-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcbD8t1VmgfbINWANU3xPTR/mAxU4l3fm8rIPU04IRFzcHKWB7Mf8GC6J0jcNrfC Uyft4taoIW3C7e71ARWmTA== 0000891804-02-001600.txt : 20020826 0000891804-02-001600.hdr.sgml : 20020826 20020826094524 ACCESSION NUMBER: 0000891804-02-001600 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY STEIN ROE FUNDS MUNICIPAL TRUST CENTRAL INDEX KEY: 0000773757 IRS NUMBER: 363376651 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04367 FILM NUMBER: 02747589 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 8003382550 MAIL ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE INTERMEDIATE MUNICIPALS INC DATE OF NAME CHANGE: 19880114 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE MUNICIPAL TRUST DATE OF NAME CHANGE: 19920703 N-30D 1 file001.txt STEIN ROE MUNICIPAL FUNDS STEIN ROE MUNICIPAL FUNDS STEIN ROE MUNICIPAL MONEY MARKET FUND STEIN ROE INTERMEDIATE MUNICIPALS FUND STEIN ROE MANAGED MUNICIPALS FUND STEIN ROE HIGH-YIELD MUNICIPALS FUND ANNUAL REPORT o JUNE 30, 2002 Effective July 15, 2002, Stein Roe High-Yield Municipals Fund was renamed Liberty High Yield Municipal Fund. [logo: STEIN ROE MUTUAL FUNDS] Contents From the President 1 - --------------------------------------------------------------------- Stein Roe Municipal Money Market Fund Performance Summary 2 Portfolio Manager's Report 3 Stein Roe Intermediate Municipals Fund Performance Summary 6 Portfolio Manager's Report 8 Stein Roe Managed Municipals Fund Performance Summary 12 Portfolio Manager's Report 13 Stein Roe High-Yield Municipals Fund Performance Summary 16 Portfolio Manager's Report 17 Investment Portfolio 21 Financial Statements 62 Notes to Financial Statements 78 Financial Highlights 92 Report of Independent Auditors 110 Unaudited Information 112 Trustees 114 Officers and Transfer Agent 118 o NOT FDIC INSURED o MAY LOSE VALUE o NO BANK GUARANTEE For monthly performance updates on all Stein Roe funds, please visit steinroe.com. Must be preceded or accompanied by a prospectus. From the President [phot of Keith T. Banks] Dear Shareholder: Over the past 12 months, the environment for the bond market was shaped by economic events and investor concerns. Although the Federal Reserve Board halted its string of interest rate cuts in December 2001, its presence on the sidelines was felt by the market as investors tried to guess the timing of its next move. A robust first quarter in 2002 suggested that the Fed could begin to raise short-term interest rates. However, the Fed kept a key short-term interest rate at 1.75%, and indications of slower economic growth in the second quarter raised the possibility that any further action could be delayed until later in the year. The US stock market declined sharply during the period, a reminder that having a fixed-income component in your portfolio, which may be a sound strategy in any environment, may be particularly beneficial when stocks fall on difficult times. Within the fixed-income universe the municipal bond market was one of the strongest sectors for the period. As cities and states faced leaner times and tighter budgets, the volume of new municipal bonds increased somewhat. Demand also increased as investors favored bonds over stocks, which helped support municipal bond returns. The following report will provide you with more detailed information about fund performance and the strategies used by your portfolio managers. As always, we thank you for investing in Stein Roe Funds and for giving us the opportunity to help you build a strong financial future. For more information, visit us online at steinroe.com. Thank you for choosing the Stein Roe Municipal Funds and for giving us the opportunity to serve your investment needs. Sincerely, /s/ Keith T. Banks Keith T. Banks President Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. 1 Performance Summary Stein Roe Municipal Money Market Fund Average annual total return (%) Period ended June 30, 2002 1-year 5-year 10-year - ---------------------------------------------------------------------------- Stein Roe Municipal Money Market Fund 1.40 2.77 2.69 - ---------------------------------------------------------------------------- Lipper Tax-Exempt Money Market Fund Average 1.25 2.70 2.69 - ---------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR DAILY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. An expense limitation of 0.70% was in effect for Stein Roe Municipal Money Market Fund for part of the periods shown. Returns would have been lower without the limitation. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Income may be subject to state or local taxes and the federal alternative minimum tax. Capital gains, if any, are subject to federal, state and local taxes. Source: Lipper Inc. 2 Portfolio Manager's Report Fund Commentary COMMENTARY FROM NORMAND DESROSIERS, PORTFOLIO MANAGER OF STEIN ROE MUNICIPAL MONEY MARKET FUND1 Municipal Fund outperforms benchmark The Stein Roe Municipal Money Market Fund delivered a total return of 1.40% during the 12-month period that ended June 30, 2002. The fund outperformed its peer group, the Lipper Tax Exempt Money Market Fund Category average, which returned 1.25% for the same period. - -------------------------------------------------------------------------------- Investment Objective and Strategy: Stein Roe Municipal Money Market Fund seeks maximum current income exempt from federal income tax, consistent with capital preservation and maintenance of liquidity. The fund invests all of its assets in SR&F Municipal Money Market Portfolio as part of a master fund/feeder fund structure. The portfolio invests substantially all of its assets in a diversified portfolio of high quality, tax-exempt money market securities. Fund Inception: March 15, 1983 Net Assets: $111.5 million - -------------------------------------------------------------------------------- Low interest rates mean lower yields Interest rates were the most important factor affecting fund performance during the 12-month period. During the first half of the fiscal year the Federal Reserve Board cut short-term interest rates by two percentage points, leaving the fed funds rate--the rate banks pay to borrow money from each other--at a forty-year low of 1.75%. Rates in the short-term municipal market dropped in response, losing more than one percent between June 2001 and June 2002. At the same time the Bond Market Association average, a composite index composed of tax-exempt, seven-day variable rate demand notes, also dropped 1.45 percentage points, ending the year at 1.23%. 1 Veronica Wallace was the portfolio manager of this fund during the period. 3 Fund adjusts for greater liquidity The fund increased its investment in variable rate demand notes, a security with either one-day or one-week puts that are backed by a letter of credit or corporate bonds and are typically used for liquidity. We raised our percentage of variable rate demand notes from 71.3% of holdings in June 2001 to 79.3%, anticipating the need for greater liquidity in a choppy market. Approximately 30% of our variable rate demand notes were in the more liquid daily puts, a change from past periods when the number was as low as 5%. Aside from that change, the fund's composition was similar to that of the last reporting period. Tax-exempt securities made up 7.2% of the fund, 6.6% was invested in six-month or one-year put bonds, 2.3% was in commercial paper, and tax and revenue anticipation notes (TRANs) and tax anticipation notes (TANs) together made up 4.6% of the Fund. Securities type breakdown2 [bar chart data]: % ---- Variable Rate Notes 79.3 Tax-Exempt Bonds 4.1 Other Tax-Exempt Bonds 3.1 Put Bonds 6.6 Tax & Revenue Anticipation Notes 3.8 Tax Anticipation Notes 0.8 Commercial Paper 2.3 Longer average maturity helps performance Early in the fund's fiscal year we increased the fund's average maturity because we were attracted to better yields available at the long end of a steepening yield curve. (The yield curve is the difference between rates paid on money market securities, from one month to one year.) By September the fund had an average maturity of 53 days, compared to a peer group average of 40 days. During that time we invested in several one-year issues at favorable yields. We let average maturity gradually drop by reinvesting in variable rate demand notes or commercial paper instead of one-year paper during the 4 first quarter of 2002. Increasingly positive economic news had led to speculation that the Fed would raise rates later in 2002, and we hoped to invest at higher interest rates as old debt matured. Instead, interest rates stayed the same for the first half of 2002 on spotty economic numbers. We ended the year with an average maturity of 32 days. As of July 1, 2002, the fund's new manager is Normand Desrosiers, Vice President and portfolio manager of the Advisor since 2000, and has managed Stein Roe Muncipal Money Market Fund as of July 1, 2002. - -------------------------------------------------------------------------------- Portfolio statistics As of 6/30/02 As of 6/30/01 7-Day dollar-weighted average maturity 32 days 47 days 7-Day current yield1 1.02% 2.69% 1 Net of all fees and expenses and represents an annualization of dividends declared and payable to shareholders for the last seven days of investments. - -------------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR DAILY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. A portion of the fund's income may be subject to the alternative minimum tax. The fund may at times purchase tax-exempt securities at a discount. Some or all of this discount may be included in the fund's ordinary income, and is taxable when distributed. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund. Maturity2 as of 6/30/02 [pie chart data]: 1-29 days 81.5 30-89 days 9.6 90-179 days 4.0 Greater than 299 days 4.9 2 Security type breakdowns are calculated as a percentage of net assets in SR&F Municipal Money Market Portfolio. Maturity breakdowns are calculated as a percentage of investments in SR&F Municipal Money Market Portfolio. Because the portfolio is actively managed, there can be no guarantee the portfolio will continue to maintain these breakdowns in the future. 5 Performance Summary Stein Roe Intermediate Municipals Fund Average annual total return (%) Period ended June 30, 2002 1-year 5-year 10-year - ---------------------------------------------------------------------------- Stein Roe Intermediate Municipals Fund Class S 6.04 5.33 5.76 - ---------------------------------------------------------------------------- Stein Roe Intermediate Municipals Fund Class A with sales charge 0.77 4.25 5.22 without sales charge 5.83 5.28 5.74 - ---------------------------------------------------------------------------- Stein Roe Intermediate Municipals Fund Class B with sales charge 0.14 4.75 5.64 without sales charge 5.14 5.08 5.64 - ---------------------------------------------------------------------------- Stein Roe Intermediate Municipals Fund Class C with sales charge 4.61 5.22 5.71 without sales charge 5.61 5.22 5.71 - ---------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index 7.24 6.36 6.85 - ---------------------------------------------------------------------------- Lipper Intermediate Municipal Debt Fund Average 6.00 5.16 5.69 - ---------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. A voluntary expense limitation of 0.70% was in effect for part of the periods shown. Returns would have been lower without the limitation. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. The Lehman Brothers 10-Year Municipal Bond Index is an unmanaged group of fixed-income securities that differs from the composition of the fund; it is not available for direct investment and does not incur fees or expenses. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Income may be subject to state or local taxes and the federal alternative minimum tax. Capital gains, if any, are subject to federal, state and local taxes. Source: Lipper Inc. Class A, B and C share (newer class shares) performance includes returns of the fund's class S shares (the oldest existing fund class) for periods prior to the inception dates of the newer class shares. Class S share returns are not restated to reflect any expense differential, e.g., 12b-1 fees, between class S and the newer class shares. Had the expense differential been reflected, the returns for the period prior to inception of class A, B and C would have been lower. The "with sales charge" returns include the maximum 3.25% charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through first year--5%, second year--4%, third year--3%, fourth year--3%, fifth year--2%, sixth year--1%, thereafter--0%, and the class C contingent deferred sales charge of 1% for the first year only. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. 6 INVESTMENT COMPARISON Growth of a $10,000 Investment, June 30, 1992 to June 30, 2002 [line chart data]: Stein Roe Lehman Brothers Intermediate 10-Year Municipals Municipal Fund, Class S Bond Index 1992 $10,000.0 $10,000.0 10,303.0 10,328.0 10,172.0 10,206.0 10,233.0 10,291.0 10,120.0 10,186.0 10,318.0 10,372.0 10,426.0 10,493.0 10,562.0 10,669.0 10,952.0 11,059.0 10,805.0 10,898.0 10,893.0 11,001.0 10,936.0 11,040.0 93 11,093.0 11,257.0 11,107.0 11,286.0 11,304.0 11,519.0 11,434.0 11,661.0 11,448.0 11,680.0 11,366.0 11,584.0 11,580.0 11,830.0 11,704.0 11,976.0 11,448.0 11,648.0 11,090.0 11,203.0 11,174.0 11,326.0 11,269.0 11,417.0 94 11,223.0 11,368.0 11,360.0 11,559.0 11,385.0 11,604.0 11,277.0 11,447.0 11,157.0 11,280.0 11,018.0 11,067.0 11,191.0 11,266.0 11,407.0 11,558.0 11,618.0 11,885.0 11,720.0 12,045.0 11,724.0 12,060.0 12,020.0 12,442.0 95 11,961.0 12,365.0 12,096.0 12,547.0 12,233.0 12,717.0 12,292.0 12,799.0 12,418.0 12,946.0 12,555.0 13,119.0 12,638.0 13,199.0 12,765.0 13,333.0 12,703.0 13,278.0 12,566.0 13,113.0 12,538.0 13,067.0 12,523.0 13,031.0 96 12,618.0 13,155.0 12,727.0 13,281.0 12,721.0 13,281.0 12,838.0 13,418.0 12,971.0 13,587.0 13,203.0 13,861.0 13,161.0 13,799.0 13,215.0 13,853.0 13,310.0 13,983.0 13,142.0 13,796.0 13,218.0 13,898.0 13,391.0 14,095.0 97 13,504.0 14,250.0 13,820.0 14,650.0 13,708.0 14,508.0 13,857.0 14,693.0 13,913.0 14,770.0 13,967.0 14,838.0 14,146.0 15,073.0 14,275.0 15,240.0 14,276.0 15,239.0 14,259.0 15,228.0 14,178.0 15,144.0 14,383.0 15,402.0 98 14,426.0 15,459.0 14,458.0 15,483.0 14,678.0 15,753.0 14,845.0 15,987.0 14,851.0 15,994.0 14,893.0 16,042.0 14,917.0 16,092.0 15,116.0 16,338.0 15,002.0 16,191.0 14,996.0 16,183.0 15,042.0 16,226.0 14,943.0 16,113.0 99 14,726.0 15,813.0 14,813.0 15,919.0 14,755.0 15,860.0 14,761.0 15,914.0 14,661.0 15,801.0 14,774.0 15,973.0 14,707.0 15,890.0 14,654.0 15,825.0 14,763.0 15,950.0 14,954.0 16,261.0 14,908.0 16,180.0 14,838.0 16,084.0 2000 15,181.0 16,522.0 15,357.0 16,750.0 15,546.0 17,009.0 15,484.0 16,931.0 15,604.0 17,104.0 15,695.0 17,196.0 16,090.0 17,600.0 16,261.0 17,827.0 16,305.0 17,858.0 16,442.0 18,010.0 16,217.0 17,788.0 16,397.0 17,982.0 2001 16,505.0 18,090.0 16,759.0 18,338.0 17,057.0 18,651.0 16,977.0 18,625.0 17,160.0 18,856.0 16,903.0 18,613.0 16,766.0 18,416.0 17,029.0 18,764.0 17,247.0 19,032.0 16,858.0 18,640.0 17,210.0 19,072.0 17,301.0 19,162.0 2002 17,510.0 19,400.0 Performance of a $10,000 investment in all share classes 06/30/92 - 06/30/02 without sales with sales charge ($) charge ($) - ---------------------------------------------------------------------------- Class S 17,510 N/A - ---------------------------------------------------------------------------- Class A 17,467 16,639 - ---------------------------------------------------------------------------- Class B 17,305 17,305 - ---------------------------------------------------------------------------- Class C 17,417 17,417 - ---------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return performance includes changes in share price and reinvestment of income and capital gains distributions. The line chart assumes a $10,000 investment on 6/30/92, reinvestment of distributions, and compares fund performance to an unmanaged group of fixed income securities that differs from the composition of any Stein Roe fund; it is not available for direct investment and does not incur fees or expenses. Performance of class A, B and C shares (newer class shares) includes returns for the fund's class S shares (the oldest existing fund class) for periods prior to the inception dates of the newer class shares. 7 Portfolio Manager's Report Fund Commentary COMMENTARY FROM KIM CAMPBELL, PORTFOLIO MANAGER OF STEIN ROE INTERMEDIATE MUNICIPALS FUND For the 12-month period ended June 30, 2002, Stein Roe Intermediate Municipals Fund, Class S returned 6.04%. The fund underperformed its benchmark, the Lehman Brothers 10-Year Municipal Bond Index, which returned 7.24% for the same period. It performed in line with its peer group, the Lipper Intermediate Municipal Debt Fund Category, which averaged a return of 6.00% during the same time frame. - -------------------------------------------------------------------------------- Investment Objective and Strategy: Seeks a high level of total return, consisting of current income exempt from federal income tax, consistent with the preservation of capital. Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in tax-exempt securities. The fund expects to maintain a dollar-weighted average maturity of three to 10 years. Fund Inception: October 9, 1985 Net Assets: $147.7 million - -------------------------------------------------------------------------------- Favorable conditions for fixed-income markets During the past 12 months, conditions were generally favorable for fixed-income securities. The Federal Reserve Board lowered short-term interest rates to bail out a weak economy, which was accentuated by the terrorist attacks of September 11, 2001. In addition, the federal government's announcement last October that it would cease issuing 30-year Treasury bonds propelled fixed-income securities higher on the prospects of a dwindling supply of bonds. While this rally gave way at year end amid signs of robust economic growth, the inability of the economy to sustain its first quarter pace led to further increases in bond prices during the spring quarter. At the end of the fiscal year, bond yields were slightly lower than they had been 12 months before, and prices were correspondingly higher. The supply of municipal bonds rose during the period as a weak economy raised the need for borrowing. 8 However, higher demand more than offset the increased supply and helped municipal bonds increase in value. - -------------------------------------------------------------------------------- Portfolio quality1 % --- AAA 76.5 AA 10.5 A 4.2 BBB and below 4.3 Cash and equivalents 2.4 Non-Rated 2.1 - -------------------------------------------------------------------------------- Factors affecting fund performance The fund was aided by its ownership of zero-coupon bonds with maturities between 15 and 20 years. (Long-term zero coupon bonds historically have provided above-average price appreciation during periods of declining interest rates.) Performance was also boosted by the fund's holdings of premium, non-callable bonds, which were in demand during the period. Non-callable bonds are securities that cannot be redeemed prior to the stated maturity date. Because issuers cannot redeem these bonds prior to maturity and reissue new ones at lower rates, non-callable bonds effectively reduced the overall reinvestment risk for the fund. Airline bonds, which declined sharply in value following the terrorist attacks of last September, were a negative influence on the fund. Another factor that hurt the fund's relative showing against its benchmark was our underweighting of securities with maturities in the one- to seven-year range. This shorter-term sector of the market performed especially well in 2001, a period when interest rate cutting by the Fed pulled short-term yields steadily downward. Top 10 States1 [bar chart data]: New York 8.9 Georgia 8.4 Texas 7.9 Illinois 7.7 Arizona 7.0 Massachusetts 5.1 Michigan 4.2 Indiana 4.2 Ohio 4.1 South Carolina 4.1 9 - -------------------------------------------------------------------------------- About Duration Duration is a measure, expressed in years, of interest-rate sensitivity. It's similar to maturity, but because it takes into consideration the entire stream of future principal and interest payments and how long it will take to collect them, it is a more complex and also a more accurate measure of a fund's exposure to changing interest rates. Because we are active duration managers, we tend to use duration as a tactical tool to anticipate or respond to interest rate changes. Because bond prices move in the opposite direction that interest rates are moving, we lower duration when we expect interest rates to rise or we raise duration when we expect interest rates to fall. This adjustment provides the potential to benefit performance. If we are wrong and interest rates rise after we lengthen duration or fall after we shorten duration, fund performance could be hurt. - -------------------------------------------------------------------------------- Looking ahead We believe that the economy will post a gradual recovery, helped by gains in productivity and subdued inflation. We think that third quarter growth in 2002 may be stronger than what will be reported for the second quarter. As the economic cycle shifted into recovery, we reduced the fund's duration, since growth often presents risks to the fixed-income markets. We will continue to manage duration consistent with our economic outlook. (Duration is a measure of the fund's interest rate sensitivity. See sidebar.) Our purchases will focus on premium coupon securities in the 6- to 15-year range, a sector of the market that we believe represents good value going forward. - -------------------------------------------------------------------------------- Portfolio statistics As of 6/30/02 As of 6/30/01 Average duration 6.1 years 6.7 years Average weighted maturity 8.5 years 9.1 years Average weighted coupon 5.68% 5.90% - -------------------------------------------------------------------------------- 10 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Portfolio holdings are as of 6/30/02 and are subject to change. The advisor voluntarily limits expenses to 0.70% of average net assets. Fund return as of 6/30/02 would have been lower without this limit. Income distributions are exempt from federal income taxes but may be subject to federal alternative minimum tax and state and local taxes. Capital gains, if any, are also taxable. The Lehman Brothers 10-Year Municipal Bond Index is an unmanaged group of investment-grade municipal bonds. Unlike the fund, an index is not an investment, does not incur fees or expenses and is not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in the index. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Tax-exempt investing offers current tax-free income, but it also involves certain risks. Investing in high-yield bonds involves greater credit risks than investing in higher-quality bonds. The value of the fund will be affected by interest rate changes and the creditworthiness of issues held in the fund. The municipal bond management team seeks to identify opportunities and attempts to react quickly to market changes. Maturity1 as of 6/30/02 [pie chart data]: 0-5 years 30.9% 5-10 years 24.9% 10-15 years 31.2% Greater than 15 years 10.6% Cash and equivalents 2.4% 1 Top states breakdown is calculated as a percentage of net assets. Maturity and quality breakdowns are calculated as a percentage of investments plus short-term obligations. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain these breakdowns in the future. 11 Performance Summary Stein Roe Managed Municipals Fund Average annual total returns (%) Period ended June 30, 2002 1-year 5-year 10-year - ----------------------------------------------------------------------------- Stein Roe Managed Municipals Fund 7.06 5.76 6.09 - ----------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 6.92 6.27 6.68 - ----------------------------------------------------------------------------- Lipper General Municipal Debt Fund Average 5.75 5.02 5.84 - ----------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. The Lehman Brothers Municipal Bond Index is an unmanaged group of fixed-income securities that differs from the composition of the fund; it is not available for direct investment and does not incur fees or expenses. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Income may be subject to state or local taxes and the federal alternative minimum tax. Capital gains, if any, are subject to federal, state and local taxes. Sources: Lipper Inc. INVESTMENT COMPARISON Growth of a $10,000 Investment, June 30, 1992 to June 30, 2002 [line chart data]: Stein Roe Lehman Brothers Managed Municipal Municipals Fund Bond Index 1992 $10,000.0 $10,000.0 10,335.0 10,300.0 10,164.0 10,200.0 10,214.0 10,266.0 10,008.0 10,166.0 10,257.0 10,348.0 10,390.0 10,453.0 10,509.0 10,575.0 10,940.0 10,957.0 10,791.0 10,841.0 10,899.0 10,951.0 10,937.0 11,012.0 93 11,081.0 11,196.0 11,084.0 11,210.0 11,312.0 11,444.0 11,434.0 11,574.0 11,449.0 11,596.0 11,344.0 11,494.0 11,561.0 11,737.0 11,699.0 11,870.0 11,390.0 11,563.0 10,955.0 11,092.0 11,007.0 11,187.0 11,097.0 11,284.0 94 11,048.0 11,215.0 11,203.0 11,420.0 11,244.0 11,460.0 11,093.0 11,292.0 10,916.0 11,091.0 10,738.0 10,890.0 10,938.0 11,130.0 11,257.0 11,448.0 11,532.0 11,781.0 11,640.0 11,917.0 11,629.0 11,931.0 11,966.0 12,312.0 95 11,834.0 12,204.0 11,918.0 12,320.0 12,056.0 12,477.0 12,152.0 12,555.0 12,345.0 12,737.0 12,605.0 12,949.0 12,758.0 13,073.0 12,842.0 13,173.0 12,685.0 13,083.0 12,477.0 12,916.0 12,435.0 12,879.0 12,450.0 12,874.0 96 12,577.0 13,015.0 12,691.0 13,132.0 12,677.0 13,129.0 12,878.0 13,313.0 13,037.0 13,463.0 13,296.0 13,710.0 13,240.0 13,652.0 13,256.0 13,678.0 13,383.0 13,804.0 13,193.0 13,620.0 13,296.0 13,735.0 13,504.0 13,942.0 97 13,653.0 14,091.0 14,058.0 14,482.0 13,908.0 14,345.0 14,093.0 14,516.0 14,171.0 14,609.0 14,246.0 14,695.0 14,476.0 14,910.0 14,615.0 15,063.0 14,593.0 15,068.0 14,579.0 15,081.0 14,515.0 15,014.0 14,750.0 15,251.0 98 14,796.0 15,310.0 14,828.0 15,349.0 15,067.0 15,586.0 15,240.0 15,781.0 15,191.0 15,781.0 15,237.0 15,837.0 15,272.0 15,876.0 15,467.0 16,065.0 15,348.0 15,994.0 15,348.0 16,017.0 15,410.0 16,057.0 15,293.0 15,964.0 99 15,043.0 15,734.0 15,096.0 15,790.0 14,947.0 15,664.0 14,911.0 15,670.0 14,726.0 15,501.0 14,842.0 15,665.0 14,747.0 15,548.0 14,640.0 15,480.0 14,840.0 15,659.0 15,156.0 16,000.0 15,046.0 15,906.0 14,921.0 15,823.0 2000 15,325.0 16,243.0 15,553.0 16,468.0 15,833.0 16,722.0 15,688.0 16,635.0 15,866.0 16,816.0 16,044.0 16,944.0 16,591.0 17,363.0 16,686.0 17,535.0 16,786.0 17,591.0 16,912.0 17,749.0 16,479.0 17,557.0 16,698.0 17,747.0 2001 16,880.0 17,866.0 17,307.0 18,130.0 17,736.0 18,430.0 17,561.0 18,367.0 17,879.0 18,585.0 17,492.0 18,429.0 17,221.0 18,254.0 17,552.0 18,570.0 17,824.0 18,793.0 17,337.0 18,425.0 17,762.0 18,784.0 17,867.0 18,898.0 2002 18,061.0 19,099.0 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return performance includes changes in share price and reinvestment of income and capital gains distributions. The line chart assumes a $10,000 investment on 6/30/92, reinvestment of distributions, and compares fund performance to an unmanaged group of fixed income securities that differs from the composition of any Stein Roe fund; it is not available for direct investment. 12 Portfolio Manager's Report Fund Commentary COMMENTARY FROM KIM CAMPBELL, PORTFOLIO MANAGER OF STEIN ROE MANAGED MUNICIPALS FUND Stein Roe Managed Municipals Fund returned 7.06% for the 12-month period ended June 30, 2002. This performance exceeded the fund's benchmark, the Lehman Brothers Municipal Bond Index, which returned a 6.92% gain for the same period. The fund also outperformed its peer group, the Lipper General Municipal Debt Fund Average, which ended the period up 5.75%. - -------------------------------------------------------------------------------- Investment Objective and Strategy: Seeks a high level of total return consistent with prudent risk, consisting of current income exempt from federal income tax and opportunities for capital appreciation. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in tax-exempt bonds, which primarily are investment grade. Fund Inception: February 22, 1977 Net Assets: $442.7 million - -------------------------------------------------------------------------------- Favorable conditions for fixed-income During the past 12 months, conditions were generally favorable for fixed-income securities. The Federal Reserve Board lowered short-term interest rates to bail out a weak economy, which was accentuated by the terrorist attacks of September 11, 2001. And the federal government's announcement last October that it would cease issuing 30-year Treasury bonds propelled fixed-income securities higher on the prospects of a dwindling supply of bonds. While this rally gave way amid perceptions of robust economic growth in late 2001, the inability of the economy to sustain its first quarter pace led to further increases in bond prices during the spring quarter. At the end of the fiscal year, bond yields were slightly lower than they had been 12 months before, and prices were correspondingly higher. 13 Top 10 states1 ------------- [bar chart data]: % ---- Georgia 14.2 Illinois 12.2 Massachusetts 10.6 Texas 6.5 Pennsylvania 6.4 New York 5.0 Washington 4.7 California 4.5 Indiana 3.4 Florida 3.3 Security selection helped fund performance Two main factors aided the fund's performance during the past year. One was the fund's ownership of bonds with maturities between 15 and 20 years. The fact that there were relatively steep incremental increases between the yields of bonds in these maturities compared to longer maturities, gave them an attractive risk/reward profile. Premium non-callable bonds were in high demand during the period: a non-call provision means that issuers can not redeem these bonds prior to maturity, an attractive feature that reduces the fund's reinvestment risk. They flourished against a backdrop of declining rates. - -------------------------------------------------------------------------------- Portfolio quality1 - ----------------- % --- AAA 58.2 AA 15.3 A 10.6 BBB and below 9.8 Cash and equivalents 0.5 Non-Rated 5.6 - -------------------------------------------------------------------------------- The second important factor was the structure of some of the fund's holdings. Key positions included zero coupon bonds with maturities between 11 and 20 years and deep discount bonds of even longer maturities. Both categories are especially sensitive to changing interest rates, and they helped fund performance during the declining rate environment that prevailed. The fund was hurt by its ownership of airline bonds, many of which posted sharp declines following last fall's terrorist attacks. (Private corporations can issue municipal bonds to finance projects with a public purpose.) Although the industry recovered somewhat, the bonds remained in negative territory. 14 - -------------------------------------------------------------------------------- Portfolio statistics As of 6/30/02 As of 6/30/01 Average duration 8.6 years 10.7 years Average weighted maturity 14.9 years 16.5 years Average weighted coupon 5.24% 5.38% - -------------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Portfolio holdings are as of 6/30/02 and are subject to change. Income distributions are exempt from federal income taxes but may be subject to federal alternative minimum tax and state and local taxes. Capital gains, if any, are also taxable. The Lehman Brothers Municipal Bond Index is an unmanaged group of investment-grade municipal bonds. Unlike the fund, an index is not an investment, does not incur fees or expenses, and is not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in the index. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Tax-exempt investing offers current tax-free income, but it also involves certain risks. Investing in high-yield bonds involves greater credit risks than investing in higher-quality bonds. The value of the fund will be affected by interest rate changes and the creditworthiness of issues held in the fund. The municipal bond management team seeks to identify opportunities and attempts to react quickly to market changes. Maturity1 as of 6/30/02 [pie chart data]: 5-10 years 21.5% 10-15 years 29.9% 15-20 years 24.5% 20-25 years 11.7% Less than 5 years 1.4% Greater than 25 years 10.5% Cash and equivalents 1.5% 1 Top states breakdown is calculated as a percentage of net assets. Maturity and quality breakdowns are calculated as a percentage of investment plus short-term obligations. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain these breakdowns in the future. 15 Performance Summary Stein Roe High-Yield Municipals Fund Average annual total returns (%) Period ended June 30, 2002 1-year 5-year 10-year - ---------------------------------------------------------------------------- Stein Roe High-Yield Municipals Fund Class S 7.30 5.04 5.81 - ---------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 6.92 6.27 6.68 - ---------------------------------------------------------------------------- Lipper High-Yield Municipal Debt Fund Average 5.23 4.03 5.56 - ---------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. The Lehman Brothers Municipal Bond Index is an unmanaged group of fixed-income securities that differs from the composition of the fund; it is not available for direct investment and does not incur fees or expenses. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Income may be subject to state or local taxes and the federal alternative minimum tax. Capital gains, if any, are subject to federal, state and local taxes. Sources: Lipper, Inc. INVESTMENT COMPARISON Growth of a $10,000 Investment, June 30, 1992 to June 30, 2002 [line chart data]: Stein Roe Lehman Brothers High-Yield Municipal Municipals Fund Bond Index 1992 $10,000.0 $10,000.0 10,135.0 10,300.0 9,960.0 10,200.0 9,967.0 10,266.0 9,763.0 10,166.0 10,020.0 10,348.0 10,167.0 10,453.0 10,280.0 10,575.0 10,685.0 10,957.0 10,529.0 10,841.0 10,632.0 10,951.0 10,684.0 11,012.0 93 10,789.0 11,196.0 10,786.0 11,210.0 10,994.0 11,444.0 11,122.0 11,574.0 11,146.0 11,596.0 11,087.0 11,494.0 11,251.0 11,737.0 11,361.0 11,870.0 11,126.0 11,563.0 10,676.0 11,092.0 10,748.0 11,187.0 10,888.0 11,284.0 94 10,892.0 11,215.0 11,024.0 11,420.0 11,068.0 11,460.0 10,943.0 11,292.0 10,787.0 11,091.0 10,590.0 10,890.0 10,799.0 11,130.0 11,190.0 11,448.0 11,456.0 11,781.0 11,555.0 11,917.0 11,571.0 11,931.0 11,923.0 12,312.0 95 11,825.0 12,204.0 11,937.0 12,320.0 12,060.0 12,477.0 12,128.0 12,555.0 12,325.0 12,737.0 12,555.0 12,949.0 12,712.0 13,073.0 12,798.0 13,173.0 12,693.0 13,083.0 12,550.0 12,916.0 12,512.0 12,879.0 12,531.0 12,874.0 96 12,636.0 13,015.0 12,699.0 13,132.0 12,730.0 13,129.0 12,904.0 13,313.0 13,047.0 13,463.0 13,256.0 13,710.0 13,281.0 13,652.0 13,315.0 13,678.0 13,421.0 13,804.0 13,303.0 13,620.0 13,403.0 13,735.0 13,610.0 13,942.0 97 13,759.0 14,091.0 14,085.0 14,482.0 14,022.0 14,345.0 14,160.0 14,516.0 14,251.0 14,609.0 14,351.0 14,695.0 14,550.0 14,910.0 14,690.0 15,063.0 14,713.0 15,068.0 14,719.0 15,081.0 14,687.0 15,014.0 14,878.0 15,251.0 98 14,906.0 15,310.0 14,948.0 15,349.0 15,129.0 15,586.0 15,244.0 15,781.0 15,222.0 15,781.0 15,276.0 15,837.0 15,318.0 15,876.0 15,450.0 16,065.0 15,410.0 15,994.0 15,455.0 16,017.0 15,510.0 16,057.0 15,541.0 15,964.0 99 15,381.0 15,734.0 15,426.0 15,790.0 15,273.0 15,664.0 15,250.0 15,670.0 15,043.0 15,501.0 15,141.0 15,665.0 14,989.0 15,548.0 14,869.0 15,480.0 14,990.0 15,659.0 15,192.0 16,000.0 15,165.0 15,906.0 15,084.0 15,823.0 2000 15,351.0 16,243.0 15,522.0 16,468.0 15,733.0 16,722.0 15,681.0 16,635.0 15,789.0 16,816.0 15,838.0 16,944.0 16,061.0 17,363.0 16,138.0 17,535.0 16,167.0 17,591.0 16,277.0 17,749.0 16,098.0 17,557.0 16,267.0 17,747.0 2001 16,394.0 17,866.0 16,653.0 18,130.0 17,106.0 18,430.0 16,906.0 18,367.0 17,095.0 18,585.0 16,984.0 18,429.0 16,872.0 18,254.0 17,063.0 18,570.0 17,254.0 18,793.0 16,997.0 18,425.0 17,325.0 18,784.0 17,420.0 18,898.0 2002 17,586.0 19,099.0 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return performance includes changes in share price and reinvestment of income and capital gains distributions. The line chart assumes a $10,000 investment on 6/30/92, reinvestment of distributions, and compares fund performance to an unmanaged group of fixed income securities that differs from the composition of any Stein Roe fund; it is not available for direct investment. 16 Portfolio Manager's Report Fund Commentary COMMENTARY FROM MAUREEN NEWMAN, PORTFOLIO MANAGER OF STEIN ROE HIGH-YIELD MUNICIPALS FUND For the 12-month period ended June 30, 2002, Stein Roe High-Yield Municipals Fund Class S delivered a total return of 7.30%. This return exceeded that of the fund's benchmark, the Lehman Brothers Municipal Bond index, which was up 6.92% for the same period. The fund's peer group, the Lipper High-Yield Municipal Debt Fund Category Average, returned 5.23%. Favorable security and sector selection accounted for the fund's strong performance relative to its competition. - -------------------------------------------------------------------------------- Investment Objective and Strategy: Seeks a high level of total return consisting of current income exempt from ordinary federal income tax and opportunities for capital appreciation. The fund invests all of its assets in SR&F High-Yield Municipals Portfolio as part of a master fund/feeder fund structure. Under normal circumstances, the portfolio invests at least 80% of its net assets (plus any borrowings for investment purposes) in relatively high-yielding securities. Fund Inception: March 5, 1984 Net Assets: $213.3 million - -------------------------------------------------------------------------------- Bond market solid during uncertain times For all of the turmoil of the past 12 months, it was a good year for bonds. Fixed-income investments surged during the fall of 2001 amid the economic uncertainty created by the terrorist attacks on the US and by the announcement that the US Treasury would stop issuing 30-year bonds. That rally encountered resistance beginning in November, when signs of economic recovery fueled concerns that the Federal Reserve might reverse its policy of lower interest rates. However, bonds returned to favor toward the end of the second quarter of 2002, when the stock market fell prey to accounting worries and poor corporate earnings. By the end of the 12-month period, the yield on the 30-year Treasury bond stood at 5.5%, -- one quarter of one percent below the yield on June 30, 2001. The 10-year bond enjoyed an even stronger rally, with yields finishing the 12-month 17 period one-half of one percent lower than where they started. These lower yields mean that bonds gained in value, above and beyond the income they generated during the year. Top 10 states1 - ------------- [bar chart data]: % ---- Florida 10.2 Pennsylvania 7.3 Colorado 7.3 Texas 7.2 Washington 5.2 Massachusetts 5.0 California 4.3 North Carolina 4.1 Indiana 3.9 Georgia 3.6 Performance for the fund Although the higher perceived risks of the high-yield municipal market caused it to lag the broader municipal market, the tone of the market was still positive. The fund was aided by strong performances from inverse floating rate bonds, which adjust their coupon rates higher as interest rates decline, and from hospital bonds, which the fund was able to purchase at attractive price levels in early 2002. Individual selections that aided performance included high-coupon bonds issued by the Pittsylvania, Virginia multitrade Cogeneration facility (3.1% of net assets), and the Tampa Bay Water inverse floating rate bonds (4.5% of net assets), whose refunding in 2001 improved the issue's credit quality and effective yield to maturity. The fund was hurt by its holding of Inland Steel revenue bonds and by its investment in airline revenue bonds, which declined sharply following the September 11th attacks. - -------------------------------------------------------------------------------- Portfolio quality1 - ----------------- % --- AAA 17.0 AA 6.0 A 13.1 BBB 20.4 BB and below 6.0 Cash and equivalents 1.2 Non-Rated 36.3 - -------------------------------------------------------------------------------- Recent fund activity During the past six months, we added several high-coupon bonds to the portfolio. Issuers included the Seminole Tribe in Florida 18 (0.4% of net assets), which plans on building a new convention center and casino. The fund obtained some exposure to the manufacturing sector through its purchase of bonds issued by small-aircraft manufacturer Cessna, a division of Textron Corporation (0.7% of net assets). Altogether, we have slowly added to our positions in cyclical industries. Many of these economically sensitive issues are more attractively valued than they were a year ago, especially in light of the progress the economy has made since that time. - -------------------------------------------------------------------------------- About Duration Duration is a measure, expressed in years, of interest-rate sensitivity. It's similar to maturity, but because it takes into consideration the entire stream of future principal and interest payments and how long it will take to collect them, it is a more complex and also a more accurate measure of a fund's exposure to changing interest rates. Because we are active duration managers, we tend to use duration as a tactical tool to anticipate or respond to interest rate changes. Because bond prices move in the opposite direction that interest rates are moving, we lower duration when we expect interest rates to rise or we raise duration when we expect interest rates to fall. This adjustment provides the potential to benefit performance. If we are wrong and interest rates rise after we lengthen duration or fall after we shorten duration, fund performance could be hurt. - -------------------------------------------------------------------------------- Outlook We continue to position the fund for a long and slow economic recovery, with little in the way of inflationary pressures. In addition to adding more cyclical names as they come to market, we are keeping the fund's duration low, consistent with our belief that near-term returns will derive more from income than from price appreciation. Duration is a measure of interest rate sensitivity. (See sidebar). We expect to use futures contracts selectively to adjust the duration of the fund when so desired. 19 - -------------------------------------------------------------------------------- Portfolio statistics As of 6/30/02 As of 6/30/01 Average duration 7.7 years 8.4 years Average weighted maturity 17.4 years 18.2 years Average weighted coupon 6.76% 6.68% - -------------------------------------------------------------------------------- MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT STEINROE.COM FOR MONTHLY PERFORMANCE UPDATES. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Portfolio holdings are disclosed as a percentage of SR&F High-Yield Municipals Portfolio as of 6/30/02 and are subject to change. Income distributions are exempt from federal income taxes, but may be subject to federal alternative minimum tax and state and local taxes. Capital gains, if any, are also taxable. The Lehman Brothers Municipal Bond Index is an unmanaged group of investment grade-municipal bonds. Unlike the fund, an index is not an investment, does not incur fees or expenses, and is not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in the index. Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Tax-exempt investing offers current tax-free income, but it also involves certain risks. Investing in high-yield bonds involves greater credit risks than investing in higher-quality bonds. The value of the fund will be affected by interest rate changes and the creditworthiness of issues held in the fund. The municipal bond management team seeks to identify opportunities and attempts to react quickly to market changes. Maturity1 as of 6/30/02 [pie chart data]: 5-10 years 20.6 10-15 years 16.4 15-20 years 21.0 20-25 years 16.2 Greater than 25 years 21.7 Less than 5 years 2.9 Cash and equivalents 1.2 1 Top states breakdown is calculated as a percentage of net assets in the SR&F High-Yield Municipals Portfolio. Maturity and quality breakdowns are calculated as a percentage of investments in the SR&F High-Yield Municipals Portfolio, plus short-term obligations. Because the portfolio is actively managed, there can be no guarantee the portfolio will continue to maintain these breakdowns in the future. 20 SR&F Municipal Money Market Portfolio Investment Portfolio June 30, 2002 Municipal Securities - 101.2% Par Value Alabama - 0.5% Attalla Waterworks Board, Series 2001, MBIA, 2.800%, 09/01/02.... $ 165,000 $ 165,206 Chambers County Board of Education, Series 1999 A, FSA, 4.700%, 05/01/03... 250,000 255,531 Limestone County, Series 2001 A, AMBAC, 2.000%, 11/01/02. 230,000 230,000 ------------- 650,737 ------------- Arizona - 1.3% Phoenix Industrial Development Authority, Spring Air Mattress Co., Series 1999, VRDB, (LOC: BancOne AZ) 1.600%, 04/01/19 (a). 1,735,000 1,735,000 ------------- California - 0.8% State Higher Education Loan Authority, Series 1994 A, Put Bond, 06/01/03, (LOC: State Street) 1.800%, 07/01/05 (a) 1,000,000 1,000,000 ------------- Colorado - 7.3% Boulder County, Boulder Medical Center Project, Series 1998, VRDB, (LOC: Wells Fargo) 1.450%, 01/01/17 (a)................... 3,190,000 3,190,000 Colorado Springs, Catalano Family LLP., Series 1998, VRDB, (LOC: BancOne CO) 1.550%, 07/01/18 (a)................... 1,025,000 1,025,000 Denver City & County, Worldport Project, Series 2000 A, VRDB, (LOC: Morgan Guaranty) 1.400%, 12/01/29....................... 1,200,000 1,200,000 Denver County Airport Revenue: (LOC: Bayerische Landesbank) 1.600%, 07/11/02 (a).................. 2,000,000 2,000,000 1.700%, 08/09/02 (a).................. 1,000,000 1,000,000 SBC Metropolitan District, Series 1998, Put Bond, 12/01/02, (LOC: US Bank) 2.000%, 12/01/17....................... 1,000,000 1,000,000 ------------- 9,415,000 ------------- Florida - 0.4% Dade County Industrial Development Authority, Dolphins Stadium Project, Series 1985 C, VRDB, (LOC: Societe Generale) 1.250%, 01/01/16....................... 300,000 300,000 Palm Beach County School District, Series 1992, AMBAC, 5.700%, 08/01/02... 250,000 250,809 ------------- 550,809 ------------- See notes to investment portfolio. 21 Par Value Georgia - 0.7% Conyers, Series 1993, AMBAC, 4.375%, 07/01/02... $ 150,000 $ 150,000 Morgan County Development Authority, Ivex Corp., Series 1998, VRDB, (LOC: Societe Generale) 1.600%, 06/01/08 800,000 800,000 ------------- 950,000 ------------- Idaho - 3.6% State Health Facilities Authority, St. Lukes Regional Medical Center Project, Series 1995, VRDB, (LOC: Bayerische Landesbank) 1.850%, 05/01/22....................... 2,500,000 2,500,000 State Housing & Finance Association Housing Revenue, Balmoral Apartments Project, Series 2000, VRDB, (LOC: US Bank) 1.950%, 05/01/32 (a)................... 2,100,000 2,100,000 ------------- 4,600,000 ------------- Illinois - 22.6% Chicago, Series 2001, Put Bond, 10/31/02, (LOC: Landesbank Hessen) 1.900%, 01/03/03....................... 1,000,000 1,000,000 Chicago, De LaSalle Institute, Series 1997, VRDB, (LOC: Northern Trust) 1.350%, 04/01/27....................... 900,000 900,000 Chicago, PS Greetings, Inc., Series 1999, VRDB, (LOC: LaSalle Bank) 1.450%, 05/01/24 (a)................... 1,420,000 1,420,000 Chicago,Stockyards Redevelopment Project, Series 1999 A, VRDB, (LOC: Northern Trust) 1.350%, 12/01/11....................... 1,320,000 1,320,000 Cook County, Series 2002 B, VRDB, (LOC: Landesbank Hessen) 1.430%, 11/01/31 1,000,000 1,000,000 East Dundee, Otto Engineering, Inc., Series 1998, VRDB, (LOC: LaSalle Bank) 1.350%, 03/01/26 (a)................... 760,000 760,000 Glendale Heights, Judy LLC/York Corrugated, C160, Series 1998, VRDB, (LOC: Harris Bank) 1.500%, 08/01/28 (a)................... 1,420,000 1,420,000 Melrose Park, Ninos Enterprises, Inc., Series 1999, VRDB, (LOC: American National Bank) 1.450%, 12/01/24................. 3,200,000 3,200,000 Morton, Morton Welding Co., Inc., Series 1996 A, VRDB, (LOC: BancOne IL) 1.650%, 04/01/16 (a)................... 795,000 795,000 North Aurora IDR, Oberweis Dairy, Inc. Project, Series 1995, VRDB, (LOC: LaSalle Bank) 1.350%, 02/01/10 (a)................... 1,000,000 1,000,000 Orlando Hills, 88th Avenue Project, Series 1985 A, VRDB, (LOC: LaSalle Bank) 1.250%, 12/01/04....................... 1,000,000 1,000,000 Palatine, Little City Community Development Project, Series 1998, VRDB, (LOC: FHLB) 1.250%, 12/01/28....................... 1,000,000 1,000,000 See notes to investment portfolio. 22 Par Value Illinois (cont) Quad Cities Regional Economic Development Authority, Two Rivers YMCS Project, Series 2002, VRDB, (LOC: US Bank) 1.150%, 12/01/31....................... $ 900,000 $ 900,000 Sauget, Monsanto Co.: Series 1993, VRDB, 1.350%, 05/01/28.... 800,000 800,000 Series 1996, VRDB, 1.350%, 09/01/14.... 800,000 800,000 Springfield, Oak Terrace Joint Venture L.P., Series 1999, VRDB, (LOC: Credit Suisse) 1.250%, 12/01/25....................... 1,000,000 1,000,000 Springfield, Phillips Brothers, Inc., Series 1998, VRDB, (LOC: BancOne IL) 1.550%, 06/01/18 (a)................... 1,350,000 1,350,000 State Development Finance Authority: Ivex Corp Project, Series 1998, VRDB, (LOC: Societe Generale) 1.600%, 04/01/08 (a) 1,500,000 1,500,000 McCormick Theological Seminary, Series 1999 A, VRDB, (LOC: Northern Trust) 1.250%, 06/01/19....................... 1,000,000 1,000,000 Ulich Children's Home Project, Series 1992, VRDB, (LOC: American National Bank) 1.250%, 04/01/07....................... 1,050,000 1,050,000 Wheaton Academy, Series 1998, VRDB, (LOC: Northern Trust) 1.250%, 10/01/28....... 1,000,000 1,000,000 State Educational Facilities Authority, Aurora University, Series 1989, VRDB, (LOC: Harris Bank) 1.350%, 01/01/09.... 1,400,000 1,400,000 State Housing Development Authority, Sterling Towers Project, Series 2001, VRDB, (LOC: LaSalle Bank) 1.450%, 10/01/35 (a) 1,000,000 1,000,000 Will County, Amoco Corp., Series 1998, VRDB, 1.100%, 03/01/28 (a) 2,700,000 2,700,000 ------------- 29,315,000 ------------- Indiana - 9.3% Elkhart County: Adorn, Inc., Series 1995, VRDB, (LOC: Harris Bank) 1.550%, 08/01/05 (a)............. 800,000 800,000 Crossroads Apartments Project, Series 1998 A, VRDB, (LOC: FHLB) 1.450%, 04/01/28 (a)................... 900,000 900,000 Plymouth, Hillcrest Apartments, Series 1998 A, VRDB, (LOC: FHLB) 1.350%, 04/01/28 (a)................... 900,000 900,000 Portage Economic Development Revision, Pedcor Investments, Series 1995 A, VRDB, (LOC: FHLB) 1.450%, 08/01/30 (a). 3,305,000 3,305,000 St. Joseph County, Pine Oaks, Series 1997 A, VRDB, (LOC: FHLB) 1.350%, 06/01/27 (a). 2,365,000 2,365,000 State Development Finance Authority: Carr Metal Products, Inc., Series 1999, VRDB, (LOC: BancOne IN) 1.700%, 01/01/09 (a). 1,020,000 1,020,000 See notes to investment portfolio. 23 Par Value Indiana (cont) USX Corp. Project, Series 1998, Put Bond, 08/01/02, (LOC: Nova Scotia) 1.400%, 12/01/22....................... $ 1,000,000 $ 1,000,000 State Educational Facilities Authority DePauw University, Series 2002, VRDB, (LOC: Northern Trust), 1.050%, 07/01/32 1,000,000 1,000,000 State Health Facilities Financing Authority, Henry County Hospital, Series 1998, VRDB, (LOC: Comerica) 1.250%, 04/01/13. 800,000 800,000 ------------- 12,090,000 ------------- Iowa - 10.9% Clinton, Sethness Products Co., Series 1996, VRDB, (LOC: Northern Trust) 1.300%, 09/01/11 (a) 3,700,000 3,700,000 Muscatine County, Monsanto Co., Series 1992, VRDB, 1.350%, 10/01/07.... 2,900,000 2,900,000 State Finance Authority: Drake University, Series 2001, (LOC: Wells Fargo) 1.150%, 07/01/31.... 900,000 900,000 Village Court Assoc. Project, Series 1985 A, VRDB, (GTY: El DuPont) 1.300%, 11/01/15 1,100,000 1,100,000 State Higher Education Loan Authority: American Institute of Business, Series 1998, VRDB, (LOC: Wells Fargo) 1.400%, 11/01/13 2,000,000 2,000,000 St. Ambrose University, Series 1995, VRDB, (LOC: Wells Fargo) 1.400%, 02/01/05 1,900,000 1,900,000 State School Cash Anticipation Program TRAN, Series 2002, 2.750%, 06/20/03.......... 1,000,000 1,010,494 Woodbury County Educational Facility Revenue, Siouxland Medical Educational Foundation, Series 1996, VRDB, (LOC: Firstar Bank) 1.350%, 11/01/16....................... 600,000 600,000 ------------- 14,110,494 ------------- Kentucky - 0.9% Shelby County, Roll Forming Corp., Series 1996, VRDB, (LOC: BancOne KY) 1.550%, 04/01/16 (a)................... 1,190,000 1,190,000 ------------- Louisiana - 1.0% Bossier City Revenue, Series 2001, AMBAC, 3.000%, 10/01/02... 290,000 290,573 State Public Facilities Authority, Bossier Parish AIG Financial, Series 2001 A, 3.250%, 08/29/02........ 1,000,000 1,000,706 ------------- 1,291,279 ------------- Michigan - 3.6% Berrien County Economic Development Corp., Arlington Metals Corp. Project, Series 1992, VRDB, (LOC: American National Bank) 1.500%, 10/01/04 (a)................... 1,140,000 1,140,000 See notes to investment portfolio. 24 Par Value Michigan (cont) Carman-Ainsworth Community School District, Series 2002, FGIC, 2.50%, 05/01/03......................... $ 1,000,000 $ 1,006,248 State Hospital Finance Authority, Bay Medical Center, Series 1997 A, FSA, 5.000%, 07/01/02....................... 500,000 500,000 State Municipal Bond Authority: Series 2001 C-2, (LOC: Morgan Guaranty) 3.500%, 08/22/02...................... 1,000,000 1,001,277 Series 2002 A, 2.250%, 08/21/02........ 1,000,000 1,001,312 ------------- 4,648,837 ------------- Minnesota - 3.0% Bloomington IDR, Watkins Pattern Co., Inc. Project, Series 2001, VRDB, (LOC: US Bank) 1.600%, 07/01/21 (a)................... 1,900,000 1,900,000 Eden Prairie IDR, SWB LLC Project, Series 2000 A, VRDB, (LOC: US Bank) 1.600%, 11/01/20 (a)................... 2,035,000 2,035,000 ------------- 3,935,000 ------------- Mississippi - 0.4% Jackson Redevelopment Authority, Series 1997 A, MBIA, 5.000%, 11/01/02.. 200,000 201,851 State Home Corp., Series 2001 D-2, GNMA, 2.350%, 12/01/02 (a) 335,000 335,000 ------------- 536,851 ------------- Missouri - 2.3% St. Louis General Fund Revenue TRAN, Series 2002, 2.875%, 06/26/03.......... 2,000,000 2,023,380 State Development Finance Board, St. Louis Convention Center, Series 2000 C, VRDB, (LOC: Firstar Bank) 1.950%, 12/01/20 1,000,000 1,000,000 ------------- 3,023,380 ------------- Montana - 1.0% Great Falls IDR, Safeway, Inc. Projects, Series 1991, Put Bond, 12/01/02, VRDB, (LOC: Deutsche Bank (Bankers)) 4.750%, 06/01/06............ 1,230,000 1,230,000 ------------- Nebraska - 1.4% State Educational Finance Authority, Creighton University, Series 2001, VRDB, (LOC: Allied Irish) 1.050%, 08/01/31 1,800,000 1,800,000 ------------- New Mexico - 2.4% Albuquerque, Menaul School, Series 1998, VRDB, (LOC: Wells Fargo) 1.400%, 06/01/18....................... 1,600,000 1,600,000 See notes to investment portfolio. 25 Par Value New Mexico (cont) Canby IDR, Keystone Building System Project, Series 2000, VRDB, (LOC: US Bank) 2.050%, 12/01/20 (a)................... $ 1,455,000 $ 1,455,000 ------------- 3,055,000 ------------- Nevada - 2.2% Clark County Pollution Control Revenue, East Kentucky Power Cooperative, Inc., Series 1984 J-2, Put Bond, 10/15/02, 2.050%, 10/15/14 1,000,000 1,000,000 Washoe County Economic Development Revenue, Sierra Nevada College Project, Series 2000, VRDB, (LOC: Wells Fargo) 1.400%, 07/01/25 1,853,500 1,853,500 ------------- 2,853,500 ------------- Ohio - 0.6% Hancock County Multifamily Revenue, Crystal Glen Apartments, Series 1998 B, VRDB, (LOC: FHLB) 1.470%, 01/01/31 (a). 750,000 750,000 ------------- Oklahoma - 0.2% Edmund Public Works Authority Sales Tax & Utility System Revenue, Series 2001, AMBAC, 5.000%, 07/01/02....................... 250,000 250,000 ------------- Oregon - 0.8% State TAN, Series 2002 A, 3.250%, 05/01/03 1,000,000 1,010,203 ------------- Pennsylvania - 2.2% Chester County Health & Education Facilities Authority, Barclay Friends Corp., Series 1996 B, Put Bond, 08/01/02, (LOC: First Union) 4.600%, 08/01/25....................... 2,350,000 2,391,240 Williams Valley School District, Series 2002, FGIC, 2.000%, 09/01/02.... 485,000 485,236 ------------- 2,876,476 ------------- South Carolina - 1.7% Jobs Economic Development Authority, Persona, Inc., Project, Series 1998, VRDB, (LOC: LaSalle Bank) 1.350%, 04/01/18 (a)................... 2,130,000 2,130,000 ------------- Texas - 7.7% Brazos Harbor Industrial Development Corp., Monsanto Co., Series 1991, VRDB, 1.350%, 03/01/21....................... 1,100,000 1,100,000 Brownsville Industrial Development Corp., Tella Tool & Manufacturing Co., Series 2000, VRDB, (LOC: American National Bank) 1.500%, 06/01/20 (a)................... 845,000 845,000 See notes to investment portfolio. 26 Par Value Texas (cont) College Station Independent School District, Series 1999, PSF GTD, 6.125%, 08/15/02. $ 160,000 $ 160,692 Fort Bend County Industrial Development Corp., W.W. Grainger, Inc., Series 1989, VRDB, (LIQ FAC: Northern Trust) 1.350%, 12/01/02 1,110,000 1,110,000 Grand Prairie Industrial Development Authority, W.W. Granger, Inc., Series 1986, VRDB, (LIQ FAC: Northern Trust) 1.700%, 12/01/11 (a)................... 900,000 900,000 Harris County Industrial Development Authority, Precision General, Inc., Series 1991, VRDB, (LOC: Morgan Guaranty) 1.400%, 10/01/16 (a)................... 2,060,000 2,060,000 Robertson County Industrial Development Corp., Sanderson Farms, Inc., Series 1995, VRDB, (LOC: Harris Bank) 1.450%, 11/01/05 (a) 400,000 400,000 Texas TRAN, Series 2001 A-L32, 3.750%, 08/29/02....................... 3,000,000 3,006,120 Trinity River Authority, Community Waste Disposal Project, Series 2001, VRDB, (LOC: Wells Fargo) 1.400%, 05/01/21 (a)................... 395,000 395,000 ------------- 9,976,812 ------------- Utah - 0.3% Eagle Mountain, Series 2001, VRDB, (LOC: BNP Paribas) 1.200%, 12/15/25.... 400,000 400,000 ------------- Virginia - 1.9% Dinwiddie County Industrial Development Authority, Texas Industries, Inc., Series 1998 A, (LOC: Bank America) 1.200%, 09/01/28 (a)................... 2,000,000 2,000,000 Roanoke, Series 1997, 4.500%, 08/01/02... 500,000 501,198 ------------- 2,501,198 ------------- Washington - 1.7% State Housing Finance Commission: Evergreen Ridge Apartments Project, Series 1994, VRDB, (LOC: US Bank) 1.500%, 12/01/24 (a)................... 1,115,000 1,115,000 Hamilton Place Senior Living, Series 1996 A, VRDB, (LOC: US Bank) 1.400%, 07/01/28 (a)................... 1,070,000 1,070,000 ------------- 2,185,000 ------------- Wisconsin - 8.5% Carlton, Wisconsin Power & Light Co., (Aliant Energy), Series 1988, VRDB, 1.450%, 08/01/15 (a)................... 800,000 800,000 Chase, Belgiosio Cheese, Inc., Series 1998, VRDB, (LOC: BancOne WI) 1.550%, 04/01/11 (a)................... 800,000 800,000 See notes to investment portfolio. 27 Par Value Wisconsin (cont) Holland, White Clover Dairy, Inc., Series 1994, VRDB, (LOC: BancOne WI) 1.550%, 05/01/05 (a)................... $ 1,930,000 $ 1,930,000 Kenosha, Monarch Plastics, Inc., Series 1994, VRDB, (LOC: BancOne WI) 1.550%, 12/01/09 (a)................... 1,400,000 1,400,000 Milwaukee Redevelopment Authority, Cathedral Place Parking Facilities Project, Series 2002, VRDB, (LOC: Bayerische) 1.290%, 05/01/25....................... 2,000,000 2,000,000 Monroe, Wisconsin Cheese Group, Series 2001, VRDB, (LOC: LaSalle Bank) 1.450%, 08/01/21....................... 1,900,000 1,900,000 Pulaski Community School District, Series 2002 B, MBIA, 3.000%, 09/01/02.. 660,000 661,449 State Health & Educational Facilities Authority Revenue, Riverview Hospital Association, Series 2001, VRDB, (LOC: Firstar Bank) 1.150%, 10/01/30....................... 1,500,000 1,500,000 ------------- 10,991,449 ------------- TOTAL MUNICIPAL SECURITIES - 101.2% (cost of $131,052,025)(b)................ 131,052,025 ------------- OTHER ASSETS & LIABILITIES, NET - (1.2)%.... (1,508,781) ------------- NET ASSETS - 100.0%......................... $129,543,244 ============= NOTES TO INVESTMENT PORTFOLIO: - -------------------------------------------------------------------------------- (a) Security is subject to federal alternative minimum tax. At June 30, 2002, the aggregated amortized cost of these securities represented 47.6% of total net assets. (b) Cost for federal income tax purposes and financial statement purposes is the same. Variable rate demand bonds (VRDB) are securities whose yields are periodically reset at levels that are generally comparable to tax-exempt commercial paper. These securities are payable on demand within seven calendar days and normally incorporate an irrevocable letter of credit or line of credit (LOC) with a major bank. The rates listed are as of June 30, 2002. Acronym Name -------- ----------------------------- AMBAC American Municipal Bond Assurance Corp. FGIC Financial Guaranty Insurance Company FHLB Federal Home Loan Bank FSA Financial Security Assurance GNMA Government National Mortgage Association GTY Guaranty IDR Industrial Development Revenue LIQ FAC Liquidity Facility LOC Letter of Credit MBIA Municipal Bond Investors Assurance PSF GTD Permanent School Fund of Texas Guaranty TAN Tax Anticipation Notes TRAN Tax and Revenue Anticipation Notes VRDB Variable Rate Demand Bonds See notes to financial statements. 28 Stein Roe Intermediate Municipals Fund Investment Portfolio June 30, 2002 Municipal Bonds - 100.0% Par Value EDUCATION - 2.6% Education - 2.6% IL State Development Finance Authority, Economic Development Revenue, Latin School of Chicago, Series 1998, 5.200%, 08/01/11....................... $ 250,000 $ 253,110 TX State Public Finance Authority, Southern University, Series 2002, 5.500%, 11/01/13....................... 2,440,000 2,678,949 VT State Educational & Health Buildings Finance Agency, Norwich University, Series 1998, 5.750%, 07/01/13....................... 100,000 102,774 WV State University, Series 2000 A, (a) 04/01/15............ 1,500,000 806,820 ------------- 3,841,653 ------------- HEALTHCARE - 2.7% Hospital - 2.4% AL East Health Care Authority Health Care Facilities, TAN, Series 1993, 5.625%, 09/01/04.......... 50,000 51,312 LA State Public Facilities Authority, Touro Infirmary, Series 1999, 5.200%, 08/15/10....................... 705,000 710,069 OH Green Springs, St. Francis Health Care Center, Series 1994 A, 7.000%, 05/15/04........ 55,000 54,931 SC Sumter County, Tuomey Regional Medical Center, Series 1991, 6.625%, 11/15/04.......... 1,040,000 1,145,570 TX Health Facilities Development Corporation Hospital, All Saints Episcopal Hospitals, Series 1993 A, 5.800%, 08/15/04 80,000 85,323 TX Tarrant County Health Facilities Development Corporation Hospital, Fort Worth Osteopathic Hospital, Series 1993, 5.800%, 05/15/04....................... 50,000 53,302 WV State Hospital Finance Authority, Series 2000 A, 6.750%, 09/01/22........ 1,375,000 1,501,321 ------------- 3,601,828 ------------- Nursing Home - 0.3% IA State Finance Authority, Care Initiatives, Series 1998 B, 5.500%, 07/01/08....................... 395,000 383,644 ------------- See notes to investment portfolio. 29 Par Value HOUSING - 0.7% Multi-Family - 0.2% MA State Housing Finance Agency, Series 1992 C, 6.350%, 05/15/03........ $ 200,000 $ 204,722 ------------- Single Family - 0.5% MD Montgomery County Housing Commission, Series A, 5.750%, 07/01/13............. 205,000 220,039 NE State Investment Authority, Series C, 5.650%, 09/01/07............. 495,000 533,575 ------------- 753,614 ------------- INDUSTRIAL - 0.3% Food Products - 0.2% GA Cartersville Development Authority, Anheuser Busch Companies., Inc., Series 2002, 5.100%, 02/01/12.......... 350,000 365,921 ------------- Manufacturing - 0.1% SC State Economic Development Authority, Caterpillar, Inc., Series 1998, 5.050%, 06/01/08....................... 100,000 103,625 ------------- OTHER - 12.4% Pool/Bond Bank - 3.5% IN Indianapolis Local Public Improvement Bond Bank, Series 1992 D, 6.500%, 02/01/06....................... 2,100,000 2,345,616 KS State Development Finance Authority, Series 2001, 5.500%, 05/01/14.......... 1,000,000 1,105,490 NY State Environmental Facilities Corp., Series 1994 D, 6.300%, 05/15/05........ 1,500,000 1,657,470 ------------- 5,108,576 ------------- Refunded/Escrowed (b) - 8.9% AZ Maricopa County, Samaritan Health Services, Series 1978, 7.625%, 01/01/08....................... 1,710,000 1,947,468 HI Honolulu City & County, Series 1995, 6.000%, 11/01/10.......... 135,000 156,055 IL Metropolitan Pier & Exposition Authority, Dedicated State Tax Revenue, Series 1992 A, 7.250%, 06/15/05........ 2,750,000 3,104,276 IN State Toll Road Commission, Series 1980, 9.000%, 01/01/15.......... 2,240,000 3,127,107 MA State Health & Educational Facilities Authority, Carney Hospital, Series 1994 D, 6.000%, 07/01/09........ 1,000,000 1,081,390 MI Dickinson County, Memorial Hospital System, Series 1998, 7.625%, 11/01/05.......... 145,000 154,969 OH Cuyahoga County, Meridia Health System, Series 1995, 6.300%, 08/15/06.......... 890,000 1,006,448 See notes to investment portfolio. 30 Par Value Refunded/Escrowed (b) (cont) OH Olmstead Falls Local School District, Series 1995, 6.850%, 12/15/11.......... $ 550,000 $ 623,986 PA Westmoreland County Municipal Authority, Municipal Services, Series 1993 C, (a) 08/15/17........................... 1,250,000 590,350 SC Piedmont Municipal Power Agency, Series 1991 A, 6.125%, 01/01/07........ 335,000 377,331 SC Sumter County, Tuomey Regional Medical Center, Series 1991, 6.625%, 11/15/04.......... 960,000 1,062,221 ------------- 13,231,601 ------------- OTHER REVENUE - 0.7% Recreation - 0.7% OR State Department of Administrative Services, Series 1999 B, 5.250%, 04/01/15........ 1,000,000 1,055,960 ------------- Retail - 0.0% IA State Finance Authority, Mason City Shopping Center, Series 1994, 8.500%, 12/01/04.......... 50,000 50,603 ------------- RESOURCE RECOVERY - 1.5% Disposal - 0.0% MA State Industrial Finance Agency, Peabody Monofill Associates, Inc., Series 1995, 9.000%, 09/01/05.......... 55,000 58,094 ------------- Resource Recovery - 1.5% NJ Bergen County Utilities Authority, Series 1992 A, 6.250%, 06/15/06........ 2,000,000 2,252,740 ------------- TAX-BACKED - 45.7% Local Appropriated - 1.8% AZ Arizona State University, Series 2002 A, 5.500%, 06/01/15........ 500,000 544,665 CA San Bernardino County, Series 2002 A, 5.000%, 07/01/15........ 1,000,000 1,067,130 SC Greenville County School District, Series 2002, 5.875%, 12/01/17.......... 1,000,000 1,081,440 ------------- 2,693,235 ------------- Local General Obligations - 19.1% AZ Maricopa County Unified School District No. 69, Paradise Valley, Series 1995, 6.350%, 07/01/10....................... 500,000 584,540 AZ Maricopa County Unified School District No. 97, Series 1996 A, 6.250%, 07/01/06....................... 1,750,000 1,973,160 AZ Tempe Unified School District No.213, Series 1994, 7.000%, 07/01/08.......... 500,000 594,830 See notes to investment portfolio. 31 Par Value Local General Obligations (cont) CA Carlsbad Unified School District, Series 1997, (a) 11/01/14........................... $ 300,000 $ 167,469 CA Corona-Norco Unified School District, Series 2001 C, (a) 09/01/16............ 1,000,000 493,150 CA Natomas Unified School District, Series 1999, 5.850%, 03/01/15....................... 250,000 287,545 CA Union Elementary School District, Series 1999 A, (a) 09/01/20............ 1,000,000 377,670 CA Yuba City Unified School District, Series 2000, (a) 09/01/16........................... 1,960,000 966,574 CO Adams County, School District Number 12, Series 1995 A, (a) 12/15/12............ 1,300,000 806,078 HI Honolulu City & County: Series 1990 A, 7.350%, 07/01/06........ 1,000,000 1,157,400 Series 1995, 6.000%, 11/01/10.......... 365,000 417,436 IL Chicago Board of Education, Series 1996, 6.250%, 12/01/12.......... 2,100,000 2,470,062 IL Du Page County Special Service Area No. 11, Series 1995, 6.750%, 01/01/14.......... 990,000 1,108,800 KS Shawnee County Unified School District No. 437, Series 2001, 5.500%, 09/01/13....................... 1,555,000 1,711,231 KS Wyandotte County Unified School District No. 204, Series 2000 A, 6.375%, 09/01/11....................... 500,000 590,415 KY State Turnpike Authority, Series 2001 A, 5.500%, 07/01/13........ 1,000,000 1,113,640 LA Orleans Levee District, Series 1995 A, 5.950%, 11/01/07........ 2,200,000 2,455,530 MI Anchor Bay School District, Series 2001, 5.250%, 05/01/13.......... 1,000,000 1,090,640 MI Berkley, City School District, Series 1995, 7.000%, 01/01/09.......... 500,000 593,705 MN West St. Paul, Independent School District No. 197, Series 1995, (a) 02/01/04..... 500,000 483,800 NY New York City: Series 1997 A, 7.000%, 08/01/06........ 850,000 966,560 Series 1997 H, 6.000%, 08/01/17........ 1,000,000 1,059,120 OH London School District, Series 2001, 5.500%, 12/01/15....................... 375,000 406,834 OH Marion City School District, Series 2000, 6.500%, 12/01/14....................... 500,000 604,470 OH Strongsville, Series 1996, 6.000%, 12/01/06....................... 500,000 551,150 OR Linn County Community School District No. 9, Series 2001, 5.250%, 06/15/17.......... 1,120,000 1,171,285 PA Westmoreland County, Series 1997, (a) 12/01/18........................... 1,000,000 431,720 TX Comal Independent School District, Series 2001, 5.500%, 02/01/14.......... 1,000,000 1,080,180 See notes to investment portfolio. 32 Par Value Local General Obligations (cont) TX Goose Creek Independent School District, Series 2000, 5.250%, 08/15/18.......... $ 2,000,000 $ 2,053,680 WA Clark County School District No. 37, Series 2001 C, (a) 12/01/16............ 1,000,000 482,940 ------------- 28,251,614 ------------- Special Non-Property Tax - 10.3% CT Special Tax Obligation Infrastructure, Series 2001 B, 5.375%, 10/01/12....................... 1,000,000 1,100,580 FL Tampa, Series 2000, 6.000%, 10/01/08....................... 1,000,000 1,141,290 GA Metropolitan Atlanta Rapid Transportation Authority, Series 1998 A, 6.250%, 07/01/10 1,000,000 1,162,550 IL State, Sales Tax Revenue, Series 2002-2, 5.500%, 06/15/15....................... 1,000,000 1,104,650 LA Sulphur Public Import Sales and Use Tax, Series 1993-ST, 5.650%, 04/01/04.. 50,000 53,136 MI State, Underground Storage Tank Financial Assistance, Series 1996 I, 6.000%, 05/01/05........ 4,000,000 4,378,120 NJ State Transportation Trust Fund Authority, Series 1995 B, 6.500%, 06/15/10........ 1,000,000 1,178,760 NM Santa Fe, Series 1996 A, 6.500%, 06/01/06....................... 1,555,000 1,760,167 NV State, Series 2000 A, 5.000%, 12/01/06....................... 1,000,000 1,085,860 NY State Local Government Assistance Corp., Series C, 6.000%, 04/01/12............. 150,000 173,112 PR Commonwealth of Puerto Rico Highway & Transportation Authority, Series 2002 E, 5.500%, 07/01/12........ 1,000,000 1,124,470 TX Houston, Series 2001 B, (a) 09/01/17.. 2,000,000 917,720 ------------- 15,180,415 ------------- Special Property Tax - 2.6% FL Stoneybrook Community Development District, Series 1998 B, 5.700%, 05/01/08........ 1,505,000 1,518,169 MO State Development Finance Board, Midtown Redevelopment Project, Series 2000 A, 6.000%, 04/01/14........ 2,000,000 2,229,100 ------------- 3,747,269 ------------- State Appropriated - 9.3% AZ State, Certificates of Participation, Series 2002 B, 5.375%, 09/01/08........ 2,000,000 2,210,380 KY State Turnpike Authority, Series 1992, 5.800%, 01/01/04.......... 1,000,000 1,056,950 NY Metropolitan Transportation Authority, Series 1993 O, 5.500%, 07/01/17........ 1,000,000 1,105,950 See notes to investment portfolio. 33 Par Value State Appropriated (cont) NY State Dormitory Authority, City University: Series A, 5.625%, 07/01/16............ $ 500,000 $ 560,195 Series 1995 A, 5.625%, 07/01/16....... 1,250,000 1,400,487 Series 2000, 5.000%, 05/15/05......... 685,000 731,998 City University of New York, Series 1995, 5.625%, 07/01/16......... 5,000,000 5,601,950 NY State Urban Development Corp., Series 1995, 5.750%, 04/01/11....................... 500,000 555,105 OH State Higher Education Commission, Series II-B, 5.750%, 11/01/04.......... 500,000 541,990 ------------- 13,765,005 ------------- State General Obligations - 2.6% MA Massachusetts Bay Transportation Authority, Series 1994 A, 7.000%, 03/01/07........ 2,250,000 2,618,707 MA State College Building Authority, Series 1994 A, 7.500%, 05/01/14........ 500,000 639,135 TX State, Series A, 5.800%, 10/01/04..... 500,000 540,925 ------------- 3,798,767 ------------- TRANSPORTATION - 9.4% Air Transportation - 0.5% OH Cleveland, Series 1999, 5.700%, 12/01/19....................... 1,000,000 790,000 ------------- Airport - 4.1% GA Atlanta, Airport Facilities, Series 1996, 6.500%, 01/01/07....................... 4,000,000 4,533,920 IN State Transportation Finance Authority, Airport Facilities Lease, Series 1992 A, 6.500%, 11/01/07....................... 1,040,000 1,074,705 NY Monroe County Airport Authority, Greater Rochester International Airport, Series 1999, 5.750%, 01/01/12.......... 400,000 443,556 ------------- 6,052,181 ------------- Ports - 0.2% WA Port of Seattle, Series A, 6.000%, 10/01/08............. 250,000 280,975 ------------- Toll Facilities - 3.2% CO E-470 Public Highway Authority, Series 2000 B, (a) 09/01/18............ 1,500,000 649,740 IL State Regional Transportation Authority, Series 2002 B, 5.500%, 06/01/12........ 1,000,000 1,104,590 NJ State Turnpike Authority, Series 2000 A, 6.000%, 01/01/13........ 1,200,000 1,384,200 OH State Turnpike Commission: Series 1996 A, 6.000%, 02/15/06........ 500,000 553,575 Series 1998 A, 5.500%, 02/15/24........ 1,000,000 1,068,320 ------------- 4,760,425 ------------- See notes to investment portfolio. 34 Par Value Transportation - 1.4% CO State Department of Transportation, Series 2000, 6.000%, 06/15/12.......... $ 1,500,000 $ 1,701,750 DC Metropolitan Area Transit Authority, Series 1993, 6.000%, 07/01/07.......... 250,000 283,145 ------------- 1,984,895 ------------- UTILITY - 24.0% Independent Power Producer - 0.4% MI Midland County Economic Development Corp., Series 2000, 6.875%, 07/23/09.......... 500,000 509,375 ------------- Investor Owned - 0.9% AR Pope County, Entergy Arkansas, Inc. Project, Series 2001, 5.050%, 09/01/28.......... 750,000 751,470 TX Brazos River Authority, Texas Utilities Electric Co., Series 1995 B, 5.050%, 06/01/30........ 600,000 608,610 ------------- 1,360,080 ------------- Joint Power Authority - 6.9% GA State Municipal Electric Authority, Series 1997 Y, 6.400%, 01/01/13........ 4,415,000 5,230,653 NC Eastern Municipal Power Agency: Power System, Series 1993 B, 6.125%, 01/01/09...................... 2,000,000 2,180,000 Series 1993 C, 5.500%, 01/01/07........ 415,000 439,394 SC Piedmont Municipal Power Agency, Series 1991 A, 6.125%, 01/01/07........ 2,015,000 2,247,168 TX State Municipal Power Agency, Series 1993, (a) 09/01/15.............. 250,000 131,100 ------------- 10,228,315 ------------- Municipal Electric - 2.6% OK Grand River Dam Authority, Series 2002 A, 5.000%, 06/01/12........ 1,000,000 1,068,540 PR Puerto Rico Electric Power Authority, Series 2002 KK, 5.250%, 07/01/12....... 1,000,000 1,103,130 TX Lower Colorado River Authority, Series 1999 A, 5.500%, 05/15/21........ 1,500,000 1,553,205 WA Grant County Public Utilities District No. 002, Electric System, Series 1993 E, 5.300%, 01/01/03........ 50,000 50,956 ------------- 3,775,831 ------------- Water & Sewer - 13.2% AR Beaver Water District, Benton & Washington Counties, Series 1994, 6.000%, 11/15/04.......... 2,580,000 2,814,264 AZ Phoenix Civic Improvement Corp. Series 2001, 5.250%, 07/01/08.......... 1,130,000 1,238,559 See notes to investment portfolio. 35 Par Value Water & Sewer (cont) AZ State Central Water Conservation District, Central Arizona Project, Series A, 5.500%, 11/01/08....................... $ 250,000 $ 278,685 CA State Department of Water Resources, Central Valley Project, Series 2002 X, 5.500%, 12/01/15....................... 1,000,000 1,121,390 DE State Economic Development Authority, Wilmington Suburban Water Corp., Series 1992 B, 6.450%, 12/01/07........ 1,165,000 1,322,904 GA Columbus, Water & Sewer Revenue, Series 2002, 5.000%, 05/01/10.......... 1,000,000 1,072,560 IL Chicago, Series 1993, 6.500%, 11/01/09 2,155,000 2,520,079 MA State Water Pollution Abatement Trust, Series 1999 A, 6.000%, 08/01/19........ 2,500,000 2,869,200 NC Charlotte, Water & Sewer Systems, Series 2002 A, 5.000%, 07/01/09........ 1,000,000 1,082,170 TN Metropolitan Government of Nashville & Davidson Counties, Series 1993, 6.500%, 01/01/10.......... 2,750,000 3,209,552 TX Houston Water & Sewer System, Series C, 5.900%, 12/01/05............. 800,000 885,488 TX Houston Water Conveyance System, Series J, 6.125%, 12/15/06............. 1,000,000 1,126,610 ------------- 19,541,461 ------------- TOTAL MUNICIPAL BONDS (cost of $136,665,859) 147,732,424 ------------- Short-Term Obligations - 2.4% AZ Phoenix Industrial Development Authority, Valley of the Sun Y.M.C.A., Series 2001, VRDN, 1.250%, 01/01/31.... 1,000,000 1,000,000 CO Denver Health & Hospital Authority, Series 2001 B, VRDN, 1.250%, 12/01/31.. 400,000 400,000 FL Dade County Industrial Development Authority, Dolphins Stadium Project, Series 1985 C, VRDN, 1.100%, 01/01/16....................... 200,000 200,000 IA State Finance Authority, Drake University, Series 2001, VRDN, 1.300%, 07/01/31....................... 200,000 200,000 IA Webster County, St. Edmond Project, Series 2000, VRDN, 1.150%, 07/01/20....................... 300,000 300,000 MN Hennepin County, Series 2000 B, VRDN, 1.000%, 12/01/20.. 600,000 600,000 MN Mendota Heights, Series 1991, VRDN, 1.100%, 11/01/31....................... 300,000 300,000 See notes to investment portfolio. 36 Par Value Short-Term Obligations (cont) NY State Energy Research & Development Authority, Niagara Mohawk Power Corp., Series 1987 B, VRDN, 1.200%, 07/01/27................. $ 400,000 $ 400,000 WY Unita County, Chevron USA, Inc. Project, Series 1992, VRDN, 1.150%, 12/01/22....................... 200,000 200,000 ------------- TOTAL SHORT-TERM OBLIGATIONS (cost of $3,600,000)..................... 3,600,000 ------------- TOTAL INVESTMENTS - 102.4% (cost of $140,265,859)(c)................ 151,332,424 ------------- OTHER ASSETS & LIABILITIES, NET - (2.4)%... (3,620,970) ------------- NET ASSETS - 100.0%........................ $147,711,454 ============= NOTES TO INVESTMENT PORTFOLIO: - -------------------------------------------------------------------------------- (a) Zero coupon bond. (b) The fund has been informed that each issuer has placed direct obligations of the U.S. Government in an irrevocable trust solely for the purpose of the payment of principal and interest. (c) Cost for generally accepted accounting principles is $140,265,859. Cost for federal income tax purposes is $140,189,319. The difference between cost for generally accepted accounting principles and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. Variable rate demand notes (VRDN) are considered short-term obligations. Interest rates change periodically on specified dates. These securities are payable on demand and are secured either by letters of credit or other credit support agreements from banks. The rates listed are as of June 30, 2002. Acronym Name -------- ----------------------------- TAN Tax Anticipation Notes VRDN Variable Rate Demand Notes See notes to financial statements. 37 Stein Roe Managed Municipals Fund Investment Portfolio June 30, 2002 Municipal Bonds - 98.7% Par Value EDUCATION - 3.5% Education - 1.8% CA State Educational Facilities Authority, Loyola Marymount University, Series 2001, (a) 10/01/20.............. $ 1,000,000 $ 375,320 MA State Development Finance Agency, Boston University, Series 1999 P, 5.450%, 05/15/59........ 1,000,000 932,890 MA State Industrial Finance Agency, Tufts University, Series 1998 H, 4.750%, 02/15/28........ 2,000,000 1,859,600 MN Victoria, Holy Family Catholic High School, Series 1999 A, 5.850%, 09/01/24........ 1,000,000 921,250 VA State College Building Authority, Washington and Lee University, Series 2001, 5.375%, 01/01/21.......... 2,000,000 2,132,360 WV State University, Series 2000 A, (a) 04/01/18............ 3,800,000 1,681,842 ------------- 7,903,262 ------------- Student Loan - 1.7% AK State Student Loan Corp., Series 1994 A, 6.200%, 07/01/09 (b).... 3,870,000 4,112,339 ME State Educational Loan Marketing Corp., Series 1994 B-1, 6.500%, 11/01/09...... 3,000,000 3,314,160 ------------- 7,426,499 ------------- HEALTHCARE - 8.6% Congregate Care Retirement - 1.2% FL Capital Project Finance Authority, Glenridge on Palmer Ranch, Series 2002 A, 8.000%, 06/01/32........ 500,000 491,875 OR Clackamas County Hospital Facilities Authority, Willamette View, Series 1999 A, 7.500%, 11/01/29........ 1,000,000 1,070,000 PA Montgomery County Industrial Development Authority, Adult Communities Total Services, Series 1996 B, 5.750%, 11/15/17........ 3,500,000 3,546,305 ------------- 5,108,180 ------------- Health Services - 0.4% MA State Development Finance Agency, Boston Biomedical Research Institute, Series 1999, 5.650%, 02/01/19.......... 310,000 292,160 WI State Health & Educational Facilities Authority, Marshfield Clinic, Series 1999, 6.250%, 02/15/29.......... 1,600,000 1,702,928 ------------- 1,995,088 ------------- See notes to investment portfolio. 38 Par Value Hospital - 6.4% FL West Orange Healthcare District, Series 2001 A, 5.650%, 02/01/22........ $ 1,050,000 $ 1,053,791 IL State Development Finance Authority, Adventist Health System, Series 1999, 5.500%, 11/15/20.......... 3,000,000 2,903,130 IL State Health Facilities Authority, Swedish American Hospital, Series 2000, 6.875%, 11/15/30.......... 1,000,000 1,069,050 LA State Public Facilities Authority, Touro Infirmary, Series 1999, 5.625%, 08/15/29.......... 1,740,000 1,717,223 MA State Health & Educational Facilities Authority: Dana Farber Cancer Institute, Series 1995 G-1, 6.250%, 12/01/22...................... 3,265,000 3,367,554 Massachusetts General Hospital, Series 1992 F, 6.250%, 07/01/12...................... 5,750,000 6,631,763 South Shore Hospital, Series 1999 F: 5.625%, 07/01/19...................... 1,000,000 1,006,660 5.750%, 07/01/29...................... 2,500,000 2,493,175 MD State Health & Educational Facilities Authority, University of Maryland Medical System, Series 2000, 6.750%, 07/01/30.......... 500,000 540,585 MI Dickinson County, Series 1999, 5.800%, 11/01/24.......... 1,000,000 924,640 MS Medical Center Building Corp., University of Mississippi Medical Center, Series 1998, 5.500%, 12/01/23.......... 1,000,000 1,058,590 NC State Medical Care Commission, Gaston Health Care, Series 1998, 5.000%, 02/15/29.......... 1,000,000 945,130 NV Henderson, Catholic Healthcare West, Series 1999 A, 6.750%, 07/01/20........ 1,000,000 1,045,940 TX Richardson Hospital Authority, Baylor Richardson Medical Center, Series 1998, 5.625%, 12/01/28.......... 500,000 480,390 WI State Health & Educational Facilities Authority, Wheaton Franciscan Services, Series 2002, 5.750%, 08/15/30.......... 900,000 902,772 WV State Hospital Finance Authority, Series 2000 A, 6.750%, 09/01/30........ 2,000,000 2,165,860 ------------- 28,306,253 ------------- Intermediate Care Facilities - 0.5% IN State Health Facilities Financing Authority, Hoosier Care, Inc., Series 1999 A, 7.125%, 06/01/34........ 2,445,000 2,142,431 ------------- Nursing Home - 0.1% IN State Health Facilities Financing Authority, Metro Health Indiana, Inc., Series 1998, 6.400%, 12/01/33 (c)...... 1,400,000 560,000 ------------- See notes to investment portfolio. 39 Par Value HOUSING - 2.8% Multi-Family - 1.7% FL Broward County Housing Finance Authority, Chaves Lake Apartment Project, Series 2000, 7.500%, 07/01/40.......... $ 1,500,000 $ 1,530,000 FL Clay County Housing Finance Authority, Madison Commons Apartments, Series 2000 A, 7.450%, 07/01/40........ 745,000 759,900 FL Orange County Housing Finance Authority, Palms at Brentwood Apartments, Series 1998 K, 6.500%, 12/01/34........ 1,975,000 1,804,656 IL State Development Finance Authority, Catholic Charities Housing Development Corp., Series 1993 C, 5.950%, 01/01/09........ 1,450,000 1,500,750 Municipal Mortgage & Equity LLC, 7.750%, 11/01/10 (d)................... 2,000,000 2,152,500 ------------- 7,747,806 ------------- Single Family - 1.1% ID State Housing Agency, Series 1990 E, 7.875%, 07/01/24........ 465,000 469,506 IL Chicago, Series 2000 A, 7.150%, 09/01/31........ 730,000 822,622 NM State Mortgage Finance Authority, Series 2000 A-2, 7.100%, 09/01/30...... 1,460,000 1,635,711 NV State Housing Division, Series 1991 A-2, 7.750%, 04/01/22...... 1,205,000 1,218,833 RI State Housing & Mortgage Finance Corp., Series 1988 1-E, 7.550%, 10/01/22...... 515,000 520,856 ------------- 4,667,528 ------------- INDUSTRIAL - 8.2% Food Products - 3.7% GA Cartersville Development Authority, Anheuser Busch Companies., Inc., Series 1999, 7.375%, 05/01/09.......... 9,000,000 10,650,330 IN Hammond, American Maize Products Co., Series 1994, 8.000%, 12/01/24.......... 4,560,000 4,743,722 MI State Strategic Fund, Michigan Sugar Co., Carollton Project: Series 1998 B, 6.450%, 11/01/25....... 700,000 495,250 Series 1998 C, 6.550%, 11/01/25....... 800,000 566,000 ------------- 16,455,302 ------------- Forest Products - 4.1% LA De Soto Parish, International Paper Company, Series 1994 A, 7.700%, 11/01/18........ 3,250,000 3,491,377 SC Richland County, Union Camp Corp., Series 1991 B, 7.125%, 09/01/21........ 5,000,000 5,100,950 WA Port Longview Industrial Development Corp., Weyerhaeuser Corp., Series 1992, 6.875%, 10/01/08.......... 8,750,000 9,450,788 ------------- 18,043,115 ------------- See notes to investment portfolio. 40 Par Value Manufacturing - 0.4% MO State Development Finance Board, Proctor & Gamble Co., Series 1999, 5.200%, 03/15/29.......... $ 1,000,000 $ 982,910 NM Albuquerque Industrial Development Authority, Motorola, Inc., Series 1983 A, 10.000%, 06/01/13....... 1,000,000 1,018,690 ------------- 2,001,600 ------------- OTHER - 8.3% Refunded/Escrowed (e) - 8.3% CA Foothill/Eastern Transportation Corridor Agency, Series 1995 A, (a) 01/01/18........................... 10,000,000 4,551,800 CA Southern California Public Power Authority, Southern Transmission Project, Series 1988 A, (a) 07/01/14............ 8,155,000 4,739,931 FL State, Jacksonville Transportation Authority, Series 1985, 9.200%, 01/01/15.......... 2,000,000 2,817,740 GA Fulton County, Series 1992, 6.375%, 01/01/14.......... 13,270,000 15,697,746 NC Eastern Municipal Power Agency, Series 1991 A, 6.500%, 01/01/18........ 4,315,000 5,222,272 SC Calhoun County, Solid Waste Disposal Facilities, Eastman Kodak Co., Series 1992, 6.750%, 05/01/17....................... 3,000,000 3,630,000 ------------- 36,659,489 ------------- OTHER REVENUE - 1.3% Recreation - 1.1% CA Long Beach Aquarium of the Pacific, Series 1995 A, 6.125%, 07/01/23........ 3,000,000 3,357,750 FL Capital Trust Agency, Seminole Tribe Convention Center, Series 2002 A, 10.000%, 10/01/33....... 1,500,000 1,505,625 ------------- 4,863,375 ------------- Retail - 0.2% NJ State Economic Development Authority, Glimcher Properties L.P. Project, Series 1998, 6.000%, 11/01/28.......... 850,000 841,500 ------------- RESOURCE RECOVERY - 0.2% Disposal - 0.2% IL Development Finance Authority, Waste Management, Inc., Series 1997, 5.050%, 01/01/10.......... 500,000 483,330 MI State Strategic Fund, United Waste Systems, Inc., Series 1995, 5.200%, 04/01/10.......... 500,000 487,510 ------------- 970,840 ------------- See notes to investment portfolio. 41 Par Value TAX-BACKED - 33.0% Local Appropriated - 3.7% CA San Bernardino County, Series 2002 A, 5.000%, 07/01/15........ $ 2,210,000 $ 2,358,357 FL Orange County School Board, Series 2002 A, 5.250%, 08/01/15........ 1,000,000 1,074,840 IL Chicago Board of Education, Series 1992 A, 6.000%, 01/01/16........ 5,000,000 5,731,100 IN Crown Point School Building Corp., Series 2000: (a) 01/15/18......................... 1,550,000 691,145 (a) 01/15/19......................... 1,665,000 695,021 KY Lexington Fayette County, County Detention Center, Series 1999, 4.750%, 05/01/24.......... 1,420,000 1,342,383 SC Greenville County School District, Series 2002, 5.875%, 12/01/17.......... 2,000,000 2,162,880 TX Houston, Series 2000, 6.400%, 06/01/27 2,000,000 2,212,160 ------------- 16,267,886 ------------- Local General Obligations - 9.3% AK North Slope Borough: Series 1999 B, (a) 06/30/10............ 2,515,000 1,776,470 Series 2000 B, (a) 06/30/10............ 2,000,000 1,412,700 Series 2001 A, (a) 06/30/12............ 5,000,000 3,144,600 CA Golden West School Financing Authority, Series 1999 A, (a) 08/01/15............ 1,500,000 791,430 CA Los Angeles Unified School District, Series 2002, 5.750%, 07/01/16.......... 400,000 456,472 CA Union Elementary School District, Series 1999 A, (a) 09/01/17............ 2,300,000 1,063,198 CA West Contra Costa Unified School District, Series 2001 B, 6.000%, 08/01/24........ 465,000 529,444 CA Yuba City Unified School District, Series 2000, (a) 09/01/18.............. 1,160,000 501,039 FL Broward County, Series 1986, 12.500%, 01/01/04......... 1,195,000 1,377,202 HI Honolulu, Series 1998, 4.500%, 07/01/28 700,000 618,919 IL Champaign County, Series 1999, 8.250%, 01/01/20.......... 1,015,000 1,393,199 IL Chicago Board of Education: Series 1996, 6.250%, 12/01/12.......... 2,500,000 2,940,550 Series 1998 B-1: (a) 12/01/21.......................... 1,500,000 510,825 (a) 12/01/22.......................... 3,000,000 955,080 (a) 12/01/23.......................... 5,000,000 1,490,400 IL Chicago Emergency Telephone System, Series 1999, 5.500%, 01/01/23.......... 2,250,000 2,387,295 IL Chicago Public Building Commission, Series 1999 B, 5.250%, 12/01/18........ 2,000,000 2,110,740 IL Coles & Cumberland Counties Unified School District, Series 2000, (a) 12/01/13 3,120,000 1,824,826 IL Cook County School District No. 102, Series 2001, (a) 12/01/20.............. 3,065,000 1,136,012 See notes to investment portfolio. 42 Par Value Local General Obligations (cont) IL Will County Forest Preservation District, Series 1999, (a) 12/01/16.............. $ 1,000,000 $ 484,980 IL Will County Unified School District No. 365-UVY, Series 1999 B, (a) 11/01/18 1,900,000 810,749 LA New Orleans, Series 1991, (a) 09/01/12.............. 6,250,000 3,930,813 MO Springfield School District No.R-12, Series 1991 B, 9.500%, 03/01/07........ 600,000 762,516 PA Philadelphia School District, Series 2002 B, 5.625%, 08/01/16........ 500,000 542,665 PA Pittsburgh School District, Series 2002 A, 5.500%, 09/01/17........ 1,500,000 1,651,380 TX Galveston County, Series 2001: (a) 02/01/20........................... 1,500,000 580,500 (a) 02/01/22........................... 3,070,000 1,036,463 TX Hurst Euless Bedford Independent School District, Series 1998, 4.500%, 08/15/25.......... 5,000,000 4,421,400 TX Katy Independent School District, Series 2001, 4.750%, 02/15/22.......... 300,000 284,559 WA Clark County School District No. 37, Series 2001 C, (a) 12/01/20............ 1,150,000 423,948 ------------- 41,350,374 ------------- Special Non-Property Tax - 6.8% IL Metropolitan Pier & Exposition Authority, Series 1996 A: (a) 06/15/12.......................... 5,000,000 3,162,700 (a) 12/15/12.......................... 8,850,000 5,470,716 IL State: Series 2002-2, 5.500%, 06/15/15........ 2,000,000 2,209,300 Series 1992 Q, 6.000%, 06/15/12........ 10,000,000 11,407,900 MA State, Series 2002 A, 5.500%, 06/01/15........ 1,000,000 1,115,900 NY New York City Transitional Finance Authority, Series 1998 C, 4.750%, 05/01/23........ 2,000,000 1,869,260 NY State Local Government Assistance Corp., Series 1993 E, 5.000%, 04/01/21........ 1,000,000 1,010,880 PR Commonwealth of Puerto Rico, Public Building Authority, Series 2002 C, 5.500%, 07/01/15........ 1,000,000 1,091,470 TX Houston Hotel Occupancy Tax & Special Revenue, Series 2001 B, (a) 09/01/19... 3,460,000 1,387,910 WA Central Puget Sound Regional Transportation Authority, Series 1998, 5.250%, 02/01/21.......... 1,500,000 1,563,510 ------------- 30,289,546 ------------- Special Property Tax - 0.4% CA Huntington Beach Community Facilities District, Grand Coast Resort, Series 2001, 6.450%, 09/01/31.......... 500,000 506,875 See notes to investment portfolio. 43 Par Value Special Property Tax (cont) CA Santa Margarita Water District, Series 1999, 6.250%, 09/01/29.......... $ 750,000 $ 757,500 IL State Sports Facilities Authority, Series 2001, (a) 06/15/18.............. 1,000,000 435,200 ------------- 1,699,575 ------------- State Appropriated - 2.2% KY State Turnpike Authority, Series 1992, (a) 01/01/10.............. 7,500,000 5,452,425 MI State, 525 Redevco, Inc., Series 2000, (a) 06/01/21.............. 1,000,000 356,830 UT State Building Ownership Authority, Series 1998 C, 5.500%, 05/15/19........ 3,450,000 3,714,546 ------------- 9,523,801 ------------- State General Obligations - 10.6% FL State Board of Education, Series 1998 A, 4.750%, 06/01/28........ 1,000,000 934,810 FL State, Broward County Expressway, Series 1984, 9.875%, 07/01/09.......... 1,100,000 1,453,298 MA Massachusetts Bay Transportation Authority: Series 1992 B, 6.200%, 03/01/16........ 9,825,000 11,538,283 Series 1994 A: 7.000%, 03/01/14...................... 3,150,000 3,889,840 7.000%, 03/01/19...................... 2,500,000 3,116,600 Series 1998, 4.500%, 03/01/26.......... 3,805,000 3,406,312 MA State College Building Authority Project: Series 1994 A, 7.500%, 05/01/11........ 1,500,000 1,885,095 Series 1994 A, 7.500%, 05/01/14........ 3,500,000 4,473,945 PA State, Series 1992-2, 6.250%, 07/01/12 11,200,000 13,190,800 PR Commonwealth of Puerto Rico, Series 2001 A, 5.500%, 07/01/16........ 2,800,000 3,122,644 ------------- 47,011,627 ------------- TRANSPORTATION - 11.3% Air Transportation - 2.0% IL Chicago O'Hare International Airport, United Airlines, Inc., Series 2000 A, 6.750%, 11/01/11........ 1,600,000 812,000 IN Indianapolis Airport Authority, United Airlines Project, Series A, 6.500%, 11/15/31............. 3,000,000 2,058,750 KY Kenton County Airport Board, Delta Airlines, Inc., Series 1992 A, 7.500%, 02/01/20........ 1,000,000 987,520 MN Minneapolis & St. Paul Metropolitan Airports Commission, Northwest Airlines: Series 2001 A, 7.000%, 04/01/25....... 1,250,000 1,103,125 Series 2001 B, 6.500%, 04/01/25....... 500,000 480,625 NC Charlotte/Douglas International Airport, U.S. Airways, Inc.: Series 1998, 5.600%, 07/01/27......... 1,000,000 496,250 Series 2000, 7.750%, 02/01/28......... 1,000,000 537,500 See notes to investment portfolio. 44 Par Value Air Transportation (cont) NJ State Economic Development Authority, Continental Airlines, Inc., Series 1999, 6.400%, 09/15/23.......... $ 2,000,000 $ 1,705,000 TN Memphis-Shelby County Airport Authority, Federal Express Corp., Series 2002, 5.050%, 09/01/12.......... 500,000 505,120 ------------- 8,685,890 ------------- Airport - 1.9% HI State, Airport System Revenue, Series 1991, 6.900%, 07/01/12.......... 6,000,000 7,138,860 MA State Port Authority, Series 1999, 10.560%, 07/01/29......... 1,000,000 1,114,500 ------------- 8,253,360 ------------- Toll Facilities - 5.9% CO E-470 Public Highway Authority, Series 2000 B: (a) 09/01/18.......................... 4,600,000 1,992,536 (a) 09/01/19.......................... 3,500,000 1,415,750 NY Triborough Bridge & Tunnel Authority: Series 1991 X, 6.625%, 01/01/12........ 9,915,000 11,895,918 Series 1992 Y, 6.125%, 01/01/21........ 5,500,000 6,350,245 PA State Turnpike Commission, Series 1998 A, 4.750%, 12/01/27........ 3,415,000 3,190,805 VA Richmond Metropolitan Authority, Series 1998, 5.250%, 07/15/22.......... 1,100,000 1,148,774 ------------- 25,994,028 ------------- Transportation - 1.5% GA Metropolitan Atlanta Rapid Transit Authority, Series 1992 P, 6.250%, 07/01/20........ 4,000,000 4,699,360 NV State Department of Business & Industry, Las Vegas Monorail Project, Series 2000: 7.375%, 01/01/30...................... 650,000 637,813 7.375%, 01/01/40...................... 500,000 486,875 OH Toledo-Lucas County Port Authority, CSX Transportation, Inc., Series 1992, 6.450%, 12/15/21.......... 1,000,000 1,062,530 ------------- 6,886,578 ------------- UTILITY - 21.5% Independent Power Producer - 0.7% NY Suffolk County Industrial Development Agency, Nissequogue Cogen Partners, Series 1998, 5.500%, 01/01/23.......... 1,000,000 927,500 PR Commonwealth of Puerto Rico Industrial, Educational, Medical & Environmental Cogeneration Facilities, AES Project, Series 2000, 6.625%, 06/01/26....................... 650,000 676,351 See notes to investment portfolio. 45 Par Value Independent Power Producer (cont) VA Pittsylvania County Industrial Development Authority, Multitrade of Pittsyvania, Series 1994 A, 7.550%, 01/01/19....................... $ 1,500,000 $ 1,524,375 ------------- 3,128,226 ------------- Investor Owned - 1.1% IN Michigan City, Northern Indiana Public Service Co., Series 1973 A, 5.700%, 10/01/03........ 1,920,000 1,937,530 IN Petersburg, Series 1995 C, 5.950%, 12/01/29........ 1,500,000 1,393,140 IN State Development Finance Authority, Series 1999, 5.950%, 08/01/30.......... 1,000,000 919,720 TX Brazos River Authority, Texas Utilities Electric Co. Project, Series 2001, 5.750%, 05/01/36.......... 500,000 501,605 ------------- 4,751,995 ------------- Joint Power Authority - 9.4% GA State Municipal Electric Authority, Series 1991, 6.600%, 01/01/18.......... 21,300,000 25,840,653 NC Eastern Municipal Power Agency, Series 1991 A, 6.500%, 01/01/18........ 2,185,000 2,384,643 NC State Municipal Power Agency, Catawba No. 1, Series 1992, (a) 01/01/09 2,360,000 1,814,462 OH State Municipal Electricity Generation Agency, Series 2001, (a) 02/15/29.............. 3,000,000 706,200 TX State Municipal Power Agency, Series 1989, (a) 09/01/08.............. 1,475,000 1,164,901 WA State Public Power Supply System: Nuclear Project No. 2, Series 1992 A, 6.300%, 07/01/12...................... 3,500,000 4,073,755 Nuclear Project No. 3, Series 1989 B, (a) 07/01/08.......................... 7,000,000 5,556,810 ------------- 41,541,424 ------------- Municipal Electric - 3.8% NC University of North Carolina at Chapel Hill, Series 1997, (a) 08/01/20.............. 1,750,000 679,263 NY Long Island Power Authority, Series 2000 A, (a) 06/01/20............ 580,000 239,320 PA Westmoreland County Municipal Authority, Series 2000 A, (a) 08/15/23............ 1,400,000 438,494 PR Puerto Rico Electric Power Authority: Series 2002 JJ, 5.375%, 07/01/17...... 500,000 544,510 Series 2002 KK, 5.500%, 07/01/16...... 2,000,000 2,230,460 SD Heartland Consumers Power District, Series 1992, 6.000%, 01/01/17.......... 8,000,000 9,157,760 TX Austin Financial Service Department, Series 1998, 5.250%, 05/15/25.......... 3,710,000 3,804,679 ------------- 17,094,486 ------------- See notes to investment portfolio. 46 Par Value Water & Sewer - 6.5% AZ Mesa Utility System Revenue, Series 2002, 5.250%, 07/01/15.......... $ 1,600,000 $ 1,740,240 DE State Economic Development Authority, Wilmington Suburban Water Corp., Series 1992 B, 6.450%, 12/01/07........ 1,160,000 1,317,226 GA Atlanta Water & Wastewater Revenue: Series 1993, 5.500%, 11/01/22.......... 1,225,000 1,318,884 Series 2002 A, 5.500%, 11/01/27........ 1,500,000 1,601,820 GA Fulton County: Series 1998, 4.750%, 01/01/28.......... 3,750,000 3,490,537 Series 1992, 6.375%, 01/01/14.......... 430,000 501,720 PA Allegheny County Sanitation Authority, Series 1991 A, (a) 06/01/07............ 2,370,000 1,999,664 PA Dauphin County Industrial Development Authority, Dauphin Water Supply Co., Series 1992 A, 6.900%, 06/01/24........ 3,400,000 4,020,296 TX Houston Water & Sewer System Revenue: Series 1998, (a) 12/01/23.............. 3,500,000 1,063,020 Series 1991 C: (a) 12/01/08.......................... 4,000,000 3,128,800 (a) 12/01/09.......................... 4,000,000 2,957,120 (a) 12/01/10.......................... 3,750,000 2,611,762 TX Wichita Falls, Series 2001, 5.375%, 08/01/15.......... 2,895,000 3,086,620 ------------- 28,837,709 ------------- TOTAL MUNICIPAL BONDS (cost of $401,723,327)................... 437,008,773 ------------- Municipal Preferred Stocks - 0.5% Shares HOUSING - 0.5% Multi-Family - 0.5% Charter Municipal Mortgage Acceptance Co., 6.625%, 06/30/49 (d) (cost of $2,000,000)................... 2,000,000 2,077,500 ------------- Short-Term Obligations - 0.5% Par IA State Finance Authority, Diocese of Sioux City, Series 1999, VRDN, 1.300%, 03/01/19 (cost of $2,400,000) . $ 2,400,000 2,400,000 ------------- TOTAL INVESTMENTS - 99.7% (cost of $406,123,327) (f)............... 441,486,273 ------------- OTHER ASSETS & LIABILITIES, NET - 0.3%...... 1,174,039 ------------- NET ASSETS - 100.0% ........................ $442,660,312 ============= See notes to investment portfolio. 47 NOTES TO INVESTMENT PORTFOLIO: - -------------------------------------------------------------------------------- (a) Zero coupon bond. (b) This security, or a portion thereof, with a total market value of $3,081,598 are being used to collateralize open futures contracts. (c) This security is in default of certain debt covenants. Income is not being fully accrued. (d) These securities are exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2002, the value of these securities amounted to $4,230,000, which represents 1.0% of net assets. (e) The fund has been informed that each issuer has placed direct obligations of the U.S. Government in an irrevocable trust solely for the purpose of the payment of principal and interest. (f) Cost for generally accepted accounting principles is $406,123,327. Cost for federal income tax purposes is $406,013,044. The difference between cost for generally accepted accounting principles and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. Variable rate demand notes (VRDN) are considered short-term obligations. Interest rates change periodically on specified dates. These securities are payable on demand and are secured either by letters of credit or other credit support agreements from banks. The rates listed are as of June 30, 2002. Short futures contracts open at June 30, 2002: Par Value Unrealized Covered by Expiration Depreciation Type Contracts Month at 6/30/02 ----------- ------------ -------------- ---------- 10 Year U.S. $11,400,000 September $(218,703) Treasury Note See notes to financial statements. 48 SR&F High-Yield Municipals Portfolio Investment Portfolio June 30, 2002 Municipal Bonds - 95.6% Par Value EDUCATION - 5.1% Education - 1.9% IL State Development Finance Authority, Latin School of Chicago, Series 1998, 5.650%, 08/01/28....................... $ 1,725,000 $ 1,655,879 IL University of Illinois, Certificate of Participation, Utilities Infrastructure Projects, Series 2001 A, 5.500%, 08/15/16 725,000 775,953 MN Victoria, Holy Family Catholic High School, Series 1999 A, 5.875%, 09/01/29........ 1,200,000 1,087,500 WV State University, Series 2000 A, (a) 04/01/19........................... 1,250,000 517,688 ------------- 4,037,020 ------------- Student Loan - 3.2% NE Nebhelp, Inc., Series 1993 A-6, 6.450%, 06/01/18....................... 4,000,000 4,499,640 NM State Educational Assistance Foundation, Series 1996 A-2, 6.650%, 11/01/25...... 1,955,000 1,990,307 TX Brazos Higher Educational Facilities Authority, Series 1993 C-2, 5.875%, 06/01/04...... 390,000 391,061 ------------- 6,881,008 ------------- HEALTHCARE - 22.4% Congregate Care Retirement - 8.4% CA Statewide Community Development Authority, Eskaton Village - Grass Valley, Series 2000, 8.250%, 11/15/31....................... 1,000,000 1,066,250 FL Capital Project Finance Authority, Glenridge on Palmer Ranch, Series 2002 A, 8.000%, 06/01/32....................... 750,000 737,812 FL Orange County Health Facilities Authority, Orlando Lutheran Towers, Inc., Series 1996, 8.625%, 07/01/20....................... 3,000,000 3,187,500 IL State Health Facilities Authority, Lutheran Senior Ministries, Series 2001, 7.375%, 08/15/31....................... 300,000 302,625 MA State Development Finance Agency, Loomis Community Project: Series 1999 A, 5.625%, 07/01/15....... 400,000 370,576 Series 2002 A, 6.900%, 03/01/32....... 100,000 100,125 MO State Health & Educational Facilities Authority, Lutheran Senior Services, Series 1997, 5.750%, 02/01/17.......... 2,000,000 2,017,320 NH State Higher Educational & Health Facilities Authority, Rivermead at Peterborough, Series 1998, 5.750%, 07/01/28....................... 1,000,000 867,500 See notes to investment portfolio. 49 Par Value Congregate Care Retirement (cont) NJ State Economic Development Authority: Seabrook Village, Inc., Series 2000 A, 8.250%, 11/15/30...................... $ 625,000 $ 671,094 Winchester Gardens, Series 1996 A, 8.625%, 11/01/25...................... 2,000,000 2,085,000 PA Chartiers Valley Industrial & Commercial Development Authority, Asbury Health Center, Series 1999, 6.375%, 12/01/24....................... 750,000 709,687 PA Lancaster Industrial Development Authority, Garden Spot Village, Series 2000 A, 7.625%, 05/01/31....................... 500,000 518,125 TN Metropolitan Government, Nashville and Davidson County, Blakeford at Green Hills, Series 1998, 5.650%, 07/01/24.......... 1,250,000 1,085,937 TX Abilene Health Facilities Development Corp., Sears Methodist Retirement Obligation Group: Series 1998 A, 5.900%, 11/15/25....... 2,100,000 1,769,250 Series 1999, 6.000%, 11/15/29......... 500,000 430,000 WI State Health & Educational Facilities Authority: Attic Angel Obligated Group, Series 1998, 5.750%, 11/15/27...................... 1,250,000 1,021,875 Clement Manor, Series 1998, 5.750%, 08/15/24...................... 1,350,000 1,155,937 ------------- 18,096,613 ------------- Health Services - 0.5% MA State Development Finance Agency, Boston Biomedical Research Institute, Series 1999, 5.650%, 02/01/19.......... 250,000 235,613 MA State Health & Educational Facilities Authority, Civic Investments, Inc., Series 2002 A, 9.000%, 12/15/15........ 750,000 763,125 ------------- 998,738 ------------- Hospital - 8.6% AZ Health Facilities Authority, Phoenix Memorial Hospital, Series 1991, 8.125%, 06/01/12 (b)...... 2,325,144 767,298 CO La Junta, Arkansas Valley Regional Medical Center, Series 1999, 6.100%, 04/01/24.......... 500,000 484,105 CO State Health Care Facilities Authority: National Jewish Medical & Research Center, Series 1998, 5.375%, 01/01/23......... 250,000 234,223 Parkview Medical Center, Inc., Series 2001, 6.600%, 09/01/25......... 300,000 327,000 FL Orange County Health Facilities Authority, Orlando Regional Healthcare System: Series 1999, 6.000%, 10/01/26......... 875,000 895,484 Series 2002, 5.750%, 12/01/32......... 200,000 198,852 FL West Orange Healthcare District, Series 2001 A, 5.650%, 02/01/22........ 1,050,000 1,053,791 See notes to investment portfolio. 50 Par Value Hospital (cont) IL Southwestern Illinois Development Authority, Anderson Hospital, Series 1999: 5.500%, 08/15/20...................... $ 500,000 $ 469,825 5.625%, 08/15/29...................... 250,000 229,993 MA State Health & Educational Facilities Authority, Milford-Whitinsville Hospital, Series 2002 D, 6.350%, 07/15/32....................... 500,000 497,190 MI Dickinson County, Series 1999, 5.800%, 11/01/24....................... 1,300,000 1,202,032 MI Flint Hospital Building Authority, Hurley Medical Center, Series 1998 B, 5.375%, 07/01/28........ 1,250,000 1,048,662 MN Maplewood, Healtheast, Inc., Series 1996, 5.700%, 11/15/02.......... 500,000 497,060 NC State Medical Care Commission, Stanley Memorial Hospital, Series 1999, 6.375%, 10/01/29....................... 1,000,000 1,059,930 NH State Higher Educational & Health Facilities Authority, Littleton Hospital Assoc., Inc., Series 1998 A, 6.000%, 05/01/28....................... 1,000,000 786,250 NY New York City Industrial Development Agency, Staten Island University Hospital, Series 2001 B, 6.375%, 07/01/31........ 1,250,000 1,250,175 OH Highland County Joint Township Hospital District, Series 1999, 6.750%, 12/01/29....................... 1,220,000 1,133,075 OH Miami County, Upper Valley Medical Center, Inc., Series 1996 A, 6.375%, 05/15/26........ 1,015,000 1,021,070 TX Richardson Hospital Authority, Baylor Richardson Medical Center, Series 1998, 5.625%, 12/01/28.......... 1,200,000 1,152,936 TX Tyler Health Facilities Development Corp., Mother Frances Hospital, Series 1997 A, 5.625%, 07/01/13........ 1,785,000 1,784,946 WA State Health Care Facilities Authority, Kadlec Medical Center, Series 2001, 5.875%, 12/01/21.......... 600,000 621,522 WI State Health & Educational Facilities Authority, Wheaton Franciscan Services, Series 2002, 5.750%, 08/15/30.......... 600,000 601,848 WV State Hospital Finance Authority, Cam Care Charleston, Series 2000 A, 6.750%, 09/01/30....................... 1,000,000 1,082,930 ------------- 18,400,197 ------------- Intermediate Care Facilities - 1.4% IL State Development Finance Authority, Hoosier Care, Inc., Series 1999 A, 7.125%, 06/01/34....................... 1,490,000 1,305,612 IN State Health Facilities Financing Authority, Hoosier Care, Inc., Series 1999 A, 7.125%, 06/01/34....................... 150,000 131,438 See notes to investment portfolio. 51 Par Value Intermediate Care Facilities (cont) LA State Public Facilities Authority, Progressive Healthcare Providers, Inc., Series 1998, 6.375%, 10/01/28.......... $ 2,000,000 $ 1,550,000 ------------- 2,987,050 ------------- Nursing Home - 3.5% AK Juneau, St. Ann's Care Center, Series 1999, 6.875%, 12/01/25.......... 1,000,000 1,005,000 CO State Health Facilities Authority, Volunteers of America Care Facilities, Inc., Series 1999 A, 5.750%, 07/01/10........ 990,000 940,500 IA State Finance Authority, Care Initiatives, Series 1998 B, 5.500%, 07/01/08........ 565,000 548,756 IN State Health Facilities Financing Authority, Metro Health Indiana, Inc., Series 1998, 6.400%, 12/01/33 (b)................... 1,500,000 600,000 MA State Development Finance Agency, Alliance Health Care Facilities, Series 1999, 7.100%, 07/01/32.......... 1,250,000 1,245,312 MN Carlton, Inter-Faith Social Services, Inc., Series 2000, 7.750%, 04/01/29.......... 750,000 776,250 MN New Hope, North Ridge Care Center, Inc., Series 1999, 5.875%, 03/01/29.......... 600,000 548,250 MN Sartell, Foundation for Healthcare, Series 1999 A, 6.625%, 09/01/29........ 2,000,000 1,837,500 PA Chester County Industrial Development Authority, RHA/PA Nursing Home, Series 2002, 8.500%, 05/01/32.......... 125,000 116,250 ------------- 7,617,818 ------------- HOUSING - 6.0% Assisted Living/Senior - 2.2% DE Kent County, Heritage at Dover, Series 1999, 7.625%, 01/01/30.......... 1,485,000 1,321,650 GA Columbus Housing Authority, The Gardens at Calvary, Series 1999, 7.000%, 11/15/29....................... 1,000,000 835,000 NC State Medical Care Commission, DePaul Community Facilities Project, Series 1999, 7.625%, 11/01/29.......... 1,250,000 1,262,500 NY Huntington Housing Authority, Gurwin Jewish Senior Center, Series 1999: 5.875%, 05/01/19...................... 1,100,000 981,750 6.000%, 05/01/29...................... 375,000 329,063 ------------- 4,729,963 ------------- Multi-Family - 3.1% CO State Health Facilities Authority, Birchwood Manor, Series 1991 A, 7.250%, 04/01/11....................... 520,000 521,955 See notes to investment portfolio. 52 Par Value Multi-Family (cont) FL Broward County Housing Finance Authority, Chaves Lake Apartment Project, Series 2000, 7.500%, 07/01/40....................... $ 750,000 $ 765,000 FL Clay County Housing Finance Authority, Madison Commons Apartments, Series 2000 A, 7.450%, 07/01/40....................... 750,000 765,000 GA Clayton County Housing Authority, Magnolia Park Apartments, Series 1999 A, 6.250%, 06/01/30....................... 1,000,000 915,880 IL State Development Finance Authority, Catholic Charities Housing Development Corp., Series 1993 C, 5.950%, 01/01/09........ 1,400,000 1,449,000 IN New Castle, Raintree Apartments, Series 1988 B, (a) 03/01/18 (b)........ 30,625,000 76,563 OH Greater Allen County Housing Development Authority, Steiner-McBride Apartments, Series 1987, 10.250%, 09/01/03......... 535,000 536,295 TX El Paso County Housing Finance Corp., American Village Communities: Series 2000 C, 8.000%, 12/01/32....... 345,000 346,725 Series 2000 D, 10.000%, 12/01/32...... 400,000 402,000 TX State Affordable Housing Corp., NHT/GTEX LLC, Series 2001 C, 10.000%, 10/01/31....... 880,000 875,600 ------------- 6,654,018 ------------- Single Family - 0.7% IA State Housing Finance Authority, Series 1984 A, (a) 09/01/16............ 2,860,000 591,448 ID State Housing Agency, Series 1991 B, 7.500%, 07/01/24........ 855,000 872,485 UT State Housing Finance Agency, Series 1991 C-3, 7.550%, 07/01/23...... 50,000 50,542 ------------- 1,514,475 ------------- INDUSTRIAL - 7.9% Food Products - 2.1% IN Hammond, American Maize Products Co., Series 1994, 8.000%, 12/01/24.......... 3,250,000 3,380,942 MI State Strategic Fund, Michigan Sugar Co., Carollton Project, Series 1998 C, 6.550%, 11/01/25........ 1,500,000 1,061,250 ------------- 4,442,192 ------------- Forest Products - 3.4% GA Rockdale County Development Authority, Solid Waste Disposal, Visy Paper, Inc., Series 1993, 7.500%, 01/01/26 1,000,000 1,013,750 LA Beauregard Parish, Boise Cascade Project, Series 2002, 6.800%, 02/01/27.......... 1,000,000 999,910 See notes to investment portfolio. 53 Par Value Forest Products (cont) LA De Soto Parish, International Paper Company, Series 1994 A, 7.700%, 11/01/18........ $ 1,500,000 $ 1,611,405 MI Delta County Economic Development Corp., Mead Westvaco Escambia Project, Series 2002 B, 6.450%, 04/01/23........ 450,000 454,662 MS Lowndes County, Weyerhaeuser Corp., Series 1992 A, 6.800%, 04/01/22........ 2,995,000 3,308,547 ------------- 7,388,274 ------------- Manufacturing - 0.7% KS Wichita Airport Authority, Cessna Citation Service Center, Series 2002 A, 6.250%, 06/15/32........ 1,400,000 1,434,902 ------------- Metals & Mining - 0.3% NV State Department of Business & Industry, Wheeling-Pittsburgh Steel Corp., Series 1999 A, 8.000%, 09/01/14........ 250,000 175,000 VA Greensville County Industrial Development Authority, Wheeling Steel, Series 1999 A: 6.375%, 04/01/04...................... 90,000 63,000 7.000%, 04/01/14...................... 555,000 388,500 ------------- 626,500 ------------- Oil And Gas - 1.4% TX Gulf Coast Industrial Development Authority, Citgo Petroleum Project, Series 1998, 8.000%, 04/01/28.......... 500,000 504,985 TX Texas City Industrial Development Corp., Arco Pipe Line Co. Project, Series 1990, 7.375%, 10/01/20.......... 2,000,000 2,510,020 ------------- 3,015,005 ------------- OTHER - 9.8% Other - 1.3% CA Tobacco Securitization Authority, Series 2002 B, 6.000%, 06/01/43........ 1,100,000 1,056,352 LA Tobacco Settlement Financing Corp., Series 2001 B, 5.875%, 05/15/39........ 2,000,000 1,820,540 ------------- 2,876,892 ------------- Refunded/Escrowed (c) - 8.5% CO Adams County, Series 1991 B: 11.250%, 09/01/11 (d).................. 905,000 1,354,753 11.250%, 09/01/12...................... 1,440,000 2,276,438 FL Tampa Bay, Utility System Revenue, Series 1999, 9.970%, 10/01/11.......... 7,500,000 9,638,250 GA State Municipal Electric Authority, Series 1991 V, 6.600%, 01/01/18........ 690,000 842,676 NC Eastern Municipal Power Agency, Series 1991 A, 6.500%, 01/01/18........ 3,320,000 4,018,063 ------------- 18,130,180 ------------- See notes to investment portfolio. 54 Par Value OTHER REVENUE - 0.5% Recreation - 0.5% CT Mohegan Indians Tribe, Gaming Authority, Series 2001, 6.250%, 01/01/31.......... $ 275,000 $ 280,723 FL Capital Trust Agency, Seminole Tribe Convention Center, Series 2002 A, 10.000%, 10/01/33....... 750,000 752,812 ------------- 1,033,535 ------------- RESOURCE RECOVERY - 0.7% Disposal - 0.4% IL Development Finance Authority, Waste Management, Inc., Series 1997, 5.050%, 01/01/10.......... 250,000 241,665 UT Carbon County, Solid Waste Disposal Revenue, Laidlaw Environmental, Series 1997 A, 7.450%, 07/01/17........ 500,000 517,500 ------------- 759,165 ------------- Resource Recovery - 0.3% MA State Development Finance Agency, Ogden Haverhill Project, Series 1999 A, 6.700%, 12/01/14........ 750,000 682,830 ------------- TAX-BACKED - 15.6% Local Appropriated - 1.2% PA Philadelphia Municipal Authority, Series 1993 D, 6.250%, 07/15/13........ 2,500,000 2,568,050 ------------- Local General Obligations - 3.0% CA Los Angeles Unified School District: Series 1997 E, 5.125%, 01/01/27........ 3,800,000 3,810,298 Series 2002, 5.750%, 07/01/16.......... 800,000 912,944 CA Modesto High School District, Series 2002 A, (a) 08/01/19............ 1,350,000 546,655 NY New York City, Series 1996 B, 7.250%, 08/15/07........ 1,000,000 1,163,230 ------------- 6,433,127 ------------- Special Non-Property Tax - 4.2% CO State Department of Transportation Revenue: Series 2001 832R-A, 12.160%, 06/15/14.. 3,000,000 3,595,260 Series 2001 832R-B, 12.160%, 06/15/15.. 2,000,000 2,371,800 MO St. Louis County Industrial Development Authority, Kiel Center Arena, Series 1992, 7.875%, 12/01/24....................... 3,000,000 3,083,730 ------------- 9,050,790 ------------- See notes to investment portfolio. 55 Par Value Special Property Tax - 2.9% CA Huntington Beach Community Facilities District, Grand Coast Resort, Series 2000-1, 6.450%, 09/01/31....................... $ 750,000 $ 760,312 CA Orange County Community Facilities District, Ladera Ranch, Series 1999 A, 6.500%, 08/15/21....................... 1,000,000 1,045,000 FL Heritage Palms Community Development District, Series 1999, 6.250%, 11/01/04 820,000 832,300 FL Heritage Springs Community Development District, Series 1999 B, 6.250%, 05/01/05....................... 210,000 213,675 FL Lexington Oaks Community Development District: Series 2000 A, 7.200%, 05/01/30....... 595,000 622,519 Series 2000 D, 6.700%, 05/01/07....... 435,000 451,313 FL Northern Palm Beach County Improvement District, Series 1999, 6.000%, 08/01/29....................... 750,000 758,437 FL Orlando, Conroy Road Interchange Project, Series 1998 A: 5.500%, 05/01/10...................... 200,000 200,500 5.800%, 05/01/26...................... 300,000 291,750 FL Stoneybrook Community Development District, Series 1998 A, 6.100%, 05/01/19........ 530,000 533,313 MI Pontiac Finance Authority, Development Area No. 3, Series 2002, 6.375%, 06/01/31....................... 550,000 543,813 ------------- 6,252,932 ------------- State Appropriated - 1.1% NY Triborough Bridge & Tunnel Authority, Javits Convention Center Project, Series 1990 E, 7.250%, 01/01/10........ 2,000,000 2,352,100 ------------- State General Obligations - 3.2% MA Massachusetts Bay Transportation Authority, Series 1992 B, 6.200%, 03/01/16........ 5,825,000 6,840,763 ------------- TRANSPORTATION - 8.1% Air Transportation - 4.6% IL Chicago O'Hare International Airport, United Airlines, Inc., Series 2000 A, 6.750%, 11/01/11........ 800,000 406,000 IN Indianapolis Airport Authority, Federal Express Corp., Series 1994, 7.100%, 01/15/17.......... 3,000,000 3,206,820 MN Minneapolis & St. Paul Metropolitan Airports Commission, Northwest Airlines: Series 2001 A, 7.000%, 04/01/25....... 500,000 441,250 Series 2001 B, 6.500%, 04/01/25....... 250,000 240,313 NC Charlotte, US Airway, Inc.: Series 1998, 5.600%, 07/01/27.......... 250,000 124,063 Series 2000, 7.750%, 02/01/28.......... 750,000 403,125 See notes to investment portfolio. 56 Par Value Air Transportation (cont) PA Philadelphia Authority for Industrial Development, Aero Philadelphia, Series 1999, 5.500%, 01/01/24....................... $ 1,000,000 $ 787,500 TX Alliance Airport Authority, AMR Corp., Series 1991, 7.000%, 12/01/11....................... 4,070,000 3,728,364 WA Port Seattle, Northwest Airlines, Inc., Series 2000, 7.250%, 04/01/30.......... 500,000 451,250 ------------- 9,788,685 ------------- Ports - 1.4% WA Port of Seattle, Series 2000: 10.420%, 02/01/10...................... 625,000 764,762 10.420%, 02/01/11...................... 1,875,000 2,328,750 ------------- 3,093,512 ------------- Toll Facilities - 1.6% CO E-470 Public Highway Authority, Series 2000 B: (a) 09/01/18.......................... 4,000,000 1,732,640 (a) 09/01/35.......................... 8,750,000 761,425 CO Northwest Parkway Public Highway Authority, Series 2001 D, 7.125%, 06/15/41........ 1,000,000 1,027,500 ------------- 3,521,565 ------------- Transportation - 0.5% NV State Department of Business & Industry, Las Vegas Monorail Project, Series 2000, 7.375%, 01/01/40.......... 1,000,000 973,750 ------------- UTILITY - 19.5% Independent Power Producer - 6.0% MI Midland County Economic Development Corp., Series 2000, 6.875%, 07/23/09.......... 1,000,000 1,018,750 PA State Economic Development Financing Authority, Northampton Generating: Series 1994 A, 6.500%, 01/01/13....... 2,000,000 2,026,480 Series 1994 B, 6.750%, 01/01/07....... 3,000,000 3,085,080 VAPittsylvania County Industrial Development Authority, Multitrade of Pittsyvania, Series 1994 A: 7.450%, 01/01/09...................... 3,500,000 3,578,750 7.550%, 01/01/19...................... 3,100,000 3,150,375 ------------- 12,859,435 ------------- Investor Owned - 5.6% CT State Development Authority, Connecticut Light & Power Co., Series 1993 A, 5.850%, 09/01/28........ 1,400,000 1,432,928 IN Petersburg, Indiana Power & Light, Series 1991, 5.750%, 08/01/21.......... 1,000,000 939,340 See notes to investment portfolio. 57 Par Value Investor Owned (cont) LA Calcasieu Parish Industrial Development Board, Entergy Gulf States, Inc., Series 1999, 5.450%, 07/01/10.......... $ 500,000 $ 496,250 LA West Feliciana Parish, Entergy Gulf States, Inc., Series 1999 B, 6.600%, 09/01/28........ 250,000 252,500 MS State Business Finance Corp., Systems Energy Resources, Inc., Series 1999, 5.900%, 05/01/22.......... 1,250,000 1,182,813 NM Farmington, Tucson Electric Power Co., Series 1997 A, 6.950%, 10/01/20........ 2,000,000 2,077,500 NV Humboldt County Pollution Control Revenue, Idaho Power Co. Project, Series 1984, 8.300%, 12/01/14....................... 2,000,000 2,220,100 PA Beaver County Industrial Development Authority, Toledo Edison Co., Series 1995, 7.625%, 05/01/20.......... 2,000,000 2,147,500 TX Brazos River Authority, Texas Utilities Electric Co. Project, Series 2001, 5.750%, 05/01/36.......... 1,300,000 1,304,173 ------------- 12,053,104 ------------- Joint Power Authority - 5.4% GA State Municipal Electric Authority, Series 1991 V, 6.600%, 01/01/18........ 3,375,000 4,014,394 NC Eastern Municipal Power Agency, Series 1991 A, 6.500%, 01/01/18........ 1,680,000 1,833,502 WA State, Public Power Supply System, Series 1991 A: (a) 07/01/07.......................... 3,395,000 2,856,247 (a) 07/01/07.......................... 3,550,000 2,977,846 ------------- 11,681,989 ------------- Municipal Electric - 0.5% WA Seattle, Series 2001, 5.500%, 03/01/17.......... 1,000,000 1,060,040 ------------- Water & Sewer - 2.0% NH State Industrial Development Authority, Pennichuck Water Works, Inc., Series 1988, 7.500%, 07/01/18.......... 505,000 556,131 PA Dauphin County Industrial Development Authority, Dauphin Water Supply Co., Series 1992 A, 6.900%, 06/01/24........ 3,200,000 3,783,808 ------------- 4,339,939 ------------- TOTAL MUNICIPAL BONDS (cost of $202,673,038)................... 205,176,156 ------------- See notes to investment portfolio. 58 Municipal Preferred Stocks - 1.5% Shares Value HOUSING - 1.5% Multi-Family - 1.5% Charter Municipal Mortgage Acceptance Co.: 6.625%, 06/30/49 (e)................... 2,000,000 $ 2,077,500 7.600%, 11/30/50 (e)................... 1,000,000 1,073,750 ------------- TOTAL MUNICIPAL PREFERRED STOCKS (cost of $3,000,000)..................... 3,151,250 ------------- Short-Term Obligations - 1.2% Par Variable Rate Demand Notes - 1.2% IA State Finance Authority, Burlington Medical Center, Series 1997, 1.900%, 06/01/27.......... $ 620,000 620,000 IL Quad Cities Regional Economic Development Authority, Two Rivers YMCA Project, 1.950%, 12/01/31....................... 400,000 400,000 KS State Development Finance Authority, Series 2000, 1.900%, 05/15/26.......... 200,000 200,000 MN Mankato, Bethany Lutheran College, Series 2000 B, 1.900%, 11/01/15........ 500,000 500,000 MN Minneapolis, Series 1998 B, 1.200%, 12/01/16........ 100,000 100,000 MS Jackson County, Chevron U.S.A., Inc. Project, 1.750%, 12/01/16.............. 400,000 400,000 WI State Health & Educational Facilities Authority, Prohealth, Inc., Series 2001 B, 1.900%, 08/15/30....................... 400,000 400,000 ------------- TOTAL SHORT-TERM OBLIGATIONS (cost of $2,620,000)..................... 2,620,000 ------------- TOTAL INVESTMENTS - 98.3% (cost of $208,293,038) (f)............... 210,947,406 ------------- OTHER ASSETS & LIABILITIES, NET - 1.7%...... 3,612,412 ------------- NET ASSETS - 100.0%......................... $214,559,818 ============= See notes to investment portfolio. 59 NOTES TO INVESTMENT PORTFOLIO: - -------------------------------------------------------------------------------- (a) Zero coupon bond. (b) This security is in default of certain debt covenants. Income is not being fully accrued. (c) The fund has been informed that each issuer has placed direct obligations of the U.S. Government in an irrevocable trust solely for the purpose of the payment of principal and interest. (d) This security, or a portion thereof, with a total market value of $475,235 are being used to collateralize open futures contracts. (e) These securities are exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2002, the value of these securities amounted to $3,151,250, which represents 1.5% of net assets. (f) Cost for generally accepted accounting principles is $208,293,038. Cost for federal income tax purposes is $208,105,934. The difference between cost for generally accepted accounting principles and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. Variable rate demand notes (VRDN) are considered short-term obligations. Interest rates change periodically on specified dates. These securities are payable on demand and are secured either by letters of credit or other credit support agreements from banks. The rates listed are as of June 30, 2002. Long futures contracts open at June 30, 2002: Par Value Unrealized Covered by Expiration Appreciation Type Contracts Month at 6/30/02 ----------- ------------ -------------- ---------- 30 Year U.S. $7,800,000 September $148,889 Treasury Bond Short futures contracts open at June 30, 2002: Par Value Unrealized Covered by Expiration Depreciation Type Contracts Month at 6/30/02 ----------- ------------ -------------- ---------- 10 Year U.S. $26,700,000 September $(371,418) Treasury Note See notes to financial statements. 60 This page intentionally left blank 61 Financial Statements Statements of Assets and Liabilities June 30, 2002 SR&F SR&F MUNICIPAL HIGH-YIELD MONEY MARKET MUNICIPALS PORTFOLIO PORTFOLIO -------------- -------------- Assets: Investments, at cost....................... $131,052,025 $208,293,038 -------------- -------------- Investments, at value...................... $131,052,025 $210,947,406 Cash....................................... 79,144 41,523 Receivable for: Investments sold........................ 20,000 1,880,776 Interest................................ 456,216 3,735,487 Futures variation margin................ -- 15,281 Deferred Trustees' compensation plan....... 324 324 Other assets............................... 11,819 -- -------------- -------------- Total Assets............................ 131,619,528 216,620,797 -------------- -------------- Liabilities: Payable for: Investments purchased................... 2,023,380 1,964,518 Management fee.......................... 28,312 72,390 Transfer agent fee...................... 500 500 Pricing and bookkeeping fees............ 834 1,289 Trustees' fee........................... 456 -- Audit fee............................... 17,650 17,575 Deferred Trustees' fee..................... 324 324 Other liabilities.......................... 4,828 4,383 -------------- -------------- Total Liabilities.................. 2,076,284 2,060,979 -------------- -------------- Net Assets Applicable to Investors' Beneficial Interest................................... $129,543,244 $214,559,818 ============== ============== See notes to financial statements. 62 Statements of Operations For the Year Ended June 30, 2002 SR&F SR&F MUNICIPAL HIGH-YIELD MONEY MARKET MUNICIPALS PORTFOLIO PORTFOLIO ------------- ------------ Investment Income: Interest................................... $2,588,192 $14,365,526 ------------- -------------- Expenses: Management fee............................. 308,728 956,252 Pricing and bookkeeping fees............... 24,974 32,664 Transfer agent fee......................... 6,000 6,000 Trustees' fee.............................. 5,794 5,439 Custody fee................................ 4,324 6,765 Audit fee.................................. 17,194 17,747 Other expenses............................. 5,478 42,717 ------------- -------------- Total Expenses.......................... 372,492 1,067,584 Custodian earnings credit.................. (1,728) (2,795) ------------- -------------- Net Expenses............................ 370,764 1,064,789 ------------- -------------- Net Investment Income...................... 2,217,428 13,300,737 ------------- -------------- Net Realized and Unrealized Gain (Loss) on Portfolio Positions: Net realized gain (loss) on: Investments............................. (10,787) (210,443) Futures contracts....................... -- 440,537 ------------- -------------- Net realized gain (loss).............. (10,787) 230,094 ------------- -------------- Net change in unrealized appreciation/depreciation on: Investments............................. -- 2,800,181 Futures contracts....................... -- (89,953) ------------- -------------- Net change in unrealized appreciation/ depreciation........................ -- 2,710,228 ------------- -------------- Net Gain (Loss)......................... (10,787) 2,940,322 ------------- -------------- Increase in Net Assets from Operations..... $2,206,641 $16,241,059 ------------- -------------- See notes to financial statements. 63
Statements of Changes in Net Assets SR&F MUNICIPAL SR&F HIGH-YIELD MONEY MARKET PORTFOLIO MUNICIPALS PORTFOLIO ---------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED Increase (Decrease) in Net Assets: JUNE 30, JUNE 30, JUNE 30, JUNE 30, - ---------------------------------- 2002 2001 2002 2001 -------------------------------------------------------- Operations: Net investment income................................................ $ 2,217,428 $ 4,704,024 $ 13,300,737 $ 14,893,101 Net realized gain (loss) on investments and futures contracts........ (10,787) (30,258) 230,094 (2,167,283) Net change in unrealized appreciation/depreciation on investments and futures contracts............................................. -- 2,978 2,710,228 4,173,176 -------------------------------------------------------- Net Increase from Operations...................................... 2,206,641 4,676,744 16,241,059 16,898,994 -------------------------------------------------------- Transactions in Investors' Beneficial Interest: Contributions........................................................ 100,780,374 88,227,756 19,064,963 6,138,469 Withdrawals.......................................................... (94,642,464) (96,785,086) (46,121,169) (51,309,604) -------------------------------------------------------- Net Increase (Decrease) from Transactions in Investors' Beneficial Interest............................................ 6,137,910 (8,557,330) (27,056,206) (45,171,135) -------------------------------------------------------- Total Increase (Decrease) in Net Assets........................... 8,344,551 (3,880,586) (10,815,147) (28,272,141) Net Assets: Beginning of period.................................................. 121,198,693 125,079,279 225,374,965 253,647,106 -------------------------------------------------------- End of period........................................................ $129,543,244 $121,198,693 $214,559,818 $225,374,965 ========================================================
See notes to financial statements. 64-65 SPREAD
Statements of Assets and Liabilities June 30, 2002 STEIN ROE STEIN ROE STEIN ROE STEIN ROE MUNICIPAL INTERMEDIATE MANAGED HIGH-YIELD MONEY MARKET MUNICIPALS MUNICIPALS MUNICIPALS FUND FUND FUND FUND -------------------------------------------------------- Assets: Investments in Portfolio, at value........................................ $112,482,924 $-- $-- $214,559,706 Investments, at value (cost $140,265,859 and $406,123,327, respectively).. -- 151,332,424 441,486,273 -- Cash...................................................................... -- 39,123 45,943 -- Receivable for: Investments sold....................................................... -- 55,000 115,000 -- Fund shares sold....................................................... 12,143 228,838 13,738 7,015 Interest............................................................... -- 2,307,768 7,008,590 -- Futures variation margin............................................... -- -- 10,688 -- Expense reimbursement due from Advisor.................................... -- 19,948 -- -- Deferred Trustees' compensation plan...................................... 625 1,554 1,551 945 Other assets.............................................................. -- -- -- 114 -------------------------------------------------------- Total Assets...................................................... 112,495,692 153,984,655 448,681,783 214,567,780 -------------------------------------------------------- Liabilities: Expense reimbursement due to Advisor...................................... 28,831 -- -- -- Payable for: Investments purchased.................................................. -- 5,468,806 3,866,797 -- Fund shares repurchased................................................ 830,567 161,516 214,998 166,169 Distributions.......................................................... 19,371 518,560 1,631,688 965,958 Management fee......................................................... -- 53,464 142,022 -- Administration fee..................................................... 24,352 19,049 38,485 24,787 Transfer agent fee..................................................... 14,411 10,910 46,800 24,378 Pricing and bookkeeping fees........................................... 3,614 5,281 13,769 6,821 Merger fee............................................................. -- -- -- 26,912 Trustees' fee.......................................................... 691 833 112 44 Audit fee.............................................................. 9,900 21,717 21,717 14,075 Reports to shareholders................................................ 18,450 7,620 26,160 18,783 Deferred Trustees' fee.................................................... 625 1,554 1,551 945 Other liabilities......................................................... 3,967 3,891 17,372 6,372 -------------------------------------------------------- Total Liabilities................................................. 954,779 6,273,201 6,021,471 1,255,244 -------------------------------------------------------- Net Assets................................................................ $111,540,913 $147,711,454 $442,660,312 $213,312,536 ======================================================== Composition of Net Assets: Paid-in capital........................................................... $111,560,459 $137,169,973 $409,272,415 $219,249,974 Undistributed (overdistributed) net investment income..................... 30,267 (107,990) (99,213) (35,919) Accumulated net realized loss............................................. (50,801) (417,094) (1,657,133) (8,333,358) Net unrealized appreciation/depreciation on: Investments............................................................ 988 11,066,565 35,362,946 2,654,368 Futures contracts...................................................... -- -- (218,703) (222,529) -------------------------------------------------------- Net Assets................................................................ $111,540,913 $147,711,454 $442,660,312 $213,312,536 ========================================================
See notes to financial statements. 66-67 SPREAD
Statements of Assets and Liabilities (cont) June 30, 2002 STEIN ROE STEIN ROE STEIN ROE STEIN ROE MUNICIPAL INTERMEDIATE MANAGED HIGH-YIELD MONEY MARKET MUNICIPALS MUNICIPALS MUNICIPALS FUND FUND FUND FUND ------------------------------------------ -------------- CLASS A: Net assets.................................................. $ -- $ 15,112,932 $ -- $ 41,904 Shares outstanding (unlimited number authorized)............ -- 1,324,556 -- 3,722 ============= ============ ============= ============== Net asset value price per share............................. $ -- $ 11.41(a) $ -- 11.26(a) ============= ============ ============= ============== Maximum offering price per share............................ $ -- $ 11.79(b) $ -- $ 11.82(c) ============= ============ ============= ============== CLASS B: Net assets.................................................. $ -- $ 3,669,374 $ -- $ -- Shares outstanding (unlimited number authorized)............ -- 321,603 -- -- ============= ============ ============= ============== Net asset value and offering price per share................ $ -- $ 11.41(a) $ -- $ -- ============= ============ ============= ============== CLASS C: Net assets.................................................. $ -- $ 673,656 $ -- $ -- Shares outstanding (unlimited number authorized)............ -- 59,041 -- -- ============= ============ ============= ============== Net asset value and offering price per share................ $ -- $ 11.41(a) $ -- $ -- ============= ============ ============= ============== CLASS S: Net assets.................................................. $ 111,540,913 $128,255,492 $442,660,312 $ 213,270,632 Shares outstanding (unlimited number authorized)............ 111,511,174 11,239,094 49,473,011 18,940,749 ============= ============ ============= ============== Net asset value, offering and redemption price per share.... $ 1.00 $ 11.41 $ 8.95 $ 11.26 ============= ============ ============= ============== (a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) Computation of offering price: 100/96.75. On sales of $100,000 or more offering price is reduced. (c) Computation of offering price: 100/95.25. On sales of $50,000 or more offering price is reduced. See notes to financial statements.
68-69 SPREAD
Statements of Operations For the Year Ended June 30, 2002 STEIN ROE STEIN ROE STEIN ROE STEIN ROE MUNICIPAL INTERMEDIATE MANAGED HIGH-YIELD MONEY MARKET MUNICIPALS MUNICIPALS MUNICIPALS FUND FUND FUND FUND -------------------------------------------------------- Investment Income: Interest allocated from Portfolio............................. $2,305,984 $ -- $ -- $14,365,518 Interest...................................................... -- 8,024,148 25,336,959 -- ------------ ------------------------- ------------- Total Investment Income.................................... 2,305,984 8,024,148 25,336,959 14,365,518 ------------ ------------------------- ------------- Expenses: Expenses allocated from Portfolio............................. 331,611 -- -- 1,064,789 Management fee................................................ -- 675,743 1,886,751 -- Administration fee............................................ 275,697 218,426 528,381 293,754 Distribution fee: Class B.................................................... -- 34,334 -- -- Class C.................................................... -- 1,532 -- -- Service fee: Class A.................................................... -- 28,061 -- 8 Class B.................................................... -- 10,565 -- -- Class C.................................................... -- 1,532 -- -- Pricing and bookkeeping fees.................................. 44,083 81,902 197,346 82,498 Transfer agent fee............................................ 182,019 192,377 627,089 334,558 Trustees' fee................................................. 8,331 11,051 15,831 10,699 Custody fee................................................... 1,175 4,756 12,450 1,258 Registration fee.............................................. 28,297 62,398 50,425 49,284 Other expenses................................................ 45,002 81,648 125,461 102,600 ------------ ------------------------- ------------- Total Expenses............................................. 916,215 1,404,325 3,443,734 1,939,448 Fees and expenses waived or reimbursed by Advisor............. (145,982) (244,512) -- -- Custody earnings credit....................................... -- (2,536) (5,921) -- ------------ ------------------------- ------------- Net Expenses............................................... 770,233 1,157,277 3,437,813 1,939,448 ------------ ------------------------- ------------- Net Investment Income......................................... 1,535,751 6,866,871 21,899,146 12,426,070 ------------ ------------------------- ------------- Net Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: Net realized gain (loss) on: Investments allocated from Portfolio....................... (9,466) -- -- 230,094 Investments................................................ -- 879,328 5,359,905 -- Futures contracts.......................................... -- 157,304 4,244,406 -- ------------ ------------------------- ------------- Net realized gain (loss)............................... (9,466) 1,036,632 9,604,311 230,094 ------------ ------------------------- ------------- Net change in unrealized appreciation/depreciation on: Investments allocated from Portfolio....................... 577 -- -- 2,710,228 Investments................................................ -- 907,696 1,242,489 -- Futures contracts.......................................... -- -- (1,332,683) -- ------------ ------------------------- ------------- Net change in unrealized appreciation/depreciation on investments and futures contracts................... 577 907,696 (90,194) 2,710,228 ------------ ------------------------- ------------- Net Gain (Loss)............................................ (8,889) 1,944,328 9,514,117 2,940,322 ------------ ------------------------- ------------- Increase in Net Assets from Operations........................ $1,526,862 $8,811,199 $31,413,263 $15,366,392 ------------ ------------------------- -------------
See notes to financial statements. 70-71 SPREAD
Statements of Changes in Net Assets STEIN ROE STEIN ROE MUNICIPAL MONEY INTERMEDIATE MARKET FUND MUNICIPALS FUND -------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED Increase (Decrease) in Net Assets: JUNE 30, JUNE 30, JUNE 30, JUNE 30, - ---------------------------------- 2002 2001 2002 2001 (a) -------------- ----------- ------------- ------------ Operations: Net investment income............................................. $ 1,535,751 $ 3,794,983 $ 6,866,871 $ 6,921,330 Net realized gain on investments and futures contracts............ -- -- 1,036,632 209,438 Net realized loss on investments allocated from Portfolio......... (9,466) (26,245) -- -- Net change in unrealized appreciation/depreciation on investments and futures contracts......................................... -- -- 907,696 4,602,773 Net change in unrealized appreciation/depreciation on investments allocated from Portfolio...................................... 577 2,624 -- -- -------------- ----------- ------------- ------------ Net Increase from Operations...................................... 1,526,862 3,771,362 8,811,199 11,733,541 -------------- ----------- ------------- ------------ Distributions Declared to Shareholders: From net investment income: Class A........................................................ -- -- (627,342) (244,149) Class B........................................................ -- -- (210,511) (125,866) Class C........................................................ -- -- (32,608) (20,059) Class S........................................................ (1,527,113) (3,866,466) (6,200,599) (6,557,559) From net realized gains: Class A........................................................ -- -- (103,290) -- Class B........................................................ -- -- (34,660) -- Class C........................................................ -- -- (5,369) -- Class S........................................................ -- -- (1,020,913) -- -------------- ----------- ------------- ------------ Total Distributions Declared to Shareholders...................... (1,527,113) (3,866,466) (8,235,292) (6,947,633) -------------- ----------- ------------- ------------ Share Transactions: Class A: Subscriptions.................................................. -- -- 3,110,265 1,108,278 Proceeds received in connection with mergers................... -- -- -- 12,945,029 Distributions reinvested....................................... -- -- 443,182 150,003 Redemptions.................................................... -- -- (1,493,623) (1,196,465) -------------- ----------- ------------- ------------ Net Increase................................................ -- -- 2,059,824 13,006,845 -------------- ----------- ------------- ------------ Class B: Subscriptions.................................................. -- -- 209,627 83,707 Proceeds received in connection with mergers................... -- -- -- 8,267,463 Distributions reinvested....................................... -- -- 128,411 70,869 Redemptions.................................................... -- -- (3,674,044) (1,417,028) -------------- ----------- ------------- ------------ Net Increase (Decrease)..................................... -- -- (3,336,006) 7,005,011 -------------- ----------- ------------- ------------ Class C: Subscriptions.................................................. -- -- 4,004 2,114 Proceeds received in connection with mergers................... -- -- -- 1,361,552 Distributions reinvested....................................... -- -- 17,502 10,813 Redemptions.................................................... -- -- (318,052) (410,246) -------------- ----------- ------------- ------------ Net Increase (Decrease)..................................... -- -- (296,546) 964,233 -------------- ----------- ------------- ------------ (a) Class A, B and C shares were initially offered on January 26, 2001.
See notes to financial statements. 72-73 SPREAD
Statements of Changes in Net Assets (cont) STEIN ROE STEIN ROE MUNICIPAL MONEY INTERMEDIATE MARKET FUND MUNICIPALS FUND -------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED Increase (Decrease) in Net Assets: JUNE 30, JUNE 30, JUNE 30, JUNE 30, - ---------------------------------- 2002 2001 2002 2001 (a) -------------- ----------- ------------- ------------ Share Transactions (cont) Class S: Subscriptions.......................................... 140,392,783 164,319,147 41,334,803 23,609,168 Distributions reinvested............................... 1,397,185 3,539,356 5,158,255 4,902,426 Redemptions............................................ (138,325,663)(173,501,211) (50,917,181) (36,951,191) -------------- ----------- ------------- ------------ Net Increase (Decrease)............................. 3,464,305 (5,642,708) (4,424,123) (8,439,597) -------------- ----------- ------------- ------------ Net Increase (Decrease) from Share Transactions........... 3,464,305 (5,642,708) (5,996,851) 12,536,492 -------------- ----------- ------------- ------------ Total Increase (Decrease) in Net Assets................... 3,464,054 (5,737,812) (5,420,944) 17,322,400 Net Assets: Beginning of period....................................... 108,076,859 113,814,671 153,132,398 135,809,998 -------------- ----------- ------------- ------------ End of period............................................. $111,540,913 $108,076,859 $147,711,454 $153,132,398 ============== =========== ============= ============ Undistributed (overdistributed) net investment income..... $ 30,267 $ 21,629 $ (107,990) $ (6,222) -------------- ----------- ------------- ------------ Changes in Shares: Class A: Subscriptions.......................................... -- -- 273,108 97,018 Issued in connection with mergers...................... -- -- -- 1,136,725 Issued for distributions reinvested.................... -- -- 39,069 13,207 Redemptions............................................ -- -- (130,918) (103,653) -------------- ----------- ------------- ------------ Net Increase........................................ -- -- 181,259 1,143,297 -------------- ----------- ------------- ------------ Class B: Subscriptions.......................................... -- -- 18,478 7,027 Issued in connection with mergers...................... -- -- -- 725,980 Issued for distributions reinvested.................... -- -- 11,302 6,237 Redemptions............................................ -- -- (322,860) (124,561) -------------- ----------- ------------- ------------ Net Increase (Decrease)............................. -- -- (293,080) 614,683 -------------- ----------- ------------- ------------ Class C: Subscriptions.......................................... -- -- 350 128 Issued in connection with mergers...................... -- -- -- 119,560 Issued for distributions reinvested.................... -- -- 1,539 952 Redemptions............................................ -- -- (27,522) (35,966) -------------- ----------- ------------- ------------ Net Increase (Decrease)............................. -- -- (25,633) 84,674 -------------- ----------- ------------- ------------ Class S: Subscriptions.......................................... 140,387,946 164,331,679 3,608,607 2,093,635 Issued for distributions reinvested.................... 1,397,185 3,539,356 453,809 436,242 Redemptions............................................ (138,325,663)(173,501,211) (4,456,535) (3,287,944) -------------- ----------- ------------- ------------ Net Increase (Decrease)............................. 3,459,468 (5,630,176) (394,119) (758,067) -------------- ----------- ------------- ------------ (a) Class A, B and C shares were initially offered on January 26, 2001.
See notes to financial statements. 74-75 SPREAD
Statements of Changes in Net Assets STEIN ROE STEIN ROE MANAGED HIGH-YIELD MUNICIPALS FUND MUNICIPALS FUND ------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED Increase (Decrease) in Net Assets: JUNE 30, JUNE 30, JUNE 30, JUNE 30, - ---------------------------------- 2002 2001 2002 2001 (a) -------------------------------------------------------- Operations: Net investment income................................................ $ 21,899,146 $ 23,529,354 $ 12,426,070 $ 14,079,156 Net realized gain on investments and futures contracts............... 9,604,311 2,610,060 -- -- Net realized gain (loss) on investments allocated from Portfolio..... -- -- 230,094 (2,167,497) Net change in unrealized appreciation/depreciation on investments and futures contracts............................................ (90,194) 18,804,629 -- -- Net change in unrealized appreciation/depreciation on investments allocated from Portfolio.......................................... -- -- 2,710,228 4,172,995 -------------------------------------------------------- Net Increase from Operations......................................... 31,413,263 44,944,043 15,366,392 16,084,654 -------------------------------------------------------- Distributions Declared to Shareholders: From net investment income: Class A........................................................... -- -- (166) (53) Class S........................................................... (21,918,700) (23,563,083) (12,751,456) (14,034,351) From net realized gains: Class S........................................................... (10,784,241) (3,397,797) -- -- -------------------------------------------------------- Total Distributions Declared to Shareholders......................... (32,702,941) (26,960,880) (12,751,622) (14,034,404) -------------------------------------------------------- Share Transactions: Class A: Subscriptions..................................................... -- -- 40,656 1,000 Distributions reinvested.......................................... -- -- 56 53 -------------------------------------------------------- Net Increase................................................... -- -- 40,712 1,053 -------------------------------------------------------- Class S: Subscriptions..................................................... 123,618,485 117,914,498 32,494,590 16,198,748 Distributions reinvested.......................................... 20,950,871 16,506,899 7,872,926 9,458,044 Redemptions....................................................... (154,985,466)(156,243,597) (54,660,074) (56,545,431) -------------------------------------------------------- Net Decrease................................................... (10,416,110) (21,822,200) (14,292,558) (30,888,639) -------------------------------------------------------- Net Decrease from Share Transactions................................. (10,416,110) (21,822,200) (14,251,846) (30,887,586) -------------------------------------------------------- Total Decrease in Net Assets......................................... (11,705,788) (3,839,037) (11,637,076) (28,837,336) Net Assets: Beginning of period.................................................. 454,366,100 458,205,137 224,949,612 253,786,948 -------------------------------------------------------- End of period........................................................ $442,660,312 $454,366,100 $213,312,536 $224,949,612 ======================================================== Undistributed (overdistributed) net investment income................ $ (99,213) $ (212,743) $ (35,919) $ 173,063 -------------------------------------------------------- Changes in Shares: Class A: Subscriptions..................................................... -- -- 3,622 90 Issued for distributions reinvested............................... -- -- 5 5 -------------------------------------------------------- Net Increase.................................................. -- -- 3,627 95 -------------------------------------------------------- Class S: Subscriptions..................................................... 13,747,862 13,117,052 2,871,106 1,450,026 Issued for distributions reinvested............................... 2,355,595 1,847,836 700,510 848,660 Redemptions....................................................... (17,188,343) (17,394,723) (4,865,513) (5,051,528) -------------------------------------------------------- Net Decrease................................................. (1,084,886) (2,429,835) (1,293,897) (2,752,842) -------------------------------------------------------- (a) Class A shares were initially offered on July 31, 2000.
See notes to financial statements. 76-77 SPREAD Notes to Financial Statements Notes to Financial Statements June 30, 2002 Note 1. Accounting Policies Organization: Stein Roe Municipal Money Market Fund, Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund and Stein Roe High-Yield Municipals Fund (the "Funds") are series of Liberty-Stein Roe Funds Municipal Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. Stein Roe Municipal Money Market Fund and Stein Roe High-Yield Municipals Fund invest substantially all of their assets in SR&F Municipal Money Market Portfolio and SR&F High-Yield Municipals Portfolio (the "Portfolios"), respectively. The Portfolios are series of SR&F Base Trust, a Massachusetts common law trust organized under an Agreement and Declaration of Trust dated August 23, 1993. SR&F High-Yield Municipals Portfolio commenced operations on February 2, 1998. At commencement, Stein Roe High-Yield Municipals Fund contributed $335,711,000 in securities and other net assets to SR&F High-Yield Municipals Portfolio in exchange for beneficial ownership of the Portfolio. The Portfolios allocate income, expenses, realized and unrealized gains and losses to each investor on a daily basis, based on methods in compliance with the Internal Revenue Service. At June 30, 2002, Stein Roe Municipal Money Market Fund owned 86.8 % of SR&F Municipal Money Market Portfolio; and Stein Roe High-Yield Municipals Fund owned 99.9% of SR&F High-Yield Municipals Portfolio. Stein Roe High-Yield Municipals Fund offers two classes of shares: Class A and Class S shares. Class A shares are sold with a front-end sales charge. A 1.00% contingent deferred sales charge is assessed on redemptions made within eighteen months on an original purchase of $1 million to $25 million. Class S shares are offered continuously at 78 net asset value. There are certain restrictions on the purchase of Class S shares, as described in the prospectus. Stein Roe Intermediate Municipals Fund offers four classes of shares: Class A, Class B, Class C, and Class S. Class A shares are sold with a front-end sales charge. A 1.00% contingent deferred sales charge is assessed to Class A shares purchased without an initial sales charge on redemptions made within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to an annual distribution fee and a contingent deferred sales charge. Class B shares will convert to Class A shares in three, four, or eight years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a contingent deferred sales charge on redemptions made within one year after purchase and an annual distribution fee. Class S shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class S shares, as described in the Fund's prospectus. On January 26, 2001, Liberty Intermediate Tax Exempt Fund merged into Stein Roe Intermediate Municipals Fund as follows: Liberty Intermediate Tax-Exempt Fund Unrealized Shares Issued Net Assets Received Appreciation(1) - ------------------------------------------------------------------- 1,982,265 $22,574,044 $1,432,367 Net Assets of Net Assets of Stein Roe Liberty Intermediate Intermediate Net Assets of Municipals Tax-Exempt Fund the Fund Fund prior immediately prior immediately after to combination to combination combination - ----------------------------------------------------------------- $136,775,894 $22,574,044 $159,349,938 1 Unrealized appreciation is included in the Mutual Fund Net Assets Received amount shown above. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Portfolios and Funds in the preparation of their financial statements. 79 Security Valuations: Municipal securities are valued at a fair value using a procedure determined in good faith by the Board of Trustees (the "Trustees"), which has authorized the use of bid valuations provided by a pricing service, except for SR&F Municipal Money Market Portfolio. This Portfolio utilizes the amortized cost method to value its investments. This technique approximates market value and involves valuing a security initially at cost and, thereafter, assuming a constant amortization to maturity of any discount or premium. In the event that a deviation of 0.50% or more exists between Stein Roe Municipal Money Market Fund's $1.00 per share net asset value, calculated at amortized cost, and the net asset value calculated by reference to market quotations, its Trustees would consider what action, if any, should be taken. Stein Roe Municipal Money Market Fund attempts to maintain a per-share net asset value of $1.00, which management believes will be possible under most conditions. Futures contracts are valued based on the difference between the last sale price and the opening price of the contract. Other securities and assets are valued at fair value as determined in good faith by or under the direction of the Trustees. Securities purchased on a when-issued or delayed delivery basis may be settled a month or more after the transaction date. The values of such securities are subject to market fluctuations during this period. None of the Funds or the Portfolios owned when-issued or delayed delivery purchase commitments as of June 30, 2002. Determination of Class Net Asset Values and Financial Highlights: All income, expenses (other than Class A, Class B and Class C service fees and the Class B and Class C distribution fees, if applicable), and realized and unrealized gains (losses) are allocated to each class 80 proportionately on a daily basis for purposes of determining the net asset value of each class. In addition, Class A, Class B and Class C net investment income per share data reflects the service fee per share applicable to Class A, Class B and Class C shares and the distribution fee per share applicable to Class B and Class C shares only. Class A, Class B and Class C ratios are calculated by adjusting the expense and net investment income ratios for the Fund for the entire period by the service fee applicable to Class A, Class B and Class C shares and the distribution fees applicable to Class B and Class C shares only. Investment Transactions and Investment Income: Investment transactions are accounted for on trade date. Interest income, including discount accretion and premium amortization, is recorded daily on the accrual basis. Realized gains or losses from investment transactions are reported on an identified cost basis. Effective July 1, 2001, the Portfolios adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The cumulative effect of this accounting change did not impact total net assets of the Portfolio or Funds, but resulted in reclassifications as follows: Decrease In Net Unrealized Increase Appreciation/ in Cost Depreciation Stein Roe Intermediate Municipals Fund $ 93,147 $ (93,147) Stein Roe Managed Municipals Fund 101,620 (101,620) SR&F High-Yield Municipals Portfolio 95,558 (95,558) Stein Roe High-Yield Municipals Fund 95,558 (95,558) 81 The effect of this change for the year ended June 30, 2002, did not impact the total net assets of the Portfolio or Funds, but resulted in reclassifications as follows: Increase/ Decrease Increase Net Unrealized Decrease In Net Investment Appreciation/ Net Realized Income Depreciation Gains/Losses Stein Roe Intermediate Municipals Fund $12,630 $16,607 $(29,237) Stein Roe Managed Municipals Fund 51,438 (8,663) (42,775) SR&F High-Yield Municipals Portfolio 95,454 (91,546) (3,908) Stein Roe High-Yield Municipals Fund 95,454 (91,546) (3,908) The Statement of Changes in Net Assets and Financial Highlights for prior periods have not been restated to reflect this change. Distributions to Shareholders: Dividends from net investment income are declared daily and paid monthly. Capital gains distributions, if any, are distributed annually. Dividends are determined in accordance with income tax principles, which may treat certain transactions differently than generally accepted accounting principles. Distributions in excess of tax basis earnings are reported in the financial statements as a return of capital. Permanent differences in the recognition or classification of income between the financial statements and tax earnings are reclassified to paid-in capital. Federal Income Taxes: No provision is made for federal income taxes since (a) the Funds elect to be taxed as "regulated investment companies" and make distributions to their shareholders to be relieved of all federal income taxes under provisions of current federal tax law; and (b) the Portfolios are treated as partnerships for federal income tax purposes and all of their income is allocated to their owners based on methods in compliance with the Internal Revenue Service. Dividends paid from 82 net investment income by the Funds constitute tax-exempt interest that is not taxable for federal income tax purposes; however, a portion of the dividends paid may be inclusive in the alternative minimum tax calculation. Futures Contracts: Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund and SR&F High-Yield Municipals Portfolio may enter into futures contracts to either hedge against expected declines of their portfolio securities or as a temporary substitute for the purchase of individual bonds. Risks of entering into futures contracts include the possibility that there may be an illiquid market at the time a fund seeks to close out a contract, and changes in the value of the futures contract may not correlate with changes in the value of the portfolio securities being hedged. Upon entering into a futures contract, the Fund/Portfolio deposits cash or securities with its custodian in an amount sufficient to meet the initial margin requirements. Subsequent payments are made or received by the Fund/Portfolio equal to the daily change in the contract value and are recorded as variation margin payable or receivable and offset in unrealized gains or losses. The Fund/Portfolio recognizes a realized gain or loss when the contract is closed or expires. Note 2. Federal Tax Information Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for futures and options contracts, interest on defaulted bonds, non-deductable expenses and discount accretion/premium amortization on debt securities. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. 83 For the year ended June 30, 2002, permanent items identified and reclassified among the components of net assets are as follows: Undistributed Accumulated Net Investment Net Realized Paid-In Income (Loss) Gains (Losses) Capital Stein Roe Municipal Money Market Fund $-- $1,060 ($1,060) Stein Roe Intermediate Municipals Fund $9,274 ($9,275) $1 Stein Roe Managed Municipals Fund $31,464 ($31,468) $4 Stein Roe High-Yield Municipals Fund $21,012 $5,899 ($26,911) Net investment income, net realized gains(losses), and net assets were not affected by this reclassification. The tax character of distributions paid during 2002 was as follows: Ordinary Long-Term Tax Return Tax Exempt Income Capital Gains of Capital Stein Roe Municipal Money Market Fund $1,527,113 $-- $-- $-- Stein Roe Intermediate Municipals Fund $7,037,819 $204,048 $993,425 $-- Stein Roe Managed Municipals Fund $21,854,299 $4,858,610 $5,990,032 $-- Stein Roe High-Yield Municipals Fund $12,751,513 $109 $-- $-- As of June 30, 2002, the components of distributable earnings on a tax basis were as follows: Unrealized Tax Exempt Appreciation Stein Roe Municipal Money Market Fund $31,129 $988 Stein Roe Intermediate Municipals Fund $335,036 $11,143,105 Stein Roe Managed Municipals Fund $414,297 $35,473,229 Stein Roe High-Yield Municipals Fund $3,647,977 $2,841,472 84 The following capital loss carryforwards are available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code: Stein Roe Stein Roe Municipal High-Yield Money Market Municipals Fund Fund Year of Expiration 2003 $388 $-- 2004 $4,986 $-- 2005 $1,840 $-- 2006 $-- $3,546,402 2008 $103 $-- 2009 $23,748 $847,151 2010 $10,270 $-- - ----- ------- ---------- Total $41,335 $4,393,553 - ----- ------- ---------- Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of June 30, 2002, for federal income tax purposes, post October losses were deferred to July 1, 2002 as follows: Stein Roe Municipal Money Market Fund $9,466 Stein Roe Intermediate Municipals Fund $217,600 Stein Roe Managed Municipals Fund $1,099,002 Stein Roe High-Yield Municipals Fund $-- Note 3. Portfolio Composition The Funds and the Portfolios invest in municipal securities including, but not limited to, general obligation bonds, revenue bonds and escrowed bonds (i.e., bonds that have been refinanced, the proceeds of which have been invested in U.S. or state and local government obligations that are set aside to pay off the original issue at the first call date or maturity). See Investment Portfolios for information regarding breakdown of securities held by type at June 30, 2002. The Funds and the Portfolios hold investments that are insured by private insurers who guarantee payment of principal and interest in the 85 event of default. At June 30, 2002, investments in these securities for Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund and SR&F High-Yield Municipals Portfolio represented 62.9%, 51.6% and 19.5% of holdings, respectively. SR&F Municipal Money Market Portfolio invests in certain short-term securities that are backed by bank letters of credit used to provide liquidity to the issuer and/or additional security in the event of default. At June 30, 2002, 78.8% of the Portfolio was backed by letters of credit. See the Portfolio of Investments for each Fund or Portfolio for additional information regarding portfolio composition. Note 4. Fees and Compensations Paid to Affiliates Management & Administrative Fees: The Funds and the Portfolios pay monthly management and administrative fees, computed and accrued daily, to Stein Roe & Farnham, Incorporated (the "Advisor"), for its services as investment advisor and manager. The management fee for SR&F Municipal Money Market Portfolio is computed at an annual rate of 0.25% of average daily net assets. The management fee for each of Stein Roe Intermediate Municipals Fund and SR&F High-Yield Municipals Portfolio is 0.45% of the first $100 million of average daily net assets, 0.425% of the next $100 million and 0.40% thereafter. The management fee for Stein Roe Managed Municipals Fund is 0.45% of the first $100 million of average daily net assets, 0.425% of the next $100 million, 0.40% of the next $800 million and 0.375% thereafter. On November 1, 2001, Liberty Financial Companies, Inc., the former parent of the Advisor, completed the sale of its asset management business, including the Advisor to a subsidiary of FleetBoston Financial Corporation. This transaction resulted in a change of control of the Advisor and, therefore, an assignment of the Advisor's investment advisory contract with the Funds and the Portfolios. The Funds and the Portfolios had obtained approval of a new investment advisory contract by the Funds' Board of Trustees and Fund 86 shareholders, which became effective upon completion of the sale. The new contract is identical to the prior contract in all material respects except for their effective and termination dates. The administrative fee for the Stein Roe Municipal Money Market Fund is computed at an annual rate of 0.25% of average daily net assets up to $500 million, 0.20% of average daily net assets for the next $500 million and 0.15% thereafter. The administrative fee for each of Stein Roe Intermediate Municipals Fund and Stein Roe High-Yield Municipals Fund is computed at an annual rate of 0.15% of the first $100 million of average daily net assets, 0.125% of the next $100 million and 0.10% thereafter. The administrative fee for Stein Roe Managed Municipals Fund is 0.15% of the first $100 million of average daily net assets, 0.125% of the next $100 million, 0.10% of the next $800 million and 0.075% thereafter. Bookkeeping Fees: The Advisor is responsible for providing pricing and bookkeeping services to the Portfolios and the Funds under Pricing and Bookkeeping Agreements. Under a separate agreement (the "Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreements with the SR&F Base Trust, on behalf of the Portfolios and Funds, the Advisor receives from each Portfolio and each of Stein Roe Intermediate Municipals Fund and Stein Roe Managed Municipals Fund, an annual flat fee of $10,000; from each of Stein Roe Municipal Money Market Fund and Stein Roe High-Yield Municipals Fund an annual flat fee of $5,000; and in any month that a Fund's average daily net assets are more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. 87 Transfer Agent Fees: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of the Advisor, provides shareholder services for a monthly fee equal to 0.06% annually of each Fund's average daily net assets plus charges based on the number of shareholder accounts and transactions. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. The Transfer Agent receives a fixed fee of $6,000 annually from each of the Portfolios. Underwriting discounts, service and distribution fees: Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of the Advisor, is Stein Roe Intermediate Municipals Fund's principal underwriter. For the year ended June 30, 2002, the Stein Roe Intermediate Municipals Fund has been advised that the Distributor did not receive any contingent deferred sales charges ("CDSC") of Class B or Class C Share redemptions. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. The Stein Roe Intermediate Municipals Fund has adopted a 12b-1 plan (the "Plan"), which requires the payment of a monthly service fee to the Distributor equal to 0.20% annually on the average daily net assets attributable to Class A, Class B and Class C as of the 20th of each month. The Plan also requires the payment of a monthly distribution fee to the Distributor equal to 0.65% annually of the average daily net assets attributable to Class B shares and Class C shares, only. The Distributor has voluntarily agreed to waive a portion of the Class C share distribution fee so that it does not exceed 0.20% annually. The Stein Roe High Yield Municipals Fund has adopted a 12b-1 plan (the "Plan"), which requires the payment of a monthly service fee to the Distributor equal to 0.25% annually of the average daily net assets attributable to Class A on the 20th of each month. 88 The CDSC and fees received from the Plans are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. Expense Limits: The Advisor has agreed to reimburse Stein Roe Municipal Money Market Fund and Stein Roe Intermediate Municipals Fund for expenses in excess of 0.70% of average daily net assets. This agreement may be modified or terminated by the Advisor at any time. Other: Certain officers and trustees of the Trust are also officers of the Advisor. No remuneration was paid by the Trust to any other trustee or officer of the Trust who is affiliated with the Advisor. The Portfolios and Funds have an agreement with their custodian bank under which custody fees were reduced by balance credits for the year ended June 30, 2002. The Portfolios and Funds could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. The amounts were as follows: SR&F Municipal Money Market Portfolio $1,728 Stein Roe Intermediate Municipals Fund $2,536 Stein Roe Managed Municipals Fund $5,921 SR&F High-Yield Municipals Portfolio $2,795 Note 5. Investment Transactions The aggregate cost of purchases and proceeds from sales or maturities of securities, excluding short-term obligations, for the year ended June 30, 2002, were as follows: Purchases Sales Stein Roe Intermediate Municipals Fund $33,628,187 $40,666,584 Stein Roe Managed Municipals Fund 75,070,023 90,044,384 SR&F High-Yield Municipals Portfolio 33,584,763 44,667,075 89 Unrealized appreciation (depreciation) at June 30, 2002, for federal income tax purposes, was: Stein Roe Stein Roe SR&F Intermediate Managed High-Yield Municipals Municipals Municipals Fund Fund Portfolio Gross unrealized appreciation $11,217,556 $40,608,678 $12,568,281 Gross unrealized depreciation (74,451) (5,135,449) (9,726,809) ----------- ------------ ------------ Net unrealized appreciation $11,143,105 $35,473,229 $ 2,841,472 =========== ============ ============ Note 6. Line of Credit The Trust (excluding the Stein Roe Municipal Money Market Fund, Liberty High Income Municipals Fund-Class A, Stein Roe High-Yield Municipals Fund) and the SR&F Base Trust (excluding the SR&F Cash Reserve Portfolio and SR&F Municipal Money Market Portfolio) (collectively, the "Trusts") participate in an unsecured line of credit agreement provided by the custodian bank. The line of credit entitles the Trusts to borrow from the custodian at any time upon notice from the Trusts. The borrowings available to the Trusts for the line of credit is $200 million. Borrowings may be made to temporarily finance the repurchase of Fund shares. Interest is charged to each Trust and, ultimately, each Fund based on its borrowings at a rate equal to the Federal Funds Rate plus 0.5% per year. In addition, a commitment fee of 0.10% per annum on each Fund's borrowings shall be paid quarterly by each Fund based on the relative asset size of each Fund. The commitment fee is included in "Other" expenses on the Statements of Operations. Because several investment companies participate, there is no assurance that an individual Fund will have access to the entire letter of credit at any particular time. For the year ended June 30, 2002, the Trusts had no borrowings under the agreement. Note 7. Subsequent Events On July 15, 2002, Stein Roe High-Yield Municipals Fund acquired all the net assets of Liberty High Yield Municipals Fund 90 pursuant to a plan of reorganization approved by Liberty High Yield Municipals Fund shareholders on June 28, 2002. All assets and liabilities of Liberty High Yield Municipals Fund have been transferred to Stein Roe High-Yield Municipals Fund in a tax-free exchange and shareholders of Liberty High Yield Municipals Fund have received shares of Stein Roe High-Yield Municipals Fund in exchange for their shares as follows: Stein Roe High-Yield Liberty High Yield Municipals Fund Municipals Fund Unrealized Shares Issued Net Assets Received Appreciation/Depreciation1 12,328,081 $139,430,597 $2,690,498 Net Assets of Net Assets of Net Assets of Stein Roe High- Liberty High Yield Stein Roe High- Yield Municipals Municipals Fund Yield Municipals Fund Fund Prior to Immediately Prior Immediately Combination to Combination After Combination $218,007,534 $139,430,597 $357,438,131 1 Unrealized appreciation/depreciation is included in the Net Assets Received amount above. Effective July 15, 2002, Stein Roe High-Yield Municipals Fund was renamed Liberty High Yield Municipal Fund. On June 28, 2002, pursuant to a plan of reorganization, the shareholders of the Stein Roe Municipal Money Market Fund (the "Fund") approved a proposal to merge the Fund into the Liberty Municipal Money Market Fund (the "Acquiring Fund"). Effective July 15, 2002, all assets and liabilities of the Fund have been transferred to the Acquiring Fund in a tax-free exchange and shareholders received shares of the Acquiring Fund in exchange for their Fund shares. Effective July 15, 2002, prior to the reorganization described above, the pro-rata share of net assets of the SR&F High Yield Municipal Portfolio were distributed to the Stein Roe High-Yield Municipals Fund and the pro-rata share of net assets of the SR&F Municipal Money Market Portfolio were distributed to the Liberty Municipal Money Market Fund based on allocation methods in compliance with the Internal Revenue Service. Effective July 29, 2002, the Stein Roe Managed Municipals Fund's Class S shares were redesignated Liberty Managed Municipals Fund Class Z shares. 91 Financial Highlights SR&F Municipal Money Market Portfolio Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED JUNE 30, ---------------------------------------------------------------- 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- Ratios to Average Net Assets: Expenses (a)............................ 0.30% 0.32% 0.30% 0.30% 0.34% Net investment income (a)............... 1.79% 3.66% 3.57% 3.07% 3.41% (a) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact.
SR&F High-Yield Municipals Portfolio Selected data for a share outstanding throughout each period is as follows:
PERIOD YEAR ENDED JUNE 30, ENDED ------------------------------------------------- JUNE 30, 2002 2001 2000 1999 1998(a) ---------- ---------- ---------- ---------- ---------- Ratios to Average Net Assets: Expenses (b)................................. 0.47% 0.47% 0.47% 0.45% 0.47%(d) Net investment income (b).................... 6.04%(c) 6.18% 6.11% 5.55% 5.72%(d) Portfolio turnover rate...................... 16% 16% 14% 19% 3%(e) (a) From commencement of operations on February 2, 1998. (b) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact. (c) Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002 was to increase the ratio of net investment income to average net assets from 5.99% to 6.04%. Ratios for periods prior toJune 30, 2002 have not been restated to reflect this change in presentation. (d) Annualized. (e) Not annualized.
92-93 SPREAD
Stein Roe Municipal Money Market Fund Selected data for a share outstanding throughout each period is as follows: YEAR ENDED JUNE 30, --------------------------------------------------------------- 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a)............................... 0.014 0.033 0.031 0.027 0.031 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income.............................. (0.014) (0.033) (0.031) (0.027) (0.031) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ========== ========== ========== ========== ========== Total return (b)(c)..................................... 1.40% 3.39% 3.20% 2.73% 3.10% ========== ========== ========== ========== ========== Ratios to Average Net Assets: Expenses................................................ 0.70% 0.70% 0.70% 0.70% 0.70% Net investment income................................... 1.40% 3.31% 3.19% 2.69% 3.06% Waiver/reimbursement.................................... 0.13% 0.11% 0.10% 0.09% 0.16% Net assets, end of period (000's)....................... $111,541 $108,077 $113,815 $119,032 $115,279 (a) Per share data was calculated using average shares outstanding during the period. (b) Computed giving effect to Advisor's expense limitation undertaking. (c) Total return at net asset value assuming all distributions reinvested.
94-95 SPREAD
Stein Roe Intermediate Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR PERIOD ENDED ENDED JUNE 30, JUNE 30, Class A Shares 2002 2001(a) ---------- ---------- Net Asset Value, Beginning of Period....................................... $ 11.36 $ 11.41 --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b).................................................. 0.49(c) 0.22 Net realized and unrealized gain (loss) on investments and futures contracts................................................... 0.15(c) (0.05) --------- --------- Total from Investment Operations........................................ 0.64 0.17 --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income................................................. (0.51) (0.22) From net realized gains.................................................... (0.08) -- --------- --------- Total Distributions Declared to Shareholders............................ (0.59) (0.22) --------- --------- Net Asset Value, End of Period............................................. $ 11.41 $ 11.36 ========= ========= Total return (d)(e)........................................................ 5.83% 1.55%(f) ========= ========= Ratios to Average Net Assets: Expenses (g)............................................................... 0.90% 0.90%(h) Net investment income (g).................................................. 4.33%(c) 4.49%(h) Waiver/reimbursement....................................................... 0.16% 0.11%(h) Portfolio turnover rate.................................................... 22% 17%(f) Net assets, end of period (000's).......................................... $15,113 $12,988
(a) Class A shares were initially offered on January 26, 2001. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of net investment income to average net assets from 4.32% to 4.33%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (d) Computed giving effect to the Advisor's expense limitation undertaking. (e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact. (h) Annualized. 96-97 SPREAD
Stein Roe Intermediate Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR PERIOD ENDED ENDED JUNE 30, JUNE 30, Class B Shares 2002 2001(a) --------- --------- Net Asset Value, Beginning of Period....................................... $ 11.36 $ 11.41 --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b).................................................. 0.42(c) 0.19 Net realized and unrealized gain (loss) on investments and futures contracts 0.15(c) (0.05) --------- --------- Total from Investment Operations........................................ 0.57 0.14 --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income................................................. (0.45) (0.19) From net realized gains.................................................... (0.07) -- --------- --------- Total Distributions Declared to Shareholders............................ (0.52) (0.19) --------- --------- Net Asset Value, End of Period............................................. $ 11.41 $ 11.36 ========= ========= Total return (d)(e)........................................................ 5.14% 1.26%(f) ========= ========= Ratios to Average Net Assets: Expenses (g)............................................................... 1.55% 1.55%(h) Net investment income (g).................................................. 3.68%(c) 3.84%(h) Waiver/reimbursement....................................................... 0.16% 0.11%(h) Portfolio turnover rate.................................................... 22% 17%(f) Net assets, end of period (000's).......................................... $3,669 $6,981
(a) Class B shares were initially offered on January 26, 2001. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of net investment income to average net assets from 3.67% to 3.68%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (d) Computed giving effect to the Advisor's expense limitation undertaking. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact. (h) Annualized. 98-99 SPREAD
Stein Roe Intermediate Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR PERIOD ENDED ENDED JUNE 30, JUNE 30, Class C Shares 2002 2001a) ----------- ---------- Net Asset Value, Beginning of Period....................................... $ 11.36 $ 11.41 --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b).................................................. 0.47(c) 0.21 Net realized and unrealized gain (loss) on investments and futures contracts................................................... 0.15(c) (0.04) --------- --------- Total from Investment Operations........................................ 0.62 0.17 --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income................................................. (0.49) (0.22) From net realized gains.................................................... (0.08) -- --------- --------- Total Distributions Declared to Shareholders............................ (0.57) (0.22) --------- --------- Net Asset Value, End of Period............................................. $ 11.41 $ 11.36 ========= ========= Total return (d)(e)........................................................ 5.61% 1.46%(f) ========= ========= Ratios to Average Net Assets: Expenses (g)............................................................... 1.10% 1.10%(h) Net investment income (g).................................................. 4.13%(c) 4.29%(h) Waiver/reimbursement....................................................... 0.16% 0.56%(h) Portfolio turnover rate.................................................... 22% 17%(f) Net assets, end of period (000's).......................................... $674 $962
(a) Class C shares were initially offered on January 26, 2001. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of net investment income to average net assets from 4.12% to 4.13%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (d) Computed giving effect to the Advisor's expense limitation undertaking. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact. (h) Annualized. 100-101 SPREAD
Stein Roe Intermediate Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR ENDED JUNE 30, --------------------------------------------------------------------- 2002 2001 2000 1999 1998 Class S Shares ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period........................ $ 11.36 $ 10.96 $ 11.23 $ 11.57 $ 11.38 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.52(a)(b) 0.54(a) 0.28 0.54 0.54 Net realized and unrealized gain (loss) on investments and futures contracts.................................... 0.15(b) 0.40 (0.27) (0.30) 0.22 ---------- ---------- ---------- ---------- ---------- Total from Investment Operations......................... 0.67 0.94 0.01 0.24 0.76 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income.................................. (0.55) (0.54) (0.26) (0.54) (0.54) From net realized gains..................................... (0.07) -- (0.02) (0.04) (0.03) ---------- ---------- ---------- ---------- ---------- Total Distributions Declared to Shareholders............. (0.62) (0.54) (0.28) (0.58) (0.57) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period.............................. $ 11.41 $ 11.36 $ 10.96 $ 11.23 $ 11.57 ========== ========== ========== ========== ========== Total return (c)(d)......................................... 6.04% 8.74% 3.10% 2.08% 6.84% ========== ========== ========== ========== ========== Ratios to Average Net Assets: Expenses.................................................... 0.70%(e) 0.70%(e) 0.70% 0.70% 0.70% Net investment income....................................... 4.53%(b)(e) 4.79%(e) 4.93% 4.58% 4.70% Waiver/reimbursement........................................ 0.16% 0.18% 0.11% 0.09% 0.11% Portfolio turnover rate..................................... 22% 17% 26% 48% 29% Net assets, end of period (000's)........................... $128,255 $132,201 $135,810 $168,896 $195,651
(a) Per share data was calculated using average shares outstanding during the period. (b) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of net investment income to average net assets from 4.52% to 4.53%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (c) Computed giving effect to the Advisor's expense limitation undertaking. (d) Total return at net asset value assuming all distributions reinvested. (e) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact. 102-103 SPREAD
Stein Roe Managed Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR ENDED JUNE 30, ----------------------------------------------------------------------- 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period...................... $ 8.99 $ 8.65 $ 9.07 $ 9.38 $ 9.11 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................... 0.43(a)(b) 0.45(a) 0.47 0.47 0.48 Net realized and unrealized gain (loss) on investments and futures contracts.................................. 0.18(b) 0.41 (0.32) (0.31) 0.27 ---------- ---------- ---------- ---------- ---------- Total from Investment Operations....................... 0.61 0.86 0.15 0.16 0.75 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income................................ (0.44) (0.45) (0.47) (0.47) (0.48) From net realized gains................................... (0.21) (0.07) (0.10) -- -- ---------- ---------- ---------- ---------- ---------- Total Distributions Declared to Shareholders........... (0.65) (0.52) (0.57) (0.47) (0.48) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period............................ $ 8.95 $ 8.99 $ 8.65 $ 9.07 $ 9.38 ========== ========== ========== ========== ========== Total return (c).......................................... 7.06% 10.13% 1.86% 1.67% 8.37% ========== ========== ========== ========== ========== Ratios to Average Net Assets: Expenses (d).............................................. 0.76% 0.74% 0.69% 0.72% 0.72% Net investment income (d)................................. 4.82%(b) 5.07% 5.39% 5.02% 5.14% Portfolio turnover rate................................... 17% 17% 19% 17% 12% Net assets, end of period (000's)......................... $442,660 $454,366 $458,205 $538,322 $583,138
(a) Per share data was calculated using average shares outstanding during the period. (b) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of net investment income to average net assets from 4.81% to 4.82%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (c) Total return at net asset value assuming all distributions reinvested. (d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had no impact. 104-105 SPREAD
Stein Roe High-Yield Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR PERIOD ENDED ENDED JUNE 30, JUNE 30, Class A Shares 2002 2001(a) ---------- ---------- Net Asset Value, Beginning of Period....................................... $ 11.13 $ 11.11 ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b).................................................. 0.61(c) 0.58 Net realized and unrealized gain on investments and futures contracts...... 0.15(c) 0.01 ---------- ---------- Total from Investment Operations........................................ 0.76 0.59 ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income................................................. (0.63) (0.57) ---------- ---------- Net Asset Value, End of Period............................................. $ 11.26 $ 11.13 ========== ========== Total return (d)........................................................... 6.93% 5.42%(e) ========== ========== Ratios to Average Net Assets: Expenses................................................................... 1.13% 1.06%(f) Net investment income...................................................... 5.41%(c) 5.65%(f) Net assets, end of period (000's).......................................... $ 42 $ 1
(a) From commencement of operations on July 31, 2000. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of net investment income to average net assets from 5.37% to 5.41%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (e) Not annualized. (f) Annualized. 106-107 SPREAD
Stein Roe High-Yield Municipals Fund Selected data for a share outstanding throughout each period is as follows: YEAR ENDED JUNE 30, ---------------------------------------------------------------------- Class S Shares 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period........................ $ 11.12 $ 11.04 $ 11.71 $ 11.97 $ 11.67 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.64(a)(b) 0.65(a) 0.65 0.63 0.65 Net realized and unrealized gain (loss) on investments and futures contracts.................................... 0.15(b) 0.08 (0.68) (0.25) 0.30 ---------- ---------- ---------- ---------- ---------- Total from Investment Operations......................... 0.79 0.73 (0.03) 0.38 0.95 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income.................................. (0.65) (0.65) (0.64) (0.64) (0.65) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period.............................. $ 11.26 $ 11.12 $ 11.04 $ 11.71 $ 11.97 ========== ========== ========== ========== ========== Total return (c)............................................ 7.30% 6.78% (0.16)% 3.18%(d) 8.32% ========== ========== ========== ========== ========== Ratios to Average Net Assets: Expenses.................................................... 0.88% 0.81% 0.78% 0.77% 0.75% Net investment income....................................... 5.66%(b) 5.86% 5.82% 5.26% 5.48% Portfolio turnover rate..................................... N/A N/A N/A N/A 8%(e) Net assets, end of period (000's)........................... $213,271 $224,950 $253,787 $297,874 $341,780
(a) Per share data was calculated using average shares outstanding during the period. (b) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the net investment income per share by $0.01 and increase the ratio of net investment income to average net assets from 5.62% to 5.66%. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (c) Total return at net asset value assuming all distributions reinvested. (d) 0.50% of the return is attributable to a one-time revaluation of a portfolio security reflecting the restructuring of this security. Absent this revaluation, the total return would have been 2.68%. (e) Prior to commencement of operations of the Portfolio. 108-109 SPREAD Report of Independent Auditors REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders, Holders of Investors' Beneficial Interest and Board of Trustees of Liberty-Stein Roe Funds Municipal Trust and SR&F Base Trust Stein Roe Municipal Money Market Fund Stein Roe Intermediate Municipals Fund Stein Roe Managed Municipals Fund Stein Roe High-Yield Municipals Fund SR&F Municipal Money Market Portfolio SR&F High-Yield Municipals Portfolio We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund (two series of Liberty-Stein Roe Funds Municipal Trust), SR&F Municipal Money Market Portfolio and SR&F High-Yield Municipals Portfolio (two series of SR&F Base Trust), and the accompanying statements of assets and liabilities of Stein Roe Municipal Money Market Fund and Stein Roe High-Yield Municipals Fund (two series of Liberty-Stein Roe Funds Municipal Trust) as of June 30, 2002, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trusts' 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 auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of June 30, 2002, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 110 evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the aforementioned series of Liberty-Stein Roe Funds Municipal Trust and SR&F Base Trust at June 30, 2002, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts August 16, 2002 111 Unaudited Information Unaudited Information Federal Tax Information Stein Roe Intermediate Municipals Fund: For the taxable year ended June 30, 2002, 99.5% of distributions from net investment income qualify as exempt-interest dividends for federal income tax purposes. The fund designates $993,425 as long term capital gains earned. Stein Roe Managed Municipal Fund: For the taxable year ended June 30, 2002, 99.7% of distributions from net investment income qualify as exempt-interest dividends for federal income tax purposes. The Fund designates $5,717,954 as long term capital gains earned. Stein Roe High-Yield Municipals Fund: For the taxable year ended June 30, 2002, 99.9% of distributions from net investment income qualify as exempt-interest dividends for federal income tax purposes. 112 This page intentionally left blank 113 Trustees Trustees The Trustees serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Stein Roe Funds, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee, and other directorships they hold are shown below. Each officer listed below serves as an officer of each of the Stein Roe funds. The Statement of Additional Information (SAI) contains additional information about the Trustees and is available without charge upon request by calling the fund's distributor at 800-338-2550.
Year first Number of portfolios elected or in fund complex Other Position with appointed Principal occupation(s) overseen by directorships Name, address and age Stein Roe Funds to office uring past five years trustee held - ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Douglas A. Hacker (age 46) Trustee 1996 President of UAL Loyalty Services and Executive 101 None c/o Liberty Funds Group LLC Vice President of United Airlines (airline) since One Financial Center September 2001 (formerly Executive Vice Boston, MA 02111 President from July 1999 to September 2001); Chief Financial Officer of United Airlines since July 1999; Senior Vice President and Chief Financial Officer of UAL, Inc. prior thereto Janet Langford Kelly (age 44) Trustee 1996 Executive Vice President--Corporate Development 101 None c/o Liberty Funds Group LLC and Administration, General Counsel and One Financial Center Secretary, Kellogg Company (food manufacturer), Boston, MA 02111 since September 1999; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer- products manufacturer) prior thereto Richard W. Lowry (age 66) Trustee 2000 Private Investor since 1987 (formerly 103 None c/o Liberty Funds Group LLC Chairman and Chief Executive Officer, U.S. One Financial Center Plywood Corporation [building products Boston, MA 02111 manufacturer]) Salvatore Macera (age 71) Trustee 2000 Private Investor since 1981 (formerly Executive 101 None c/o Liberty Funds Group LLC Vice President and Director of Itek Corporation One Financial Center (electronics) from 1975 to 1981) Boston, MA 02111 Charles R. Nelson (age 59) Trustee 1981 Van Voorhis Professor, Department of Economics, 101 None c/o Liberty Funds Group LLC University of Washington; consultant on One Financial Center econometric and statistical matters Boston, MA 02111 John J. Neuhauser (age 59) Trustee 2000 Academic Vice President and Dean of Faculties 103 Saucony, Inc. c/o Liberty Funds Group LLC since August 1999, Boston College (formerly (athletic footwear) One Financial Center Dean, Boston College School of Management SkillSoft Corp. Boston, MA 02111 from September 1977 to September 1999) (e-learning) 114-115 SPREAD Year first Number of portfolios elected or in fund complex Other Position with appointed Principal occupation(s) overseen by directorships Name, address and age Stein Roe Funds to office during past five years trustee held - ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES (CONTINUED) Thomas E. Stitzel (age 66) Trustee 2000 Business Consultant since 1999 (formerly 101 None c/o Liberty Funds Group LLC Professor of Finance from 1975 to 1999 and Dean One Financial Center from 1977 to 1991, College of Business, Boise Boston, MA 02111 State University); Chartered Financial Analyst Thomas C. Theobald (age 65) Trustee 1996 Managing Director, William Blair Capital Partners 101 Xerox Corporation c/o Liberty Funds Group LLC (private equity investing) since 1994 (formerly business products and One Financial Center Chief Executive Officer and Chairman of the services), Anixter Boston, MA 02111 Board of Directors, Continental Bank Corporation) International (network support equipment distributor), Jones Lang LaSalle (real estate manage- ment services) and MONY Group (life insurance). Anne-Lee Verville (age 57) Trustee 2000 Author and speaker on educational systems needs 101 Chairman of the Board of c/o Liberty Funds Group LLC (formerly General Manager, Global Education Directors, Enesco Group, One Financial Center Industry from 1994 to 1997, and President, Inc. (designer, importer and Boston, MA 02111 Applications Solutions Division from 1991 to distributor of giftware and 1994, IBM Corporation [global education and collectibles) global applications]) INTERESTED TRUSTEES William E. Mayer* (age 62) Trustee 2000 Managing Partner, Park Avenue Equity Partners 103 Lee Enterprises (print and c/o Liberty Funds Group LLC (private equity fund) since February 1999 online media), WR One Financial Center (formerly Founding Partner, Development Capital Hambrecht + Co. (financial Boston, MA 02111 LLC from November 1996 to February 1999; service provider), First Dean and Professor, College of Business and Health (health care) Systech Management, University of Maryland from Retail Systems (retail October 1992 to November 1996) industry technology provider) Joseph R. Palombo* (age 49) Trustee 2000 Chief Operating Officer of Columbia Management 101 None One Financial Center and Group, Inc. (Columbia Management Group) since Boston, MA 02111 Chairman November 2001; formerly Chief Operations Officer of of the Mutual Funds, Liberty Board Financial Companies, Inc. Board from August 2000 to November 2001; Executive Vice President of The Advisor since April 1999; Executive Vice President and Director of Colonial Management Associates, Inc. since April 1999; Executive Vice President and Chief Administrative Officer of Liberty Funds Group LLC (LFG) since April 1999; Director of The Advisor since September 2000; Trustee and Chairman of the Board of Stein Roe Mutual Funds since October 2000; Manager of Stein Roe Floating Rate Limited Liability Company since October 2000 (formerly Vice President of Liberty Funds from April 1999 to August 2000; Chief Operating Officer and Chief Compliance Officer, Putnam Mutual Funds from December 1993 to March 1999) * Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 ("1940 Act")) by reason of his affiliation with WR Hambrecht + Co. Mr. Palombo is an interested person as an employee of an affiliate of the Advisor.
116-117 SPREAD
Officers and Transfer Agent Officers and Transfer Agent Year first elected or Position with appointed Name, address and age Stein Roe Funds to office Principal occupation(s) during past five years - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS Keith T. Banks (age 46) President 2001 President of Liberty and Stein Roe Funds since November 2001; Chief Investment Columbia Management Group, Inc. Officer and Chief Executive Officer of Columbia Management Group since 2000 590 Madison Avenue, 36th Floor (formerly Managing Director and Head of U.S. Equity, J.P. Morgan Investment Mail Stop NY EH 30636A Management from November 1996 to August 2000). New York, NY 10022 Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds, Stein Roe Funds and Liberty All-Star Funds One Financial Center Accounting since May 2002; Chief Accounting Officer of the Liberty Funds and Liberty Boston, MA 02111 Officer and All-Star Funds since June 2001; Vice President of LFG since April 2001 Controller (formerly Vice President, Corporate Audit, State Street Bank and Trust Company from May 1998 to April 2001; Audit Manager from July 1994 to June 1997; Senior Audit Manager from July 1997 to May 1998, Coopers & Lybrand, LLP). J. Kevin Connaughton (age 38) Treasurer 2000 Treasurer of the Liberty Funds and Liberty All-Star Funds since December 2000 One Financial Center (formerly Controller of the Liberty Funds and Liberty All-Star Funds from Boston, MA 02111 February 1998 to October 2000); Treasurer of Stein Roe Funds since February 2001 (formerly Controller from May 2000 to February 2001); Senior Vice President of LFG since January 2001 (formerly Vice President from April 2000 to January 2001; Vice President of the Advisor from February 1998 to October 2000; Senior Tax Manager; Coopers & Lybrand, LLP from April 1996 to January 1998). Jean S. Loewenberg (age 57) Secretary 2002 Secretary of Liberty Funds, Stein Roe Funds and Liberty All-Star Funds since One Financial Center February 2002; Senior Vice President and Group Senior Counsel, Fleet National Boston, MA 02111 Bank since November 1996.
Important Information About This Report The Transfer Agent for Stein Roe Municipal Funds is: Liberty Funds Services, Inc. PO Box 8081 Boston, MA 02266-8081 Please make a note of our new mailing address, effective immediately. The funds mail one shareholder report to each shareholder address. If you would like more than one report, please call Shareholder Services at 800-338-2550 and additional reports will be sent to you. Annual Report: Stein Roe Municipal Funds 118-119 SPREAD This page intentionally left blank 120 This page intentionally left blank 121 [logo: STEIN ROE MUTUAL FUNDS] One Financial Center Boston, MA 02111-2621 800-338-2550 DIR-02/334K-0602 (08/02) 02/1627 -----END PRIVACY-ENHANCED MESSAGE-----