-----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, AgPaC1Bc0rXqz1o8n2rGNcrMo3KPBrmbaruQZpfMvV39LhsUn9Rm+Ow7UU1kRKfc vo5yuDEQAOEbS4YANk9jDQ== 0000891804-02-001800.txt : 20020909 0000891804-02-001800.hdr.sgml : 20020909 20020909154858 ACCESSION NUMBER: 0000891804-02-001800 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020909 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: 02759605 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 LIBERTY HIGH INCOME MUNICIPALS FUND CLASS A LIBERTY HIGH INCOME MUNICIPALS FUND CLASS A Stein Roe High-Yield Municipals Fund Effective July 15, 2002, Stein Roe High-Yield Municipals Fund was renamed Liberty High Yield Municipal Fund. Annual Report June 30, 2002 Contents - -------------------------------------------------------------------------------- Fund Performance............................................................. 1 How Liberty High Income Municipals Fund Class A has done over time Portfolio Manager's Report................................................... 2 Interview with the portfolio manager and summary of investment activity Investment Portfolio......................................................... 3 A complete list of investments with market values Financial Statements......................................................... 11 Statements of assets and liabilities, operations and changes in net assets Notes to Financial Statements................................................ 17 Financial Highlights......................................................... 21 Selected per-share data Report of Ernst and Young LLP, Independent Auditors....................................................... 22 Trustees..................................................................... 23 Officers and Transfer Agent.................................................. 25 o NOT FDIC INSURED o May lose value o No bank guarantee Must be preceded or accompanied by a prospectus. Fund Performance - -------------------------------------------------------------------------------- To evaluate a fund's historical performance, one can look at the cumulative return percentage, the average annual return percentage or the growth of a hypothetical $10,000 investment. Below we compare Liberty High Income Municipals Fund Class A with its benchmark, the Lehman Brothers Municipal Bond Index. The performance figures include changes in the fund's share price, plus reinvestment of any dividends (net investment income) and capital gains distributions (the profits the fund earns when it sells fixed income securities that have grown in value). Average annual total return (%) Period ended June 30, 2002 - -------------------------------------------------------------------------------- 1-year 5-year 10-year - -------------------------------------------------------------------------------- LIBERTY HIGH INCOME MUNICIPALS FUND, CLASS A WITHOUT SALES CHARGE 6.93 4.92 5.75 LIBERTY HIGH INCOME MUNICIPALS FUND, CLASS A WITH SALES CHARGE 1.81 3.90 5.23 Lehman Brothers Municipal Bond Index 6.92 6.27 6.68 GROWTH OF A $10,000 INVESTMENT JUNE 30, 1992 TO JUNE 30, 2002 - -------------------------------------------------------------------------------- [line chart data]: Liberty High Income Municipals Fund Class A Fund without Fund with Lehman Brothers sales charge sales charge Municipal Bond Index 6/30/92 $10,000.0 $9,525.0 $10,000.0 6/30/93 10,789.3 10,276.8 11,195.9 6/30/94 10,892.4 10,375.0 11,215.1 6/30/95 11,825.0 11,263.3 12,204.4 6/30/96 12,636.1 12,035.9 13,014.6 6/30/97 13,758.8 13,105.3 14,091.3 6/30/98 14,906.1 14,198.0 15,310.3 6/30/99 15,381.2 14,650.6 15,733.8 6/30/00 15,351.3 14,622.1 16,242.7 6/30/01 16,357.0 15,580.0 17,865.9 6/30/02 17,486.0 16,655.0 19,099.0 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT www.libertyfunds.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. "With sales charge" returns include the maximum 4.75% sales charge for class A shares. Liberty High Income Municipals Fund Class A commenced operations on July 31, 2000. Historical performance for the period prior to July 31, 2000 is based on the performance of the fund's class S shares restated to reflect 12b-1 fees and any other expenses applicable to that class, without giving any effect to fee waivers and assuming reinvestment of dividends and capital gains. This graph compares the performance of the Liberty High Income Municipals Fund, Class A to the Lehman Brothers Municipal Bond Index, an unmanaged group of investment-grade bonds not associated with any Liberty or Stein Roe Fund. Unlike mutual funds, it is not possible to invest directly in an index. Liberty High Income Municipals Fund Class A is a class of Stein Roe High-Yield Municipals Fund (the fund), a series of Liberty-Stein Roe Municipals Funds. The fund also offers class S shares. Performance information for class S shares is presented in a separate report. 1 Portfolio Manager's Report - -------------------------------------------------------------------------------- COMMENTARY FROM MAUREEN NEWMAN, PORTFOLIO MANAGER OF LIBERTY HIGH INCOME MUNICIPALS FUND CLASS A AND SR&F HIGH-YIELD MUNICIPALS PORTFOLIO - -------------------------------------------------------------------------------- FUND DATA 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 borrowing for investment purposes) in relatively high-yielding securities. - -------------------------------------------------------------------------------- For the 12 months ended June 30, 2002, Liberty High Income Municipals Fund Class A delivered a total return of 6.93% without a sales charge. This return was consistent with the fund's benchmark, the Lehman Brothers Municipal Bond Index, which returned 6.92% for the same period. The fund's peer group, the Lipper High-Yield Municipal Debt Fund Category average was 5.23%. Favorable security and sector selection accounted for the fund's strong performance relative to its competition. BOND MARKET SOLID DURING UNCERTAIN TIMES For all of the turmoil of the past 12 months, it was a good year for municipal 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 ended June 30, 2002, 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 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. 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 short term 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. RECENT FUND ACTIVITY During the past six months, we added several high-coupon bonds to the portfolio. Issuers included Seminole Tribe in Florida (0.4% of net assets), which is 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. 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 reduced the fund's duration, 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 below). We expect to selectively use futures contracts to adjust the duration of the fund when so desired. MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT LIBERTYFUNDS.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; it is not available for direct investment. Tax-exempt investing offers current tax-free income, but it also involves certain risks. Investing in high yield bonds involves greater credit risk 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. Source of Lipper data:Lipper Inc. Liberty High Income Municipals Fund Class A is a class of Stein Roe High-Yield Municipals Fund. Economic and market conditions change frequently. There can be no assurance that the trends described herein will continue or commence. - -------------------------------------------------------------------------------- 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 has 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. - -------------------------------------------------------------------------------- 2
SR&F High-Yield Municipals Portfolio - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at 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 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 --------------- See notes to investment portfolio. 3 SR&F High-Yield Municipals Portfolio Continued - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at June 30, 2002 MUNICIPAL BONDS (CONTINUED) Par Value - --------------------------------------------------------------------------------------------------------------------------------- HEALTHCARE - CONTINUED 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 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 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 See notes to investment portfolio. 4 SR&F High-Yield Municipals Portfolio Continued - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at June 30, 2002 MUNICIPAL BONDS (CONTINUED) Par Value - --------------------------------------------------------------------------------------------------------------------------------- HEALTHCARE - CONTINUED NURSING HOME - (CONTINUED) 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 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 LA De Soto Parish, International Paper Company, Series 1994 A, 7.700%, 11/01/18............... 1,500,000 1,611,405 See notes to investment portfolio. 5 SR&F High-Yield Municipals Portfolio Continued - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at June 30, 2002 MUNICIPAL BONDS (CONTINUED) Par Value - --------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL - CONTINUED FOREST PRODUCTS - (CONTINUED) 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 --------------- 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 --------------- See notes to investment portfolio. 6 SR&F High-Yield Municipals Portfolio Continued - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at June 30, 2002 MUNICIPAL BONDS (CONTINUED) Par Value - --------------------------------------------------------------------------------------------------------------------------------- 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 --------------- 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 PA Philadelphia Authority for Industrial Development, Aero Philadelphia, Series 1999, 5.500%, 01/01/24.............................................................. 1,000,000 787,500 See notes to investment portfolio. 7 SR&F High-Yield Municipals Portfolio Continued - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at June 30, 2002 MUNICIPAL BONDS (CONTINUED) Par Value - --------------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION - CONTINUED AIR TRANSPORTATION - (CONTINUED) 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 VA Pittsylvania County Industrial Development Authority, Multitrade of Pittsylvania, 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 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 --------------- See notes to investment portfolio. 8 SR&F High-Yield Municipals Portfolio Continued - --------------------------------------------------------------------------------------------------------------------------------- Investment Portfolio at June 30, 2002 MUNICIPAL BONDS (CONTINUED) Par Value - --------------------------------------------------------------------------------------------------------------------------------- UTILITY - CONTINUED 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 --------------- - --------------------------------------------------------------------------------------------------------------------------------- MUNICIPAL PREFERRED STOCKS - 1.5% Shares - --------------------------------------------------------------------------------------------------------------------------------- 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, 1.100%, 06/01/27.......... $ 620,000 620,000 IL Quad Cities Regional Economic Development Authority, Two Rivers YMCA Project, 1.150%, 12/01/31........................................................................... 400,000 400,000 KS State Development Finance Authority, Series 2000, 1.100%, 05/15/26......................... 200,000 200,000 MN Mankato, Bethany Lutheran College, Series 2000 B, 1.100%, 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, 1.000%, 12/01/16............................. 400,000 400,000 WI State Health & Educational Facilities Authority, Prohealth, Inc., Series 2001 B, 1.100%, 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.
9 SR&F High Yield Municipals Portfolio Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 there of, 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 Covered by Expiration Unrealized Appreciation Type Contracts Month at 6/30/02 ------ ------------ ---------- ------------------------- 30 Year $7,800,000 September $148,889 U.S. Treasury Bond Short futures contracts open at June 30, 2002: Par Value Covered by Expiration Unrealized Depreciation Type Contracts Month at 6/30/02 ------ -------------- ---------- ------------------------- 10 Year $26,700,000 September $(371,418) U.S. Treasury Note See notes to financial statements. 10 SR&F High-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Statement of Assets and Liabilities June 30, 2002 ASSETS: Investments, at cost .......................................... $208,293,038 ------------ Investments, at value ......................................... $210,947,406 Cash .......................................................... 41,523 Receivable for: Investments sold ........................................... 1,880,776 Interest ................................................... 3,735,487 Futures variation margin ................................... 15,281 Deferred Trustees' compensation plan .......................... 324 ------------ Total Assets ............................................. 216,620,797 ------------ LIABILITIES: Payable for: Investments purchased ...................................... 1,964,518 Management fee ............................................. 72,390 Transfer agent fee ......................................... 500 Pricing and bookkeeping fees ............................... 1,289 Audit fee .................................................. 17,575 Deferred Trustees' fee ........................................ 324 Other liabilities ............................................. 4,383 ------------ Total Liabilities ........................................ 2,060,979 ------------ NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTEREST ....... $214,559,818 ============ See notes to financial statements. 11 SR&F High-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Statement of Operations For the Year Ended June 30, 2002 INVESTMENT INCOME: Interest ..................................................... $ 14,365,526 ------------ EXPENSES: Management fee ............................................... 956,252 Pricing and bookkeeping fees ................................. 32,664 Transfer agent fee ........................................... 6,000 Trustees' fee ................................................ 5,439 Custody fee .................................................. 6,765 Audit fee .................................................... 17,747 Other expenses ............................................... 42,717 ------------ Total Expenses ............................................ 1,067,584 Custodian earnings credit .................................... (2,795) ------------ Net Expenses ................................................. 1,064,789 ------------ Net Investment Income ........................................ 13,300,737 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS: Net realized gain (loss) on: Investments ............................................... (210,443) Futures contracts ......................................... 440,537 ------------ Net realized gain ....................................... 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 ..................................................... 2,940,322 ------------ INCREASE IN NET ASSETS FROM OPERATIONS ....................... $ 16,241,059 ------------ See notes to financial statements. 12 SR&F High-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Statement of Changes in Net Assets
YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, INCREASE (DECREASE) IN NET ASSETS: 2002 2001 ------------- ------------- OPERATIONS: Net investment income ....................................$ 13,300,737 $ 14,893,101 Net realized gain (loss) on investments and futures contracts ..................................... 230,094 (2,167,283) Net change in unrealized appreciation/depreciation on investments and futures contracts .................. 2,710,228 4,173,176 ------------- ------------- Net Increase from Operations ............................. 16,241,059 16,898,994 ------------- ------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST: Contributions ......................................... 19,064,963 6,138,469 Withdrawals ........................................... (46,121,169) (51,309,604) ------------- ------------- Net Decrease from Transactions in Investors' Beneficial Interest ............................. (27,056,206) (45,171,135) ------------- ------------- Total Decrease in Net Assets ............................. (10,815,147) (28,272,141) NET ASSETS: Beginning of period ...................................... 225,374,965 253,647,106 ------------- ------------- End of period ............................................$ 214,559,818 $ 225,374,965 ============= ============= See notes to financial statements.
13 Stein Roe High-Yield Municipals Fund - -------------------------------------------------------------------------------- Statement of Assets and Liabilities June 30, 2002 ASSETS: Investments in Portfolio, at value ...................... $ 214,559,706 Receivable for: Fund shares sold ..................................... 7,015 Deferred Trustees' compensation plan .................... 945 Other assets ............................................ 114 ------------- Total Assets ....................................... 214,567,780 ------------- LIABILITIES: Payable for: Fund shares repurchased .............................. 166,169 Distributions ........................................ 965,958 Administration fee ................................... 24,787 Transfer agent fee ................................... 24,378 Pricing and bookkeeping fees ......................... 6,821 Merger fee ........................................... 26,912 Trustees' fee ........................................ 44 Audit fee ............................................ 14,075 Reports to shareholders .............................. 18,783 Deferred Trustees' fee .................................. 945 Other liabilities ....................................... 6,372 ------------- Total Liabilities .................................. 1,255,244 ------------- NET ASSETS .............................................. $ 213,312,536 ============= COMPOSITION OF NET ASSETS: Paid-in capital ......................................... $ 219,249,974 Overdistributed net investment income ................... (35,919) Accumulated net realized loss on investments and futures contracts allocated from Portfolio ........... (8,333,358) Net unrealized appreciation on investments and futures contracts allocated from Portfolio ........... 2,431,839 ------------- NET ASSETS .............................................. $ 213,312,536 ============= CLASS A: Net assets .............................................. $ 41,904 Shares outstanding (unlimited number authorized) ........ 3,722 ============= Net asset value per share ............................... $ 11.26(a) ============= Maximum offering price per share ($11.26/0.9525) ........ $ 11.82(b) ============= CLASS S: Net assets .............................................. $ 213,270,632 Shares outstanding (unlimited number authorized) ........ 18,940,749 ============= Net asset value, offering and redemption price per share ............................................ $ 11.26 ============= (a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 14 Stein Roe High-Yield Municipals Fund - -------------------------------------------------------------------------------- Statement of Operations For the Year Ended June 30, 2002 INVESTMENT INCOME: Interest allocated from Portfolio .............................. $14,365,518 ----------- EXPENSES: Expenses allocated from Portfolio .............................. 1,064,789 Administration fee ............................................. 293,754 Service fee - Class A .......................................... 8 Pricing and bookkeeping fees ................................... 82,498 Transfer agent fee ............................................. 334,558 Trustees' fee .................................................. 10,699 Custody fee .................................................... 1,258 Audit fee ...................................................... 15,578 Registration fee ............................................... 49,284 Other expenses ................................................. 87,022 ----------- Total expenses .............................................. 1,939,448 ----------- Net Investment Income .......................................... 12,426,070 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS ALLOCATED FROM PORTFOLIO: Net realized gain on investments and futures contracts allocated from Portfolio .................................... 230,094 Net change in unrealized appreciation on investments and futures contracts allocated from Portfolio .................. 2,710,228 ----------- Net Gain ....................................................... 2,940,322 ----------- INCREASE IN NET ASSETS FROM OPERATIONS ......................... $15,366,392 ----------- See notes to financial statements. 15 Stein Roe High-Yield Municipals Fund - -------------------------------------------------------------------------------- Statement of Changes in Net Assets
YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, INCREASE (DECREASE) IN NET ASSETS: 2002 2001 (a) - ---------------------------------- ------------- ------------- OPERATIONS: Net investment income ........................................................................ $ 12,426,070 $ 14,079,156 Net realized gain (loss) on investments and futures contracts allocated from Portfolio ....... 230,094 (2,167,497) Net change in unrealized appreciation on investments and futures contracts allocated from Portfolio ............................. 2,710,228 4,172,995 ------------- ------------- Net Increase from Operations ................................................................. 15,366,392 16,084,654 ------------- ------------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income: Class A ................................................................................... (166) (53) Class S ................................................................................... (12,751,456) (14,034,351) ------------- ------------- Total Distributions Declared to Shareholders ................................................. (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 ............................................................................. 32,494,590 16,198,748 Distributions reinvested .................................................................. 7,872,926 9,458,044 Redemptions ............................................................................... (54,660,074) (56,545,431) ------------- ------------- Net Decrease ............................................................................ (14,292,558) (30,888,639) ------------- ------------- Net Decrease from Share Transactions ......................................................... (14,251,846) (30,887,586) ------------- ------------- Total Decrease in Net Assets ................................................................. (11,637,076) (28,837,336) NET ASSETS: Beginning of period .......................................................................... 224,949,612 253,786,948 ------------- ------------- End of period (including undistributed (overdistributed) net investment income of $(35,919) and $173,063, respectively) ................................ $ 213,312,536 $ 224,949,612 ============= ============= CHANGES IN SHARES: Class A: Subscriptions ............................................................................. 3,622 90 Issued for distributions reinvested ....................................................... 5 5 ------------- ------------- Net Increase ............................................................................ 3,627 95 ------------- ------------- Class S: Subscriptions ............................................................................. 2,871,106 1,450,026 Issued for distributions reinvested ....................................................... 700,510 848,660 Redemptions ............................................................................... (4,865,513) (5,051,528) ------------- ------------- Net Decrease ............................................................................ (1,293,897) (2,752,842) ------------- ------------- (a) Class A shares were initially offered on July 31, 2000. See notes to financial statements.
16 Notes To Financial Statements - -------------------------------------------------------------------------------- June 30, 2002 NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Stein Roe High-Yield Municipals Fund-Class S and Liberty High Income Municipals Fund-Class A are the collective series of shares of Stein Roe High-Yield Municipals Fund (the "Fund"), which is a series of Liberty-Stein Roe Funds Municipal Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. The Fund invests substantially all of its assets in SR&F High-Yield Municipals Portfolio (the "Portfolio"). The Portfolio is a series of SR&F Base Trust, a Massachusetts common law trust organized under an Agreement and Declaration of Trust dated August 23, 1993. The Portfolio commenced operations on February 2, 1998. At commencement, the Fund contributed $335,711,000 in securities and other assets to the Portfolio in exchange for beneficial ownership of the Portfolio. The Portfolio allocates income, expenses, realized and unrealized gains and losses to each investor on a daily basis, based on methods approved by the Internal Revenue Service. At June 30, 2002, the Fund owned 99.9% of the Portfolio. The Fund may issue an unlimited number of shares. Effective July 31, 2000, the Fund began offering Class A shares. The Fund offers two classes of shares: Class A and Class S. Class S shares are offered continuously at net asset value. Class A shares are offered continuously and have a front-end sales charge and their own expense structure; please refer to the Fund's Class A prospectus for more information on Class A shares. The financial highlights for Class S shares are presented in a separate annual report. 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 Portfolio and Fund in the preparation of their financial statements. SECURITY VALUATIONS AND TRANSACTIONS: Municipal securities are valued at a fair value using a procedure determined in good faith by the Board of Trustees, which has authorized the use of bid valuations provided by a pricing service. 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 Board of Trustees. Investment transactions are accounted for on trade date. 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. The Portfolio did not own 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 the Class A 12b-1 service charge), and realized and unrealized gains (losses) are allocated to each class proportionately on a daily basis for purposes of determining the net asset value of each class. Class A per share data and ratios are calculated by adjusting the expense and net investment per share data and ratios for the Fund for the entire period by the service fees applicable to Class A, only. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: 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 Portfolio and 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 cumulative effect of this accounting change did not impact total net assets of the Fund, but resulted in reclassifications as follows: DECREASE IN NET UNREALIZED INCREASE APPRECIATION/ IN COST DEPRECIATION - -------------------------------------------------------- SR&F High-Yield Municipals Portfolio $95,558 $(95,558) Stein Roe High-Yield Municipals Fund 95,558 (95,558) 17 Notes to Financial Statements Continued - -------------------------------------------------------------------------------- The effect of this change for the year ended June 30, 2002, did not impact total net assets of the Portfolio, but did result in reclassifications as follows: INCREASE DECREASE DECREASE IN NET NET UNREALIZED NET REALIZED INVESTMENT APPRECIATION/ GAINS/ INCOME DEPRECIATION LOSSES - -------------------------------------------------------------- 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 statement 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 Fund elects to be taxed as a "regulated investment company" and make distributions to its shareholders to be relieved of all federal income taxes under provisions of current federal tax law; and (b) the Portfolio is treated as a partnership for federal income tax purposes and all of its income is allocated to its owners based on methods approved by the Internal Revenue Service. Dividends paid from net investment income by the Fund 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: The 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 Portfolio deposits with its custodian cash or securities in an amount sufficient to meet the initial margin requirements. Subsequent payments are made or received by the 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 Portfolio recognizes a realized gain or loss when the contract is closed or expires. See the Investment Portfolio for a summary of open futures contracts at June 30, 2002. - -------------------------------------------------------------------------------- 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 non-deductible expenses, interest on defaulted bonds, futures and options contracts 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. For the year ended June 30, 2002, permanent items identified and reclassified among the Fund's components of net assets are as follows: OVERDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME LOSS CAPITAL - ------------------------------------------------------------ $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 the year was as follows: ORDINARY TAX-EXEMPT INCOME ------------------------- $12,751,513 $109 18 Notes to Financial Statements Continued - -------------------------------------------------------------------------------- As of June 30, 2002, the components of distributable earnings on a tax basis were as follows: UNREALIZED TAX EXEMPT APPRECIATION ------------------------------ $3,647,977 $2,841,472 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: Year of Expiration Capital Loss Carryforward ------------------ ------------------------- 2006 $3,546,402 2009 847,151 ---------- Total $4,393,553 ---------- - -------------------------------------------------------------------------------- NOTE 3. PORTFOLIO COMPOSITION The Portfolio invests 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 the Investment Portfolio for additional information regarding portfolio composition. The Portfolio holds investments that are insured by private insurers who guarantee payment of principal and interest in the event of default. At June 30, 2002, investments in these securities represented 19.5% of holdings. - -------------------------------------------------------------------------------- NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT & ADMINISTRATIVE FEES: The Fund and the Portfolio 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 the 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. 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. This transaction resulted in a change of control of the Advisor and therefore, an assignment of the Advisor's investment advisory contract with the Portfolio. The Portfolio had obtained approval of a new investment advisory contract by the Portfolio's Board of Trustees and the Fund's 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 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. BOOKKEEPING FEES: The Advisor is responsible for providing pricing and bookkeeping services to the Portfolio and the Fund under Pricing and Bookkeeping Agreement. 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 and Fund, the Advisor receives from the Portfolio and Fund an annual flat fee of $10,000 and $5,000, respectively, paid monthly, and in any month that the 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. 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 the 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 Portfolio pays the Transfer Agent a monthly fee equal to $6,000 annually. 19 Notes to Financial Statements Continued - -------------------------------------------------------------------------------- UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of the Advisor, is the Fund's principal underwriter. The 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. 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. OTHER Certain officers and trustees of the Portfolio are also officers of the Advisor. No remuneration was paid to any other trustee or officer of the Portfolio who is affiliated with the Advisor. The Portfolio has an agreement with its custodian bank under which $2,795 of custody fees were reduced by balance credits applied for the year ended June 30, 2002. The Portfolio 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. - -------------------------------------------------------------------------------- NOTE 5. PORTFOLIO INFORMATION During the year ended June 30, 2002, purchases and sales of investments, other than short-term obligations, were $33,584,763 and $44,667,075, respectively. Unrealized appreciation (depreciation) at June 30, 2002, for federal income tax purposes was: Gross unrealized appreciation............ $12,568,281 Gross unrealized depreciation............ (9,726,809) ----------- Net unrealized appreciation........... $ 2,841,472 =========== - -------------------------------------------------------------------------------- NOTE 6. SUBSEQUENT EVENT On July 15, 2002, Stein Roe High-Yield Municipals Fund acquired all the net assets of Liberty High Yield Municipals Fund 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 LIBERTY HIGH HIGH-YIELD YIELD MUNICIPALS UNREALIZED MUNICIPALS FUND FUND NET APPRECIATION/ SHARES ISSUED ASSETS RECEIVED DEPRECIATION1 - ---------------------------------------------------------- 12,328,081 $139,430,597 $2,690,498 1 Unrealized appreciation/depreciation is included in the Net Assets Received amount above. NET ASSETS NET ASSETS NET ASSETS OF LIBERTY OF STEIN ROE OF STEIN ROE HIGH YIELD HIGH-YIELD HIGH-YIELD MUNICIPALS FUND MUNICIPALS FUND MUNICIPALS FUND IMMEDIATELY IMMEDIATELY PRIOR TO PRIOR TO AFTER COMBINATION COMBINATION COMBINATION - ---------------------------------------------------------- $218,007,534 $139,430,597 $357,438,131 Effective July 15, 2002, prior to the reorganization described above, the pro-rata share of net assets of the SR&F High-Yield Municipals Portfolio were distributed to the Stein Roe High-Yield Municipals Fund based on allocation methods in compliance with the Internal Revenue Service. Effective July 15, 2002, Stein Roe High-Yield Municipals Fund was renamed Liberty High Yield Municipal Fund. 20 Financial Highlights - -------------------------------------------------------------------------------- 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, RATIOS TO AVERAGE NET ASSETS: 2002 2001 2000 1999 1998 (a) ------ ------ ------ ------ ------- 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 to June 30, 2002 have not been restated to reflect this change in presentation. (d) Annualized. (e) Not annualized.
Financial Highlights - -------------------------------------------------------------------------------- Liberty High Income Municipals Fund - Class A Selected data for a share outstanding throughout each period is as follows:
YEAR PERIOD ENDED ENDED JUNE 30, JUNE 30, 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 has 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.
21 Report of Ernst and Young LLP, Independent Auditors - -------------------------------------------------------------------------------- TO THE TRUSTEES OF LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST, THE LIBERTY HIGH INCOME MUNICIPALS FUND - CLASS A SHAREHOLDERS OF STEIN ROE HIGH-YIELD MUNICIPALS FUND, THE TRUSTEES OF SR&F BASE TRUST AND HOLDERS OF INVESTORS' BENEFICIAL INTERESTS OF SR&F HIGH-YIELD MUNICIPALS PORTFOLIO We have audited the accompanying statement of assets and liabilities of Stein Roe High-Yield Municipals Fund (a series of Liberty-Stein Roe Funds Municipal Trust) and the accompanying statement of assets and liabilities, including the investment portfolio of SR&F High-Yield Municipals Portfolio (a series of SR&F Base 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 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Stein Roe High-Yield Municipals Fund series of Liberty-Stein Roe Funds Municipal Trust and the SR&F High Yield Municipals Portfolio of 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 referred to above, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts August 16, 2002 22 TRUSTEES The Trustees serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Liberty 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 Liberty 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 800-345-6611.
Year first Number of elected or portfolios in fund Other Position with appointed Principal occupation(s) complex overseen directorships Name, address and age Liberty Funds to office during past five years by trustee held - --------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES Douglas A. Hacker (age 46) Trustee 2000 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 2000 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 1995 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 1998 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 2000 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 1985 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 and SkillSoft Corp. Boston, MA 02111 from September 1977 to September 1999) (e-learning) Thomas E. Stitzel (age 66) Trustee 1998 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 State Boston, MA 02111 University); Chartered Financial Analyst Thomas C. Theobald (age 65) Trustee 2000 Managing Director, William Blair Capital Partners 101 Xerox Corporation c/o Liberty Funds Group LLC (private equity investing) since 1994 (formerly (business products One Financial Center Chief Executive Officer and Chairman of the and services), Boston, MA 02111 Board of Directors, Continental Bank Anixter Corporation) International (network support equipment distributor), Jones Lang LaSalle (real estate management services) and MONY Group (life insurance) 23 TRUSTEES (CONTINUED) Year first Number of elected or portfolios in fund Other Position with appointed Principal occupation(s) complex overseen directorships Name, address and age Liberty Funds to office during past five years by trustee held - --------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES (continued) Anne-Lee Verville (age 57) Trustee 1998 Author and speaker on educational systems needs 101 Chairman of the c/o Liberty Funds Group LLC (formerly General Manager, Global Education Board of Directors, One Financial Center Industry from 1994 to 1997, and President, Enesco Group, Inc. Boston, MA 02111 Applications Solutions Division from 1991 to (designer, importer 1994, IBM Corporation [global education and and distributor of global applications]) giftware and collectibles) INTERESTED TRUSTEES William E. Mayer* (age 62) Trustee 1994 Managing Partner, Park Avenue Equity Partners 103 Lee Enterprises c/o Liberty Funds Group LLC (private equity fund) since February 1999 (print and online One Financial Center (formerly Founding Partner, Development Capital media), WR Hambrecht Boston, MA 02111 LLC from November 1996 to February 1999; + Co. (financial Dean and Professor, College of Business and service provider), Management, University of Maryland from First Health (health October 1992 to November 1996) care) and Systech Retail Systems (retail industry technology provider) Joseph R. Palombo* (age 49) Trustee 2000 Chief Operating Officer of Columbia 101 None One Financial Center and Management Group, Inc. since November 2001; Boston, MA 02111 Chairman formerly Chief Operations Officer of Mutual of the Funds, Liberty Financial Companies, Inc. from Board August 2000 to November 2001; Executive Vice President of Stein Roe & Farnham Incorporated (Stein Roe) since April 1999; Executive Vice President and Director of the Advisor since April 1999; Executive Vice President and Chief Administrative Officer of Liberty Funds Group LLC (LFG) since April 1999; Director of Stein Roe 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. a registered broker-dealer. Mr. Palombo is an interested person as an employee of an affiliate of the Advisor. 24 OFFICERS AND TRANSFER AGENT
Year first elected or Position with appointed Name, address and age Liberty Funds to office Principal occupation(s) during past five years - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS Keith T. Banks (age 46) President 2001 President of Liberty Funds since November 2001; Chief Investment Officer and Chief Columbia Management Group, Inc. Executive Officer of Columbia Management Group since 2001; President, Chief 590 Madison Avenue, 36th Floor Executive Officer and Chief Investment Officer of Fleet Investment Advisors Inc. Mail Stop NY EH 30636A since 2000 (formerly Managing Director and Head of U.S. Equity, J.P. Morgan New York, NY 10022 Investment Management from November 1996 to August 2000) Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds and Liberty All-Star Funds since May 2002; Chief One Financial Center Accounting Accounting Officer of the Liberty Funds and Liberty All-Star Funds since June Boston, MA 02111 Officer and 2001; Vice President of LFG since April 2001 (formerly Vice President, Corporate Controller 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 February Boston, MA 02111 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 and Liberty All-Star Funds since February 2002; Senior One Financial Center Vice President and Group Senior Counsel, Fleet National Bank since November 1996 Boston, MA 02111
IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty High Income Municipals Fund Class A is: Liberty Funds Services, Inc. P.O. Box 8081 Boston, MA 02266-8081 PLEASE MAKE A NOTE OF OUR NEW MAILING ADDRESS, EFFECTIVE IMMEDIATELY. The fund mails one shareholder report to each shareholder address. If you would like more than one report, please call Shareholder Services at 800-345-6611 and additional reports will be sent to you. This report has been prepared for shareholders of Liberty High Income Municipals Fund Class A . This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objectives and operating policies of the fund and with the most recent copy of the Liberty Funds Performance Update. Annual Report: Liberty High Income Municipals Fund Class A 25 Liberty High Income Municipals Fund Class A Annual Report, June 30, 2002 logo: LibertyFunds A Member of Columbia Management Group (c) 2002 Liberty Funds Distributor, Inc. A Member of Columbia Management Group One Financial Center, Boston, MA 02111-2621 PRSRT STD U.S. Postage PAID Holliston, MA Permit NO. 20 752-02/323K-0602 (08/02) 02/1550 -----END PRIVACY-ENHANCED MESSAGE-----