income and capital appreciation."
"The tax-exempt markets saw an increase in new supply this year as issuers
refinanced existing debt at lower interest rates."
"At year end, municipal bonds were attractively valued relative to U.S. Treasury
securities, which positions the Fund well for 1998."
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STRATEGY AND OUTLOOK
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We see no signs that positive economic conditions in the U.S. or New York
will end soon. Although we expect the rate of economic growth to slow modestly,
we see little likelihood of a recession. As long as inflation remains low, as we
expect, favorable economic conditions should continue to prevail.
As a result, we continue to be optimistic regarding municipal bonds in New
York and elsewhere. We believe that lower interest rates, low inflation and good
economic conditions should continue to support tax-exempt bond prices. What's
more, we expect municipal bond yields to return closer to their historical norms
relative to U.S. Treasury securities. If this occurs, municipal bonds should
outperform U.S. Treasuries on an after-tax basis, potentially providing the
opportunity for attractive rates of total return (income plus capital
appreciation).
Our strategy looking forward is to attempt to participate in those areas of
New York's municipal bond market that are most likely to provide the best
relative values. This focus on high-quality, tax-exempt securities is designed
to meet the tax-exempt income needs of shareholders in the months ahead.
Landmark New York Tax Free Income Fund
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BY THE NUMBERS
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CHANGES IN PORTFOLIO COMPOSITION
Portfolio of Investments . . . Compared to 12/31/96
as of 12/31/97
Housing Revenue 20% State Agencies 20%
State Agencies 20% Other Revenue 17%
Other Revenue 19% Gtd./Prerefunded 15%
General Obligation Bonds 14% Water/Sewer Revenue 14%
Water/Sewer Revenue 12% General Obligation Bonds 10%
Transportation Revenue 12% Transportation Revenue 10%
Cash/Short Term/Other 2% Housing Revenue 10%
Power Revenue 1% Cash/Short Term/Other 2%
Power Revenue 2%
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FUND DATA All Periods Ending December 31, 1997
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TOTAL RETURNS
--------------------------------
ONE FIVE TEN
YEAR YEARS* YEARS*
---- ----- -----
Landmark New York Tax Free Income Fund
without Sales Charge 9.62% 6.65% 8.01%
Lipper New York State Municipal Bond Funds Average 8.99% 6.61% 8.06%
Lehman Municipal Bond Index 9.19% 7.36% 8.58%
Landmark New York Tax Free Income Fund
with Maximum Sales Charge of 4.00% 5.23% 5.78% 7.57%
* Average annual total return
30-Day SEC Yield 4.66%
Income Dividends Per Share $0.585
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PERFORMANCE HIGHLIGHTS
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Landmark Landmark
New York New York Lipper
Tax Free Tax Free New York
Income Income State Lehman
Fund - Fund - Municipal Municipal
Without With Bond Bond
Sales Sales Funds Index
Charge Charge Average (unmanaged)
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12/31/87 10,000 9,600 10,000 10,000
1/31/88 10,403 9,987 10,395 10,356
2/29/88 10,518 10,098 10,494 10,466
3/31/88 10,191 9,783 10,269 10,344
4/30/88 10,223 9,814 10,317 10,423
5/31/88 10,253 9,842 10,323 10,392
6/30/88 10,435 10,017 10,485 10,545
7/31/88 10,494 10,074 10,549 10,613
8/31/88 10,527 10,106 10,587 10,623
9/30/88 10,741 10,312 10,790 10,815
10/31/88 11,015 10,575 11,028 11,006
11/30/88 10,883 10,447 10,898 10,905
12/31/88 11,115 10,670 11,065 11,016
1/31/89 11,254 10,804 11,223 11,244
2/28/89 11,086 10,643 11,125 11,115
3/31/89 11,124 10,679 11,108 11,089
4/30/89 11,448 10,990 11,391 11,351
5/31/89 11,718 11,249 11,607 11,588
6/30/89 11,867 11,392 11,761 11,745
7/31/89 12,021 11,540 11,883 11,905
8/31/89 11,841 11,368 11,766 11,789
9/30/89 11,700 11,232 11,714 11,753
10/31/89 11,866 11,391 11,814 11,897
11/30/89 12,078 11,595 11,995 12,106
12/31/89 12,196 11,708 12,092 12,205
1/31/90 12,063 11,580 11,964 12,147
2/28/90 12,116 11,631 12,066 12,255
3/31/90 12,119 11,635 12,036 12,259
4/30/90 11,928 11,451 11,885 12,170
5/31/90 12,251 11,761 12,191 12,436
6/30/90 12,420 11,923 12,334 12,546
7/31/90 12,695 12,188 12,563 12,730
8/31/90 12,393 11,898 12,305 12,546
9/30/90 12,324 11,831 12,254 12,553
10/31/90 12,490 11,990 12,375 12,781
11/30/90 12,892 12,377 12,657 13,038
12/31/90 12,920 12,403 12,699 13,095
1/31/91 13,136 12,611 12,872 13,271
2/28/91 13,119 12,594 12,943 13,387
3/31/91 13,118 12,593 12,991 13,391
4/30/91 13,323 12,790 13,194 13,570
5/31/91 13,437 12,900 13,297 13,691
6/30/91 13,425 12,888 13,283 13,678
7/31/91 13,623 13,078 13,499 13,845
8/31/91 13,821 13,269 13,693 14,027
9/30/91 14,041 13,479 13,899 14,210
10/31/91 14,189 13,621 14,032 14,337
11/30/91 14,202 13,634 14,052 14,377
12/31/91 14,514 13,933 14,342 14,686
1/31/92 14,463 13,884 14,263 14,719
2/29/92 14,499 13,919 14,315 14,724
3/31/92 14,455 13,877 14,361 14,730
4/30/92 14,548 13,966 14,513 14,861
5/31/92 14,792 14,201 14,725 15,036
6/30/92 15,092 14,488 15,029 15,289
7/31/92 15,611 14,986 15,579 15,747
8/31/92 15,385 14,769 15,342 15,593
9/30/92 15,437 14,820 15,388 15,695
10/31/92 15,159 14,552 15,133 15,541
11/30/92 15,504 14,884 15,503 15,819
12/31/92 15,654 15,028 15,701 15,981
1/31/93 15,902 15,266 15,894 16,167
2/28/93 16,511 15,851 16,524 16,751
3/31/93 16,375 15,720 16,355 16,574
4/30/93 16,500 15,840 16,534 16,742
5/31/93 16,537 15,875 16,650 16,836
6/30/93 16,811 16,138 16,930 17,117
7/31/93 16,817 16,144 16,925 17,139
8/31/93 17,106 16,422 17,294 17,495
9/30/93 17,303 16,611 17,486 17,694
10/31/93 17,333 16,640 17,520 17,728
11/30/93 17,177 16,489 17,323 17,571
12/31/93 17,537 16,835 17,687 17,942
1/31/94 17,708 16,999 17,875 18,147
2/28/94 17,271 16,580 17,426 17,677
3/31/94 16,488 15,829 16,642 16,958
4/30/94 16,519 15,858 16,658 17,102
5/31/94 16,658 15,992 16,821 17,250
6/30/94 16,456 15,798 16,703 17,150
7/31/94 16,784 16,113 16,997 17,465
8/31/94 16,863 16,188 17,053 17,519
9/30/94 16,532 15,871 16,726 17,262
10/31/94 16,215 15,567 16,361 16,954
11/30/94 15,851 15,217 15,916 16,648
12/31/94 16,227 15,578 16,357 17,014
1/31/95 16,678 16,011 16,818 17,501
2/28/95 17,164 16,477 17,360 18,010
3/31/95 17,359 16,665 17,507 18,217
4/30/95 17,374 16,679 17,528 18,239
5/31/95 18,031 17,310 18,093 18,821
6/30/95 17,783 17,072 17,850 18,657
7/31/95 17,870 17,155 17,960 18,834
8/31/95 18,104 17,380 18,163 19,073
9/30/95 18,154 17,428 18,258 19,193
10/31/95 18,558 17,815 18,553 19,471
11/30/95 18,963 18,205 18,909 19,794
12/31/95 19,133 18,368 19,105 19,985
1/31/96 19,219 18,450 19,190 20,136
2/29/96 18,979 18,220 19,029 19,999
3/31/96 18,688 17,941 18,715 19,743
4/30/96 18,602 17,858 18,636 19,688
5/31/96 18,636 17,890 18,634 19,680
6/30/96 18,846 18,092 18,832 19,894
7/31/96 19,017 18,257 19,011 20,073
8/31/96 18,960 18,202 18,965 20,070
9/30/96 19,292 18,521 19,259 20,350
10/31/96 19,466 18,688 19,451 20,580
11/30/96 19,820 19,027 19,801 20,956
12/31/96 19,709 18,921 19,700 20,869
1/31/97 19,742 18,952 19,694 20,909
2/28/97 19,936 19,138 19,871 21,101
3/31/97 19,678 18,891 19,615 20,820
4/30/97 19,839 19,045 19,785 20,995
5/31/97 20,183 19,376 20,080 21,312
6/30/97 20,417 19,601 20,283 21,540
7/31/97 21,041 20,199 20,901 22,136
8/31/97 20,778 19,947 20,658 21,929
9/30/97 21,015 20,175 20,893 22,190
10/31/97 21,162 20,316 21,016 22,331
11/30/97 21,271 20,420 21,132 22,463
12/31/97 21,604 20,740 21,468 22,790
A $10,000 investment in the Fund made ten years ago (December 1987) would have
grown to $20,740 with sales charge (as of 12/31/97). 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.
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. Total returns
reflect certain voluntary fee waivers which may be terminated. If the waivers
were not in place, total returns would be lower.
<PAGE>
Landmark New York Tax Free Income Fund
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PORTFOLIO OF INVESTMENTS December 31, 1997
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MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
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MUNICIPAL BONDS--98.3%
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GENERAL OBLIGATION BONDS -- 14.3%
Baa1 New York City, NY, Series F,
7.65% due 2/01/06 ............................. $ 3,000 $ 3,416,859
Baa1 New York City, NY, Series F,
8.40% due 11/15/06 ............................ 175 201,189
Aaa New York City, NY, Series F,
8.40% due 11/15/06 ............................ 1,825 2,125,669
Baa1 New York City, NY, Series B,
6.375% due 8/15/11 ............................ 1,500 1,625,625
Baa1 New York City, NY, Series A,
6.25% due 8/01/12 ............................. 3,200 3,463,648
-----------
10,832,990
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HOUSING REVENUE -- 19.8%
Aaa New York State Housing Finance Agency, ETM,
7.90% due 11/01/06 ............................ 5,750 6,901,495
Aa New York State Mortgage Agency Revenue, AMT,
7.25% due 10/01/07 ............................ 6,075 6,547,331
Aa New York State Mortgage Agency Revenue, AMT,
7.75% due 10/01/23 ............................ 1,470 1,600,903
-----------
15,049,729
-----------
POWER REVENUE -- 1.3%
Baa1 Puerto Rico Electric Power Authority,
5.25% due 7/01/21 ............................. 1,000 997,400
-----------
STATE AGENCIES -- 19.9%
Aaa New York State Dormitory Authority, City
University,
5.75% due 7/01/18 ............................. 3,000 3,303,000
Aaa New York State Dormitory Authority, City
University,
5.00% due 7/01/20 ............................. 2,000 1,947,380
Baa1 New York State Dormitory Authority, Court
Facilities
5.25% due 5/15/21 ............................. 1,000 968,570
Baa1 New York State Dormitory Authority, Mental
Health Services,
6.50% due 2/15/11 ............................. 1,610 1,843,080
Aaa New York State Dormitory Authority, St. Josephs,
5.25% due 7/01/18 ............................. 2,000 2,004,320
Baa1 New York State Dormitory Authority, State
University,
5.25% due 5/15/13 ............................. 2,000 2,057,020
Baa1 New York State Dormitory Authority, State
University,
5.40% due 5/15/23 ............................. 1,690 1,696,777
Baa1 New York State Urban Development Revenue,
Youth Facilities,
5.875% due 4/01/09 ............................ 1,245 1,320,447
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15,140,594
-----------
TRANSPORTATION REVENUE -- 12.4%
Baa1 Metropolitan Transportation Authority, NY,
5.75% due 7/01/13 ............................. 4,000 4,324,680
Aaa Puerto Rico Commonwealth Highway Authority,
8.00% due 7/01/05 ............................. 2,650 2,759,047
Aaa Puerto Rico Commonwealth Highway Authority,
5.50% due 7/01/13 ............................. 1,125 1,217,925
Aaa Puerto Rico Commonwealth Highway Authority,
5.50% due 7/01/15 ............................. 1,000 1,082,180
-----------
9,383,832
-----------
WATER AND SEWER REVENUE -- 12.2%
Aa New York State Environmental Facilities, 7.00%
due 6/15/12 ................................... 3,360 3,727,597
Aa New York State Environmental Facilities, 7.50%
due 6/15/12 ................................... 3,000 3,293,340
A1 New York State Environmental Facilities, 7.125%
due 7/01/12 ................................... 2,100 2,277,534
-----------
9,298,471
-----------
OTHER REVENUE -- 18.4%
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bonds
due 7/15/11 ................................... 500 258,135
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bonds
due 1/15/12 ................................... 400 200,152
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bonds
due 1/15/13 ................................... 800 378,248
Aaa Municipal Assistance Corp., Series B,
Zero Coupon Bonds
due 1/15/14 ................................... 1,405 627,080
N/R New York City Industrial Development Agency,
7.00% due 5/01/08 ............................. 800 879,200
A New York State Local Government Assist, Series E,
6.00% due 4/01/14 ............................. 2,000 2,246,500
A New York State Local Government Assist, Series A,
5.25% due 4/01/19 ............................. 4,000 4,005,240
Aaa New York State Medical Care Facilities, 6.90%
due 8/15/34 ................................... 1,000 1,144,700
N/R Port Authority of New York and New Jersey,
Special Obligation,
6.75% due 10/01/19 ............................ 3,850 4,251,285
-----------
13,990,540
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TOTAL INVESTMENTS
(Identified Cost $67,806,745) ......................... 98.3% $74,693,556
OTHER ASSETS,
LESS LIABILITIES .................................... 1.7 1,284,077
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NET ASSETS ............................................. 100.0% $75,977,633
====== ===========
AMT--Subject to Alternative Minimum Tax
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
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STATEMENT OF ASSETS AND LIABILITIES December 31, 1997
ASSETS:
Investments, at value (Note 1A)
(Identified Cost, $67,806,745) ................ $74,693,556
Cash ............................................ 60,269
Interest receivable ............................. 1,313,027
Receivable for shares of beneficial interest sold 111,294
-----------
Total assets ................................... 76,178,146
-----------
LIABILITIES:
Payable for shares of beneficial interest
repurchased ................................... 88,683
Payable to affiliates:
Investment advisory fees (Note 2).............. $14,003
Shareholder Servicing Agents' fees (Note 3B) .. 16,066 30,069
-------
Accrued expenses and other liabilities .......... 81,761
-----------
Total liabilities .............................. 200,513
-----------
NET ASSETS for 6,651,396 shares of beneficial
interest outstanding ......................... $75,977,633
===========
NET ASSETS CONSIST OF:
Paid-in capital ................................. $74,115,471
Accumulated net realized loss on investments .... (5,112,709)
Unrealized appreciation of investments .......... 6,886,811
Undistributed net investment income ............. 88,060
-----------
Total .......................................... $75,977,633
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF
BENEFICIAL INTEREST .......................... $11.42
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.00%
sales charge ($11.42 / 0.96) .................. $11.90
======
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
INVESTMENT INCOME (Note 1B):
Interest .................................... $4,757,312
EXPENSES:
Investment advisory fees (Note 2) ........... $ 311,371
Administrative fees (Note 3A) ............... 194,607
Shareholder servicing agents' fees (Note 3B) 194,607
Distribution fees (Note 4) .................. 116,763
Custodian fees .............................. 66,200
Auditing services ........................... 30,850
Shareholder reports ......................... 28,057
Trustee fees ................................ 17,525
Transfer agent fees ......................... 16,000
Legal services .............................. 14,587
Miscellaneous ............................... 4,497
----------
Total expenses .............................. 995,064
Less aggregate amounts waived by Investment
Adviser, Administrator and Distributor
(Notes 2, 3A, and 4 ....................... (369,932)
Less fees paid indirectly (Note 1G) ......... (2,395)
----------
Net expenses ................................ 622,737
----------
Net investment income ....................... 4,134,575
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 480,852
Unrealized appreciation (depreciation) of
investments--
Beginning of period ...................... 4,366,737
End of period ............................ 6,886,811
----------
Net change in unrealized appreciation ....... 2,520,074
----------
Net realized and unrealized gain on investments 3,000,926
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,135,501
==========
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ......................... $ 4,134,575 $44,573,015
Net realized gain on investment
transactions ................................ 480,852 348,515
Net change in unrealized appreciation
(depreciation) of investments ............... 2,520,074 (2,544,578)
----------- -----------
Net increase in net assets resulting
from operations ............................. 7,135,501 2,376,952
----------- -----------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income ......................... (4,078,021) (4,598,756)
----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6):
Net proceeds from sale of shares .............. 2,418,539 7,081,700
Net asset value of shares issued to
shareholders from reinvestment of
dividends ................................... 3,999,235 4,543,061
Cost of shares repurchased .................... (15,679,627) (17,485,191)
----------- -----------
Net decrease in net assets from
transactions in shares of beneficial
interest ................................... (9,261,853) (5,860,430)
----------- -----------
NET DECREASE IN NET ASSETS .................... (6,204,373) (8,082,234)
NET ASSETS:
Beginning of period ........................... 82,182,006 90,264,240
----------- -----------
End of period (including undistributed
net investment income of $88,060 and
$31,506, respectively) ...................... $75,977,633 $82,182,006
=========== ===========
See notes to financial statements
<PAGE>
Landmark New York Tax Free Income Fund
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR
YEAR ENDED DECEMBER 31, DECEMBER 31, ENDED
-------------------------------------------- 1993 AUGUST 31,
1997 1996 1995 1994 (NOTE 1D) 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period ........................... $ 10.98 $ 11.25 $ 10.09 $ 11.54 $ 11.44 $ 10.82
-------- -------- -------- -------- -------- --------
Income From Operations:
Net investment income ............. 0.594 0.585 0.607 0.566 0.210 0.567
Net realized and unrealized
gain (loss) on investments ....... 0.431 (0.267) 1.153 (1.415) 0.076 0.610
-------- -------- -------- -------- -------- --------
Total from operations ............ 1.025 0.318 1.760 (0.849) 0.286 1.177
-------- -------- -------- -------- -------- --------
Less Dividends From:
Net investment income ............. (0.585) (0.588) (0.600) (0.601) (0.186) (0.557)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period .... $ 11.42 $ 10.98 $ 11.25 $ 10.09 $ 11.54 $ 11.44
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) ................... $ 75,978 $ 82,182 $ 90,264 $ 86,399 $120,824 $111,583
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 ............ 5.31% 5.34% 5.62% 5.52% 4.84%(+) 5.11%
Portfolio turnover ................ 16% 47% 98% 150% 46% 149%
Total return ...................... 9.62% 3.01% 17.89% (7.47)% 2.52%** 11.19%
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 ended after
December 31, 1994, the net investment income per share and the ratios would have been as follows:
Net investment income per share ... $ 0.540 $ 0.534 $ 0.555 $ 0.508 $ 0.191 $ 0.515
Ratios:
Expenses to average net assets .... 1.28% 1.27% 1.27% 1.27% 1.23%(+) 1.27%
Net investment income to
average net assets ............... 4.83% 4.87% 5.15% 5.05% 4.40%(+) 4.64%
(+) Annualized
** Not annualized
</TABLE>
See notes to financial statements
<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"). CFBDS, Inc.
("CFBDS") (formerly Landmark Funds Broker Dealer Services, Inc.) 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, 1997, the Fund, for federal income tax purposes, had a capital loss
carryover of $5,112,709 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 CFBDS. 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 $311,371, of which $130,101 was
voluntarily waived for the year ended December 31, 1997. 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 $194,607, of which $124,928 was
voluntarily waived for the year ended December 31, 1997. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
CFBDS as from time to time is agreed to by CFBDS 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 $194,607 for the year ended December 31,
1997.
(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 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 $116,763, of
which $114,903 was voluntarily waived for the year ended December 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
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 $11,835,803 and $21,204,750, 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,
--------------------------
1997 1996
----------- -----------
Shares sold ................................... 216,390 642,528
Shares issued to shareholders from reinvestment
of dividends ................................. 360,022 417,595
Shares repurchased ............................ (1,411,411) (1,595,467)
----------- -----------
Net decrease .................................. (834,999) (535,344)
=========== ===========
(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:
Aggregate cost .............................. $67,806,745
===========
Gross unrealized appreciation ............... $6,866,811
Gross unrealized depreciation ............... -0-
-----------
Net unrealized appreciation ................ $ 6,866,811
===========
(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 $60 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, 1997, the commitment fee
allocated to the Fund was $321. Since the line of credit was established there
have been no borrowings.
(9) 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
January 1, 1998 the Management fees and Service Plan fees may not exceed, on an
annual basis, an amount equal to 0.75% and 0.25%, respectively, of the average
daily net assets of the Fund. Effective March 2, 1998, the Fund will change its
name from Landmark New York Tax Free Income Fund to CitiFundsSM New York Tax
Free Income Portfolio and the Trust will change its name to CitiFundsSM Tax Free
Income Trust.
<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, 1997, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended December 31, 1997 and 1996, and the financial highlights for
each of the years in the four-year period ended December 31, 1997, the four
months ended December 31, 1993 and the year 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, 1997, 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, 1997, 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 30, 1998
<PAGE>
[logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
NATIONAL TAX FREE
INCOME FUND
ANNUAL
REPORT
December 31, 1997
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
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 Elder*
*Affiliated Person of Administrator and Distributor
- --------------------------------------| |--------------------------------------
INVESTMENT ADVISER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, 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 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.
NTFI/A/97 Printed on Recycled Paper [recycle symbol]
<PAGE>
- -------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Shareholder:
The positive economic influences that drove municipal bond prices higher
during the first half of 1997 also produced market rallies during the second
half of the year. The U.S. economy continued to enjoy the effects of low rates
of inflation, even when the pace of economic activity increased to levels that
historically have triggered inflationary pressures. When fixed-income investors
became convinced that the U.S. economy was more resilient than they originally
believed and that low inflation would persist, long-term interest rates fell to
their lowest levels in years.
In this environment, the Fund's investment adviser, Citibank, N.A.,
continued to manage the Landmark National Tax Free Income Fund with the goal of
achieving its investment objectives: to generate high levels of current income
exempt from federal income taxes and to preserve the value of its shareholders'
investment. Consistent with this objective, the Fund invests in debt securities
consisting primarily of obligations issued by state and municipal governments
and by other qualifying issuers that pay interest that is exempt from federal
income taxes.
This report reviews the Fund's investment activities and performance during
the 12-month period ended December 31, 1997, and provides a summary of
Citibank's perspective on and outlook for the municipal bond market.
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 new Management
Agreement with Citibank, N.A., a Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, to authorize certain technical amendments to the
Fund's investment restrictions, to approve selection of the Fund's accountants
and to elect trustees. All proposals were approved by shareholders.
Additionally, effective March 2, 1998, the name of the Fund will be changed to
CitiFundsSM National Tax Free Income Portfolio. You will receive an updated
prospectus reflecting the Fund's new name shortly.
On behalf of the Board of Trustees of the Funds, I want to thank you for
your confidence and participation.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
January 20, 1998
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
4 Strategy and Outlook
Landmark National Tax Free
Income Fund--By the Numbers
- -------------------------------------------------------------------------------
5 Fund Data
Performance Highlights
- -------------------------------------------------------------------------------
6 Portfolio of Investments
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
8 Statement of Operations
- -------------------------------------------------------------------------------
9 Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
10 Financial Highlights
- -------------------------------------------------------------------------------
11 Notes to Financial Statements
- -------------------------------------------------------------------------------
14 Independent Auditors' Report
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
Like their taxable counterparts, municipal bonds enjoyed the benefits of a
positive U.S. economic environment. Despite periods of relatively strong
economic growth, the rate of inflation remained at historically low levels. Even
high rates of employment, traditionally a harbinger of inflationary pressures,
failed to create an acceleration of inflation. Another important indicator of
inflationary pressures, commodity prices, actually declined over the year.
In this environment, states, cities and other municipalities benefitted
from the tax revenues that high levels of employment and heightened economic
activity tend to produce. Many states and local governments achieved a budget
surplus for the year. As a result, prices of existing municipal bonds rose.
In the second half of the year, however, municipal bonds lagged the rally
in comparable U.S. Treasury securities. Debt obligations of the federal
government benefitted from positive economic developments that occurred
simultaneously with sharp reductions in the federal budget deficit, a
combination that resulted in less issuance of U.S. Treasury securities. On the
other hand, the tax-exempt markets saw an increase in the available supply of
new municipal bonds when local governments rushed to take advantage of low
interest rates to refinance existing debt and finance new projects. As of
year-end 1997, municipal bonds provided attractive values relative to U.S.
Treasury securities.
- -------------------------------------------------------------------------------
FUND SNAPSHOT
- -------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
August 17, 1995
NET ASSETS AS OF 12/31/97
$1.9 million
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 semi-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
JOHN C. MOONEY
Vice President, Citibank N.A.
Mr. Mooney has managed the Landmark National Tax Free Income Fund since
June 1997. Mr. Mooney is a Senior Portfolio Manager responsible for managing
tax-exempt fixed income funds. He is also part of the team responsible for
fixed-income strategy, research and trading. Prior to joining Citibank in 1997,
Mr. Mooney served as a tax-exempt portfolio manager at SunAmerica for over three
years and also served as a tax-exempt portfolio manager at First Investors for
three years. Prior experience also includes Alliance Capital Management L.P. and
The Boston Company.
- -------------------------------------------------------------------------------
THE PORTFOLIO MANAGER RESPONDS
When it became clear that inflation would remain low despite periods of
strong economic growth, the Fund's investment adviser, Citibank, N.A., extended
the portfolio's average duration, a measure of sensitivity to changes in
interest rates. By extending the Fund's average duration while interest rates
declined, we were able to maintain higher yields for a longer period as well as
take advantage of the effects of rising prices for higher yielding securities.
The strategy became especially important as the differences in yields between
long-term municipal bonds and short-term securities narrowed. To take maximum
advantage of the greater interest-rate declines for longer term municipal bonds,
we tended to focus on investments in longer dated securities.
During the year we attempted to add to our portfolio bonds which we felt
were not being priced efficiently by the marketplace. For example, we found
value in states such as New York and California which had improving credit
profiles. We also focused on municipal bonds without early redemption, or
"call," features, which gave us greater assurance that our holdings would
maintain their yields as interest rates declined. Finally, we took advantage of
seasonal factors by purchasing bonds when the influx of new securities was
greatest and yields were correspondingly higher.
We maintained a portfolio structure of laddered intermediate maturities
throughout the year in an effort to capture the benefits from the shape of the
municipal yield curve. The municipal yield curve is much steeper through the
intermediate maturities until it reaches twenty years where it flattens out
dramatically. By investing in the steeper intermediate section of the yield
curve, the Fund is able to capture almost the same income levels as longer dated
bonds with less interest rate risk.
- -------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGER
"1997 was a good year for municipal bonds, and we took advantage of
opportunities for both income and capital appreciation."
"The tax-exempt markets saw an increase in new supply this year as issuers
refinanced existing debt at lower interest rates."
"At year end, municipal bonds were attractively valued relative to U.S. Treasury
securities, which positions the Fund well for 1998."
- -------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
We see no signs that positive economic conditions in the U.S. will end
soon. Although we expect the rate of economic growth to slow modestly, we see
little likelihood of a recession. As long as inflation remains low, as we
anticipate, favorable economic conditions should continue to prevail.
As a result, we continue to be optimistic regarding municipal bonds. We
believe that lower interest rates, low inflation and good economic conditions
should continue to support tax-exempt bond prices. What's more, we expect
municipal bond yields to return closer to their historical norms relative to
U.S. Treasury securities. If this occurs, municipal bonds should outperform U.S.
Treasuries on an after-tax basis, potentially providing the opportunity for
attractive rates of total return (income plus capital appreciation).
Our strategy looking forward is to attempt to participate in those areas of
the municipal bond market that are most likely to provide the best relative
values. This focus on high-quality, tax-exempt securities is designed to meet
the tax-exempt income needs of shareholders in the months ahead.
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
BY THE NUMBERS
CHANGES IN PORTFOLIO COMPOSITION
Portfolio of Investments . . . Compared to 12/31/96
as of 12/31/97
General Obligation Bonds 36% General Obligation Bonds 30%
Transportation Revenue 14% Transportation Revenue 17%
Other Revenue 13% Other Revenue 13%
Education 11% Housing Revenue 9%
Power Revenue 6% Cash/Short Term/Other 7%
Water/Sewer Revenue 6% Power Revenue 6%
State Agencies 5% Water/Sewer Revenue 6%
Health Care 5% Education 5%
Cash/Short Term/Other 4% State Agencies 4%
Hospital Revenue 3%
<PAGE>
- -------------------------------------------------------------------------------
FUND DATA Periods Ending December 31, 1997
TOTAL RETURNS
------------------------
SINCE
ONE 8/17/95
YEAR (INCEPTION)*
------ ------------
Landmark National Tax Free Income
Fund without Sales Charge ................... 11.45% 9.37%
Lipper General Municipal Bond
Funds Average ............................... 9.11% 6.44%
Lehman Municipal 4 Years Plus
Bond Index .................................. 9.75% 8.31%
Landmark National Tax Free Income
Fund with Maximum Sales
Charge of 4.00% ............................. 6.99% 7.50%
* Average annual total return
(+) From 8/31/95
30-Day SEC Yield 5.00.%
Income Dividends Per Share $0.570
- -------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
Landmark Landmark
National National
Tax Free Tax Free Lipper Lehman
Income Income General Municipal
Fund- Fund - Municipal 4 Years
Without With Bond Plus Bond
Sales Sales Funds Index
Charge Charge Average (unmanaged)
- ------------------------------------------------------------------------
8/31/95 10,190 9,782 10,000 10,000
9/30/95 10,248 9,838 10,059 10,065
10/31/95 10,456 10,038 10,215 10,223
11/30/95 10,636 10,211 10,412 10,405
12/31/95 10,743 10,314 10,529 10,513
1/31/96 10,840 10,407 10,580 10,593
2/29/96 10,712 10,283 10,497 10,514
3/31/96 10,491 10,072 10,329 10,366
4/30/96 10,434 10,017 10,280 10,332
5/31/96 10,398 9,982 10,284 10,326
6/30/96 10,549 10,127 10,381 10,444
7/31/96 10,670 10,243 10,472 10,544
8/31/96 10,643 10,217 10,466 10,539
9/30/96 10,817 10,385 10,617 10,696
10/31/96 10,939 10,502 10,732 10,824
11/30/96 11,158 10,712 10,920 11,034
12/31/96 11,099 10,655 10,873 10,981
1/31/97 11,126 10,681 10,873 10,998
2/28/97 11,228 10,779 10,968 11,106
3/31/97 11,071 10,628 10,825 10,945
4/30/97 11,185 10,738 10,914 11,042
5/31/97 11,355 10,901 11,070 11,219
6/30/97 11,546 11,085 11,194 11,346
7/31/97 11,971 11,492 11,530 11,686
8/31/97 11,833 11,359 11,394 11,564
9/30/97 12,016 11,535 11,254 11,709
10/31/97 12,078 11,595 11,324 11,788
11/30/97 12,139 11,654 11,389 11,862
12/31/97 12,370 11,875 11,570 12,051
A $10,000 investment in the Fund made on inception date would have grown to
$11,875 with sales charge (as of 12/31/97). 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.
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. Total returns
reflect certain voluntary fee waivers which may be terminated. If the waivers
were not in place, total returns would have been lower.
<PAGE>
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1997
MOODY'S
BOND PRINCIPAL
RATING AMOUNT
(UNAUDITED) ISSUER (000'S OMITTED) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS -- 95.5%
- -------------------------------------------------------------------------------
CERTIFICATES OF PARTICIPATION -- 4.2%
Aaa Riverside County, California,
Asset Leasing Corp.,
5.70% due 6/01/16 ............................. $ 75 $ 80,695
----------
GENERAL OBLIGATION BONDS -- 35.5%
Aaa Dade County, Florida,
6.50% due 10/01/08 ............................ 60 70,609
Aaa Massachusetts State Construction
Loan, 5.625% due 8/01/13 ...................... 50 52,844
Aa Metro, Oregon, Open Spaces Program, Series A,
5.50% due 9/01/10 ............................. 50 52,514
Baa1 New York, New York,
6.25% due 8/01/12 ............................. 50 54,120
Baa1 New York, New York,
6.25% due 8/01/17 ............................. 200 211,562
Aaa San Anselmo, California,
5.60% due 8/01/11 ............................. 50 53,080
Aaa Union City, New Jersey,
5.20% due 9/01/12 ............................. 70 72,680
Aaa Walnut County, California Unified School
Districts, 7.00% due 8/01/08 .................. 50 60,829
Aa1 Winston Salem, North Carolina,
5.40% due 6/01/11 ............................. 50 52,682
----------
680,920
----------
EDUCATION -- 10.8%
Aaa Galt Schools, Joint Power Authority,
California, Revenue,
5.75% due 11/01/16 ............................ 45 47,966
Aaa Pleasanton, California, School District,
5.60% due 8/01/11 ............................. 50 53,916
Aaa Maricopa County, Arizona, School
District No. 3,
6.50% due 7/01/10 ............................. 90 104,963
----------
206,845
----------
HEALTHCARE -- 5.2%
Aaa Philadelphia, Pennsylvania Hospitals
Revenue, 5.50% due 5/15/08 .................... 20 21,376
Aaa Washington State Health Care Facilities
Authority Revenue, 6.00% due 8/15/08 .......... 70 77,937
----------
99,313
----------
POWER REVENUE -- 6.3%
A1 New York State Energy Research and
Dev. Authority, AMT,
7.50% due 7/01/25 ............................. 60 63,431
Aaa Sikeston, Missouri, Electric Revenue,
6.00% due 6/01/14 ............................. 50 56,449
----------
119,880
----------
STATE AGENCIES -- 5.3%
Baa1 New York State Dormitory Authority,
Court Facilities,
5.50% due 5/15/23 ............................. 100 100,770
----------
TRANSPORTATION REVENUE -- 13.7%
Aaa Arapahoe County, Colorado, Capital Improvement,
7.00% due 8/31/26 ............................. 150 178,865
Aaa Puerto Rico Commonwealth, Highway Series Y,
6.25% due 7/01/05 ............................. 75 84,540
----------
263,405
----------
WATER AND SEWER REVENUE -- 5.9%
Aaa Bexar, Texas, Metropolitan Water Distribution,
6.00% due 5/01/15 ............................. 50 54,274
Aaa Santa Margarita/Dana Point Water
Authority, California Revenue,
5.50% due 8/01/10 ............................. 55 58,821
----------
113,095
----------
OTHER -- 8.6%
NR Port Authority New York and New Jersey
Special Obligation, AMT,
6.75% due 10/01/19 ............................ 150 165,634
----------
TOTAL INVESTMENTS
(Identified Cost $1,695,336) ........................... 95.5% 1,830,557
OTHER ASSETS, LESS LIABILITIES ......................... 4.5 86,086
----- ----------
NET ASSETS ............................................. 100.0% $1,916,643
===== ==========
AMT-Subject to Alternative Minimum Tax
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1997
ASSETS:
Investments, at value (Note 1A)
(Identified Cost, $1,695,336) ....................... $1,830,557
Cash .................................................. 57,429
Interest receivable ................................... 30,875
Total assets ......................................... 1,918,861
LIABILITIES:
Dividends payable ..................................... 2,218
NET ASSETS for 175,557 shares of beneficial interest
outstanding ......................................... $1,916,643
NET ASSETS CONSIST OF:
Paid-in capital ....................................... $1,777,591
Unrealized appreciation of investments ................ 135,221
Accumulated net realized gain on investments .......... 893
Undistributed net investment income ................... 2,938
----------
Total ................................................ $1,916,643
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF
BENEFICIAL INTEREST ................................... $10.92
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.00% sale
charge ($10.92 / 0.96) ................................ $11.38
======
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
INVESTMENT INCOME (Note 1B):
Interest .................................... $ 105,890
EXPENSES:
Custodian fees .............................. $ 51,234
Auditing services ........................... 21,800
Trustee fees ................................ 12,894
Shareholder reports ......................... 12,056
Transfer agent fees ......................... 12,000
Legal services .............................. 10,966
Investment advisory fees (Note 2) ........... 7,777
Administrative fees (Note 3A) ............... 7,777
Shareholder servicing agents' fees (Note 3B) 4,861
Distribution fees (Note 4) .................. 972
Miscellaneous ............................... 6,500
----------
Total expenses ............................ 148,837
Less aggregate amounts waived by Investment
Adviser, Administrator, Shareholder
Servicing Agents and Distributor (Notes 2,
3A, 3B, and 4) .............................. (21,387)
Less fees paid indirectly (Note 1E) ......... (2,698)
Expenses assumed by the Administrator (Note 8) (124,752)
----------
Net expenses .............................. --
----------
Net investment income ..................... 105,890
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 18,441
Unrealized appreciation (depreciation) of
investments--
Beginning of period ......................... 53,861
End of period ............................... 135,221
----------
Net change in unrealized appreciation ....... 81,360
----------
Net realized and unrealized gain on investments 99,801
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................ $ 205,691
==========
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECMBER 31,
-------------------------
1997 1996
---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ......................... $ 105,890 $ 102,970
Net realized gain (loss) on investment
transactions ................................ 18,441 (17,548)
Net change in unrealized appreciation
(depreciation) of investments ............... 81,360 (9,055)
----------- -----------
Net increase in net assets resulting from
operations ................................... 205,691 76,367
----------- -----------
DIVIDENDS DECLARED TO SHAREHOLDERS FROM:
Net investment income ......................... (105,043) (100,879)
----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6):
Net proceeds from sale of shares .............. 191,319 950,184
Net asset value of shares issued to
shareholders from reinvestment of dividends .. 104,749 99,169
Cost of shares repurchased .................... (540,375) (270,666)
----------- -----------
Net increase (decrease) in net assets from
transactions in shares of beneficial
interest .................................... (244,307) 778,687
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ......... (143,659) 754,175
NET ASSETS:
Beginning of period ........................... 2,060,302 1,306,127
----------- -----------
End of period (including undistributed net
investment income of $2,938 and $2,091,
respectively) .............................. $ 1,916,643 $ 2,060,302
=========== ===========
See notes to financial statements
<PAGE>
Landmark National Tax Free Income Fund
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Ended August 17, 1995
December 31, (Commencement of
----------------- Operations) to
1997 1996 December 31, 1995
------- ------- -----------------
Net Asset Value, beginning of period ..... $ 10.34 $ 10.55 $ 10.00
------- ------- -------
Income From Operations:
Net investment income .................... 0.564 0.562 0.187
Net realized and unrealized gain (loss)
on investments .......................... 0.586 (0.232) 0.551
------- ------- -------
Total from operations ................... 1.150 0.330 0.738
------- ------- -------
Less Dividends From:
Net investment income .................... (0.570) (0.540) (0.188)
------- ------- -------
Net Asset Value, end of period ........... $ 10.92 $ 10.34 $ 10.55
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $ 1,917 $ 2,060 $ 1,306
Ratio of expenses to average net assets(A) 0.14% 0% 0%
Ratio of expenses to average net assets
after fees paid indirectly(A) ........... 0% 0% 0%
Ratio of net investment income to
average net assets ...................... 5.45% 5.42% 5.20%+
Portfolio turnover ....................... 55% 52% 0%
Total return ............................. 11.45% 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, the
Administrator had not voluntarily assumed expenses 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 ... $(0.229) $(0.291) $ 0.098
Ratios:
Expenses to average net assets ........... 7.66% 8.23% 2.50%+
Net investment income (loss) to
average net assets .................... (2.21)% (2.81)% 2.70%+
+ Annualized
** Not annualized
(A) The expense ratios for the year ended December 31, 1995 and the periods
thereafter have been adjusted to reflect a change in reporting requirements. The
new reporting guidelines require the Fund to increase its expense ratio by the
effect of any expense offset arrangements with its service providers. The
expense ratios for the period ended on December 31, 1995 have not been adjusted
to reflect this change.
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"). CFBDS, Inc
("CFBDS") (formerly Landmark Funds Broker-Dealer Services, Inc.) 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.
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 CFBDS. 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 $7,777, all of which was voluntarily
waived for the year ended December 31, 1997. 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 $7,777, all of which was voluntarily
waived for the year ended December 31, 1997. Citibank acts as Sub-Administrator
and performs such duties and receives such compensation from CFBDS as from time
to time is agreed to by CFBDS 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 $4,861, all of which was voluntarily waived
for the year ended December 31, 1997.
(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 compensates the Distributor 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 $972, all of which was voluntarily waived for
the year ended December 31, 1997.
(5) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $1,027,595 and $1,205,252, 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:
<PAGE>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
Shares sold ................................... 18,203 92,257
Shares issued to shareholders
from reinvestment of dividends ................ 9,940 9,709
Shares repurchased ............................ (51,804) (26,521)
----------- -----------
Net increase (decrease) ....................... (23,661) 75,445
=========== ===========
(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:
Aggregate cost .............................. $1,695,336
==========
Gross unrealized appreciation ............... $ 135,221
Gross unrealized depreciation ............... 0
Net unrealized appreciation ................. $ 135,221
==========
(8) ASSUMPTION OF EXPENSES
CFBDS has voluntarily agreed to pay the unwaived expenses of the Fund for the
year ended December 31, 1997 which amounted to $124,752.
(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 $60 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,
1997, the commitment fee allocated to the Fund was $8. Since the line of credit
was established there have been no borrowings.
(10) SUBSEQUENT EVENT
At at 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
January 1, 1998 the Management fees and Service Plan fees may not exceed, on an
annual basis, an amount equal to 0.75% and 0.25%, respectively, of the average
daily net assets of the Fund. Effective March 2, 1998, the Fund will change its
name from Landmark National Tax Free Income Fund to CitiFundsSM National Tax
Free Income Portfolio and the Trust will change its name to CitiFundsSM Tax Free
Income Trust.
<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, 1997, the related statement of operations
for the year then ended, the statement of changes in net assets for the years
ended December 31, 1997 and 1996, and the financial highlights for each of the
years in the two-year period ended December 31, 1997 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, 1997, 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, 1997, 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 30, 1998
