LANDMARK FIXED INCOME FUNDS /MA/, N-30B-2, 1997-03-07

LANDMARK FIXED INCOME FUNDS /MA/
N-30B-2, 1997-03-07

Previous: FIDELITY ADVISOR SERIES II, 497, 1997-03-07

Next: DREYFUS TREASURY CASH MANAGEMENT, 485APOS, 1997-03-07

<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
H. B. Alvord
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.

SECRETARY
Linda T. Gibson*

TREASURER
John R. Elder*

*Affiliated Person of Administrator and Distributor

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

INVESTMENT ADVISER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043

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

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

AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110

LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 021100

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

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.

FI/INTI/A/96 Printed on Recycled Paper [recycle symbol]

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

LANDMARK
INTERMEDIATE
INCOME FUND

ANNUAL
REPORT
December 31, 1996
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS

Dear Shareholder:

The U.S. bond market produced modestly positive total rates of return in
1996 despite a sharp rise in interest rates early in the year. Bond yields
subsequently retraced much of their rise during the second half as it became
clearer that the economic environment would likely continue to be one of subdued
growth, unchanged monetary policy and low inflation, albeit with a moderately
upward bias.

In this environment, the Landmark Funds' investment adviser, Citibank,
N.A., continued to manage the Landmark Intermediate Income Fund with the goal of
achieving its investment objectives: generating a high level of current income
and preserving the value of its shareholders' investment. The Fund seeks to
provide an attractive yield from a high-quality investment portfolio consisting
primarily of intermediate-term securities from a number of fixed-income market
sectors.

This report reviews the Fund's investment activities and performance during
the year ended December 31, 1996, and provides a summary of Citibank's
perspective on and outlook for the U.S. bond market. On behalf of the Board of
Trustees of the Landmark Funds, I want to thank you for your confidence and
participation.

/s/ Philip W. Coolidge
Philip W. Coolidge
President
January 17, 1997

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

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1 A Letter to Our Shareholders 5 Fund Data
- -------------------------------------- Performance Highlights
2 Market Environment -----------------------------------------
Fund Snapshot 6 Portfolio of Investments
- -------------------------------------- -----------------------------------------
Portfolio Manager 7 Statement of Assets and Liabilities
3 The Portfolio Manager Responds -----------------------------------------
Quotes From the Portfolio Manager 8 Statement of Operations
- -------------------------------------- -----------------------------------------
4 Strategy and Outlook 9 Statement of Changes in Net Assets
Landmark Intermediate -----------------------------------------
Income Fund -- By the Numbers 10 Financial Highlights
- -------------------------------------- -----------------------------------------
11 Notes to Financial Statements
-----------------------------------------
14 Independent Auditors' Report
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT

The economic and market environments of 1996 defied the forecasts of most
investment strategists, including the Landmark Funds' investment manager,
Citibank, N.A. At the start of the year, many investors expected U.S. economic
growth to slow substantially. Instead, the pace of economic growth accelerated
during the first half of the year, with second quarter Gross Domestic Product
reaching 4.7%. This raised concern that the rate of inflation might rise and
that the environment for bonds would become less attractive. The market's
inflation fears were not realized, however, as economic growth moderated during
the second half of the year.

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

COMMENCEMENT OF OPERATIONS
June 25, 1993

NET ASSETS AS OF 12/31/96
$43.9 million

FUND OBJECTIVE
To generate a high level of current income and preserve the value of its
shareholders' investments

DIVIDENDS
Paid monthly

CAPITAL GAINS
Distributed annually, if any

BENCHMARKS
o Lipper Intermediate Investment Grade Funds Average
o Lehman Aggregate Bond Index

INVESTMENT ADVISER
Citibank, N.A.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER

MARK LINDBLOOM
Vice President, Citibank, N.A.

Mr. Lindbloom has been responsible for managing the Landmark Intermediate Income
Fund since its inception in June 1993. He also manages the fixed income portion
of the Balanced Portfolio and intermediate maturity fixed income portfolios for
investment advisory and institutional accounts at Citibank. Prior to joining
Citibank in 1986, Mr. Lindbloom was employed by Brown Brothers Harriman &
Company, where he managed discretionary corporate portfolios, holding fixed
income assets.

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

When 1996 began, the Fund's investment adviser, Citibank, N.A., increased
the portfolio's average duration and shifted assets to the more interest-rate
sensitive sectors of the bond market in anticipation of a market rally.

As soon as it became apparent in the first quarter of 1996 that the economy
was not slowing as expected, we reduced the Fund's average duration to a range
considered neutral, thereby reducing the sensitivity of the portfolio to
potentially higher interest rates. We maintained this position until the fourth
quarter, when a slowing economy and falling interest rates prompted us to
lengthen the portfolio's average duration.

We also benefitted early in the year from our sector rotation strategy. By
increasing our holdings of mortgage-backed and asset-backed securities during
the first quarter, we were able to obtain better values and, in most cases,
higher yields than were available either from U.S. Treasury securities or
high-quality corporate bonds. Mortgage-backed securities were attractive because
the risk of homeowners refinancing their mortgages in a rising interest-rate
environment was small. Asset-backed securities based on home equity loans and
other high-quality obligations produced attractive returns for similar reasons.
Toward the end of the year, we shortened the duration of mortgage-backed
securities and selectively purchased putable corporate securities. We also
maintained a modest position in U.S. Treasury securities throughout the year.

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

"Bond prices rose during the second half of the year as investors realized that
economic growth was slowing and inflation would not be a problem."

"As long as the economy continues to grow at a moderate rate, we expect no
changes in monetary policy from the Federal Reserve Board during the first half
of the year."
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY AND OUTLOOK

We are optimistic about the prospect for the U.S. bond market in 1997. The
economy appears to be on a steady course in which it should neither overheat to
inflationary levels nor deteriorate into a recession. Current indicators suggest
that the first several months of the year will see an unchanged monetary policy,
modestly lower interest rates and low rates of inflation.

We believe that the prospect of lower interest rates should be good news
for the bond market, where prices will rise if yields fall. In addition, the
prospect of continued low inflation should make investors more comfortable
investing in bonds for the longer term as the potential for erosion of buying
power is reduced. The bond market could become particularly attractive if
President Clinton and the Republican Congress make substantial progress toward
further reducing the federal budget deficit.

Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
BY THE NUMBERS

CHANGES IN PORTFOLIO COMPOSITION

Portfolio of Investments
as of 12/31/96 . . .Compared to 12/31/95

Mortgage Obligations 53% U.S. Treasury Issues 47%
U.S. Treasury Issues 36% Mortgage Obligations 38%
Corporate Bonds 5% Corporate Bonds 5%
Asset-Backed Securities 3% Asset-Backed Securities 4%
Cash/Other 3% Cash/Short Term/Other 6%

<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ending December 31, 1996
<TABLE>
<CAPTION>
TOTAL RETURNS
----------------------
SINCE
ONE 6/25/93
YEAR (INCEPTION)*
----- --------
<S> <C> <C>
Landmark Intermediate Income Fund without Sales Charge ......................... 2.73% 4.74%
Lipper Intermediate Investment Grade Funds Average ............................. 3.12% 4.85%+
Lehman Aggregate Bond Index .................................................... 3.63% 5.92%+
Landmark Intermediate Income Fund with Maximum Sales Charge of 4.00% ........... (1.38)% 3.53%
* Average Annual Total Return
+ From 6/30/93

30-Day SEC Yield 5.61%
Income Dividends Per Share $0.538
</TABLE>

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

A $10,000 investment in the Fund made on inception date would have grown to
$11,298 with sales charge (as of 12/31/96). The graph shows how this compares to
our benchmark over the same period.

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

Landmark Landmark Lipper
Intermediate Intermediate Intermediate Lehman
Income Income Investment Aggregate
w/o sales chg. w/ sales chg. Grade Avg. Index
-------------- ------------- ------------ ---------
Jun-93 10,030 9,629 10,000 10,000
Jul-93 10,073 9,670 10,042 10,057
Aug-93 10,325 9,912 10,228 10,233
Sep-93 10,406 9,989 10,268 10,261
Oct-93 10,416 9,999 10,301 10,299
Nov-93 10,246 9,836 10,209 10,211
Dec-93 10,299 9,887 10,257 10,266
Jan-94 10,445 10,027 10,387 10,405
Feb-94 10,215 9,806 10,202 10,224
Mar-94 9,968 9,569 9,980 9,971
Apr-94 9,868 9,473 9,890 9,891
May-94 9,841 9,447 9,875 9,890
Jun-94 9,810 9,417 9,856 9,869
Jul-94 9,976 9,577 10,004 10,065
Aug-94 10,003 9,603 10,024 10,077
Sep-94 9,836 9,442 9,911 9,929
Oct-94 9,798 9,406 9,896 9,920
Nov-94 9,760 9,370 9,867 9,898
Dec-94 9,838 9,445 9,914 9,967
Jan-95 10,021 9,620 10,072 10,164
Feb-95 10,249 9,839 10,281 10,406
Mar-95 10,322 9,909 10,345 10,469
Apr-95 10,439 10,021 10,478 10,616
May-95 10,930 10,492 10,848 11,027
Jun-95 10,992 10,552 10,916 11,107
Jul-95 10,941 10,503 10,887 11,083
Aug-95 11,039 10,597 11,009 11,217
Sep-95 11,159 10,713 11,106 11,326
Oct-95 11,199 10,751 11,244 11,473
Nov-95 11,310 10,857 11,401 11,645
Dec-95 11,456 10,998 11,546 11,808
Jan-96 11,509 11,049 11,622 11,886
Feb-96 11,279 10,828 11,423 11,679
Mar-96 11,190 10,743 11,345 11,597
Apr-96 11,113 10,668 11,276 11,532
May-96 11,083 10,639 11,256 11,509
Jun-96 11,245 10,796 11,384 11,664
Jul-96 11,263 10,812 11,410 11,695
Aug-96 11,230 10,781 11,401 11,675
Sep-96 11,443 10,985 11,587 11,878
Oct-96 11,693 11,225 11,821 12,142
Nov-96 11,895 11,419 12,016 12,350
Dec-96 11,769 11,298 11,910 12,235

Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors.
<PAGE>
Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1996

PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FIXED INCOME--98.9%
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES--3.5%
Green Tree Financial Corp.
8.05% due 10/15/27 ..................... $1,500 $ 1,525,305
-----------
DOMESTIC CORPORATE SECURITIES--4.7%
Aetna Services, Inc.
6.97% DUE 8/15/36 ..................... 1,000 1,018,310
WMX Technologies Inc. ..................
7.10% due 8/01/26 ..................... 1,000 1,034,460
-----------
2,052,770
-----------
YANKEES--2.2%
Enersis 6.90% due 12/01/06 ............. 1,000 975,990
-----------
MORTGAGE OBLIGATIONS--52.6%
COLLATERALIZED MORTGAGE OBLIGATIONS--10.6%
Asset Securitization Corp. Series 96
7.21% due 10/31/26 .................... 1,000 1,017,187
Asset Securitization Corp. Series 95
7.38% due 8/13/29 ..................... 1,000 1,008,750
GMAC Commercial Mortgage
7.22% due 2/15/06 ..................... 500 505,781
Nomura Asset Securities Corp. ..........
8.15% due 4/04/27 ..................... 2,000 2,136,875
-----------
4,668,593
-----------
MORTGAGE BACKED SECURITIES--30.4%
Federal Home Loan Mortgage Corp. .......
7.50% due 1/15/20 ..................... 1,988 1,999,807
7.50% due 8/15/21 ..................... 3,934 3,958,471
7.50% due 5/15/23 ..................... 964 967,375
Federal Home Loan Mortgage Association
8.50% due 4/01/01 ..................... 31 32,369
Federal National Mortgage Association
7.00% due 1/01/99 ..................... 277 278,146
7.00% due 5/01/03 ..................... 2,666 2,676,980
7.50% due 10/01/25 .................... 1,626 1,626,987
7.50% due 4/01/26 ..................... 56 56,439
7.50% due 5/01/26 ..................... 251 250,630
8.00% due 6/01/02 ..................... 19 19,421
8.00% due 7/01/26 ..................... 1,471 1,498,566
-----------
13,365,191
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 11.6%
7.50% due 9/15/25 ...................... 2,373 2,380,003
7.50% due 5/15/26 ...................... 1,975 1,975,830
8.00% due 12/15/07 ..................... 85 87,724
8.25% due 7/15/05 ...................... 628 641,684
-----------
5,085,241
-----------
TOTAL MORTGAGE OBLIGATIONS 23,119,025
-----------
UNITED STATES GOVERNMENT &
OTHER GOVERNMENT OBLIGATIONS -- 35.9%
UNITED STATES TREASURY BONDS -- 4.7%
6.50% due 11/15/26 ..................... 2,100 2,060,961
-----------
UNITED STATES TREASURY NOTES -- 25.4%
5.875% due 11/15/99 .................... 1,500 1,494,135
6.625% due 6/30/01 ..................... 4,500 4,572,405
5.875% due 2/15/04 ..................... 4,200 4,089,078
6.50% due 10/15/06 ..................... 1,000 1,005,470
-----------
11,161,088
-----------
UNITED STATES & OTHER GOVERNMENT AGENCIES -- 5.8%
Inter-American Development Bank
6.95% due 8/01/26 ..................... 1,000 1,036,670
Tennessee Valley Authority
5.98% due 4/01/36 ..................... 1,500 1,523,460
-----------
2,560,130
-----------
TOTAL UNITED STATES GOVERNMENT
& OTHER GOVERNMENT OBLIGATIONS ............................. 15,782,179
-----------
TOTAL INVESTMENTS
(Identified Cost $43,083,954) ......... 98.9% 43,455,269
OTHER ASSETS LESS LIABILITIES .......... 1.1% 463,343
----- -----------
NET ASSETS ............................. 100.0% $43,918,612
===== ===========

See notes to financial statements
<PAGE>
Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A)(Identified Cost, $43,083,954) ............... $43,455,269
Cash ........................................................................ 182,124
Receivable for investments sold ............................................. 2,111,875
Interest receivable ......................................................... 396,780
-----------
Total assets ............................................................ 46,146,048
-----------

LIABILITIES:
Payable for investments purchased ........................................... 2,113,438
Payable for shares of beneficial interest repurchased ....................... 35,599
Payable to affiliates:
Investment advisory fee (Note 2) .......................................... $ 3,291
Shareholder Servicing Agents' fee (Note 3B) ............................... 10,039 18,330
Accrued expenses ------- 60,069
-----------
Total liabilities ....................................................... 2,227,436
-----------

NET ASSETS for 4,630,939 shares of beneficial interest outstanding .......... $43,918,612
===========

NET ASSETS CONSIST OF:
Paid-in capital ............................................................. $46,771,575
Accumulated net realized loss on investments ................................ (3,259,962)
Unrealized appreciation of investments ...................................... 371,315
Undistributed net investment income ......................................... 35,684
-----------
Total ................................................................... $43,918,612
===========

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ....... $9.48
=====

COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.00% sales charge ($9.48 / 0.96) $9.88
=====
</TABLE>

<TABLE>
<S> <C> <C>
INVESTMENT INCOME (Note 1B) $3,073,610

EXPENSES:
Investment advisory fees (Note 2) ....................................... $162,525
Shareholder servicing agents' fees (Note 3B) ............................ 116,090
Administrative fees (Note 3A) ........................................... 116,090
Distribution fees (Note 4) .............................................. 69,654
Custodian fees .......................................................... 69,159
Auditing services ....................................................... 28,300
Shareholder reports ..................................................... 23,959
Trustees fees ........................................................... 20,746
Legal services .......................................................... 13,825
Transfer agent fees ..................................................... 12,000
Miscellaneous ........................................................... 11,135
---------
Total expenses ................................................. 643,483
Less aggregate amount waived by Investment Adviser, Administrator
and Distributor (Notes 2, 3A, and 4) ................................... (221,639)
Less fees paid indirectly (Note 1I) ..................................... (3,909)
---------
Net expenses .................................................... 417,935
----------
Net investment income ........................................... 2,655,675
----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized loss from investment transactions .......................... (869,098)
Net realized gain on future transactions ................................ 38,159
Unrealized appreciation (depreciation) of investments:
Beginning of period ............................................... 1,014,631
End of period ..................................................... 371,315
---------
Net change in unrealized appreciation (depreciation) of investments ..... (643,316)
----------
Net realized and unrealized gain (loss) on investments .................. (1,474,255)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $1,181,420
==========
</TABLE>

See notes to financial statements
<PAGE>
Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .................................................... $ 2,655,675 $ 2,919,822
Net realized gain (loss) from investment transactions .................... (830,939) 2,369,867
Net change in unrealized appreciation (depreciation) of investments ...... (643,316) 2,122,816
----------- -----------
Net increase in net assets resulting from operations ............. 1,181,420 7,412,505
----------- -----------

DISTRIBUTIONS DECLARED TO SHAREHOLDERS FROM:
Net investment income .................................................... (2,638,684) (2,928,567)
----------- -----------
Decrease in net assets from distributions declared to shareholders (2,638,684) (2,928,567)
----------- -----------

TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 6):
Net proceeds from sale of shares ......................................... 1,467,543 902,835
Net asset value of shares issued to
shareholders from reinvestment of distributions ........................ 2,602,603 2,894,283
Cost of shares repurchased ............................................... (8,312,092) (6,244,911)
----------- -----------
Net decrease in net assets from transactions in shares
of beneficial interest ......................................... (4,241,946) (2,447,793)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS .................................... (5,699,210) 2,036,145

NET ASSETS:
Beginning of period ...................................................... 49,617,822 47,581,677
----------- -----------
End of period (including undistributed net investment income of
$35,684 and $18,693, respectively) ..................................... $43,918,612 $49,617,822
=========== ===========
</TABLE>

See notes to financial statements
<PAGE>
Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED JUNE 25, 1993
DECEMBER 31, (COMMENCEMENT OF
-------------------------------------- OPERATIONS) TO
1996 1995 1994 DECEMBER 31, 1993
----- ------ ------ --------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period ...................... $9.77 $ 8.91 $ 9.88 $10.00
----- ------ ------ ------
Income From Operations:
Net investment income ..................................... 0.54 0.57 0.521 0.261
Net realized and unrealized gain (loss) on investments .... (0.29) 0.86 (0.959) 0.037
----- ------ ------ ------
Total income from operations ...................... 0.25 1.43 (0.438) 0.298
----- ------ ------ ------
Less Distributions From:
Net investment income ................................. (0.54) (0.57) (0.516) (0.261)
In excess of net investment income .................... -- -- -- (0.006)
Net realized gain on investments ...................... -- -- (0.016) (0.151)
----- ------ ------ ------
Total distributions ................................... (0.54) (0.57) (0.532) (0.418)
----- ------ ------ ------
Net Asset Value, end of period ........................ $9.48 $ 9.77 $ 8.91 $ 9.88
===== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period (000's omitted) ................. $43,919 $49,618 $47,582 $61,183
Ratio of expenses to average net assets ................... 0.90% 0.90% 0.90% 0.90%*
Ratio of net investment income to average net assets ...... 5.72% 5.97% 5.52% 4.95%*
Portfolio turnover ........................................ 495% 396% 291% 103%
Total return .............................................. 2.73% 16.45% (4.48)% 2.99%+

Note: If Agents of the Fund had not voluntarily agreed to waive a portion of their fees for the periods indicated and the
expenses were not reduced for fees paid indirectly for the years after December 31, 1994, the net investment income per
share and the ratios would have been as follows:
Net investment income per share $0.50 $0.52 $0.475 $0.236
Ratios:
Expenses to average net assets ............................ 1.39% 1.42% 1.39% 1.38%*
Net investment income to average net assets ............... 5.23% 5.45% 5.03% 4.47%*
*Annualized
+Not annualized
</TABLE>

See notes to financial statements
<PAGE>
Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

(1) SIGNIFICANT ACCOUNTING POLICIES
Landmark Intermediate Income Fund (the "Fund") is a separate diversified series
of Landmark Fixed Income Funds (the "Trust") which is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The
Investment Adviser of the Fund is Citibank, N.A. ("Citibank"). The Landmark
Funds Broker-Dealer Services, Inc. ("LFBDS") acts as the Fund's Administrator
and Distributor. Citibank also serves as Sub-Administrator and makes Fund 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 these 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. Gain and loss
from principal paydowns are recorded as ordinary 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, 1996, the Fund, for federal income tax
purposes, had a capital loss carryover of $3,257,774, of which $2,182,200 will
expire on December 31, 2002 and $1,075,574 which will expire on December 31,
2004. 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. 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.

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. REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodial bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.

G. FUTURES CONTRACTS: -- The Fund may engage in futures transactions. The Fund
may use futures contracts in order to protect the Fund from fluctuations in
interest rates without actually buying or selling debt securities, or to manage
the effective maturity or duration of fixed income securities in the Fund's
Portfolio in an effort to reduce potential losses or enhance potential gains.
The underlying value of a futures contract is incorporated within unrealized
appreciation/depreciation in the Portfolio of Investments under the caption
"Futures Contracts". The Fund had no open Futures Contracts at December 31,
1996. Buying futures contracts tends to increase the Fund's exposure to the
underlying instrument. Selling futures contracts tends to either decrease the
Fund's exposure to the underlying instrument, or to hedge other fund
investments.

Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by the Fund each day, depending on the
daily fluctuation of the value of the contract. The daily changes in contract
value are recorded as unrealized gains or losses and the Fund recognizes a
realized gain or loss when the contract is closed. Futures contracts are valued
at the settlement price established by the board of trade or exchange on which
they are traded.

There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. Futures contracts involve, to varying
degrees, risk of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities.

H. 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.

I. FEES PAID INDIRECTLY -- The Fund's custodian bank calculates its fees 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.

(2) INVESTMENT ADVISORY FEES
The investment advisory fee paid to Citibank, as compensation for overall
investment management services, amounted to $162,525, of which $80,994 was
voluntarily waived for the year ended December 31, 1996. The investment advisory
fee is computed at the annual rate of 0.35% of average daily net assets.

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

A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative services fee payable to the Administrator, as
compensation for overall administrative services and general office facilities,
is computed at an annual rate of 0.25% of the Fund's average daily net assets.
The Administrative fees amounted to $116,090, of which $72,966 was voluntarily
waived for year ended December 31, 1996. Citibank acts as Sub-Administrator and
performs such duties and receives such compensation from LFBDS as from time to
time is agreed to by LFBDS and Citibank. The Fund pays no compensation directly
to any Trustee or any officer who is affiliated with the Administrator, all of
whom receive remuneration for their services to the Fund from the Administrator
or its affiliates. Certain of the officers and a Trustee of the Fund are
officers or directors of the Administrator or its affiliates.

B. SHAREHOLDER SERVICING AGENTS FEES -- The Fund has entered into shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which the
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 by investors for whom
such Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $116,090 for the year ended December 31,
1996.

(4) DISTRIBUTION FEES
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, under 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 for distribution of the Fund's shares. 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. The Distribution fees amounted to $69,654, of which $67,679 was
voluntarily waived for the year ended December 31, 1996.

(5) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities, other than short-term obligations, aggregated
$223,065,836 and $224,138,147, respectively, for the year ended December 31,
1996.

(6) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:

YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
------- -------
Shares sold ....................... 155,635 94,442
Shares issued to shareholders from
reinvestment of distributions ... 276,737 306,199
Shares repurchased ................ (881,410) (662,943)
------- -------
Net decrease ...................... (449,038) (262,302)
======= =======

(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1996, as computed on a federal income tax
basis, are as follows:

Aggregate cost ........................... $43,086,142
===========
Gross unrealized appreciation ............ $ 461,806
Gross unrealized depreciation ............ (92,679)
-----------
Net unrealized appreciation ............ $ 369,127
===========

(8) LINE OF CREDIT
The Fund, along with other Landmark Funds entered into an ongoing agreement with
a bank which allows the Funds collectively to borrow up to $40 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. The line
of credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended December 31,
1996, the commitment fee allocated to the Fund was $184. Since the line of
credit was established there have been no borrowings.
<PAGE>
Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT

TO THE TRUSTEES AND SHAREHOLDERS OF LANDMARK INTERMEDIATE INCOME FUND:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Landmark Intermediate Income Fund
(the "Fund"), a separate series of Landmark Fixed Income Funds (the "Trust") (a
Massachusetts business trust), as of December 31, 1996, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended December 31, 1996 and 1995 and the financial highlights for each
of the years in the three year period ended December 31, 1996 and for the period
from June 25, 1993 (Commencement of Operations) to December 31, 1993. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1996, by correspondence with the Custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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
Intermediate Income Fund at December 31, 1996, the results of its operations,
the changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
January 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS

FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
(212) 820-2383 or (800) 846-5300

FOR CITIGOLD CUSTOMERS:
Citigold
P.O. Box 5130, New York, NY 10150-5130
Call Your Citigold Executive or, in NY or CT, (800) 285-1701 or for all
other states, (800) 285-1707

FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Investment Specialist or (212) 559-5959

FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117

FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100

FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 820-2380 in New York City

[logo] LANDMARK
FUNDS

MONEY MARKET FUNDS:
Cash Reserves
Premium Liquid Reserves
Institutional Liquid Reserves

U.S. Treasury Reserves
Premium U.S. Treasury Reserves
Institutional U.S. Treasury Reserves

Tax Free Reserves
Institutional Tax Free Reserves

California Tax Free Reserves
Connecticut Tax Free Reserves
New York Tax Free Reserves

STOCK & BOND FUNDS:
U.S. Government Income Fund
Intermediate Income Funds
National Tax Free Income Fund
New York Tax Free Income Fund

Balanced Fund
Equity Fund
International Equity Fund
Small Cap Equity Fund
Emerging Asian Markets Equity Fund
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
H. B. Alvord
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
E. Kirby Warren
William S. Woods, Jr.

SECRETARY
Linda T. Gibson*

TREASURER
John R. Elder*

*Affiliated Person of Administrator and Distributor

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

INVESTMENT ADVISER
(OF 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.

FI/USG/A/96 Printed on Recycled Paper [recycle symbol]

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

LANDMARK
U.S. GOVERNMENT
INCOME FUND

ANNUAL
REPORT
December 31, 1996
<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS

Dear Shareholder:

U.S. government securities produced modestly positive total rates of return
in 1996 despite a sharp rise in interest rates early in the year. Bond yields
subsequently retraced much of their rise during the second half as it became
clearer that the economic environment would likely continue to be one of subdued
growth, unchanged monetary policy and low inflation, albeit with a moderately
upward bias. However, for the year as a whole, the largest interest rate
increases could be found in the short and intermediate sectors of the bond
market, which is the maturity range in which the Landmark U.S. Government Income
Fund invests.

In this environment, the Landmark U.S. Government Income Fund continued to
be managed with the goal of achieving its investment objectives: generating
current income and preserving the value of its shareholders' investment. Through
its investment in the Government Income Portfolio, the Fund seeks to provide a
higher level of current income than is generally available from money market
funds by investing in a high-quality investment portfolio consisting solely of
securities backed as to the timely payment of principal and interest by the full
faith and credit of the U.S. government.

This report reviews the Portfolio's investment activities and performance
during the year ended December 31, 1996, and provides a summary of Citibank's
perspective on and outlook for the U.S. government securities marketplace. On
behalf of the Board of Trustees of the Landmark Funds, I want to thank you for
your confidence and participation.

/s/ Philip W. Coolidge
Philip W. Coolidge
President
January 17, 1997

- --------------------------------------------------------------------------------
TABLE OF CONTENTS LANDMARK U.S. GOVERNMENT
1 Letter to Shareholders INCOME FUND
- -------------------------------------- -----------------------------------------
2 Market Environment 6 Statement of Assets and Liabilities
Fund Snapshot -----------------------------------------
- -------------------------------------- 7 Statement of Operations
3 Portfolio Manager -----------------------------------------
The Portfolio Manager Responds 8 Statement of Changes in Net Assets
- -------------------------------------- -----------------------------------------
4 Quotes from the Portfolio Manager 9 Financial Highlights
Strategy and Outlook -----------------------------------------
- -------------------------------------- 10 Notes to Financial Statements
5 Fund Data -----------------------------------------
Performance Highlights 12 Independent Auditors' Report
-----------------------------------------
GOVERNMENT INCOME PORTFOLIO
-----------------------------------------
13 Portfolio of Investments
-----------------------------------------
14 Statement of Assets and Liabilities
Statement of Operations
-----------------------------------------
15 Statement of Changes in Net Assets
Financial Highlights
-----------------------------------------
16 Notes to Financial Statements
-----------------------------------------
19 Independent Auditors' Report
<PAGE>
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT

The economic and market environments of 1996 defied the forecasts of most
investment strategists, including the Landmark Funds' investment adviser,
Citibank, N.A. At the start of the year, many investors expected U.S. economic
growth to slow substantially. Instead, the pace of economic growth accelerated
during the first half of the year, with second quarter Gross Domestic Product
reaching 4.7%. This raised concern that the rate of inflation might rise and
that the environment for bonds would become less attractive. The market's
inflation fears were not realized, however, as economic growth moderated during
the second half of the year.

Sustainable, non-inflationary economic growth proved to be a formula for
positive performance for many financial assets. In the bond market, weaker
economic growth during the second half of the year supported the Federal Reserve
Board's decision to hold monetary policy steady after their most recent rate cut
in January. The prospect of moderate economic growth produced lower yields for
U.S. government securities during the second half of the year. Government-
guaranteed mortgage-backed securities performed especially well during the year
as the risk of residential mortgage prepayments remained relatively low and
yields remained attractive relative to U.S. Treasury securities.

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

COMMENCEMENT OF OPERATIONS
September 8, 1986

NET ASSETS AS OF 12/31/96
$26.7 million

FUND OBJECTIVE
To generate current income and preserve the value of its shareholders'
investment.

DIVIDENDS
Paid monthly, if any

CAPITAL GAINS
Paid annually, if any

BENCHMARKS
o Lipper Short U.S. Government Funds Average
o Lehman 1-3 Year U.S. Government Index

INVESTMENT ADVISER,
GOVERNMENT INCOME PORTFOLIO
Citibank, N.A.
<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 MANAGER RESPONDS

The Landmark Funds' investment adviser, Citibank, N.A., manages Government
Income Portfolio using a conservative strategy. To reduce the potential for
capital losses during difficult market conditions, the securities in the
Portfolio may not exceed an average life of three years. Consequently, we were
unable to participate fully in the opportunities provided by longer maturity
fixed-income securities during the declining interest-rate environment of the
second half of 1996. Yet, by employing the average-duration and sector-rotation
strategies available to us, the Fund provided a competitive total rate of return
for the year as a whole.

The Portfolio contains two primary types of U.S. government securities:
U.S. Treasury securities and mortgage-backed securities issued by the Government
National Mortgage Association, a government-guaranteed Federal agency. At the
beginning of the 12 month period, the Portfolio was allocated 79% to U.S.
Treasury securities and 15% to GNMA mortgage-backed securities, reflecting our
positive outlook for mortgages in the prevailing economic environment. By the
end of the year, those proportions changed to 61% U.S. Treasury securities and
18% GNMA mortgage-backed securities as we increased our cash exposure due to our
concerns about the pace of macroeconomic activity in the opening months of 1997.
<PAGE>
- --------------------------------------------------------------------------------
QUOTES FROM THE PORTFOLIO MANAGER

"Bond prices rose during the second half of the year as investors realized that
economic growth would slow and inflation would not be a problem."

"As long as the economy continues to grow at a moderate rate, we expect no
changes in monetary policy from the Federal Reserve Board through the first half
of the year."

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

We are optimistic about the prospect for the U.S. bond market in 1997. The
economy appears to be on a steady course in which it should neither overheat to
inflationary levels nor deteriorate into a recession. Current indicators suggest
that the first part of the year will see an unchanged monetary policy, modestly
lower interest rates and low rates of inflation.

The prospect of lower interest rates should be good news for the bond
market, where prices will rise if yields fall. In addition, the prospect of
continued moderate inflation as we enter the seventh year of an economic
recovery should make investors more comfortable investing in bonds for the
longer term as the potential for erosion in buying power is reduced. The bond
market could become particularly attractive if President Clinton and the
Republican Congress make substantial progress toward further reducing the
federal budget deficit.
<PAGE>
- --------------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1996

<TABLE>
<CAPTION>
TOTAL RETURNS
-----------------------------------
ONE FIVE TEN
YEAR YEARS* YEARS*
------ ------ ------
<S> <C> <C> <C>
Landmark U.S. Government Income Fund
without Sales Charge ............................ 3.02% 4.80% 6.61%
Lipper Short U.S. Government Funds Average ........ 4.35% 4.72% 5.95%
Lehman 1-3 Year U.S. Government Index ............. 5.10% 5.56% 7.19%
Landmark U.S. Government Income Fund
with Maximum Sales Charge of 1.50% .............. 1.47% 4.48% 6.45%

*Average Annual Total Return.

30-DAY SEC YIELD 5.14%
Income Dividends Per Share $0.514
</TABLE>

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

A $10,000 investment in the Fund made on inception date would have grown to
$18,466 with sales charge (as of 12/31/96). The graph shows how this compares to
our benchmarks over the same period.

Landmark Landmark Lipper Lehman
U.S. Gov't. U.S. Gov't Short 1-3 Years
Income Income U.S. Gov't. U.S. Gov't.
w/o sales chg. w/ sales chg. Funds Avg. Index
-------------- ------------- ---------- ---------
Sep-86 9,660 9,515 10,000 10,000
Oct-86 9,682 9,537 10,110 10,088
Nov-86 9,847 9,700 10,218 10,148
Dec-86 9,881 9,733 10,251 10,171
Jan-87 9,982 9,832 10,348 10,242
Feb-87 10,053 9,902 10,409 10,287
Mar-87 9,985 9,835 10,399 10,309
Apr-87 9,792 9,646 10,234 10,237
May-87 9,788 9,641 10,238 10,252
Jun-87 9,909 9,761 10,352 10,366
Jul-87 9,904 9,755 10,380 10,422
Aug-87 9,866 9,718 10,375 10,438
Sep-87 9,655 9,511 10,290 10,399
Oct-87 9,965 9,816 10,519 10,611
Nov-87 10,025 9,874 10,582 10,680
Dec-87 10,151 9,999 10,661 10,752
Jan-88 10,479 10,322 10,887 10,913
Feb-88 10,619 10,459 10,993 11,006
Mar-88 10,523 10,365 10,981 11,029
Apr-88 10,495 10,337 10,984 11,042
May-88 10,455 10,298 10,965 11,036
Jun-88 10,633 10,473 11,088 11,146
Jul-88 10,592 10,433 11,090 11,152
Aug-88 10,574 10,415 11,107 11,179
Sep-88 10,744 10,583 11,250 11,309
Oct-88 10,869 10,706 11,369 11,423
Nov-88 10,780 10,618 11,322 11,395
Dec-88 10,785 10,624 11,341 11,420
Jan-89 10,922 10,758 11,441 11,510
Feb-89 10,818 10,656 11,435 11,511
Mar-89 10,856 10,693 11,480 11,560
Apr-89 11,044 10,878 11,635 11,748
May-89 11,305 11,136 11,810 11,914
Jun-89 11,595 11,421 12,025 12,136
Jul-89 11,818 11,641 12,196 12,315
Aug-89 11,596 11,422 12,109 12,242
Sep-89 11,628 11,453 12,168 12,314
Oct-89 11,955 11,776 12,365 12,505
Nov-89 12,061 11,880 12,468 12,618
Dec-89 12,080 11,899 12,517 12,667
Jan-90 11,867 11,689 12,498 12,680
Feb-90 11,880 11,702 12,555 12,747
Mar-90 11,864 11,686 12,593 12,786
Apr-90 11,671 11,496 12,607 12,816
May-90 12,059 11,878 12,795 13,013
Jun-90 12,265 12,081 12,926 13,150
Jul-90 12,441 12,254 13,077 13,309
Aug-90 12,260 12,077 13,098 13,357
Sep-90 12,357 12,172 13,195 13,462
Oct-90 12,523 12,336 13,330 13,611
Nov-90 12,807 12,615 13,477 13,743
Dec-90 13,034 12,839 13,628 13,904
Jan-91 13,183 12,985 13,752 14,035
Feb-91 13,258 13,059 13,830 14,125
Mar-91 13,309 13,110 13,906 14,220
Apr-91 13,442 13,240 14,034 14,356
May-91 13,510 13,307 14,114 14,442
Jun-91 13,454 13,252 14,144 14,496
Jul-91 13,659 13,454 14,281 14,621
Aug-91 13,982 13,772 14,482 14,820
Sep-91 14,324 14,109 14,650 14,977
Oct-91 14,459 14,242 14,799 15,139
Nov-91 14,535 14,317 14,940 15,295
Dec-91 14,833 14,610 15,191 15,527
Jan-92 14,733 14,512 15,101 15,506
Feb-92 14,802 14,580 15,062 15,553
Mar-92 14,777 14,555 14,975 15,548
Apr-92 14,863 14,640 15,098 15,690
May-92 15,058 14,832 15,257 15,835
Jun-92 15,215 14,987 15,416 15,994
Jul-92 15,410 15,179 15,601 16,179
Aug-92 15,512 15,279 15,729 16,310
Sep-92 15,649 15,414 15,858 16,462
Oct-92 15,502 15,270 15,734 16,368
Nov-92 15,483 15,251 15,709 16,344
Dec-92 15,657 15,422 15,860 16,497
Jan-93 15,866 15,628 16,060 16,669
Feb-93 16,022 15,781 16,213 16,802
Mar-93 16,078 15,837 16,265 16,854
Apr-93 16,177 15,934 16,356 16,956
May-93 16,125 15,883 16,336 16,915
Jun-93 16,303 16,059 16,488 17,041
Jul-93 16,295 16,051 16,533 17,078
Aug-93 16,534 16,286 16,695 17,220
Sep-93 16,600 16,351 16,742 17,275
Oct-93 16,637 16,387 16,770 17,313
Nov-93 16,555 16,307 16,721 17,316
Dec-93 16,609 16,359 16,781 17,385
Jan-94 16,709 16,458 16,895 17,494
Feb-94 16,524 16,276 16,755 17,388
Mar-94 16,330 16,085 16,582 17,300
Apr-94 16,208 15,965 16,464 17,234
May-94 16,240 15,997 16,434 17,257
Jun-94 16,238 15,995 16,432 17,300
Jul-94 16,408 16,162 16,565 17,456
Aug-94 16,441 16,194 16,603 17,513
Sep-94 16,353 16,108 16,545 17,474
Oct-94 16,369 16,123 16,555 17,514
Nov-94 16,280 16,036 16,489 17,441
Dec-94 16,324 16,079 16,525 17,475
Jan-95 16,569 16,320 16,730 17,712
Feb-95 16,797 16,545 16,969 17,953
Mar-95 16,884 16,631 17,057 18,055
Apr-95 17,060 16,804 17,204 18,216
May-95 17,452 17,190 17,543 18,527
Jun-95 17,540 17,277 17,631 18,627
Jul-95 17,520 17,258 17,652 18,701
Aug-95 17,646 17,381 17,781 18,812
Sep-95 17,735 17,469 17,882 18,904
Oct-95 17,879 17,611 18,041 19,061
Nov-95 18,061 17,790 18,214 19,223
Dec-95 18,198 17,925 18,365 19,369
Jan-96 18,327 18,052 18,497 19,532
Feb-96 18,175 17,902 18,412 19,457
Mar-96 18,098 17,827 18,390 19,442
Apr-96 18,059 17,788 18,394 19,461
May-96 18,056 17,786 18,416 19,505
Jun-96 18,169 17,896 18,539 19,647
Jul-96 18,228 17,955 18,600 19,723
Aug-96 18,268 17,994 18,650 19,796
Sep-96 18,424 18,148 18,810 19,976
Oct-96 18,639 18,359 19,008 20,202
Nov-96 18,777 18,495 19,156 20,352
Dec-96 18,747 18,466 19,150 20,356

Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors.
<PAGE>
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in Government Income Portfolio, at value (Note 1) .............. $26,852,889
Receivable for shares of beneficial interest sold ......................... 87,644
Receivable from the Administrator ......................................... 39,302
-----------
Total assets .......................................................... 26,979,835
-----------

LIABILITIES:
Payable for shares of beneficial interest repurchased ..................... 197,762
Payable to affiliates--Shareholder servicing agents' fees (Note 2B) ....... 6,127
Accrued expenses and other liabilities .................................... 31,566
-----------
Total liabilities ..................................................... 235,455
-----------

NET ASSETS for 2,799,549 shares of beneficial interest outstanding ........ $26,744,380
===========

NET ASSETS CONSIST OF:
Paid-in capital ........................................................... $29,571,338
Accumulated net realized loss ............................................. (2,516,454)
Unrealized depreciation ................................................... (332,045)
Undistributed net investment income ....................................... 21,541
-----------
Total ................................................................. $26,744,380
===========

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST ..... $9.55
=====

COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 1.50% sales charge ($9.55/0.985) $9.70
=====
</TABLE>

See notes to financial statements
<PAGE>
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996

<TABLE>
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Interest Income from Government Income Portfolio ............................ $1,811,956
Allocated Expenses from Government Income Portfolio ......................... (104,066)
----------
Net investment income from Government Income Portfolio .................. $1,707,890

EXPENSES:
Shareholder Servicing Agents' fees (Note 2B) ................................ 74,177
Administrative fees (Note 2A) ............................................... 74,177
Distribution fees (Note 3) .................................................. 44,506
Shareholder reports ......................................................... 22,502
Auditing fees ............................................................... 19,100
Legal fees .................................................................. 15,480
Trustees' fees .............................................................. 13,019
Transfer agent fees ......................................................... 12,000
Custodian fees .............................................................. 7,500
Miscellaneous ............................................................... 9,044
----------
Total expenses .......................................................... 291,505
Less aggregate amount waived by Administrator and Distributor (Notes 2A and 3) (118,683)
Expenses Assumed by the Administrator (Note 6) .......................... (39,302)
----------
Net expenses ............................................................ 133,520
----------
Net investment income ................................................... 1,574,370
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM GOVERNMENT INCOME PORTFOLIO:
Net realized gain (loss) .................................................... (451,894)
Net change in unrealized appreciation (depreciation) ........................ (298,599)
----------
Net realized and unrealized gain (loss) from Government Income Portfolio (750,493)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $ 823,877
==========
</TABLE>

See notes to financial statements
<PAGE>
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ............................................. $ 1,574,370 $ 2,428,120
Net realized gain (loss) .......................................... (451,894) 696,470
Net change in unrealized appreciation (depreciation) .............. (298,599) 2,013,487
----------- -----------
Net increase (decrease) in net assets resulting from operations . 823,877 5,138,077
----------- -----------

DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ............................................. (1,571,638) (2,440,326)
----------- -----------

TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares .................................. 1,803,128 3,008,033
Net asset value of shares issued to shareholders
from reinvestment of dividends .................................. 1,549,810 2,420,954
Cost of shares repurchased ........................................ (11,186,181) (25,734,586)
----------- -----------
Net decrease in net assets from transactions in shares of
beneficial interest ............................................. (7,833,243) (20,305,599)
----------- -----------
NET DECREASE IN NET ASSETS ........................................ (8,581,004) (17,607,848)

NET ASSETS:
Beginning of period ............................................... 35,325,384 52,933,232
----------- -----------
End of period (including undistributed net investment
income of $21,541 and $18,809, respectively) .................... $26,744,380 $35,325,384
=========== ===========
</TABLE>

See notes to financial statements
<PAGE>
Landmark U.S. Government Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, AUGUST 31,
------------------------------ 1993++ ------------------
1996 1995 1994++ (NOTE 1F) 1993++ 1992++
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period .... $ 9.78 $ 9.28 $ 9.91 $10.01 $ 9.85 $ 9.42
------ ------ ------ ------ ------ ------
Income From Operations:
Net investment income ................... 0.516 0.543 0.466 0.183 0.448 0.591
Net realized and unrealized gain (loss) . (0.232) 0.500 (0.635) (0.138) 0.183 0.413
------ ------ ------ ------ ------ ------
Total from operations .............. 0.284 1.043 (0.169) 0.045 0.631 1.004
------ ------ ------ ------ ------ ------
Less Distributions From:
Net investment income ................. (0.514) (0.543) (0.461) (0.145) (0.464) (0.574)
In excess of net investment income .... -- -- -- -- (0.007) --
------ ------ ------ ------ ------ ------
Total from distributions .......... (0.514) (0.543) (0.461) (0.145) (0.471) (0.574)
------ ------ ------ ------ ------ ------
Net Asset Value, end of period .......... $ 9.55 $ 9.78 $ 9.28 $ 9.91 $10.01 $ 9.85
====== ====== ====== ====== ====== ======

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) ........................ $26,744 $35,325 $52,933 $79,306 $82,114 $56,159
Ratio of expenses to average net assets . 0.80%(A) 0.80%(A) 0.80%(A) 0.80%+ 0.80% 0.51%
Ratio of net investment income to average
net assets ............................ 5.31% 5.38% 4.72% 4.34%+ 4.46% 6.03%
Portfolio turnover (B) .................. -- -- 22% 26% 111% 161%
Total return ............................ 3.02% 11.48% (1.72)% 0.45%** 6.59% 10.94%

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, for the year ended December 31, 1995 and 1996 had not voluntarily
waived a portion of their fees and assumed Fund expenses, the net investment income per share and the ratios
would have been as follows:
Net investment income per share ......... $0.460 $0.499 $0.421 $0.164 $0.400 $0.503
Ratios:
Expenses to average net assets .......... 1.38%(A) 1.23%(A) 1.26%(A) 1.27%+ 1.27% 1.41%
Net investment income to
average net assets ..................... 4.73% 4.95% 4.26% 3.88%+ 3.98% 5.13%

** Not annualized
+ Annualized
(A) Includes the Fund's share of Government Income Portfolio allocated expenses for the periods subsquent to
May, 1 1994.
(B) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are
included elsewhere in this report.
++ On May 1, 1994, the Fund began investing all its investable assets in Government Income Portfolio.
</TABLE>

See notes to financial statements

<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. The Fund invests 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. 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 (50.2% at December 31, 1996) in the net assets of the
Portfolio.

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

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosure in the financial statements. Actual
results could differ from those estimates.

The significant accounting policies consistently followed by the Fund are as
follows:

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

B. INVESTMENT INCOME -- The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio.

C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At December 31, 1996, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,438,711, of which $1,741,548 will
expire on December 31, 2002, $329,508 will expire on December 31, 2003 and
$367,655 will expire on December 31, 2004. 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.

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

Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended December
31, 1996, the fund reclassified $850,330 to accumulated net realized loss on
investments from paid-in capital.

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) 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 fees paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund under such Plan and the Basic Distribution Fee paid from the Fund
to the Distributor under the Distribution Plan may not exceed 0.65% of the
Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year.

A. ADMINISTRATIVE FEES -- Under the terms of an Administrative Services
Agreement, the administrative fees paid to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.25% of the Fund's average daily net assets. The
Administrative fees amounted to $74,177, all of which was voluntarily waived for
the year ended December 31, 1996. Citibank acts as Sub-Administrator and
performs such duties and receives such compensation from LFBDS as from time to
time is agreed to by LFBDS and Citibank. The Fund pays no compensation directly
to any Trustee or any officer who is affiliated with the Administrator, all of
whom receive remuneration for their services to the Fund from the Administrator
or its affiliates. Certain of the officers and a Trustee of the Fund are
officers or directors of the Administrator or its affiliates.

B. SHAREHOLDER SERVICING AGENTS' FEES -- The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents fees amounted to $74,177, for the year ended December 31, 1996.

(3) DISTRIBUTION FEES
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 Distribution fees amounted to $44,506, all of which was
voluntarily waived for the year ended December 31, 1996. 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.

(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
endedDecember 31, 1996 aggregated $1,765,467 and $11,402,089, respectively.

(5) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:

YEAR ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
Shares sold ...................... 187,460 311,521
Shares issued to shareholders
from reinvestment of dividends.. 161,737 251,882
Shares repurchased ............... (1,160,835) (2,655,041)
---------- ----------
Net decrease (811,638) (2,091,638)
========== ==========

(6) ASSUMPTION OF EXPENSES
LFBDS has voluntarily agreed to pay a portion of the expenses of the Fund for
the year ended December 31, 1996 which amounted to $39,302.
<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, 1996, the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 4, 1997
<PAGE>
Government Income Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1996

PRINCIPAL
AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--18.4%
- --------------------------------------------------------------------------------
6.50%, 2009 ................ $ 265 $ 263,355
6.50%, 2011 ................ 4,580 4,518,142
6.50%, 2019 ................ 1,430 1,401,830
7.00%, 2008 ................ 1,945 1,896,000
8.00%, 2006 ................ 222 229,359
8.00%, 2007 ................ 233 240,602
8.00%, 2017 ................ 555 574,262
8.00%, 2021 ................ 232 238,669
8.00%, 2022 ................ 189 194,494
9.50%, 2016 ................ 3 2,902
9.50%, 2017 ................ 60 64,687
9.50%, 2018 ................ 47 51,169
9.50%, 2019 ................ 65 70,036
9.50%, 2020 ................ 55 59,223
-----------
9,804,730
-----------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS--61.1%
- --------------------------------------------------------------------------------
United States Treasury Notes,
5.125% due 2/28/98 ........ 8,000 7,948,720
6.125% due 5/15/98 ........ 8,000 8,038,720
5.375% due 5/31/98 ........ 1,675 1,666,357
6.875% due 3/31/00 ........ 8,100 8,282,250
6.375% due 5/15/99 ........ 6,700 6,757,553
-----------
32,693,600
-----------

ISSUER VALUE
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--19.7%
- --------------------------------------------------------------------------------
Morgan Stanley Repurchase Agreement
5.90% due 1/02/97 proceeds at
maturity $15,247 (collateralized by
$2,358 U.S. Treasury Note 9.125%
due 5/15/18, $6,660 U.S. Treasury
Note 12.00% due 8/15/13 and $6,564
U.S. Treasury Note 10.625%
due 8/15/15) ...................... $ 15,247
United States Treasury Bill
due 04/03/97 ...................... 10,535,736
-----------
10,550,983
-----------

TOTAL INVESTMENTS
(Identified Cost $53,675,856) 99.2% 53,049,313
OTHER ASSETS
LESS LIABILITIES ............ 0.8 449,504
----- -----------
NET ASSETS ................... 100.0% $53,498,817
===== ===========

See notes to financial statements
<PAGE>
Government Income Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investments at value (Note 1A) (Identified Cost, $53,675,856) .............. $53,049,313
Cash ....................................................................... 28
Interest receivable ........................................................ 466,769
-----------
Total assets ........................................................... 53,516,110
-----------
LIABILITIES:
Payable to affiliates--Investment advisory fees (Note 2) ................... 17,293
-----------
NET ASSETS ................................................................. $53,498,817
===========
REPRESENTED BY:
Paid-in capital for beneficial interests ................................... $53,498,817
===========
</TABLE>

See notes to financial statements

Government Income Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996

<TABLE>
<S> <C> <C>
INTEREST INCOME (Note 1B): $3,448,841
EXPENSES:
Investment advisory fees (Note 2) .......................................... $ 198,024
Administrative fees (Note 3) ............................................... 28,289
Expense fees (Note 6) ...................................................... 1,406
---------
Total expenses ........................................................... 227,719
Less aggregate amount waived by the Investment Adviser and
Administrator (Note 2 and Note 3) ........................................ (29,693)
---------
Net expense ................................................................ 198,026
----------
Net investment income .................................................... 3,250,815
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions and futures contracts ....... (673,824)
Unrealized appreciation (depreciation) of investments--
Beginning of period ..................................................... 55,675
End of period ........................................................... (626,543)
---------
Net change in unrealized appreciation (depreciation) of investments ..... (682,218)
----------
Net realized and unrealized loss on investments ......................... (1,356,042)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... $1,894,773
==========
</TABLE>

See notes to financial statements
<PAGE>
Government Income Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ................................................. $ 3,250,815 $ 2,972,965
Net realized gain (loss) on investment transactions ................... (673,824) 883,687
Net change in unrealized appreciation (depreciation) of investments ... (682,218) 2,133,343
----------- -----------
Net increase (decrease) in net assets resulting from operations ... 1,894,773 5,989,995
----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from contributions ........................................... 26,210,981 18,686,471
Value of withdrawals .................................................. (27,752,230) (27,204,245)
----------- -----------
Net increase (decrease) in net assets from capital transactions ... (1,541,249) (8,517,774)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS: ................................ 353,524 (2,527,779)
NET ASSETS:
Beginning of period ................................................... 53,145,293 55,673,072
----------- -----------
End of period ......................................................... $53,498,817 $53,145,293
=========== ===========
</TABLE>

See notes to financial statements

Government Income Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1994
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
---------------------------- OPERATIONS) TO
1996 1995 DECEMBER 31, 1994
------- ------- -----------------
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) ............ $53,499 $53,145 $55,673
Ratio of expenses to average net assets .............. 0.35% 0.36% 0.43%*
Ratio of net investment income to average net assets.. 5.75% 5.80% 5.27%*
Portfolio turnover ................................... 100% 284% 40%

Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees during the periods indicated,
the ratios would have been as follows:

RATIOS:
Expenses to average net assets ....................... 0.40% 0.40% 0.44%*
Net investment income to average net assets .......... 5.70% 5.76% 5.26%*
* Annualized
</TABLE>

See notes to financial statements
<PAGE>
Government Income Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

(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.

The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts to and disclosure in the financial
statements. Actual results could differ from those estimates.

The significant accounting policies consistently followed by the Portfolio are
as follows:

A. INVESTMENT SECURITY VALUATIONS -- Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by pricing services approved by the Board of Trustees, which take into
account appropriate factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, and other
market data, without exclusive reliance on quoted prices or exchange or over-the
counter prices. Short-term obligations maturing in 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 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. REPURCHASE AGREEMENTS -- It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.

F. TBA PURCHASE COMMITMENTS -- The Portfolio enters into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, generally according to
the procedures described under Note 1A.

Although the Portfolio will generally enter into TBA purchase commitments with
the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.

G. FUTURES CONTRACTS -- The Portfolio may engage in futures transactions.The
Portfolio may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. Buying futures contracts tends to increase the Portfolio's
exposure to the underlying instrument.Selling futures contracts tends to either
decrease the Portfolio's exposure to the underlying instrument, or to hedge
other fund investments.

Upon entering into a futures contract, the Portfolio is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin". Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
depending on the daily fluctuation of the value of the contract.The daily
changes in contract value are recorded as unrealized gains or losses and the
Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued at the settlement price established by the board of
trade or exchange on which they are traded.

There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Futures contracts involve,
to varying degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities. No such instruments were
held at December 31, 1996.

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

(2) INVESTMENT ADVISORY FEES
The investment advisory fees paid to Citibank, as compensation for overall
investment management services, amounted to $198,024, of which $2,044 was
voluntarily waived for the year ended December 31, 1996. The investment advisory
fees are computed at the annual rate of 0.35% of the Portfolio's average daily
net assets.

(3) ADMINISTRATIVE FEES
Under the terms of an Administrative Services Agreement, the administrative fees
paid to the Administrator, as compensation for overall administrative services
and general office facilities, are computed at the annual rate of 0.05% of the
Portfolio's average daily net assets. The Administrative fees amounted to
$28,289 of which $27,649 was voluntarily waived, for the year ended December 31,
1996. 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 $52,134,308 and $48,960,407, respectively, for the year
ended December 31, 1996.

(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1996, as computed on a federal income tax
basis, are as follows:

Aggregate cost ..................... $53,675,856
===========
Gross unrealized appreciation ...... $ 49,941
Gross unrealized depreciation ...... (676,484)
-----------
Net unrealized depreciation ........ $ (626,543)
===========

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

The Portfolio has agreed to pay SFG an expense fee on an annual basis, accrued
daily and paid monthly; provided, however, that such fee shall not exceed the
amount such that immediately after any such payment the aggregate ordinary
expenses of the Portfolio less expenses waived by the Administrator would, on an
annual basis, exceed an agreed upon rate, currently 0.35% of the Portfolio's
average daily net assets.

(7) LINE OF CREDIT
The Portfolio, along with other Landmark Funds entered into an ongoing agreement
with a bank which allows the Funds collectively to borrow up to $40 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. The line
of credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended December 31, 1996
the commitment fee allocated to the Portfolio was $232. Since the line of credit
was established, there have been no borrowings.
<PAGE>
Government Income Portfolio
- --------------------------------------------------------------------------------
INDEPENDENT
AUDITORS' REPORT

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, 1996 and
the related statements of operations and of changes in net assets and the
financial highlights for the periods indicated. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for our opinion.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1996, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.

PRICE WATERHOUSE
Chartered Accountants

Toronto, Ontario
February 4, 1997

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

FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
(212) 820-2383 or (800) 846-5300

FOR CITIGOLD CUSTOMERS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or, in NY or CT, (800) 285-1701, or for
all other States, (800) 285-1707

FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Registered Representative or (212) 559-5959

FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117

FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100

FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 820-2380 in New York City