LANDMARK FIXED INCOME FUNDS /MA/, N-30B-2, 1998-02-19

LANDMARK FIXED INCOME FUNDS /MA/
N-30B-2, 1998-02-19

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<PAGE>

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

SECRETARY
Linda T. Gibson*

TREASURER
John R. Elder*

*Affiliated Person of Administrator and Distributor

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

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

ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679

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

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

LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110

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

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/97 Printed on Recycled Paper

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

LANDMARK
INTERMEDIATE
INCOME FUND

ANNUAL
REPORT
December 31, 1997
<PAGE>

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

Dear Shareholder:

The positive economic influences that drove bond prices higher during the
first half of 1997 also produced market rallies during the second half of the
year. The U.S. economy continued to enjoy the effects of low rates of inflation,
even when the pace of economic activity increased to levels that historically
have triggered inflationary pressures. When fixed-income investors became
convinced that the U.S. economy was more resilient than they originally believed
and that low inflation would persist, long-term interest rates fell to their
lowest levels in years.

In this environment, the Fund's investment adviser, Citibank, N.A.,
continued to manage the Landmark Intermediate Income Fund with the goal of
achieving its investment objectives: to generate a high level of current income
and preserve the value of its shareholders' investments. The Fund invests in a
broad range of fixed income securities, including preferred stock and debt
securities issued by U.S. and non U.S. companies and debt securities of the U.S.
Government and governments of other countries, including developing countries.

This report reviews the Fund's investment activities and performance during
the 12-month period ended December 31, 1997, and provides a summary of
Citibank's perspective on and outlook for the U.S. bond market.

The Fund held a Special Meeting of Shareholders in October to consider
certain proposals seeking increased flexibility to invest in more than one
investment company, consistent with the Fund's investment objectives.
Shareholders were also asked to vote on certain changes to the Fund's investment
restrictions and governing documents, as well as certain other matters, to
permit these changes. Also considered were proposals to approve a new Management
Agreement with Citibank, N.A., a Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, to authorize certain technical amendments to the
Fund's investment restrictions and to approve selection of the Fund's
accountants. All proposals were approved by shareholders. Additionally,
effective March 2, 1998, the name of the Fund will be changed to CitiFundsSM
Intermediate Income Portfolio. You will receive an updated prospectus reflecting
the Fund's new name shortly.

On behalf of the Board of Trustees of the Funds, I want to thank you for
your confidence and participation.

/s/ Philip W. Coolidge

Philip W. Coolidge
President
January 20, 1998

Remember that Mutual Fund Shares:

o Are not bank deposits or FDIC insured
o Are not obligations of or guaranteed by Citibank or any of its affiliates
o Are subject to investment risks, including possible loss of the principal
amount invested.

TABLE OF CONTENTS

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

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

1997 proved to be another remarkable year for the U.S. economy, which
continued to demonstrate its staying power. Despite periods of relatively strong
economic growth, the rate of inflation has remained at historically low levels.
Even high rates of employment, traditionally a harbinger of inflationary
pressures, failed to create an acceleration of inflation. Another important
indicator of inflationary pressures, commodity prices, actually declined over
the year.

In this environment, the Federal Reserve raised key short-term interest
rates only once, with a modest one-quarter point increase in March. This shift
in monetary policy was intended to slow the rate of economic growth and
forestall inflationary pressures before they could take root. When it
subsequently became clear that inflation would probably remain low, the Federal
Reserve elected to maintain monetary policy at prevailing levels, and they
neither raised nor lowered short-term interest rates for the remainder of the
year.

Because these positive economic developments occurred together with sharp
reductions in the federal budget deficit, fixed-income investors became more
comfortable in the second half of the year that inflation would remain low.
Furthermore, "flight to quality" triggered by the events in Asia near year-end
also provided support to the U.S. bond market. As a result, the volatility that
characterized the bond markets during the first half of 1997 subsided, and
long-term interest rates declined relatively steadily.

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

COMMENCEMENT OF OPERATIONS
June 25, 1993

NET ASSETS AS OF 12/31/97
$36.7 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 semi-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 it became clear that inflation would remain low despite periods of
strong economic growth, the Fund's investment adviser, Citibank, N.A., extended
the portfolio's average duration, a measure of sensitivity to changes in
interest rates. By extending the Fund's average duration while interest rates
declined, we were able to maintain higher yields for a longer period as well as
take advantage of the effects of rising prices for longer securities. The
strategy became especially important as the differences in yields between
long-term bonds and short-term securities narrowed. To take maximum advantage of
the greater interest rate declines for longer term bonds, we tended to focus on
investments in longer-dated securities.

For most of the year, we were rewarded for investing in those sectors of
the bond market that provided the highest yields. For example, at mid-year,
approximately half of the Fund was invested in mortgage-backed securities issued
by agencies of the U.S. Government. These bonds, which are backed by pools of
home mortgages, provided incrementally higher yields than comparable U.S.
Treasury securities.

Toward the end of the year, however, investor sentiment shifted, and U.S.
Treasury securities began to outperform other types of bonds. As interest rates
declined generally, many fixed-income investors worried that faster principal
prepayments on mortgage-backed securities would cause durations to shorten. We
increased the Fund's holdings of U.S. Treasuries accordingly. The change in
relative performance was partly a result of an economic crisis in Asia, which
caused many overseas investors to shift their assets to the most creditworthy
investments in the world: direct obligations of the United States Treasury. U.S.
Treasury securities also benefitted from progress in Washington D.C. toward a
balanced budget. Lower budget deficits required issuance of fewer bonds, thereby
reducing the supply available to investors.

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

"Despite relatively strong economic growth, inflation remained low, fueling
further rallies in bonds."

"The Fund benefitted from our sector rotation strategy, which favored
mortgage-backed securities for most of the year."

"As the relationships among different bond-market sectors change, we will
continue to focus on those securities that offer the best relative values."

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

We see no signs that positive economic conditions in the U.S. will end
soon. Although we expect the rate of economic growth to slow modestly, we see
little likelihood of a recession. As long as inflation remains low, as we
anticipate, favorable economic conditions should continue to prevail.

As a result, we continue to be optimistic about bonds. In our view, lower
interest rates and low inflation should continue to support bond prices. Yet, we
believe that certain areas of the bond market will perform better than others in
1998. Currently, we favor U.S. Treasury bonds and notes, which should continue
to benefit from strong demand and lower supply. We are concerned, however, about
the near-term prospects of mortgage-backed securities. Lower interest rates
could increase prepayment activity above expected levels, which would return
principal early to mortgage-backed bondholders.

Our strategy looking forward is to participate in those sectors of the bond
market that we believe are most likely to provide the best relative values. In
today's highly volatile global marketplace, however, it is important to note
that the Fund does not currently invest in debt issued by governments or
corporations in emerging markets. Our focus is on investment grade bonds from
U.S. issuers as well as U.S. dollar-denominated bonds from foreign issuers we
consider creditworthy. This high quality, flexible strategy is designed to meet
the needs of shareholders in the months ahead.

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

CHANGES IN PORTFOLIO COMPOSITION

Portfolio of Investments
as of 12/31/97 . . .Compared to 12/31/96

CASH/SHORT TERM/OTHER 1% CASH/SHORT TERM/OTHER 3%
ASSET-BACKED SECURITIES 7% ASSET-BACKED SECURITIES 3%
MORTGAGE OBLIGATIONS 34% MORTGAGE OBLIGATIONS 53%
CORPORATE BONDS 12% CORPORATE BONDS 5%
U.S. TREASURY ISSUES 46% U.S. TREASURY ISSUES 36%
<PAGE>

FUND DATA All Periods Ending December 31, 1997
Total Returns
--------------------
Since
One 6/25/93
Year (Inception)*
----- ---------

Landmark Intermediate Income Fund without Sales Charge 8.87% 5.64%
Lipper Intermediate Investment Grade Funds Average 8.57% 5.39%+
Lehman Aggregate Bond Index 9.65% 6.74%+
Landmark Intermediate Income Fund with Maximum
Sales Charge of 4.00% 4.51% 4.69%

*Average Annual Total Return
+From 6/30/93

30-Day SEC Yield 5.24%
Income Dividends Per Share $0.574

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

A $10,000 investment in the Fund made on inception date would have grown to
$12,300 with sales charge (as of 12/31/97). The graph shows how this compares to
our benchmark over the same period.

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

Landmark Landmark
Intermediate Intermediate
Income Income Lipper Lehman
Fund - Fund - Intermediate Aggregate
Without With Investment Bond
Sales Sales Grade Funds Index
Charge Charge Average (unmanaged)
- -------------------------------------------------------------------------------
6/30/93 10,030 9,629 10,000 10,000
7/31/93 10,073 9,670 10,042 10,057
8/31/93 10,325 9,912 10,228 10,233
9/30/93 10,406 9,989 10,268 10,261
10/31/93 10,416 9,999 10,301 10,299
11/30/93 10,246 9,836 10,209 10,211
12/31/93 10,299 9,887 10,257 10,266
1/31/94 10,445 10,027 10,387 10,405
2/28/94 10,215 9,806 10,202 10,224
3/31/94 9,968 9,569 9,980 9,971
4/30/94 9,868 9,473 9,890 9,891
5/31/94 9,841 9,447 9,875 9,890
6/30/94 9,810 9,417 9,856 9,869
7/31/94 9,976 9,577 10,004 10,065
8/31/94 10,003 9,603 10,024 10,077
9/30/94 9,836 9,442 9,911 9,929
10/31/94 9,798 9,406 9,896 9,920
11/30/94 9,760 9,370 9,867 9,898
12/31/94 9,838 9,445 9,914 9,967
1/31/95 10,021 9,620 10,072 10,164
2/28/95 10,249 9,839 10,281 10,406
3/31/95 10,322 9,909 10,345 10,469
4/30/95 10,439 10,021 10,478 10,616
5/31/95 10,930 10,492 10,848 11,027
6/30/95 10,992 10,552 10,916 11,107
7/31/95 10,941 10,503 10,887 11,083
8/31/95 11,039 10,597 11,009 11,217
9/30/95 11,159 10,713 11,106 11,326
10/31/95 11,199 10,751 11,244 11,473
11/30/95 11,310 10,857 11,401 11,645
12/31/95 11,456 10,998 11,546 11,808
1/31/96 11,509 11,049 11,622 11,886
2/29/96 11,279 10,828 11,423 11,679
3/31/96 11,190 10,743 11,345 11,597
4/30/96 11,113 10,668 11,276 11,532
5/31/96 11,083 10,639 11,256 11,509
6/30/96 11,245 10,796 11,384 11,664
7/31/96 11,263 10,812 11,410 11,695
8/31/96 11,230 10,781 11,401 11,675
9/30/96 11,443 10,985 11,587 11,878
10/31/96 11,693 11,225 11,821 12,142
11/30/96 11,895 11,419 12,016 12,350
12/31/96 11,769 11,298 11,910 12,235
1/31/97 11,824 11,351 11,805 12,273
2/28/97 11,853 11,379 11,829 12,303
3/31/97 11,708 11,239 11,705 12,167
4/30/97 11,889 11,414 11,857 12,349
5/31/97 11,983 11,504 11,959 12,467
6/30/97 12,115 11,631 12,092 12,615
7/31/97 12,417 11,920 12,403 12,956
8/31/97 12,296 11,805 12,294 12,846
9/30/97 12,472 11,973 12,465 13,034
10/31/97 12,688 12,180 12,522 13,223
11/30/97 12,682 12,175 12,557 13,284
12/31/97 12,813 12,300 12,670 13,418

Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors. Total Returns
reflect certain voluntary fee waivers which may be terminated. If the waivers
were not in place, total returns would be lower.
<PAGE>

Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1997

Principal
Amount
Issuer (000's omitted) Value
- --------------------------------------------------------------------------------

FIXED INCOME -- 99.2%
ASSET BACKED SECURITIES -- 7.1%
Aames Mortgage Trust
6.59% due 6/15/24 ............................. $ 375 $ 376,172
California Infrastructure
6.38% due 9/25/08 ............................. 270 272,742
Contimortgage Home Equity Loan
6.87% due 3/15/24 ............................. 375 379,160
Green Tree Financial Corp. ....................
8.05% due 10/15/27 ............................ 1,500 1,582,500
-----------
2,610,574
-----------
DOMESTIC CORPORATIONS -- 7.7%
Associates Corp. N. A.
5.96% due 5/15/37 ............................. 750 771,278
Atlantic City Electric Co. ....................
7.01% due 8/23/02 ............................. 560 578,312
Equitable Life Assurance
6.95% due 12/01/05 ............................ 510 521,011
International Business Machines
6.22% due 8/01/27 ............................. 600 605,004
Liberty Mutual Insurance Co. ..................
8.20% due 5/04/07 ............................. 310 343,558
-----------
2,819,163
-----------
MORTGAGE OBLIGATIONS -- 34.1%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 15.9%
Asset Securitization Corp. Series 95
7.384% due 8/13/29 ............................ 1,000 1,057,031
Asset Securitization Corp. Series 97
6.85% due 2/14/41 ............................. 225 230,449
GMAC Commercial Mortgage Series 96
7.22% due 2/15/06 ............................. 500 525,938
GTE North Inc. ................................
6.40% due 2/15/05 ............................. 130 130,200
Lehman Brothers First Union
6.65% due 12/18/07 ............................ 750 758,789
Merrill Lynch Mortgage Co. ....................
6.95% due 6/18/29 ............................. 486 496,064
Morgan Stanley Capital Investment Inc. ........
6.72% due 1/15/28 ............................. 350 351,039
Nomura Asset Securitization Corp. .............
8.15% due 4/04/27 ............................. 1,000 1,093,438
Residential Asset Securitization Trust
7.00% due 2/25/08 ............................. 450 451,861
Structured Asset Securities Corp. .............
6.79% due 10/15/34 ............................ 717 733,317
-----------
5,828,126
-----------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 6.4%
Federal Home Loan Mortgage Corp. ..............
6.00% due 3/15/09 ............................. 439 419,925
8.50% due 4/01/01 ............................. 21 21,165
Federal National Mortgage Association
7.50% due 10/01/25 ............................ 1,575 1,614,772
7.50% due 4/01/26 ............................. 53 53,839
7.50% due 5/01/26 ............................. 234 239,851
8.00% due 6/01/02 ............................. 13 13,430
-----------
2,362,982
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 11.8%
5.50% due 4/16/25 ............................. 600 549,750
7.25% due 10/16/22 ............................ 3,060 3,105,348
8.00% due 12/15/07 ............................ 61 62,504
8.25% due 7/15/05 ............................. 576 597,445
-----------
4,315,047
-----------
TOTAL MORTGAGE OBLIGATIONS ..................... 12,506,155
-----------
YANKEE BONDS -- 4.1%
Embotelladora Andina SA
7.00% due 10/01/07 ............................ 440 426,584
Inter-American Development Bank
6.95% due 8/01/26 ............................. 1,000 1,084,920
-----------
Total Yankee Bonds ............................ 1,511,504
-----------
UNITED STATES GOVERNMENT
AND OTHER GOVERNMENT
OBLIGATIONS -- 46.2%

UNITED STATES TREASURY BOND -- 3.4%
6.625% due 2/15/27 ............................ 1,150 1,248,463
-----------
UNITED STATES TREASURY NOTES-- 40.7%
5.75% due 11/30/02 ............................ 1,100 1,100,858
5.875% due 9/30/02 ............................ 130 130,711
5.875% due 2/15/04 ............................ 4,000 4,035,000
6.50% due 5/31/02 ............................. 4,688 4,824,983
6.50% due 10/15/06 ............................ 3,700 3,874,011
6.625% due 6/30/01 ............................ 955 981,415
-----------
14,946,978
-----------
UNITED STATES & OTHER GOVERNMENT AGENCIES -- 2.1%
Tennessee Valley Authority
5.88% due 4/01/36 ............................. 750 776,100

-----------
TOTAL UNITED STATES GOVERNMENT
& AGENCY OBLIGATIONS .......................... 16,971,541

-----------
TOTAL FIXED INCOME
(Identified Cost $35,394,827) ................. 36,418,937
-----------

SHORT-TERM OBLIGATIONS -- 0.1%
United States Treasury Bill
5.23% due 7/23/98 ............................. 20 19,410
-----------
TOTAL INVESTMENTS
(Identified Cost $35,414,237) ................. 99.3% 36,438,347

OTHER ASSETS, LESS LIABILITIES .................. 0.7 263,216
----- -----------
NET ASSETS ...................................... 100.0% $36,701,563
===== ===========
FUTURES CONTRACTS

Futures contracts which were open at December 31, 1997 are as follows:

Number of Expiration Unrealized
Description/Position Contracts Date Gain/(Loss)
- -------------------- --------- ---------- -----------
U.S. Treasury Long Bond 10 March 1998 ($2,812)
--------

See notes to financial statements
<PAGE>

Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1997

ASSETS:

Investments, at value (Note 1A)(Identified Cost,
$35,414,237) .......................................... $36,438,347
Cash .................................................... 30,699
Receivable for fund shares sold ......................... 7,307
Interest receivable ..................................... 372,812
-----------
Total assets ........................................... 36,849,165
-----------
LIABILITIES:
Payable for shares of beneficial interest repurchased ... 58,053
Variation margin payable ................................ 5,938
Payable to affiliates:
Investment advisory fee (Note 2) ....................... $ 722
Shareholder Servicing Agents' fee (Note 3B) ............ 7,819 8,541
------
Accrued expenses ........................................ 75,070
-----------
Total liabilities ...................................... 147,602
-----------
NET ASSETS for 3,775,843 shares of beneficial
interest outstanding .................................. $36,701,563
===========
NET ASSETS CONSIST OF:
Paid-in capital ......................................... $38,640,804
Accumulated net realized loss from investment
transactions and futures contracts .................... (2,987,494)
Unrealized appreciation of investments and futures
contracts ............................................. 1,021,298
Undistributed net investment income ..................... 26,955
-----------
Total .................................................. $36,701,563
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF
BENEFICIAL INTEREST ................................... $ 9.72
======
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 4.00%
sales charge ($9.72 / 0.96) ........................... $10.13
======

See notes to financial statements
<PAGE>

Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997

INVESTMENT INCOME (Note 1B) ................ $2,683,236

EXPENSES:
Investment advisory fees (Note 2) .......... $ 137,525
Shareholder servicing agents' fees (Note 3B) 98,232
Administrative fees (Note 3A) 98,232
Custodian fees ............................. 74,350
Distribution fees (Note 4) ................. 58,940
Shareholder reports ........................ 29,695
Auditing services .......................... 29,350
Legal services ............................. 17,147
Trustees fees .............................. 15,261
Transfer agent fees ........................ 12,000
Miscellaneous .............................. 6,613
----------
Total expenses 577,345

Less aggregate amounts waived by Investment
Adviser, Administrator and Distributor
(Notes 2, 3A, and 4) ..................... (216,066)
Less fees paid indirectly (Note 1I) ........ (7,637)
----------
Net expenses .............................. 353,642
----------
Net investment income ..................... 2,329,594
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 334,262
Net realized loss on futures transactions .. (61,794)
----------
272,468
Unrealized appreciation (depreciation) of
investments and futures contracts:
Beginning of period ....................... 371,315
End of period ............................. 1,021,298
----------
Net change in unrealized appreciation
(depreciation) of investments and future
contracts ................................ 649,983
----------
Net realized and unrealized gain on
investments and future contracts ......... 922,451
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................... $3,252,045
==========

See notes to financial statements
<PAGE>

Landmark Intermediate Income Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
---------------------------------
1997 1996
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ...................... $ 2,329,594 $ 2,655,675
Net realized gain (loss) from investments
and futures transactions ................. 272,468 (830,939)
Net change in unrealized appreciation
(depreciation) of investments and
future contracts ......................... 649,983 (643,316)
----------- -----------
Net increase in net assets resulting
from operations .......................... 3,252,045 1,181,420
----------- -----------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS FROM:
Net investment income ...................... (2,338,323) (2,638,684)
----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (Note 6):
Net proceeds from sale of shares ........... 595,327 1,467,543
Net asset value of shares issued to
shareholders from reinvestment of
distributions ............................ 2,335,328 2,602,603
Cost of shares repurchased ................. (11,061,426) (8,312,092)
----------- -----------
Net decrease in net assets from
transactions in shares of beneficial
interest ................................. (8,130,771) (4,241,946)
----------- -----------
NET DECREASE IN NET ASSETS ................. (7,217,049) (5,699,210)

NET ASSETS:
Beginning of period ........................ 43,918,612 49,617,822
----------- -----------
End of period (including undistributed
net investment income of $26,955 and
$35,684, respectively) ................... $36,701,563 $43,918,612
=========== ===========

See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>

Landmark Intermediate Income Fund
- ----------------------------------------------------------------------------------------------------------------------------
Financial Highlights

For the Period
Year Ended June 25, 1993
December 31, (Commencement of
------------------------------------------ Operations) to
1997 1996 1995 1994 December 31, 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ................. $ 9.48 $ 9.77 $ 8.91 $ 9.88 $10.00
------ ------ ------ ------ ------
Income From Operations:
Net investment income ................................ 0.575 0.54 0.57 0.521 0.261
Net realized and unrealized gain (loss) on investments 0.239 (0.29) 0.86 (0.959) 0.037
------ ------ ------ ------ ------
Total income from operations ........................ 0.814 0.25 1.43 (0.438) 0.298
------ ------ ------ ------ ------
Less Distributions From:
Net investment income ............................... (0.574) (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 ................................. (0.574) (0.54) (0.57) (0.532) (0.418)
------ ------ ------ ------ ------
Net Asset Value, end of period ...................... $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period (000's omitted) ............ $36,702 $43,919 $49,618 $47,582 $61,183
Ratio of expenses to average net assets(A) ........... 0.92% 0.90% 0.90% 0.90% 0.90%*
Ratio of expenses to average
net assets after fees paid indirectly(A) ............ 0.90% 0.90% 0.90% 0.90% 0.90%*
Ratio of net investment income to average net assets . 5.92% 5.72% 5.97% 5.52% 4.95%*
Portfolio turnover ................................... 146% 495% 396% 291% 103%
Total return ......................................... 8.87% 2.73% 16.45% (4.48)% 2.99%+

Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods
indicated and the expenses were not reduced for fees paid indirectly for the years ended after December 31, 1994,
the net investment income per share and the ratios would have been as follows:

Net investment income per share ...................... $0.522 $0.50 $0.52 $0.475 $0.236
Ratios: Expenses to average net assets ............... 1.47% 1.39% 1.42% 1.39% 1.38%*
Net investment income to average net assets .......... 5.37% 5.23% 5.45% 5.03% 4.47%*

* Annualized
+ Not annualized
(A) The expense ratios for the year ended December 31, 1995 and the periods thereafter have been adjusted to reflect a
change in reporting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the
effect of any expense offset arrangements with its service providers. The expense ratios for each of the periods
ended on or before December 31, 1995 have not been adjusted to reflect this change.

See notes to financial statements
</TABLE>
<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"). CFBDS, Inc.
(CFBDS) (formerly Landmark Funds Broker-Dealer Services, Inc.) acts as the
Fund's Administrator and Distributor. Citibank also serves as Sub-Administrator
and makes 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, 1997, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,977,002 of which $1,901,428 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.
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 $137,525, of which $82,010 was
voluntarily waived for the year ended December 31, 1997. 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 $98,232, of which $75,116 was voluntarily
waived for the year ended December 31, 1997. Citibank acts as Sub-Administrator
and performs such duties and receives such compensation from CFBDS as from time
to time is agreed to by CFBDS and Citibank. The Fund pays no compensation
directly to any Trustee or any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Fund from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Fund are officers 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 $98,232 for the year ended December 31, 1997.

(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 compensates the
Distributor 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 $58,940, all of which was voluntarily
waived for the year ended December 31, 1997.

(5) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities, other than short-term obligations, aggregated
$58,386,399 and $62,370,677, respectively.

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

YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- --------
Shares sold ...................................... 62,642 155,635
Shares issued to shareholders from
reinvestment of distributions ................... 244,817 276,737
Shares repurchased ............................... (1,162,555) (881,410)
---------- --------
Net decrease ..................................... (855,096) (449,038)
========== ========

(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:

Aggregate cost $35,427,543
===========
Gross unrealized appreciation $ 1,028,045
Gross unrealized depreciation (17,241)
-----------
Net unrealized appreciation $ 1,010,804
===========
(8) LINE OF CREDIT
The Fund, along with other Landmark Funds entered into an ongoing agreement with
a bank which allows the Funds collectively to borrow up to $60 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. The line
of credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended December 31,
1997, the commitment fee allocated to the Fund was $165. Since the line of
credit was established there have been no borrowings.

(9) SUBSEQUENT EVENT
At a Special Meeting on October 24, 1997, the Shareholders of the Fund approved
certain proposals to allow the assets of the Fund to be invested in one or more
investment companies. Additionally, the shareholders approved a Management
Agreement with Citibank, to provide administrative services, and a new Rule
12b-1 Service Plan. These new agreements simplify and terminate the Fund's
existing Administration, Distribution and Service Plan Agreements. Effective
January 1, 1998 the Management fees and Service Plan fees may not exceed, on an
annual basis, an amount equal to 0.70% and 0.25%, respectively, of the average
daily net assets of the Fund. Effective March 2, 1998, the Fund will change its
name from Landmark Intermediate Income Fund to CitiFundsSM Intermediate Income
Portfolio and the Trust will change its name to CitiFundsSM Fixed Income Trust.
<PAGE>

- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S 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, 1997, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended December 31, 1997 and 1996, and the financial highlights for
each of the years in the four-year period ended December 31, 1997 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, 1997, by correspondence with the Custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Landmark
Intermediate Income Fund at December 31, 1997, the results of its operations,
the changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 30, 1998
<PAGE>

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

SECRETARY
Linda T. Gibson*

TREASURER
John R. Elder*

*Affiliated Person of Administrator and Distributor

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

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

ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679

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

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

LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110

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

SHAREHOLDER SERVICING AGENTS
(See Inside Cover)

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

FI/USG/A/97 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, 1997
<PAGE>

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

Dear Shareholder:

In this environment, the Fund's investment adviser, Citibank, N.A.,
continued to manage the Landmark U.S. Government Income Fund with the goal of
achieving its investment objectives: to generate current income and preserve the
value of its shareholders' investment. Through its investment in Government
Income Portfolio, the Fund invests in debt securities backed by the full faith
and credit of the U.S. Government with a dollar weighted average maturity that
is generally three years or less.

This report reviews the Portfolio's investment activities and performance
during the 12-month period ended December 31, 1997, and provides a summary of
Citibank's perspective on and outlook for the U.S. government securities market.

Please note that effective March 2, 1998, the name of the Fund will be
changed to CitiFundsSM Short-Term U.S. Government Income Portfolio. You will
receive an updated prospectus reflecting the Fund's new name shortly.

On behalf of the Board of Trustees of the Fund, I want to thank you for
your confidence and participation.

/s/ Philip W. Coolidge

Philip W. Coolidge
President
January 20, 1998

TABLE OF CONTENTS

LANDMARK U.S. GOVERNMENT INCOME FUND
6 Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
7 Statement of Operations
- -------------------------------------------------------------------------------
8 Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
9 Financial Highlights
- -------------------------------------------------------------------------------
10 Notes to Financial Statements
- -------------------------------------------------------------------------------
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

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

<PAGE>

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

In this environment, the Federal Reserve raised key short-term interest
rates only once, with a modest one-quarter point increase in March. This shift
in monetary policy was intended to slow the rate of economic growth and
forestall inflationary pressures before they could take root. When it
subsequently became clear that inflation would remain low, the Federal Reserve
elected to maintain monetary policy at prevailing levels, and they neither
raised nor lowered short-term interest rates for the remainder of the year.

Because these positive economic developments occurred together with sharp
reductions in the federal budget deficit, fixed-income investors became more
comfortable in the second half of the year that inflation would remain low.
Furthermore, the "flight to quality" triggered by the events in Asia near
year-end also provided support to the U.S. bond market. As a result, the
volatility that characterized the bond markets during the first half of 1997
subsided, and long-term interest rates declined relatively steadily.

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

COMMENCEMENT OF OPERATIONS
September 8, 1986

NET ASSETS AS OF 12/31/97
$20.2 million

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

DIVIDENDS
Paid monthly, if any

CAPITAL GAINS
Paid semi-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

DENISE GUETTA
Vice President, Citibank NA

Ms. Guetta has served as manager of the U.S. Government Income Portfolio
since April 1997. Ms. Guetta is a Senior Portfolio Manager responsible for
managing institutional liquidity and short-duration portfolios. Ms. Guetta has
over ten years investment experience. Prior to joining Citibank in 1996, she was
a portfolio manager at Fischer Francis Trees and Watts, Inc. managing leveraged
risk positions in the U.S. Treasury and Canadian Markets. She began her career
as an account executive at Drexel Burnham Lambert, Inc. managing fixed income
and equity portfolios.

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

When it became clear that inflation would remain low despite periods of
strong economic growth, the Portfolio's investment adviser, Citibank, N.A.,
extended the Portfolio's average duration, a measure of sensitivity to changes
in interest rates. By extending the Portfolio's average duration while interest
rates declined, we were able to maintain higher yields for a longer period as
well as take advantage of the effects of rising prices for longer term
securities.

For most of the year, we were rewarded for investing in mortgage-backed
securities guaranteed by agencies of the U.S. government. These bonds, which are
backed by pools of home mortgages, provided incrementally higher yields than
comparable U.S. Treasury securities.

Toward the end of the year, however, investor sentiment shifted, and U.S.
Treasury securities began to outperform other types of bonds. As interest rates
declined generally, many fixed-income investors worried that faster principal
prepayments on mortgage-backed securities would cause durations to shorten. The
change in relative performance was partly a result of an economic crisis in
Asia, which caused many overseas investors to shift their assets to the most
creditworthy investments in the world: direct obligations of the United States
Treasury. U.S. Treasury securities also benefitted from progress in Washington
D.C. toward a balanced budget. Lower budget deficits required issuance of fewer
bonds, thereby reducing the supply available to investors. The Portfolio
benefitted from this shift as all holdings are backed by the full faith and
credit of the U.S.Government.

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

"Despite relatively strong economic growth, inflation remained low, fueling
further rallies in bonds."

"As the relationships among different sectors of the U.S. government securities
market change, we will continue to focus on those bonds that we believe offer
the best relative values."

"When it became clear that inflation would remain benign, we extended the
portfolio's average duration to lock in yields for as long as possible."

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

As a result, we continue to be optimistic regarding U.S. government
securities. In our view, lower interest rates and low inflation should continue
to support bond prices. Yet, we believe that certain areas of the bond market
will perform better than others in 1998. Currently, we see excellent
opportunities in U.S. Treasury bonds and notes, which should continue to benefit
from strong demand and dwindling supply. We are cautious, however, about the
near-term prospects of mortgage-backed securities. Lower interest rates could
increase prepayment activity above expected levels, which would return principal
early to mortgage-backed bondholders.

Our strategy looking forward is to participate in those sectors of the U.S.
government securities market that we believe are most likely to provide the best
relative values. This focus on high-quality fixed-income securities is designed
to meet the safety and income needs of shareholders in the months ahead.

<PAGE>

- -------------------------------------------------------------------------------
FUND DATA All Periods Ended December 31, 1997

TOTAL RETURNS
------------------------
ONE FIVE TEN
YEAR YEARS* YEARS*
------ ------ ------
Landmark U.S. Government Income Fund
without Sales Charge 6.11% 4.91% 6.96%
Lipper Short U.S. Government Funds Average 5.82% 5.02% 6.58%
Lehman 1-3 Year U.S. Government Index 6.65% 5.64% 7.28%
Landmark U.S. Government Income Fund
with Maximum Sales Charge of 1.50% 4.52% 4.59% 6.80%

* Average Annual Total Return.

30-Day SEC Yield 5.03%
Income Dividends Per Share $0.508

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

A $10,000 investment in the Fund made ten years ago would have grown to $19,302
with sales charge (as of 12/31/97). The graph shows how this compares to our
benchmarks over the same period.

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

Landmark U.S. Landmark U.S.
Government Government Lipper Lehman
Income - Income - Short U.S. 1-3 Year U.S.
Without With Government Government
Sales Charge Sales Charge Funds Average Index (unmanaged)
- -------------------------------------------------------------------------------
12/31/87 10,000.00 9,850.00 10,000.00 10,000.00
01/31/88 10,322.66 10,167.82 10,211.99 10,149.41
02/29/88 10,460.31 10,303.40 10,311.42 10,236.51
03/31/88 10,366.06 10,210.57 10,300.16 10,257.81
04/30/88 10,338.04 10,182.97 10,302.97 10,269.58
05/31/88 10,298.75 10,144.27 10,285.15 10,263.86
06/30/88 10,474.22 10,317.11 10,400.53 10,366.86
07/31/88 10,434.37 10,277.86 10,402.40 10,371.63
08/31/88 10,416.35 10,260.11 10,418.35 10,397.06
09/30/88 10,584.13 10,425.37 10,552.48 10,517.85
10/31/88 10,706.67 10,546.07 10,664.10 10,624.34
11/30/88 10,618.90 10,459.62 10,620.02 10,597.96
12/31/88 10,624.60 10,465.23 10,637.84 10,621.17
01/31/89 10,759.05 10,597.66 10,731.64 10,705.41
02/28/89 10,657.09 10,497.24 10,726.01 10,706.04
03/31/89 10,693.76 10,533.35 10,768.22 10,751.50
04/30/89 10,879.10 10,715.92 10,913.61 10,926.65
05/31/89 11,136.71 10,969.66 11,077.76 11,081.14
06/30/89 11,422.34 11,251.01 11,279.43 11,287.45
07/31/89 11,641.66 11,467.03 11,439.83 11,453.39
08/31/89 11,422.83 11,251.49 11,358.22 11,386.32
09/30/89 11,454.43 11,282.62 11,413.56 11,452.76
10/31/89 11,777.11 11,600.45 11,598.35 11,630.77
11/30/89 11,881.44 11,703.22 11,694.96 11,735.99
12/31/89 11,900.28 11,721.78 11,740.92 11,781.13
01/31/90 11,690.06 11,514.71 11,723.10 11,793.52
02/28/90 11,703.17 11,527.62 11,776.57 11,855.83
03/31/90 11,687.25 11,511.94 11,812.21 11,891.43
04/30/90 11,497.18 11,324.72 11,825.34 11,919.72
05/31/90 11,878.66 11,700.48 12,001.69 12,102.82
06/30/90 12,082.43 11,901.20 12,124.57 12,229.97
07/31/90 12,255.44 12,071.61 12,266.20 12,378.10
08/31/90 12,077.58 11,896.42 12,285.90 12,422.60
09/30/90 12,173.17 11,990.58 12,376.89 12,520.19
10/31/90 12,336.57 12,151.52 12,503.52 12,658.79
11/30/90 12,616.28 12,427.04 12,641.40 12,781.49
12/31/90 12,840.02 12,647.42 12,783.04 12,931.85
01/31/91 12,985.94 12,791.15 12,899.35 13,053.92
02/28/91 13,059.85 12,863.95 12,972.52 13,137.51
03/31/91 13,110.89 12,914.22 13,043.80 13,225.89
04/30/91 13,241.39 13,042.76 13,163.87 13,352.41
05/31/91 13,308.57 13,108.94 13,238.91 13,432.20
06/30/91 13,253.18 13,054.38 13,267.05 13,482.12
07/31/91 13,455.35 13,253.52 13,395.55 13,598.14
08/31/91 13,773.55 13,566.95 13,584.09 13,783.79
09/30/91 14,110.39 13,898.73 13,741.68 13,930.02
10/31/91 14,243.13 14,029.48 13,881.44 14,080.70
11/30/91 14,318.64 14,103.86 14,013.69 14,225.34
12/31/91 14,611.60 14,392.42 14,249.13 14,441.18
01/31/92 14,512.99 14,295.30 14,164.71 14,421.78
02/29/92 14,580.81 14,362.10 14,128.13 14,465.18
03/31/92 14,556.69 14,338.33 14,046.52 14,460.45
04/30/92 14,641.44 14,421.82 14,161.90 14,592.43
05/31/92 14,833.35 14,610.85 14,311.04 14,727.44
06/30/92 14,987.88 14,763.06 14,460.18 14,875.62
07/31/92 15,179.89 14,952.20 14,633.71 15,047.27
08/31/92 15,280.55 15,051.35 14,753.78 15,169.10
09/30/92 15,415.58 15,184.34 14,874.78 15,311.19
10/31/92 15,270.82 15,041.76 14,758.47 15,223.59
11/30/92 15,252.07 15,023.29 14,735.02 15,201.26
12/31/92 15,423.52 15,192.17 14,876.65 15,343.06
01/31/93 15,628.87 15,394.44 15,064.25 15,503.53
02/28/93 15,782.68 15,545.94 15,207.77 15,626.91
03/31/93 15,838.37 15,600.79 15,256.54 15,674.93
04/30/93 15,935.70 15,696.66 15,341.90 15,770.40
05/31/93 15,884.46 15,646.19 15,323.14 15,732.00
06/30/93 16,060.00 15,819.10 15,465.72 15,849.46
07/31/93 16,052.21 15,811.43 15,507.93 15,883.63
08/31/93 16,287.43 16,043.12 15,659.88 16,015.83
09/30/93 16,352.57 16,107.28 15,703.97 16,066.84
10/31/93 16,388.47 16,142.65 15,730.23 16,102.64
11/30/93 16,308.32 16,063.69 15,684.27 16,105.21
12/31/93 16,360.79 16,115.37 15,740.55 16,169.36
01/31/94 16,459.89 16,212.99 15,847.48 16,270.14
02/28/94 16,277.64 16,033.47 15,716.16 16,171.55
03/31/94 16,086.45 15,845.15 15,553.89 16,089.68
04/30/94 15,966.16 15,726.66 15,443.20 16,028.35
05/31/94 15,997.96 15,757.99 15,415.06 16,050.10
06/30/94 15,996.07 15,756.13 15,413.19 16,090.37
07/31/94 16,163.39 15,920.94 15,537.94 16,235.10
08/31/94 16,195.79 15,952.86 15,573.59 16,288.40
09/30/94 16,108.96 15,867.33 15,519.18 16,251.61
10/31/94 16,124.55 15,882.68 15,528.56 16,288.84
11/30/94 16,036.99 15,796.44 15,466.65 16,221.03
12/31/94 16,080.16 15,838.96 15,500.42 16,252.61
01/31/95 16,321.52 16,076.70 15,692.71 16,473.73
02/28/95 16,546.42 16,298.22 15,916.89 16,697.84
03/31/95 16,632.03 16,382.55 15,999.44 16,791.93
04/30/95 16,805.58 16,553.50 16,137.32 16,941.97
05/31/95 17,191.87 16,933.99 16,455.30 17,231.23
06/30/95 17,278.46 17,019.29 16,537.85 17,324.37
07/31/95 17,259.00 17,000.11 16,557.55 17,393.02
08/31/95 17,382.60 17,121.86 16,678.55 17,496.65
09/30/95 17,470.39 17,208.34 16,773.29 17,582.16
10/31/95 17,612.60 17,348.41 16,922.43 17,727.76
11/30/95 17,791.61 17,524.74 17,084.70 17,879.06
12/31/95 17,926.53 17,657.63 17,226.34 18,014.16
01/31/96 18,053.23 17,782.43 17,350.15 18,166.43
02/29/96 17,903.94 17,635.38 17,270.42 18,096.18
03/31/96 17,828.26 17,560.84 17,249.79 18,082.52
04/30/96 17,789.23 17,522.39 17,253.54 18,100.00
05/31/96 17,787.14 17,520.33 17,274.18 18,140.69
06/30/96 17,897.87 17,629.40 17,389.55 18,272.61
07/31/96 17,956.25 17,686.91 17,446.77 18,343.88
08/31/96 17,995.54 17,725.61 17,493.67 18,411.75
09/30/96 18,149.30 17,877.06 17,643.75 18,579.29
10/31/96 18,360.80 18,085.39 17,829.47 18,789.24
11/30/96 18,496.70 18,219.25 17,968.30 18,928.28
12/31/96 18,467.76 18,190.75 17,962.67 18,932.07
01/31/97 18,566.55 18,288.06 18,047.09 19,022.94
02/28/97 18,607.09 18,327.98 18,093.99 19,068.60
03/31/97 18,550.36 18,272.10 18,061.16 19,053.34
04/30/97 18,709.36 18,428.72 18,193.42 19,209.58
05/31/97 18,829.54 18,547.10 18,300.35 19,344.05
06/30/97 18,950.07 18,665.82 18,396.96 19,477.52
07/31/97 19,170.66 18,883.10 18,588.31 19,689.82
08/31/97 19,172.74 18,885.15 18,595.82 19,709.51
09/30/97 19,294.82 19,005.40 18,724.32 19,859.31
10/31/97 19,458.14 19,166.27 18,855.64 20,006.27
11/30/97 19,480.34 19,188.14 18,896.91 20,056.28
12/31/97 19,596.01 19,302.07 18,989.78 20,190.66

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. Returns reflect
certain voluntary fee waivers. If the waivers were not in place, the Fund's
return would have been lower.

<PAGE>

Landmark U.S. Government Income Fund
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1997

ASSETS:
Investment in Government Income Portfolio, at value (Note 1A) $20,235,808
Receivable for shares of beneficial interest sold ........... 2,060
Receivable from the Administrator ........................... 80,396
-----------
Total assets ............................................... 20,318,264
-----------
LIABILITIES:
Payable for shares of beneficial interest repurchased ....... 41,723
Payable to affiliates--Shareholder Servicing Agents' fees (Note 2B) 4,312
Accrued expenses and other liabilities ...................... 34,968
-----------
Total liabilities .......................................... 81,003
-----------
NET ASSETS for 2,105,044 shares of beneficial interest outstanding $20,237,261
===========
NET ASSETS CONSIST OF:
Paid-in capital.............................................. $22,990,563
Accumulated net realized loss ............................... (2,623,296)
Unrealized depreciation ..................................... (137,729)
Undistributed net investment income ......................... 7,723
-----------
Total ...................................................... $20,237,261
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF BENEFICIA
INTEREST ................................................. $9.61
=====
COMPUTATION OF OFFERING PRICE:
Maximum Offering Price per share based on a 1.50% sales
charge ($9.61/0.985) ...................................... $9.76
=====
See notes to financial statements
<PAGE>

Landmark U.S. Government Income Fund
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997

INVESTMENT INCOME (Note 1B):

Interest Income from Government Income
Portfolio ........................ $1,397,507
Allocated Expenses from Government
Income Portfolio ................. (81,560)
----------
$1,315,947

EXPENSES:

Shareholder Servicing Agents' fees
(Note 2B) ........................ $ 58,254
Administrative fees (Note 2A) ....... 58,254
Distribution fees (Note 3) .......... 34,953
Legal fees .......................... 17,935
Shareholder reports ................. 17,039
Auditing fees ....................... 13,300
Transfer agent fees ................. 12,000
Trustees' fees ...................... 10,412
Custodian fees ...................... 9,500
Miscellaneous ....................... 7,511
----------
Total expenses ..................... 239,158

Less aggregate amount waived by
Administrator and Distributor
(Notes 2A and 3) .................. (93,207)

Less Expenses Assumed by the
Administrator (Note 6) .......... (41,094)
----------
Net expenses ........................ 104,857
----------
Net investment income ............... 1,211,090
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM GOVERNMENT INCOME PORTFOLIO:
Net realized loss ................... (48,060)
Net change in unrealized appreciation 194,316

----------
Net realized and unrealized gain from
Government Income Portfolio ...... 146,256
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ........................ $1,357,346
==========
See notes to financial statements
<PAGE>

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

YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ............... $ 1,211,090 $ 1,574,370
Net realized loss ................... (48,060) (451,894)
Net change in unrealized appreciation
(depreciation) ..................... 194,316 (298,599)
------------ ------------
Net increase in net assets resulting
from operations .................. 1,357,346 823,877
------------ ------------

DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ............... (1,224,908) (1,571,638)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (NOTE 5):
Net proceeds from sale of shares .... 919,430 1,803,128
Net asset value of shares issued
to shareholders from reinvestment
of dividends ...................... 1,216,313 1,549,810
Cost of shares repurchased .......... (8,775,300) (11,186,181)
------------ ------------
Net decrease in net assets from
transactions in shares of
beneficial interest ................ (6,639,557) (7,833,243)
------------ ------------
NET DECREASE IN NET ASSETS .......... (6,507,119) (8,581,004)
NET ASSETS:
Beginning of period ................. 26,744,380 35,325,384
------------ ------------
End of period (including
undistributed net investment
income of $7,723 and $21,541,
respectively) ..................... $ 20,237,261 $ 26,744,380
============ ============

See notes to financial statements
<PAGE>

Landmark U.S. Government Income Fund
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR
YEAR ENDED DECEMBER 31, DECEMBER 31, ENDED
--------------------------------------------- 1993++ AUGUST 31,
1997 1996 1995 1994++ (NOTE 1F) 1993++
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period .... $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01 $ 9.85
--------- -------- -------- -------- -------- --------
Income From Operations:
Net investment income ................... 0.504 0.516 0.543 0.466 0.183 0.448
Net realized and unrealized gain (loss) . 0.064 (0.232) 0.500 (0.635) (0.138) 0.183
--------- -------- -------- -------- -------- --------
Total from operations .................. 0.568 0.284 1.043 (0.169) 0.045 0.631
--------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income .................. (0.508) (0.514) (0.543) (0.461) (0.145) (0.464)
In excess of net investment income ..... -- -- -- -- -- (0.007)
--------- -------- -------- -------- -------- --------
Total from distributions ............... (0.508) (0.514) (0.543) (0.461) (0.145) (0.471)
--------- -------- -------- -------- -------- --------
Net Asset Value, end of period .......... $ 9.61 $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01
========= ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) ........................ $ 20,237 $ 26,744 $ 35,325 $ 52,933 $ 79,306 $ 82,114
Ratio of expenses to average net assets . 0.80%(A) 0.80%(A) 0.80%(A) 0.80%(A) 0.80%+ 0.80%
Ratio of net investment income to average
net assets ............................. 5.20% 5.31% 5.38% 4.72% 4.34%+ 4.46%
Portfolio turnover (B) .................. -- -- -- 22% 26% 111%
Total return ............................ 6.11% 3.02% 11.48% (1.72)% 0.45%* 6.59%

Note: If Agents of the Fund for the periods indicated and Agents of Government Income Portfolio for the periods after
May 1, 1994 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 ......... $ 0.442 $ 0.460 $ 0.499 $ 0.421 $ 0.164 $ 0.400
Ratios:
Expenses to average net assets .......... 1.43%(A) 1.38%(A) 1.23%(A) 1.26%(A) 1.27%+ 1.27%
Net investment income to
average net assets ..................... 4.57% 4.73% 4.95% 4.26% 3.88%+ 3.98

* Not annualized
+ Annualized
(A) Includes the Fund's share of Government Income Portfolio allocated expenses for the periods subsequent to May
1, 1994.
(B) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments
directly in securities. The portfolio turnover rate for the period since the Fund transferred all of its investable
assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report.
++ 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 a diversified 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. CFBDS, Inc. ("CFBDS") (formerly
Landmark Funds Broker-Dealer Services, Inc.) 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 (33.0% at December 31, 1997) in the net assets of the
Portfolio.

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

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and 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, 1997, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,618,985, of which $1,741,548 will
expire on December 31, 2002, $329,508 will expire on December 31, 2003, $367,655
will expire on December 31, 2004, and $180,274 will expire on December 31, 2005.
Such capital loss carryover will reduce the Fund's taxable income arising from
future net realized capital gain on investment transactions, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income or excise tax.

D. EXPENSES -- The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.

E. DISTRIBUTIONS -- Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended December
31, 1997, the fund reclassified $58,782 from accumulated net realized loss on
investments to 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 $58,254, all of which was voluntarily waived for
the year ended December 31, 1997. Citibank acts as Sub-Administrator and
performs such duties and receives such compensation from CFBDS as from time to
time is agreed to by CFBDS and Citibank. The Fund pays no compensation directly
to any Trustee or any officer who is affiliated with the Administrator, all of
whom receive remuneration for their services to the Fund from the Administrator
or its affiliates. Certain of the officers and a Trustee of the Fund are
officers 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 $58,254, for the year ended December 31, 1997.

(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 compensates the
Distributor at an annual rate not to exceed 0.15% of the Fund's average daily
net assets. The Distribution fees amounted to $34,953, all of which was
voluntarily waived for the year ended December 31, 1997. 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 Distributor has voluntarily agreed to waive this fee through
December 31, 1997.

(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended December 31, 1997, aggregated $898,925 and $8,978,209, 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:

<PAGE>

YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
Shares sold ......................... 95,978 187,460
Shares issued to shareholders
from reinvestment of dividends .... 127,315 161,737
Shares repurchased .................. (917,798) (1,160,835)
------------ ------------
Net decrease ........................ (694,505) (811,638)
============ ============

(6) ASSUMPTION OF EXPENSES
CFBDS has voluntarily agreed to pay a portion of the expenses of the Fund for
the year ended December 31, 1997, which amounted to $41,094.

(7) SUBSEQUENT EVENT
Effective March 2, 1998, the name of the Fund will be changed to CitiFundsSM
Short-Term U.S. Government Income Portfolio and the Trust will change its name
to CitiFundsSM Fixed Income Trust.

<PAGE>

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

TO THE TRUSTEES OF LANDMARK FIXED INCOME FUNDS (THE TRUST) AND THE SHAREHOLDERS
OF 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, 1997, the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
February 2, 1998

<PAGE>

Government Income Portfolio
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1997

PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--16.9%

6.50%, 2009 ......................... $ 230 $ 232,588
6.50%, 2011 ......................... 4,121 4,156,754
6.50%, 2019 ......................... 1191 1,193,154
7.00%, 2008 ......................... 1,618 1,630,608
7.25%, 2022 ......................... 874 887,242
8.00%, 2006 ......................... 168 172,888
8.00%, 2007 ......................... 198 204,106
8.00%, 2017 ......................... 464 487,785
8.00%, 2021 ......................... 213 222,547
8.00%, 2022 ......................... 146 152,403
8.495%, 2013 ........................ 777 777,940
9.50%, 2016 ......................... 2 1,916
9.50%, 2017 ......................... 51 55,181
9.50%, 2018 ......................... 41 44,496
9.50%, 2019 ......................... 56 61,280
9.50%, 2020 ......................... 47 51,394
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION ............. 10,332,282
------------
U.S. GOVERNMENT OBLIGATIONS--78.4%

Israel State U.S. Government
Guaranteed Notes
4.875% due 9/15/98 ................. 5,000 4,970,000
------------
United States Treasury Notes,
5.75% due 12/31/98 ................. 5,000 5,007,050
6.375% due 5/15/99 ................. 6,450 6,509,469
6.00% due 6/30/99 .................. 2,000 2,010,000
5.625% due 10/31/99 ................ 10,000 9,990,600
5.625% due 12/31/99 ................ 7,000 6,996,710
6.875% due 3/31/00 ................. 7,400 7,582,706
5.75% due 11/15/00 ................. 5,000 5,009,350
------------
43,105,885
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS ... 48,075,885
------------

ISSUER VALUE
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--3.7%

Aubrey G. Lanston Repurchase
Agreement 6.50% due 1/02/98
proceeds at maturity
$2,252,813 (collateralized by
$1,836,000 U.S. Treasury Notes
valued at $2,275,206 10.00%
due 5/15/10) $ 2,252,000
------------
TOTAL INVESTMENTS
(Identified Cost $60,779,245) ...... 99.0% 60,660,167
OTHER ASSETS LESS LIABILITIES ....... 1.0% 637,830
----- -------------
NET ASSETS .......................... 100.0% $ 61,297,997
====== =============

See notes to financial statements
<PAGE>

Government Income Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1997

ASSETS:
Investments at value (Note 1A) (Identified Cost, $60,779,245) $60,660,167
Cash ......................................................... 21
Interest receivable .......................................... 654,916
-----------
Total assets ................................................ 61,315,104
-----------

LIABILITIES:
Payable to affiliates--Investment advisory fees (Note 2)...... 17,107
-----------
NET ASSETS ................................................... $61,297,997
===========

REPRESENTED BY:

Paid-in capital for beneficial interests ..................... $61,297,997
===========

Government Income Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997

INTEREST INCOME (Note 1B): .......... $3,366,572

EXPENSES:
Investment advisory fees (Note 2) ... $ 196,529
Administrative fees (Note 3) ........ 28,076
Expense fees (Note 6) ............... 4,559
----------
Total expenses ..................... 229,164
Less aggregate amount waived by the
Investment Adviser and
Administrator (Note 2 and Note 3) .. (32,640)
----------
Net expenses ........................ 196,524
----------
Net investment income .............. 3,170,048
----------
NET REALIZED AND UNREALIZED GAIN (LOSS
ON INVESTMENTS:
Net realized loss from investment
transactions ..................... (113,894)
Unrealized appreciation (depreciation)
of investments--
Beginning of period ................. (626,543)
End of period ....................... (119,078)
----------
Net change in unrealized appreciation
(depreciation) of investments .... 507,465
----------
Net realized and unrealized gain o
investments ...................... 393,571
----------
Net Increase in Net Assets Resulting
from Operations .................. $3,563,619
==========

See notes to financial statements
<PAGE>

Government Income Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ............... $ 3,170,048 $ 3,250,815
Net realized loss on investment
transactions ..................... (113,894) (673,824)
Net change in unrealized appreciation
(depreciation) of investments ..... 507,465 (682,218)
------------ ------------
Net increase in net assets resulting
from operations .................. 3,563,619 1,894,773
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ......... 26,243,756 26,210,981
Value of withdrawals ................ (22,008,195) (27,752,230)
------------ ------------
Net increase (decrease) in net
assets from capital transactions . 4,235,561 (1,541,249)
------------ ------------
NET INCREASE IN NET ASSETS: ......... 7,799,180 353,524
NET ASSETS:
Beginning of period ................. 53,498,817 53,145,293
------------ ------------
End of period ....................... $ 61,297,997 $ 53,498,817
============ ============

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

<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1994
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
----------------------------- OPERATIONS) TO
1997 1996 1995 DECEMBER 31, 1994
------- ------- ------- -----------------
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C> <C> <C> <C>
Net Assets, end of period (000's omitted) $61,298 $53,499 $53,145 $55,673
Ratio of expenses to average net assets . 0.35% 0.35% 0.36% 0.43%*
Ratio of net investment income to
average net assets .................... 5.65% 5.75% 5.80% 5.27%*
Portfolio turnover ...................... 126% 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 .......... 0.41% 0.40% 0.40% 0.44%*
Net investment income to average net assets 5.59% 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 and disclosures in the financial
statements. Actual results could differ from those estimates.

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

A. INVESTMENT SECURITY VALUATIONS -- 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 Portfolio 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, 1997.

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 $196,529, of which $5,466 was
voluntarily waived for the year ended December 31, 1997. 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
$28,076 of which $27,174 was voluntarily waived, for the year ended December 31,
1997. Citibank acts as Sub-Administrator and performs such duties and receives
such compensation from SFG as from time to time is agreed to by SFG and
Citibank. The Portfolio pays no compensation directly to any Trustee or any
officer who is affiliated with the Administrator, all of whom receive
remuneration for their services to the Portfolio from the Administrator or its
affiliates. Certain of the officers and a Trustee of the Portfolio are officers
or directors of the Administrator or its affiliates.

(4) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of U.S. Government securities, other than short-term
obligations, aggregated $82,216,675 and $63,306,424, respectively, for the year
ended December 31, 1997.

<PAGE>

(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:

Aggregate cost ...................... $60,790,589

==========
Gross unrealized appreciation ....... $ 143,569
Gross unrealized depreciation ....... (273,991)

----------
Net unrealized depreciation ......... $ (130,422)
==========
(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 $60
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the year ended
December 31, 1997, the commitment fee allocated to the Portfolio was $224. 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, 1997 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, 1997 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, 1997, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.

PRICE WATERHOUSE

Chartered Accountants
Toronto, Ontario
February 2, 1998