LANDMARK FIXED INCOME FUNDS /MA/, N-30B-2, 1995-03-08

LANDMARK FIXED INCOME FUNDS /MA/
N-30B-2, 1995-03-08

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<PAGE>

[Logo] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.

Landmark
U.S. Government
Income Fund

ANNUAL
REPORT
December 31, 1994

<PAGE>

- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------

Dear Shareholder:

1994 was a difficult year for financial markets. A stronger-than-expected
economy and higher interest rates adversely affected many types of investments,
especially the bond market, where prices declined almost 10% since the beginning
of 1994. The stock market fell just over 8% from its highs in the first half of
the year, but later recouped those losses on the strength of strong corporate
earnings to finish the year with a small gain.

Throughout the period, the Landmark Funds' investment adviser, Citibank,
N.A., managed the underlying Government Income Portfolio in a manner consistent
with the objectives stated in the Landmark U.S. Government Income Fund's
prospectus: to provide monthly dividend income as well as to preserve the value
of the investment of its shareholders. The Fund seeks to provide an attractive
yield, a competitive expense ratio and a high quality investment portfolio
consisting solely of securities backed by the full faith and credit of the U.S.
government.

This Annual Report for the period ended December 31, 1994 reviews the
Fund's investment activities and performance over the past twelve months and
provides a summary of Citibank's perspective on the financial markets and
outlook for the foreseeable future. On behalf of the Board of Trustees of the
Landmark Funds, I want to thank our shareholders for their participation and
support. We look forward to serving you in the months and years ahead.

/s/Philip W. Coolidge

Philip W. Coolidge
President
January 20, 1995

Remember that Mutual Fund Shares:
* Are not bank deposits or FDIC insured
* Are not obligations of or guaranteed by Citibank or Citicorp Investment
Services
* Are subject to Investment risks, including possible loss of the principal
amount invested

<PAGE>

TABLE OF CONTENTS
1 Letter to Shareholders
- ----------------------------------------
2 Market Environment
Fund Snapshot
- ----------------------------------------
3 Portfolio Manager
The Portfolio Responds
- ----------------------------------------
4 Fund Quotes
Strategy and Outlook
Government Income Portfolio
by the Numbers
- ----------------------------------------
5 Fund Data
Performance Highlights
- ----------------------------------------
LANDMARK U.S. GOVERNMENT INCOME FUND
- ----------------------------------------
6 Statement of Assets and Liabilities
- ----------------------------------------
7 Statement of Operations
- ----------------------------------------
8 Statement of Changes in Net Assets
- ----------------------------------------
9 Financial Highlights
- ----------------------------------------
10 Notes to Financial Statements
- ----------------------------------------
13 Independent Auditors' Report
- ----------------------------------------
GOVERNMENT INCOME PORTFOLIO
- ----------------------------------------
14 Portfolio of Investments
- ----------------------------------------
15 Statement of Assets and Liabilities
Statement of Operations
- ----------------------------------------
16 Statement of Changes in Net Assets
Financial Highlights
- ----------------------------------------
17 Notes to Financial Statements
- ----------------------------------------
19 Independent Auditors' Report

<PAGE>

- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
- --------------------------------------------------------------------------------

1994 saw the largest bond market declines in approximately 20 years. A
3-year U.S. Treasury note produced a -1.52% total return in 1994 while a 30-year
U.S. Treasury bond delivered a -11.99% total return over the same time horizon.
The fixed-income market's poor performance was a reaction to a number of
different economic influences.

First, economic growth was stronger than expected, fueling fears of
inflation. Despite the Federal Reserve Board's efforts to forestall higher
inflation by raising the pivotal federal funds rate six times in 1994 from 3% to
5.5%, many fixed-income investors chose to view tighter monetary policy as a
sign of impending inflationary pressure rather than as an indication of the
Federal Reserve's inflation-fighting resolve. Yet, at year-end, the economy
showed few signs that inflation is about to accelerate significantly--prices
increased by only about 3% during 1994.

Second, a weak dollar relative to other currencies, especially the Japanese
yen, caused many foreign investors to move their capital from the U.S. bond
market to other nations. This was slightly exacerbated by surging demand for
capital from emerging markets in Latin America and Asia.

Finally, problems associated with some investors' highly leveraged
fixed-income positions placed additional selling pressure on bonds as some
institutional investors were forced to sell their holdings to repay their loans.
Commercial banks liquidated shorter dated Treasury securities to fund increasing
loan demand.

- --------------------------------------------------------------------------------
FUND SNAPSHOT
- --------------------------------------------------------------------------------

COMMENCEMENT OF OPERATIONS
September 8, 1986

NET ASSETS AS OF 12/31/94
$52.9 million

FUND OBJECTIVE
To provide monthly dividend income as well as to protect the value of the
investment of its shareholders through investing in debt obligations that are
backed by the full faith and credit of the U.S. Government.

DIVIDENDS
Paid monthly, if any

CAPITAL GAINS
Paid annually, if any

BENCHMARKS
* Lipper Short U.S. Government Funds Average
* Lehman 1-5 Year U.S. Treasury Index

INVESTMENT ADVISER,
GOVERNMENT INCOME PORTFOLIO
Citibank, N.A.

2
<PAGE>

- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
THOMAS HALLEY
Vice President, Citibank, N.A.

Mr. Halley has been responsible for managing the Portfolio since its inception
after serving as the manager of the Fund since December 1988. He also manages
other commingled investment funds at Citibank as well as institutional insurance
portfolios.

Mr. Halley authors the commentary on economic trends for Citibank Global Asset
Management publications. Prior to joining Citibank in 1988, Mr. Halley was a
Senior Fixed Income Portfolio Manager with Brown Brothers Harriman & Company. He
has more than 20 years of experience in the management of taxable fixed income
investments.

- --------------------------------------------------------------------------------
THE PORTFOLIO RESPONDS
- --------------------------------------------------------------------------------

Shareholders of the Landmark U.S. Government Income Fund were sheltered
from much of the brunt of 1994's bond market decline. The Portfolio's short-term
average duration and concentration in the highest quality securities served to
soften the impact of influences that affected every sector of the U.S. and
international bond markets.

Within the Fund's risk-averse investment parameters, we actively managed
the Portfolio's average duration (a measure of the Portfolio's sensitivity to
changes in interest rates) to minimize the impact of higher short-term interest
rates on shareholders' capital. At the start of 1994, the Portfolio's average
duration was approximately 2.8 years. By year end, the average duration fell to
2.2 years.

In addition, we increased the Portfolio's holdings of shorter term,
government-guaranteed mortgage-backed securities from about 4% of the Portfolio
at the start of the year to approximately 22% at the end of the period. This
allocation change primarily reflected fundamental developments in the
mortgage-backed securities market, which began the year overvalued but became
increasingly more attractive as the year progressed. All securities held by the
Portfolio are backed by the U.S. government as to the timely payment of interest
and principal.

<PAGE>

- --------------------------------------------------------------------------------
FUND QUOTES FROM THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------

"1994 saw the first negative annualized returns for the bond market. Our goal in
this difficult environment has been to preserve shareholder value."

"We're optimistic about the bond market's prospects in 1995. The market appears
to be oversold, and we expect prices to recover as the economy slows."

- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK
- --------------------------------------------------------------------------------

We believe that the bond market's problems in 1994 have set the stage for
better fixed-income returns in 1995. If the Federal Reserve is successful in its
efforts to dampen economic growth and prevent a rise of inflation, as we expect,
inflation fears should subside and longer term interest rates should decline
from year-end 1994 levels. The result would be higher bond prices and the
possibility of some capital appreciation for Fund shareholders.

We also expect the new Republican-controlled Congress to be positive for
the financial markets, including bonds. If initiatives such as a capital-gains
tax cut and the balanced budget amendment are successful, capital could flow
into financial assets, driving prices higher. Perhaps most significantly,
deficit-reduction measures should help shore up the dollar relative to other
currencies, making the U.S. bond market more attractive to overseas investors.

Although we expect the combination of moderate economic growth, low
inflation, lower taxes on capital gains and foreign investment to be a powerful
foundation for bond market gains by year-end 1995, we remain cautious regarding
the market's prospects during the early part of the year. We have positioned the
Portfolio in a defensive posture to preserve shareholder value, and stand ready
to take advantage of rising bond prices when they become available.

CHANGES IN PORTFOLIO
ASSET ALLOCATION

Portfolio of investments as of 12/31/94

CASH/SHORT TERM/OTHER ................. 1.2%
GNMA .................................. 22.2%
U.S. TREASURY ISSUES .................. 76.6%

Compared to 12/31/93

CASH/SHORT TERM/OTHER ................. 10.0%
GNMA .................................. 4.1%
U.S. TREASURY ISSUES .................. 85.9%

4
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1994
- --------------------------------------------------------------------------------

TOTAL RETURNS
-------------------------------
SINCE
FIVE 9/8/86
ONE YEARS INCEPTION
YEAR (ANNUALIZED)(ANNUALIZED)
---- ---------- ----------
Landmark U.S. Government Income Fund
without Sales Charge ...................... (1.72)% 6.21% 6.07%
Lipper Short U.S. Government Funds Average .. (1.65)% 6.06% 6.35%*
Lehman 1-5 Year U.S. Treasury Index ......... (0.79)% 7.01% 7.08%*
Landmark U.S. Government Income Fund
with Maximum Sales Charge of 1.50% ...... (3.18)% 5.89% 5.88%

* From 8/31/86

30-Day SEC Yield 6.80%
Income Dividends Per Share $0.461

- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
- --------------------------------------------------------------------------------

A $10,000 investment in the Fund made on inception date would have grown to
$16,079 with sales charge (as of 12/31/94). The graph shows how this compares to
our benchmarks over the same period.

The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.

[THE FOLLOWING DATA IS PRESENTED AS A GRAPH IN THE PRINTED REPORT]

Changes in Portfolio Composition

Landmark Landmark Lipper Lehman
U.S. U.S. Short Term 1-5 Year
Government Government U.S. U.S.
Income Income Government Treasury
Without With Funds Index
Sales Charge Sales Charge Average (Unmanaged)
------------ ------------ ------------ -----------
Sept. 86 $10,000 $ 9,850 $10,000 $10,000
$ 9,660 $ 9,515 $ 9,975 $ 9,958
$ 9,682 $ 9,537 $10,085 $10,065
$ 9,847 $ 9,700 $10,193 $10,136
- ------------------------------------------------------------------
Dec. 86 $ 9,881 $ 9,733 $10,225 $10,155
$ 9,982 $ 9,832 $10,322 $10,233
$10,053 $ 9,902 $10,383 $10,283
$ 9,985 $ 9,835 $10,373 $10,289
$ 9,792 $ 9,646 $10,208 $10,176
$ 9,788 $ 9,641 $10,212 $10,178
$ 9,909 $ 9,761 $10,325 $10,294
$ 9,904 $ 9,755 $10,353 $10,339
$ 9,866 $ 9,718 $10,348 $10,340
$ 9,655 $ 9,511 $10,263 $10,267
$ 9,965 $ 9,816 $10,492 $10,515
$10,025 $ 9,874 $10,555 $10,583
- ------------------------------------------------------------------
Dec. 87 $10,151 $ 9,999 $10,634 $10,665
$10,479 $10,322 $10,860 $10,863
$10,619 $10,459 $10,956 $10,963
$10,523 $10,365 $10,953 $10,959
$10,495 $10,337 $10,956 $10,961
$10,455 $10,298 $10,938 $10,935
$10,633 $10,473 $11,060 $11,100
$10,592 $10,433 $11,062 $11,091
$10,574 $10,415 $11,079 $11,103
$10,744 $10,583 $11,222 $11,255
$10,869 $10,706 $11,341 $11,385
$10,780 $10,618 $11,294 $11,325
- ------------------------------------------------------------------
Dec. 88 $10,785 $10,624 $11,314 $11,339
$10,922 $10,758 $11,413 $11,433
$10,818 $10,656 $11,407 $11,414
$10,856 $10,693 $11,452 $11,463
$11,044 $10,878 $11,606 $11,675
$11,305 $11,136 $11,781 $11,857
$11,595 $11,421 $11,995 $12,115
$11,818 $11,641 $12,165 $12,329
$11,596 $11,422 $12,079 $12,208
$11,628 $11,453 $12,138 $12,271
$11,955 $11,776 $12,335 $12,493
$12,061 $11,880 $12,437 $12,608
- ------------------------------------------------------------------
Dec. 89 $12,080 $11,899 $12,486 $12,654
$11,867 $11,689 $12,467 $12,627
$11,880 $11,702 $12,524 $12,684
$11,864 $11,686 $12,562 $12,709
$11,671 $11,496 $12,576 $12,711
$12,058 $11,878 $12,763 $12,938
$12,265 $12,081 $12,893 $13,090
$12,441 $12,254 $13,044 $13,265
$12,260 $12,077 $13,065 $13,280
$12,357 $12,172 $13,162 $13,392
$12,523 $12,335 $13,296 $13,560
$12,807 $12,615 $13,442 $13,716
- ------------------------------------------------------------------
Dec. 90 $13,034 $12,839 $13,593 $13,893
$13,183 $12,985 $13,716 $14,029
$13,258 $13,059 $13,795 $14,113
$13,309 $13,110 $13,870 $14,201
$13,442 $13,240 $13,998 $14,345
$13,510 $13,307 $14,078 $14,430
$13,454 $13,252 $14,107 $14,465
$13,659 $13,454 $14,244 $14,609
$13,982 $13,772 $14,445 $14,850
$14,324 $14,109 $14,613 $15,052
$14,459 $14,242 $14,762 $15,228
$14,535 $14,317 $14,902 $15,401
- ------------------------------------------------------------------
Dec. 91 $14,833 $14,610 $15,152 $15,698
$14,733 $14,512 $15,063 $15,618
$14,802 $14,580 $15,024 $15,658
$14,777 $14,555 $14,937 $15,621
$14,863 $14,640 $15,059 $15,772
$15,058 $14,832 $15,217 $15,965
$15,215 $14,987 $15,375 $16,172
$15,410 $15,179 $15,560 $16,424
$15,512 $15,279 $15,687 $16,590
$15,649 $15,414 $15,816 $16,791
$15,502 $15,269 $15,693 $16,623
$15,483 $15,251 $15,668 $16,567
- ------------------------------------------------------------------
Dec. 92 $15,657 $15,422 $15,818 $16,752
$15,865 $15,627 $16,017 $17,017
$16,022 $15,781 $16,170 $17,216
$16,078 $15,837 $16,221 $17,275
$16,177 $15,934 $16,312 $17,406
$16,125 $15,883 $16,293 $17,347
$16,303 $16,059 $16,444 $17,534
$16,295 $16,051 $16,488 $17,566
$16,534 $16,286 $16,650 $17,776
$16,600 $16,351 $16,697 $17,835
$16,637 $16,387 $16,725 $17,878
$16,555 $16,307 $16,677 $17,838
- ------------------------------------------------------------------
Dec. 93 $16,608 $16,359 $16,737 $17,910
$16,709 $16,458 $16,850 $18,058
$16,524 $16,276 $16,711 $17,874
$16,330 $16,085 $16,538 $17,699
$16,208 $15,965 $16,421 $17,596
$16,240 $15,996 $16,391 $17,616
$16,238 $15,995 $16,390 $17,642
$16,408 $16,162 $16,523 $17,835
$16,441 $16,194 $16,561 $17,890
$16,353 $16,107 $16,503 $17,793
$16,369 $16,123 $16,512 $17,816
$16,280 $16,035 $16,446 $17,727
- ------------------------------------------------------------------
Dec. 94 $16,323 $16,079 $16,483 $17,768

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.

5
<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994
- --------------------------------------------------------------------------------

ASSETS:
Investment in Government Income Portfolio,
at value (Note 1) ....................................... $ 53,319,296
Receivable for shares of beneficial
interest sold ........................................... 3,327
------------
Total assets .......................................... 53,322,623
------------

LIABILITIES:
Payable for shares of beneficial
interest repurchased .................................... 384,595
Accrued expenses and other liabilities .................... 4,796
------------
Total liabilities ..................................... 389,391
------------

NET ASSETS for 5,702,825 shares of
beneficial interest outstanding ......................... $ 52,933,232
============

NET ASSETS CONSIST OF:
Paid-in capital ........................................... $ 59,290,776
Accumulated net realized
loss on investments ..................................... (4,341,626)
Unrealized depreciation of investments .................... (2,046,933)
Undistributed net investment income ....................... 31,015
------------
Total ................................................. $ 52,933,232
============

NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST ........................ $ 9.28
============

COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based
on a 1.50% sales charge ($9.28/0.985) ................... $ 9.42
============

See notes to financial statements

6
<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
- --------------------------------------------------------------------------------

INVESTMENT INCOME (Note 1B):
Interest Income ............................... $ 1,388,166
Interest Income from Government
Income Portfolio ............................ $ 2,377,626
Allocated Expenses from Government
Income Portfolio ............................ (180,748) 2,196,878
----------- -----------
3,585,044

EXPENSES:
Shareholder Servicing Agents'
fees (Note 3B) .............................. 272,783
Administrative fees (Note 3A) ................. 115,661
Investment advisory fees (Note 2) ............. 93,572
Shareholder reports ........................... 43,675
Distributions fees (Note 4) ................... 34,098
Legal fees .................................... 30,540
Custodian fees ................................ 30,339
Trustees' fees ................................ 16,336
Auditing fees ................................. 14,777
Transfer agent fees ........................... 8,672
Insurance ..................................... 1,826
Miscellaneous ................................. 15,857
-----------
Total expenses ............................ 678,136
Less aggregate amount waived by
Investment Adviser, Administrator,
Shareholder Servicing Agents, and
Distributor (Notes 2, 3A, 3B and 4) ......... (279,815)

Expenses assumed by Administrator ........... (32,319)
-----------
Net expenses ............................. 366,002
-----------
Net investment income .................... 3,219,042
-----------

NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) from
investment transactions ..................... (2,780,042)
Net change in unrealized appreciation
(depreciation) .............................. (1,924,684)
-----------
Net realized and unrealized gain
(loss) on investments .................... (4,704,726)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $(1,485,684)
===========

See notes to financial statements

7
<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED
DECEMBER 31, 1993 AUGUST 31,
1994 (NOTE 1G) 1993
----------- ------------ -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ........................................................ $ 3,219,042 $ 1,201,630 $ 2,721,826
Net realized gain (loss) on investment transactions .......................... (2,780,042) 423,125 323,278
Net change in unrealized appreciation (depreciation) of investments .......... (1,924,684) (1,283,375) 1,062,070
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ............ (1,485,684) 341,380 4,107,174
------------ ------------ ------------

EQUALIZATION (Note 1E) ....................................................... -- (3,403) 53,945
------------ ------------ ------------

DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ........................................................ (3,193,045) (1,196,612) (2,877,409)
In excess of net investment income (Note 1E) ................................. -- -- (40,723)
------------ ------------ ------------
Decrease in net assets from distributions to shareholders .................. (3,193,045) (1,196,612) (2,918,132)
------------ ------------ ------------

TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 6):
Net proceeds from sale of shares ............................................. 20,093,238 19,441,244 49,622,162
Net asset value of shares issued to shareholders
from reinvestment of dividends ............................................. 3,182,428 1,161,679 2,710,858
Cost of shares repurchased ................................................... (44,969,764) (22,552,561) (27,620,988)
------------ ------------ ------------

Net increase (decrease) in net assets from transactions in shares of
beneficial interest ........................................................ (21,694,098) (1,949,638) 24,712,032
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ........................................ (26,372,827) (2,808,273) 25,955,019

NET ASSETS:
Beginning of period .......................................................... 79,306,059 82,114,332 56,159,313
------------ ------------ ------------
End of period (including undistributed (overdistributed) net investment
income of $31,015, $270,943, and ($40,723), respectively) .................. $ 52,933,232 $ 79,306,059 $ 82,114,332
============ ============ ============
</TABLE>

See notes to financial statements

8
<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

FOUR MONTHS
ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED AUGUST 31
DECEMBER 31, 1993 ----------------------------------------------
1994 (NOTE 1G) 1993 1992 1991 1990
---- --------- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period . $ 9.91 $ 10.01 $ 9.85 $ 9.42 $ 8.93 $ 9.08
Income From Operations:
Net investment income ................ 0.466 0.183 0.448 0.591 0.710 0.653
Net realized and unrealized
gain (loss) on
investments ........................ (0.635) (0.138) 0.183 0.413 0.499 (0.148)
-------- -------- -------- -------- ------- --------
Total from operations ........... (0.169) 0.045 0.631 1.004 1.209 0.505
-------- -------- -------- -------- ------- --------
Less Distributions From:
Net investment income .............. (0.461) (0.145) (0.464) (0.574) (0.719) (0.655)
In excess of net investment
income ........................... -- -- (0.007) -- -- --
-------- -------- -------- -------- -------- -------
Total from distributions ....... (0.461) (0.145) (0.471) (0.574) (0.719) (0.655)
-------- -------- -------- -------- -------- -------
Net Asset Value, end of period ....... $ 9.28 $ 9.91 $ 10.01 $ 9.85 $ 9.42 $ 8.93
-------- -------- -------- -------- -------- -------

Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) .................... $52,933 $79,306 $82,114 $56,159 $25,556 $21,521
Ratio of expenses to average
net assets ......................... 0.80%<F3> 0.80%<F2> 0.80% 0.51% 0.97% 1.88%
Ratio of net investment income
to average net assets .............. 4.72% 4.34%<F2> 4.46% 6.03% 7.71% 7.19%
Portfolio turnover ................... 22%<F4> 26% 111% 161% 42% 14%
Total return ......................... (1.72)% 0.45%<F1> 6.59% 10.94% 14.04% 5.73%

Note: If Agents of the Fund for the periods indicated and Agents of Government Income Portfolio for the period May 1,
1994 to December 31, 1994 had not waived a portion of their fees, the net investment income per share and the
ratios would have been as follows:

Net investment income per share ...... $ 0.421 $ 0.164 $ 0.400 $ 0.503 $ 0.659 $ 0.648
Ratios:
Expenses to average net assets ....... 1.26%<F3> 1.27%<F2> 1.27% 1.41% 1.52% 1.94%
Net investment income to
average net assets ................... 4.26% 3.88%<F2> 3.98% 5.13% 7.16% 7.13%

<FN>
<F1>Not Annualized
<F2>Annualized
<F3>Includes the Fund's share of Government Income Portfolio allocated expenses for the period May, 1 1994 to December
31, 1994.
<F4>Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments
directly in securities. The portfolio turnover rate for the period since the Fund transferred all of its
investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere
in this report.
</TABLE>

See notes to financial statements

9
<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

(1) SIGNIFICANT ACCOUNTING POLICIES
The Landmark U.S. Government Income Fund (the "Fund") is a separate diversified
series of Landmark Fixed 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. On May 1, 1994, the Fund
began investing all of its investable assets in Government Income Portfolio (the
"Portfolio"), a management investment company for which Citibank, N.A.
("Citibank") serves as Investment Adviser. The Landmark Funds Broker-Dealer
Services, Inc. ("LFBDS") acts as the Trust's Administrator and Distributor.
Citibank also serves as Sub-Administrator and makes Fund shares available to
customers as Shareholder Servicing Agent.

The Trust seeks to achieve the Fund's investment objective to provide
shareholders with monthly dividends, as well as to protect the value of the
investment of shareholders by investing all of its investable assets in the
Portfolio, an open-end, diversified management investment company having the
same investment objective and policies and substantially the same investment
restrictions as the Fund. The value of such investment reflects the Fund's
proportionate interest (95.8% at December 31, 1994) in the net assets of the
Portfolio.

The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.

The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:

A. INVESTMENT VALUATION -- Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.

B. INVESTMENT INCOME -- The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments which were
held directly interest income was 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. Gain
and loss from principal paydowns was recorded as interest income.

C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At December 31, 1994, the Fund, for federal income tax
purposes, had a capital loss carryover of $3,291,171, of which $714,586 will
expire on August 31, 1995, $835,037 will expire on August 31, 1996 and
$1,741,548 will expire on December 31, 2002. Such capital loss carryover will
reduce the Fund's taxable income arising from future net realized capital 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. EXPENSES -- The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and LFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.

E. DISTRIBUTIONS -- Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.

Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended

<PAGE>
- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------

December 31, 1994, the fund reclassed $212,926 from accumulated net realized
loss on investment to paid-in capital.

Prior to January 1, 1994, the Fund followed equalization accounting by which a
portion of the proceeds from sales and cost of repurchases of Fund shares was
credited or charged to undistributed net investment income on the date of the
transaction so that undistributed net investment income per share was unaffected
by Fund shares sold or repurchased. The Fund discontinued equalization
accounting as of January 1, 1994 and reclassified net equalization credits in
the amount of $265,925 from undistributed net investment income to paid-in
capital. In management's opinion, discontinuance of equalization accounting will
result in less distortion of undistributed net investment income as compared to
income available for distribution for federal income tax purposes. This change
has no effect on the Fund's net assets, results of operations or net asset value
per share, and did not have a material effect on the per share amounts in the
Financial Highlights.

F. CHANGE IN FISCAL YEAR END -- Effective September 1, 1993, the Fund changed
its fiscal year end from August 31 to December 31.

G. OTHER -- All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata, based on respective ownership
interests, among the Fund and the other investors in the Portfolio at the time
of such determination. Investment transactions are accounted for on a trade date
basis.

(2) INVESTMENT ADVISORY FEE
Prior to May 1, 1994 (when the Fund transferred all of its investable assets to
the Portfolio in exchange for an interest in the Portfolio), the Fund retained
Citibank, as its Investment Adviser. The investment advisory fee paid to
Citibank, as compensation for overall investment management services, amounted
to $93,572, of which $67,712 was voluntarily waived for the four months ended
April 30, 1994. The investment advisory fee was computed at the annual rate of
0.35% of the Fund's average daily net assets. The Portfolio has engaged Citibank
to render investment advisory services. See Note 2 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report.

(3) ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan which provides that the
Trust, on behalf of the Fund, may obtain the services of an Administrator, one
or more Shareholder Servicing Agents and other Servicing Agents and may enter
into agreements providing for the payment of fees for such services. Under the
Trust Administrative Services Plan, the aggregate of the fee paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund under such Plan and the Basic Distribution Fee paid from the Fund
to the Distributor under the Distribution Plan may not exceed 0.65% of the
Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year.

A. ADMINISTRATIVE FEE -- 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, may not exceed an
annual rate of 0.20% of the Fund's average daily net assets. Prior to May 1,
1994 (when the Fund transferred all of its investable assets to the Portfolio in
exchange for an interest in the Portfolio), the Administrator received fees
computed at the annualized rate of 0.20% of the Fund's average daily net assets
which amounted to $53,470, of which $15,652 was voluntarily waived for the four
months ended April 30, 1994. For the period May 1, 1994 to December 31, 1994,
under the Administrative Services Plan the Administrator received fees computed
at an annual rate of 0.15% of the Fund's average daily net assets which amounted
to $62,191, of which $60,059 was voluntarily waived. 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 or directors of the Administrator or its affiliates.

B. SHAREHOLDER SERVICING AGENTS FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each

Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.40% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents fees amounted to $272,783, of which $102,294 was voluntarily
waived for the year ended December 31, 1994.

(4) DISTRIBUTION FEE
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, in which the Fund reimburses the
Distributor for expenses incurred or anticipated in connection with sales of
shares of the Fund, at an annual rate not to exceed 0.15% of the Fund's average
daily net assets. The Distributor may also receive an additional fee from the
Fund 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. Under the Administrative Services Plan,
the distribution fees were computed at an annual rate of 0.05% of the Fund's
average daily net assets which amounted to $34,098, all of which was voluntarily
waived for the year ended December 31, 1994.

(5) INVESTMENT TRANSACTIONS
On May 1, 1994 the Fund transferred all of its investable assets ($74,423,365)
to the Portfolio in exchange for an interest in the Portfolio. Increases and
decreases in the Fund's investment in the Portfolio for the period May 1, 1994
to December 31, 1994 aggregated $3,514,487 and $25,216,425, respectively.
Purchases and sales of U.S. Government securities, other than short-term
obligations, during the period from January 1, 1994 to April 30, 1994 aggregated
$21,946,449 and $16, 618,234, 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:

FOUR MONTHS
YEAR ENDED YEAR
ENDED DECEMBER 31, ENDED
DECEMBER 31, 1993 AUGUST 31,
1994 (NOTE 1G) 1993
---------- ---------- ----------
Shares sold .................... 2,047,894 1,947,820 5,024,248
Shares issued to
shareholders from rein-
vestment of dividends ......... 333,897 116,648 275,025
Shares repurchased ............. (4,683,580) (2,260,936) (2,800,321)
---------- ---------- ----------
Net increase (decrease) ........ (2,301,789) (196,468) 2,498,952
========== ========== ==========

12
<PAGE>

- --------------------------------------------------------------------------------
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

TO THE TRUSTEES AND THE SHAREHOLDERS OF LANDMARK FIXED INCOME FUNDS (THE TRUST):
LANDMARK U.S. GOVERNMENT INCOME FUND

In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Landmark U.S. Government Income Fund (the "Fund"), a series of Landmark Fixed
Income Funds, at December 31, 1994, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit include examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of investments owned at December 31, 1994,
provides a reasonable basis for the opinion expressed above. The statement of
changes in net assets for the periods ended December 31, 1993 and the financial
highlights for each of the periods then ended were audited by other independent
accountants whose report dated February 3, 1994 expressed an unqualified opinion
on those statements.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 3, 1995

<PAGE>

PRINCIPAL
AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--22.2%
- --------------------------------------------------------------------------------

6.50%, 2008 ............................... $7,839 $ 7,162,440
6.50%, 2009 ............................... 3,210 2,932,828
8.00%, 2006 ............................... 368 359,457
8.00%, 2007 ............................... 292 285,101
8.00%, 2017 ............................... 700 669,605
8.00%, 2021 ............................... 294 280,848
8.00%, 2022 ............................... 281 268,930
9.50%, 2016 ............................... 4 3,825
9.50%, 2017 ............................... 82 84,198
9.50%, 2018 ............................... 96 99,060
9.50%, 2019 ............................... 92 95,394
9.50%, 2020 ............................... 86 88,930
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(Identified Cost $12,670,871) 12,330,616
-----------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS--76.6%
- --------------------------------------------------------------------------------

U.S. Treasury Notes,
3.875%,2/28/1995 ......................... $ 300 $ 299,250
4.625%,2/15/1996 ......................... 7,200 6,982,848
5.125%,3/31/1996 ......................... 13,350 12,976,600
7.25%,8/31/1996 .......................... 8,250 8,202,315
4.25%,5/15/1996 .......................... 3,025 2,899,281
4.375%,11/15/1996 ........................ 9,925 9,360,466
5.375%,5/31/1998 ......................... 2,100 1,946,763
-----------
TOTAL GOVERNMENT OBLIGATIONS

(Identified Cost $44,404,936) ............. 42,667,523
-----------
TOTAL INVESTMENTS
(Identified Cost $57,075,807) ............. 98.8% 54,998,139
OTHER ASSETS
LESS OTHER LIABILITIES .................... 1.2% 674,933
----- -----------
NET ASSETS ................................ 100.0% $55,673,072
===== ===========

See notes to financial statements

14
<PAGE>

ASSETS:
Investments at value (Note 1A) (Identified Cost, $57,075,807) ... $54,998,139
Cash ............................................................ 27,683
Interest receivable ............................................. 666,350
-----------
Total assets ................................................ 55,692,172
-----------
LIABILITIES:
Payable to affiliates--Investment advisory fee (Note 2) ......... 16,712
Accrued expenses and other liabilities .......................... 2,388
-----------
Total liabilities ........................................... 19,100
-----------
NET ASSETS ...................................................... $55,673,072
===========
REPRESENTED BY:
Paid-in capital for beneficial interests ........................ $55,673,072
===========

See notes to financial statements

<PAGE>
- --------------------------------------------------------------------------------
Government Income Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Period May 1, 1994 (Commencement of Operations) to December 31, 1994
- --------------------------------------------------------------------------------

INTEREST INCOME (Note 1B): .................... $ 2,424,128
EXPENSES:
Investment advisory fees
(Note 2) .................................... $ 148,797
Administrative fees (Note 3) .................. 21,257
Expense reimbursement fees
(Note 6) .................................... 15,578
-----------
Total expenses .............................. 185,632

Less aggregate amount waived
by the Administrator (Note 3) ............... (1,583)
-----------
Net Expense ................................... 184,049
-----------
Net investment income ....................... 2,240,079
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 5):
Net realized loss from investment
transactions ................................ (2,084,009)
Unrealized appreciation
(depreciation) of investments--
Beginning of period ........................ --
End of period .............................. (2,077,668)
Less unrealized depreciation
acquired in connection with
the Landmark U.S. Government
Income Fund contribution (Note 1) ........ 2,521,279
-----------
Net change in unrealized
appreciation (depreciation) .............. 443,611
-----------
Net realized and unrealized
loss on investments ...................... (1,640,398)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 599,681
===========

See notes to financial statements

<PAGE>

MAY 1, 1994
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1994
-----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ..................................... $ 2,240,079
Net realized loss on investment
transactions ............................................ (2,084,009)
Net change in unrealized appreciation
(depreciation) of investments ........................... 443,611
------------
Net increase (decrease) in net assets
resulting from operations ........................... 599,681
------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ............................... 80,362,853
Value of withdrawals ...................................... (25,289,462)
------------
Net increase in net assets
from capital transactions ........................... 55,073,391
------------
NET INCREASE IN NET ASSETS: ............................... 55,673,072
NET ASSETS:
Beginning of period ....................................... --
------------
End of period ............................................. $ 55,673,072
============

- --------------------------------------------------------------------------------
Government Income Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR THE PERIOD
MAY 1, 1994
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1994
-----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted) .................... $55,673
Ratio of expenses to average net assets .................... 0.43%*
Ratio of net investment income to average net assets ... 5.27%*
Portfolio turnover ........................................ 40%

Note: If Agents of the Portfolio had not voluntarily waived a portion of their
fees and an expense reimbursement agreement had not been in effect during the
period indicated, the ratios would have been as follows:

RATIOS:
Expenses to average net assets ............................. 0.44%*
Net investment income to average net assets ................ 5.26%*

* Annualized

See notes to financial statements

16
<PAGE>

(1) SIGNIFICANT ACCOUNTING POLICIES
Government Income Portfolio (the "Portfolio"), a separate series of The Premium
Portfolios (the "Portfolio Trust"), is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company which was organized as a trust under the laws of the State of New York.
The Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. The Investment Adviser of the Portfolio is Citibank, N.A.
("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the
Portfolio's Administrator. On May 1, 1994 (commencement of operations) the
Landmark U.S. Government Income Fund transferred all of its investable assets
($74,423,365 including $2,521,279 of unrealized depreciation), to the Portfolio
in exchange for an interest in the Portfolio.

The significant accounting policies consistently followed by the Portfolio are
in conformity with generally accepted accounting principles and are as follows:

A. INVESTMENT SECURITY VALUATIONS -- Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by pricing services, which take into account appropriate factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, and other market data, without exclusive
reliance on quoted prices or exchange or over-the counter prices, since such
valuations are believed to reflect more accurately the fair value of the
securities. Short-term obligations maturing in 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 consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Gain and loss from principal
paydowns are recorded as ordinary income.

C. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.

D. EXPENSES -- The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.

E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.

(2) INVESTMENT ADVISORY FEES
The investment advisory fee paid to Citibank, as compensation for overall
investment management services, amounted to $148,797, for the period May 1, 1994
(commencement of operations) to December 31, 1994. The investment advisory fee
is computed at the annual rate of 0.35% of the Portfolio's average daily net
assets.

(3) ADMINISTRATIVE FEE
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 computed at the annual rate of 0.05% of the
Portfolio's average daily net assets. The administrative fee amounted to $21,257
of which $1,583 was voluntarily waived, for the period May 1, 1994 (commencement
of operations) to December 31, 1994. Citibank acts as Sub-Administrator and
performs such duties and receives such compensation from SFG as from time to
time is agreed to by SFG and Citibank. The Portfolio pays no compensation
directly to any Trustee or any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.

(4) PURCHASES AND SALES OF INVESTMENTs
Purchases and sales of U.S. Government securities, other than short-term
obligations, aggregated $24,815,368 and $40,532,002, respectively, for the
period May 1, 1994 (commencement of operations) to December 31, 1994.

<PAGE>
- --------------------------------------------------------------------------------
Government Income Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------

(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1994, as computed on a federal income tax
basis, are as follows:

Aggregate cost ......................................... $ 57,075,807
============
Gross unrealized appreciation .......................... $ 27,101
Gross unrealized depreciation .......................... (2,104,769)
------------
Net unrealized depreciation ............................ $ (2,077,668)
============

(6) EXPENSE REIMBURSEMENT FEE
SFG has entered into an expense reimbursement agreement with the Portfolio. SFG
has agreed to pay all of the ordinary operating expenses (excluding interest,
taxes, brokerage commissions, litigation costs or other extraordinary costs or
expenses) of the Portfolio, other than fees paid under the Advisory Agreement
and Administrative Services Agreement. The Agreement shall terminate on April
30, 2004, unless sooner terminated by either party upon not less than 30 days
nor more than a 60 days written notice to the other party.

The Portfolio Trust has agreed to pay SFG an expense reimbursement fee from the
Portfolio, in addition to the administrative fee accrued daily and paid monthly;
provided, however, that such fee shall not exceed the amount such that
immediately after any such payment the aggregate ordinary expenses of the
Portfolio would, on an annual basis, exceed an agreed upon rate, currently 0.45%
of the Portfolio's average daily net assets.

(7) LINE OF CREDIT
As of May 1, 1994 the Portfolio, along with other Landmark Funds entered into an
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 $15 million committed portion of the line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the year ended December 31, 1994 the
commitment fee allocated to the Portfolio was $464. Since the line of credit was
established, there have been no borrowings.

18
<PAGE>

TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, GOVERNMENT INCOME PORTFOLIO:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Government Income Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at December 31, 1994 and
the related statements of operations and of changes in net assets and the
financial highlights for the period May 1, 1994 (commencement of operations) to
December 31, 1994. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of investments owned at
December 31, 1994, by correspondence with the custodian, provides a reasonable
basis for our opinion.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1994, the
results of its operations and the changes in its net assets and the financial
highlights for the period May 1, 1994 (commencement of operations) to December
31, 1994 in accordance with U.S. generally accepted accounting principles.

PRICE WATERHOUSE
Chartered Accountants

Toronto, Ontario
February 3, 1995

<PAGE>

- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
- --------------------------------------------------------------------------------

FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
450 West 33rd Street, New York, NY 10001
(212) 564-3456 or (800) 846-5300

FOR CITIGOLD CUSTOMERS:
Citibank, N.A.
Citigold
P.O. Box 5130, New York, NY 10150-5130
Call Your Citigold Executive or (212) 974-0900 or (800) 285-1701

FOR PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
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 NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100

FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 736-8170 in New York City

19
<PAGE>

TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
H. B. Alvord
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong, Jr.
Donald B. Otis
E. Kirby Warren
William S. Woods, Jr.

SECRETARY AND TREASURER
James B. Craver*

ASSISTANT TREASURER
Barbara M. O'Dette*

ASSISTANT SECRETARY
Molly S. Mugler*
*Affiliated Person of Administrator and Distributor

- ---------------------------------|--|-------------------------------------------
INVESTMENT ADVISER
(OF GOVERNMENT INCOME
PORTFOLIO)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043

ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679

TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

CUSTODIAN
Investors Bank and Trust Company
One Lincoln Plaza, Boston, MA 02111

AUDITORS
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110

LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110

- ---------------------------------|--|-------------------------------------------

SHAREHOLDER SERVICING AGENTS
(See Inside Cover)

This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.

This Report is Prepared & Printed on Recycled Paper [GRAPHIC OMITTED]
FI/USG/A/94