-----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, GFKAX+EM5ctDcxZEYZ0qxnqOYwbV6Fsa7SbApeknYMkYjEH87ygiHo6ZY8SC6Y8w G9bJpXipd0K0UNdxSHROTg== 0000891804-99-001730.txt : 19990827 0000891804-99-001730.hdr.sgml : 19990827 ACCESSION NUMBER: 0000891804-99-001730 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEIN ROE MUNICIPAL TRUST CENTRAL INDEX KEY: 0000773757 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04367 FILM NUMBER: 99699758 BUSINESS ADDRESS: STREET 1: ONE SOUTH WACKER DRIVE STREET 2: 11TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123687836 MAIL ADDRESS: STREET 1: ONE SOUTH WACKER DR STREET 2: 11TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE MUNICIPAL TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE INTERMEDIATE MUNICIPALS INC DATE OF NAME CHANGE: 19880114 N-30D 1 STEIN ROE TAX-EXEMPT BOND FUNDS Stein Roe Mutual Funds Annual Report June 30, 1999 [PHOTO OF BRIDGE] Stein Roe Tax-Exempt Bond Funds Tax-Exempt Funds Municipal Money Market Fund Intermediate Municipals Fund Managed Municipals Fund High-Yield Municipals Fund STEIN ROE MUTUAL FUNDS Sensible Risks. Intelligent Investments. (R) Contents - -------------------------------------------------------------------------------- From the President................................................ 1 Tom Butch's thoughts on the markets and investing Questions & Answers Interviews with the portfolio manager and a summary of investment activity Municipal Money Market Fund.................................... 8 Intermediate Municipals Fund .................................. 11 Managed Municipals Fund ....................................... 14 High-Yield Municipals Fund .................................... 18 Portfolios of Investments......................................... 22 A complete list of investments with market values Financial Statements.............................................. 48 Statements of assets and liabilities, operations and changes in net assets Notes to Financial Statements..................................... 58 Financial Highlights.............................................. 63 Selected per-share data Report of Independent Auditors.................................... 67 Must be preceded or accompanied by a prospectus. From the President - -------------------------------------------------------------------------------- To Our Shareholders Fiscal 1999 was a frustrating period for municipal bonds. Fear of higher inflation outweighed the potentially beneficial effects of a strong domestic economy, driving down bond prices at the same time that bond issuance remained high. Municipal bonds generally performed in line with U.S. Treasury bonds of comparable maturity between June 1998 and June 1999. However, preserving capital was challenging. High yield municipal securities generally provided the highest returns for the period. The returns of Stein Roe's four municipal funds for the one-year and longer-term periods ended June 30, 1999 are shown on page 3. Amid a tough investing climate, each Fund - Stein Roe Municipal Money Market Fund, Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund, and Stein Roe High-Yield Municipals Fund -- provided positive results for shareholders who reinvested monthly dividends. Beginning on page 8, each Fund's manager(s) review events over the past 12 months that affected the tax-exempt securities market. While the past year's market results were weak, we remain confident that municipal bonds can be a rewarding asset class for a growing number of tax-sensitive investors as we enter a new millennium. Double-Edge Dilemma: Growth and Inflation In the 1990s, advances in technology -- particularly electronic commerce -- as well as prudent Federal Reserve monetary policy, have helped fuel one of the longest and strongest U.S. economic booms since the end of World War II. In May 1999, the nation's unemployment rate dropped to 4.2%, a level not seen since the 1960s. Our growing economy helps municipal bond issuers meet debt payments by increasing tax revenue, but too much growth can cause the cost of living to accelerate. Higher prices, in turn, reduce the purchasing power of bond income. When the government reported that inflation in April was higher than expected, bond traders demanded much higher yields from fixed-income investments. Bond prices -- which move in the opposite direction of yields -- fell sharply. This fear of inflation was compounded by the resignation of a U.S. Treasury Secretary who helped engineer the first budget surpluses in a generation, higher oil prices and reports of building material and labor shortages. A Year of Volatility in Treasuries As of June 30, 1999, the average yield of 30-year U.S. Treasury bonds stood at 5.98%, some 35 basis points (0.35%) higher than on June 30, 1988. However, this modest increase masks a year of exceptional volatility that saw yields fluctuate from a record low of 4.71% last October to a high of 6.19% in late June. [PHOTO OF THOMAS W. BUTCH] From the President Continued - -------------------------------------------------------------------------------- Fiscal 1999 initially began with positive developments for Treasuries and a weak municipals market. Investors flocked to the safety of U.S. government debt as credit concerns mounted and equity markets weakened. By this spring, enthusiasm for Treasuries waned. U.S. corporate profits were generally better than expected, stocks soared and the domestic economy showed vigorous growth. This past June, the Fed raised short-term interest rates by 25 basis points (0.25%) to 5%. At Stein Roe, we believe the U.S. economic environment may become more favorable for municipal bonds in the coming months as investors begin to realize that inflation is not expected to rise much beyond 3%. In addition, we think some companies may hold off on purchasing plans until after the year 2000, helping to temper domestic growth. Little Chance of Tax Relief Despite huge federal budget surpluses, Washington appears unlikely to enact across-the-board income tax relief for the people whose earnings have generated the surplus -- America's high-income taxpayers. With a divided Congress and an unreceptive executive branch, it appears that municipal bonds remain one the few ways tax-sensitive investors can increase their income potential without inflating their tax burden. Continued domestic growth has helped many states maintain high credit ratings, helping to support bond prices. As interest rates have risen in 1999, new municipal bond issuance has dropped more than 30% from year-earlier levels, according to The Bond Buyer, a municipal bond trade publication. This is potentially good news for municipal bond investors because if demand for tax-exempt securities remains steady or better, bond prices should hold up well, all things being equal. I urge you to review the role your municipal bond fund plays in your portfolio and consider increasing your financial commitment to this asset class, especially now that yields have become more attractive. Remember, too, that tax-exempt investing can allow you to take maximum advantage of the compounding effects of interest income. Sincerely, [SIGNATURE HERE] Thomas W. Butch President July 19, 1999 Income may be subject to state or local taxes and the federal alternative minimum tax. Capital gains, if any, are subject to federal, state and local taxes. Fund Performance - -------------------------------------------------------------------------------- Average Annual Total Returns Periods Ended June 30, 1999 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Stein Roe Municipal Money Market Fund 2.73% 3.01% 3.23% U.S. Consumer Price Index (Inflation) 2.00% 2.35% 3.04% Lipper Tax-Exempt Money Market Fund Average 2.68% 3.00% 2.94% Number of Funds in Peer Group 128 106 69 Stein Roe Intermediate Municipals Fund 2.08% 5.59% 6.51% Lehman Brothers 10-Year Municipal Bond Index 2.29% 6.83% 7.50% Lipper Intermediate Municipal Debt Fund Average 1.93% 5.55% 6.30% Number of Funds in Peer Group 131 87 24 Stein Roe Managed Municipals Fund 1.67% 6.36% 6.89% Lehman Brothers Municipal Bond Index 2.76% 7.00% 7.43% Lipper General Municipal Debt Fund Average 1.13% 6.18% 6.85% Number of Funds in Peer Group 259 154 76 Stein Roe High-Yield Municipals Fund 3.18%(a) 7.14% 6.97% Lehman Brothers Municipal Bond Index 2.76% 7.00% 7.43% Lipper High-Yield Municipal Debt Fund Average 1.90% 6.64% 6.82% Number of Funds in Peer Group 53 27 15 - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. An expense limitation of 0.70% was in effect for Municipal Money Market Fund and Intermediate Municipals Fund for part of the periods shown. Returns would have been lower without the limitation. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Each index shown above is an unmanaged group of fixed-income securities that differs from the composition of each Stein Roe fund; they are not available for direct investment. The U.S. Consumer Price Index is the government's measure of annual changes in the cost of living. Income may be subject to state or local taxes and the federal alternative minimum tax. Capital gains, if any, are subject to federal, state and local taxes. Sources: Lipper, Inc., a monitor of mutual fund performance, and Bloomberg Business News. (a) 0.50% of the return is attributable to a one-time revaluation of a portfolio security reflecting the restructuring of this security. Absent this revaluation, the total return would have been 2.68%. Total Return Comparison - -------------------------------------------------------------------------------- Intermediate Municipals Fund - -------------------------------------------------------------------------------- Growth of a $10,000 Investment June 30, 1989 to June 30, 1999 [LINE CHART HERE] Intermediate Municipals Fund Lipper Lehman Brothers Intermediate 10-Year Intermediate Municipal Municipal Municipals Debt Fund Bond Index Fund Average (24 funds) 6/30/89 10000 10000 10000 6/30/90 10782 10687 10600 6/30/91 11916 11563 11443 6/30/92 13026 12751 12611 6/30/93 14665 14143 13894 6/30/94 14810 14307 14062 6/30/95 16110 15250 15022 6/30/96 17139 16089 15790 6/30/97 18567 17223 16875 6/30/98 20142 18401 18044 6/30/99 20604 18784 18427 Intermediate Municipals Fund--Income Review - -------------------------------------------------------------------------------- Annual Income from a $100,000 Investment June 30, 1989 to June 30, 1999 [BAR CHART HERE] Intermediate Municipals Fund - Income Review 6/30/90 6130 6/30/91 6444 6/30/92 6414 6/30/93 6413 6/30/94 6748 6/30/95 7008 6/30/96 7644 6/30/97 8034 6/30/98 8465 6/30/99 8628 Total Distributions = $80,778 Account Value = $187,731 Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return performance includes changes in share price and reinvestment of income and capital gains distributions. The line chart assumes a $10,000 investment on 6/30/89, reinvestment of distributions and compares fund performance to an unmanaged group of fixed income securities that differs from the composition of any Stein Roe fund; it is not available for direct investment. The bar chart assumes a $100,000 initial investment on 6/30/89, continuous reinvestment of distributions. Each bar shows the amount of income dividends for each 12-month period ended June 30 after the initial investment. An expense limitation of 0.70% was in effect for Intermediate Municipals Fund for part of the periods shown. Returns would have been lower without the limitation. The Fund distributed $8,529 in capital gains for the period shown. Sources: Weisenberger(R) and Lipper, Inc. Total Return Comparison Continued - -------------------------------------------------------------------------------- Managed Municipals Fund - -------------------------------------------------------------------------------- Growth of a $10,000 Investment June 30, 1989 to June 30, 1999 [LINE CHART HERE] Managed Municipals Fund line chart Lipper Municipal Lehman Managed Debt Fund Brothers Municipals Average Municipal Fund (76 Funds) Bond Index 6/30/89 10000 10000 10000 6/30/90 10617 10538 10681 6/30/91 11566 11410 11643 6/30/92 12944 12822 13014 6/30/93 14342 14371 14571 6/30/94 14300 14266 14595 6/30/95 15318 15398 15883 6/30/96 16279 16303 16937 6/30/97 17667 17627 18335 6/30/98 19146 19146 19923 6/30/99 19466 19412 20473 Managed Municipals Fund--Income Review - -------------------------------------------------------------------------------- Annual Income from a $100,000 Investment June 30, 1979 to June 30, 1999 [BAR CHART HERE] Managed Municipals Fund bar chart Managed Muncipals Fund 6/30/80 6166 6/30/81 7402 6/30/82 8777 6/30/83 9285 6/30/84 7357 6/30/85 11160 6/30/86 12456 6/30/87 13163 6/30/88 17277 6/30/89 15543 6/30/90 16240 6/30/91 16832 6/30/92 18061 6/30/93 18231 6/30/94 18908 6/30/95 19606 6/30/96 20618 6/30/97 21324 6/30/98 22756 6/30/99 23363 Total Distributions = $367,385 Account Value = $462,758 Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return performance includes changes in share price and reinvestment of income and capital gains distributions. The line chart assumes a $10,000 investment on 6/30/89, reinvestment of distributions and compares fund performance to an unmanaged group of fixed income securities that differs from the composition of any Stein Roe fund; it is not available for direct investment. The bar chart assumes a $100,000 initial investment on 6/30/79, continuous reinvestment of distributions. Each bar shows the amount of income dividends for each 12-month period ended June 30 after the initial investment. The Fund distributed $48,197 in capital gains for the 20-year period shown. Sources: Weisenberger(R) and Lipper, Inc. Total Return Comparison Continued - -------------------------------------------------------------------------------- High-Yield Municipals Fund - -------------------------------------------------------------------------------- Growth of a $10,000 Investment June 30, 1989 to June 30, 1999 [LINE CHART HERE] High Yield Municipals Fund Lipper High-Yield Lehman High-Yield Municipal Debt Brothers Municipals Fund Average Municipal Fund (15 Funds) Bond Index 6/30/89 10000 10000 10000 6/30/90 10761 10502 10681 6/30/91 11709 11224 11643 6/30/92 12759 12481 13014 6/30/93 13765 13807 14571 6/30/94 13896 13959 14595 6/30/95 15084 15080 15883 6/30/96 16120 15999 16937 6/30/97 17551 17414 18335 6/30/98 19012 19058 19923 6/30/99 19633 19429 20473 High-Yield Municipals Fund--Income Review - -------------------------------------------------------------------------------- Annual Income from a $100,000 Investment June 30, 1989 to June 30, 1999 [BAR CHART HERE] High Yield Municipals Fund 6/30/90 7425 6/30/91 7813 6/30/92 8300 6/30/93 7880 6/30/94 8063 6/30/95 8264 6/30/96 9197 6/30/97 10298 6/30/98 10120 6/30/99 10331 Total Distributions = $97,982 Account Value = $195,810 Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return performance includes changes in share price and reinvestment of income and capital gains distributions. The line chart assumes a $10,000 investment on 6/30/89, reinvestment of distributions and compares fund performance to an unmanaged group of fixed income securities that differs from the composition of any Stein Roe fund; it is not available for direct investment. The bar chart assumes a $100,000 initial investment on 6/30/89, continuous reinvestment of distributions. Each bar shows the amount of income dividends for each 12-month period ended June 30 after the initial investment. The Fund distributed $9,899 in capital gains for the period shown. Sources: Weisenberger(R) and Lipper, Inc. To Contact Us. . . - -------------------------------------------------------------------------------- By Phone 800-338-2550 You can discuss your investment questions with a Stein Roe account representative by calling us toll free. We'll be happy to answer questions about your current account, or to provide you with information about opening a Stein Roe account, including Stein Roe Traditional, Roth and Education IRAs. We're available seven days a week, from 7 a.m. to 7 p.m. weekdays and from 9 a.m. to 1 p.m. Saturday and Sunday (Central time). Stein Roe's Funds-on-Call(R) 24-Hour Service Line Using a touch-tone phone, call our toll-free number, day or night, for your current account balance, the latest Stein Roe Fund prices and yields and other information. In addition, if you have a Personal Identification Number (PIN), you may place orders for the following transactions 24 hours a day: o Exchange shares between your Stein Roe accounts; o Purchase fund shares by electronic transfer; o Order additional account statements and money market fund checks; o Redeem shares by check, wire or electronic transfer. Retirement Plan Accounts Call us for information about how we can assist you with your defined contribution plan, including 401(k) plans. You can reach us toll free at 800-322-1130. For information on Traditional, Roth and Education IRA plans, call us toll free at 800-338-2550. By Mail or E-Mail If you prefer to contact us by mail, please address all correspondence to: P.O. Box 8900, Boston, MA 02205-8900. To contact us by e-mail, send correspondence directly to: comments@steinroe.com or visit us at www.steinroe.com on the Internet. In Person If you are in the Chicago area, please visit our Investor Center located in downtown Chicago at One South Wacker Drive. Our account representatives can answer questions about your current Fund investments or provide you with information about any of the Stein Roe Funds and retirement plans. Stop by weekdays between 8 a.m. and 5:15 p.m. Must be preceded or accompanied by a prospectus. Questions & Answers An Interview with Veronica Wallace, Portfolio Manager of Stein Roe Municipal Money Market Fund and SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Fund Data Investment Objective: Seeks maximum current tax-free income consistent with safety of capital and maintenance of liquidity by investing principally in a diversified portfolio of short-term municipal securities. Fund Inception: March 15, 1983 Total Net Assets: $119.0 million Q: How did the Fund perform for the fiscal year ended June 30, 1999? Wallace: Overall it was a good year. We were positioned long early in the fiscal year and we didn't have to buy into the rate decline in the fall. The Fund posted a 2.73% one-year return, just slightly higher than the 2.68% return of the average tax-exempt money market fund according to Lipper, Inc. Q: How did you manage the Fund through the multiple rate decreases in the first two quarters of the fiscal year? Wallace: In the summer of 1998 we expected interest rates to decline, so we extended maturity. The longer average maturity helped us going into the rate decline in September and October of last year by allowing us to lock in higher yields. As of Sept. 30, 1998, we had an average maturity of 64 days. This supported the Fund's performance in the ensuing, although temporary, lower interest rate environment. Q: How did the Fund keep pace with inflation? Wallace: The portfolio's 7-day yield as of Dec. 31, 1998 was 3.13%. As securities in the portfolio matured this past spring, the portfolio's income potential declined so that as of June 30, 1999, the portfolio's 7-day current yield was 2.74%. Still, the portfolioreturn outpaced the cost of living, which rose 2.0% for the period, preserving the purchasing power of your investment dollars. We expect that the Federal Reserve's recent interest rate increase will benefit the Fund. We expect the income potential of variable rate notes in the portfolio to rise. Going forward, we expect rates on other paper to look better and the Fund's income potential to increase accordingly. [PHOTO OF VERONICA WALLACE HERE] Questions & Answers Continued - -------------------------------------------------------------------------------- Q: How was the supply of municipal securities this fiscal year? Wallace: Municipalities did not need to borrow as much due to the strong economy, and therefore supply was lower and many issues were expensive. Municipal supply is also very cyclical. We usually see a huge supply in June and heavy issuance in August. In fact, certain large municipalities always issue at the same times each year. Supply normally dwindles at year-end and becomes a trickle during the first calendar quarter. Q: Did supply affect the Fund's performance? Wallace: With supply so low during the first quarter, rates are generally poor during this period. We are accustomed to the cyclical nature of the municipal market and try to buy more cautiously at certain times of the year - looking for attractively priced issues. To us, an attractive price means a note or paper priced at 68% to 70% of U.S. Treasury bills. Anything priced below 65% of Treasuries we consider too expensive for this Fund. Q: You've increased your position in variable-rate notes. Why? Wallace: Variables provide the potential for liquidity and stability and we use them to try to increase our short-term yield. With commercial paper and notes not as attractive recently, we've looked to weekly variable-rate notes for a large portion of the portfolio. Q: What is your outlook for the rest of 1999? Wallace: We'll watch the Fed closely. They have a neutral stance right now, but we don't feel it is significant enough to not keep a close eye on the U.S. and global economies. If we see signs of the economy shifting toward inflation, we'll look for another interest rate increase. If, over the last half of this year, we see bonds priced at 70% of U.S. Treasuries, we may buy them. If not, we'll sit where we are for awhile. We are comfortable with where the portfolio is positioned and believe we would only need to scramble if the market shifts dramatically toward a rate decline. Past performance is no guarantee of future results. Total return includes reinvestment of income. Yields fluctuate and are not guaranteed. An investment in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corp. (FDIC) or any government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund. The Adviser currently limits expenses to 0.70% of average net assets. Absent these limits, the 7-day current tax-free yield as of 6/30/99 would have been 2.59%, and total return would have been less. Tax-free income is exempt from federal taxes but may be subject to the alternative minimum tax. Current yield is net of all fees and represents annualization of dividends declared and payable to shareholders for the last seven days of investment. Portfolio composition is disclosed for SR&F Municipal Money Market Portfolio. Portfolio holdings are as of 6/30/99 and subject to change. Source of Lipper data: Lipper, Inc. Portfolio Highlights - -------------------------------------------------------------------------------- SR&F Municipal Money Market Portfolio Security Type Breakdown PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Variable-Rate Notes 75.0% 68.9% Tax-Exempt Bonds 14.8 15.5 Other Tax-Exempt Notes 4.3 5.2 Put Bonds 3.8 4.3 Tax & Revenue Anticipation Notes 1.4 4.6 Commercial Paper 0.7 1.5 - -------------------------------------------------------------------------------- Total Investments 100.0% 100.0% Portfolio Statistics PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- 7-day Dollar-Weighted Average Maturity 45 days 68.4 days 7-day Current Yield* 2.74% 3.00% *Net of all fees and expenses and represents an annualization of dividends declared and payable to shareholders for the last seven days of investment. - -------------------------------------------------------------------------------- Maturity [PIE CHARTS HERE] As of June 30, 1998 Greater than 299 Days - 11.0% 180-299 Days - 7.3% 90-179 Days - 6.5% 30-89 Days - 3.7% 1-29 Days - 71.5% As of June 30, 1999 Greater than 299 Days - 7.1% 180-299 Days - 3.5% 90-179 Days - 7.8% 30-89 Days - 4.7% 1-29 Days - 76.9% Questions & Answers - -------------------------------------------------------------------------------- An Interview with Joanne Costopoulos, Portfolio Manager of Intermediate Municipals Fund Fund Data Investment Objective: Seeks high current yield exempt from federal income tax, consistent with capital preservation, through investment primarily in the three highest grades of intermediate-term municipal securities. The dollar-weighted average maturity of the Fund's portfolio is between three and 10 years. Fund Inception: Oct. 9, 1985 Total Net Assets: $168.9 million Q: How did the Fund perform in fiscal 1999? Costopoulos: The Fund provided a total return of 2.08% for the fiscal year ended June 30, 1999. This was more than the Lipper intermediate municipal debt fund peer group return of 1.93%. The Lehman Brothers 10-Year Municipal Bond Index returned 2.29% for the same period. Q: To what do you attribute the Fund's lower relative return? Costopoulos: The Fund's average duration was 5.9 years as of June 30,1999. As intermediate and long-term interest rates rose during the period, the Fund outperformed its peers. This is because when interest rates rise, a bond with a long duration (which measures a bond's price sensitivity to interest rate movements) generally is more susceptible to price volatility. [PHOTO OF JOANNE COSTOPOULOS HERE] The opposite is true when interest rates decline, which we believe will happen over the course of the next six months. For this reason, we expect to maintain the Fund's duration slightly longer. Q: How did the Fund's strategic positioning change over the past 12 months? Costopoulos: Our credit quality focus, though still firmly rooted in investment-grade municipal bonds (90% of net assets), shifted somewhat during the latter half of fiscal 1999 to try to take advantage of the strong income potential available from lower-quality issues, primarily municipal bonds rated BBB and select non-rated bonds. As credit spreads (the difference in yield between lower-rated and higher-rated securities) Questions & Answers Continued - -------------------------------------------------------------------------------- widened in the first six months of calendar year 1999, this translated into higher relative yields from non-investment grade bonds. We believe the added yield potential from these bonds has adequately compensated us for taking on additional credit risk. Q: Do you plan to add to the Fund's holdings in lower-rated bonds? Costopoulos: No. If credit spreads move wider, we may swap lower-rated holdings for comparably rated, higher-yielding securities, but we do not plan to shift assets from the Fund's higher-quality holdings into lower-grade bonds. If spreads tighten, as we saw in calendar year 1998, we may sell our lower-rated holdings in favor of upgrading quality, while attempting to maintain income potential. Q: Looking ahead, what areas of the municipal market do you think look attractive for fiscal 2000? Costopoulos: We like the 10-year sector of the municipal yield curve. Bonds with a 10-year maturity currently offer about 90% of the yield of 30-year bonds. We plan to increase the portfolio's holdings in 10-year bonds since we see this as an opportunity to get almost as much yield as a long bond, but without as much interest rate risk. Historically, prices of 30-year bonds have fluctuated more than bonds with shorter maturities. Q: What is your outlook for the year ahead? Costopoulos: We think that intermediate and long-term interest rates will move lower over the next six months. If this happens, we may extend the portfolio's duration to try to take advantage of potentially greater returns. New issuance of municipal bonds should be more manageable than it was during the past 12 months. In calendar year 1998, total municipal bond supply soared to $286 billion--the second largest annual volume on record. Increased refinancing activity contributed to the large issuance. In the first six months of 1999, however, supply was down roughly 30% over the same period last year. We expect supply to be average to lower in the coming year. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Portfolio holdings are as of 6/30/99 and are subject to change. The Advisor currently limits expenses to 0.70% of average net assets. Fund return as of 6/30/99 would have been lower without the limit. Absent past limits, the 30-day SEC and tax-equivalent yields as of 6/30/99 would have been 3.93% and 6.51%, respectively. Income distributions are exempt from federal income taxes but may be subject to the federal alternative minimum tax and state and local taxes. Capital gains, if any, are also taxable. The Lehman Brothers 10-Year Municipal Bond Index is an unmanaged group of investment grade municipal bonds; it is not available for direct investment. Source of Lipper data: Lipper, Inc. Fund Highlights - -------------------------------------------------------------------------------- Intermediate Municipals Fund Top Five States PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- New York 10.7% New York 14.1% Georgia 10.0 Texas 8.8 Illinois 9.9 Illinois 8.7 Texas 8.6 Georgia 7.8 Arizona 6.7 California 7.6 Portfolio Statistics PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Average Duration 5.9 years 5.9 years Average Weighted Maturity 8.6 years 8.8 years Average Weighted Coupon 6.28% 6.26% - -------------------------------------------------------------------------------- Maturity [PIE CHARTS HERE] As of June 30, 1998 Greater than 15 Years - 14.1% 10-15 Years - 18.9% 5-10 Years - 40.4% 0-5 Years - 26.6% As of June 30, 1999 Greater than 15 Years - 14.0% 10-15 Years - 18.9% 5-10 Years - 40.5% 0-5 Years - 26.6% - -------------------------------------------------------------------------------- Portfolio Quality [PIE CHARTS HERE] As of June 30, 1998 AAA - 71.7% AA - 10.3% A - 14.4% BBB and Below - 3.6% As of June 30, 1999 AAA - 67.6% AA - 8.2% A - 14.5% BBB and Below - 9.7% Questions & Answers - -------------------------------------------------------------------------------- An Interview with Brian Hartford and Bill Loring, Portfolio Managers of Managed Municipals Fund [PHOTOS OF BRIAN HARTFORD AND BILL LORING] Fund Data Investment Objective: Pursues high tax-free income consistent with capital preservation by investing in a quality-conscious portfolio of long-term municipal securities. Fund Inception: Feb. 23, 1977 Total Net Assets: $538.3 million Q: How did the Fund perform in fiscal 1999? Hartford: Managed Municipals Fund provided a total return of 1.67% for the fiscal year ended June 30, 1999. This was higher than the average return of its Lipper general municipal debt fund peer group (see page 3). The Lehman Brothers Municipal Bond Index returned 2.76% for the same period. Q: Can you describe the market environment during the period? Loring: Fiscal 1999 was a roller coaster year. Just a few weeks into our reporting period last summer, a rally in the U.S. Treasury market pushed the yield on the 30-year Treasury bond to just 4.71%. The rally was driven by a flight to quality. Investors, wary of credit risk in the wake of global economic uncertainty, avoided riskier bonds and equities and redeployed assets to Treasury bonds for safety and liquidity. Rising Treasury prices (and falling yields) created an opportunity for value-oriented municipal bond investors. We started the fiscal year with high-quality, 30-year municipal bonds yielding roughly 89% of 30-year Treasury bonds. That increased to 98% by late autumn, making tax-exempt bonds an attractive value compared to taxable bonds. Since then, strong U.S. economic growth and an apparent bottoming out of Southeast Asia's financial crisis restored investor confidence in riskier investments. At the same time, however, fear of inflation increased, causing Treasury prices to sink. By June 30, 1999, the average yield on 30-year U.S. Treasuries had risen to 5.97%. Long-term, high-quality municipal bonds yielded about 84% of 30-year Treasuries at fiscal year-end. We believe this is still an attractive ratio for tax-sensitive, income-oriented investors. Questions & Answers Continued - -------------------------------------------------------------------------------- Q: Did you make any adjustments to the portfolio since the start of fiscal 1999? Hartford: We emphasized higher-quality bonds (bonds rated A or better) in the portfolio. Still, we did add a few higher-yielding, lower-quality municipal bonds to the Fund's holdings in response to wider credit spreads and the resulting opportunity for strong income potential from this market segment in calendar year 1999. As of June 30, bonds rated BBB and below made up 11.2% of net assets. - -------------------------------------------------------------------------------- We sold shorter, non-callable bonds and bought longer, non-callable bonds in an effort to modestly increase portfolio duration and preserve call protection - -------------------------------------------------------------------------------- We bought several non-rated issues, including AEI Resources, the parent company of a large coal producer in the southeastern U.S., and Ladera Unified School District (0.3% and 0.2% of net assets, respectively). Though these bonds were non-rated at the time of purchase, we believe the financial standing of their respective issuers is of sound quality. We expect to maintain a large portion of the portfolio's assets in non-callable bonds (59.4% as of June 30) given our outlook for a lower interest rate environment. We sold shorter, non-callable bonds and bought longer, non-callable bonds in an effort to modestly increase portfolio duration and preserve call protection. Q: New issuance of municipal bonds has tapered off in 1999. What are the factors that are affecting supply? Loring: One is the absolute level of interest rates. As rates have risen, bonds on the verge of being pre-refunded were no longer candidates for refinancing. Issuers like to use lower rates to refinance or pre-refund bonds to pay off older debt issued when rates were higher. Another factor is the psychology of the prospective issuers. If they think the timing of bringing a new deal to market is bad--for example, because rates are higher--they may postpone it. This tends to be a more temporary phenomenon affecting supply. Q: What's the status of credit quality among state and local governments? Hartford: Throughout this ongoing economic expansion, we've seen a tremendous amount of rating upgrades by national credit rating agencies. The ratio of upgrades to downgrades is around seven-to-one. Credit quality continues to improve because the strong economy raises tax revenues for the states and their municipalities which helps generate higher tax receipts than were Questions & Answers Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We believe the Fed will likely maintain a neutral stance through late 1999, which could ultimately boost bond prices - -------------------------------------------------------------------------------- budgeted. This has enabled state and local governments to bank that extra money in their rainy day funds. Q: What is your outlook for the economy for the rest of calendar year 1999? Loring:We think the economy is starting to slow and that some of the inflationary pressures that exist today will subside. Whether the Federal Reserve raises the federal funds rate (now 5%) more than 0.25% going forward poses some concern. We believe the Fed will likely maintain a neutral stance through late 1999, which could ultimately boost bond prices. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Total return includes changes in share price and reinvestment of income and capital gains distributions, if any. Portfolio holdings are as of 6/30/99 and are subject to change. Income distributions are exempt from federal income taxes but may be subject to the 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. Source of Lipper data: Lipper, Inc. Fund Highlights - -------------------------------------------------------------------------------- Managed Municipals Fund Top Five States PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Georgia 10.5% Georgia 13.6% Illinois 10.4 New York 10.2 Massachusetts 9.9 Massachusetts 8.8 New York 9.2 Illinois 7.9 Washington 6.0 Washington 6.2 Portfolio Statistics PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Average Duration 7.8 years 7.3 years Average Weighted Maturity 16.3 years 14.9 years Average Weighted Coupon 5.90% 6.20% - -------------------------------------------------------------------------------- Maturity [PIE CHARTS HERE] As of June 30, 1998 Greater than 25 Years - 10.3% 20-25 Years - 12.2% 15-20 Years - 23.8% 10-15 Years - 34.0% 5-10 Years - 7.2% Less than 5 Years - 12.5% As of June 30, 1999 Greater than 25 Years - 14.3% 20-25 Years - 17.0% 15-20 Years - 20.2% 10-15 Years - 29.6% 5-10 Years - 10.2% Less than 5 Years - 8.7% - -------------------------------------------------------------------------------- Portfolio Quality [PIE CHARTS HERE] As of June 30, 1998 AAA - 36.7% AA - 32.0% A - 25.8% BBB and Below - 5.5% As of June 30, 1999 AAA - 34.6% AA - 29.2% A - 25.0% BBB and Below - 11.2% Questions & Answers - -------------------------------------------------------------------------------- An Interview with Maureen Newman Portfolio Manager of Stein Roe High-Yield Municipals Fund and SR&F High-Yield Municipals Portfolio Q: How did the Fund perform in fiscal 1999? Newman: High-Yield Municipals Fund outperformed the average of its Lipper peers for the 12-month period ended June 30, 1999. With dividends reinvested, the Fund had a total return of 3.18% for the 1999 fiscal year. Of the return of 3.18%, 0.50% was attributable to a one-time revaluation of a portfolio security reflecting the restructuring of this security. Absent this revaluation, the total return would have been 2.68%. The Lehman Brothers Municipal Bond Index returned 2.76% for the same period. We had a tremendous amount of volatility during the year. Deteriorating economic conditions in Southeast Asia, Latin America and in parts of Europe last summer triggered a flight to quality movement into U.S. Treasuries. Both Treasury and municipal bond prices rose through late summer and early fall. In late January, bond yields began to rise as reports of strong economic growth in the fourth quarter proved the economy resilient to international crises. Municipal bond yields rose as well, but not as much as those of Treasuries. [PHOTO OF MAUREEN NEWMAN] Fund Data Investment Objective: Seeks a high level of tax-free income consistent with capital preservation by investing in long-term municipal securities, principally of medium or lower quality. Fund Inception: March 5, 1984 Total Net Assets: $297.9 million Q: You mentioned that January marked a turning point for the municipal bond market. Since then, how have you adjusted the portfolio's positioning? Newman: For much of the period, the Fund's duration remained fairly stable. More recently, however, after U.S. Treasury prices have declined--and inversely yields have risen--we have modestly lengthened the duration of the Fund in an effort to take advantage of higher yields on municipal bonds at the long end of the yield curve. Questions & Answers Continued - -------------------------------------------------------------------------------- Q: Have you changed the portfolio's holdings? Newman: Yes, and quite significantly. Total holdings in the portfolio have increased to 139, up from just 114 issues last November, when I began managing the Fund. One of our goals has been to further diversify the portfolio's holdings. Toward that end, we decreased our position in airline bonds, one of the Fund's largest sector allocation last fall. For example, we sold bonds issued by United Airlines and Continental Airlines. Because credit spreads in this sector did not widen the way they did in most sectors, these bonds were richly priced, which also made them attractive sell candidates given the amount of value we were able to lock in. We also have been increasing our holdings in selected health care, education and housing issues--particularly senior housing and multifamily housing--since these sectors historically have been less cyclical and therefore may perform well in a slowing economy. Q: Have you made any shifts in the portfolio's credit quality? Newman: In keeping with our goal to maintain a broad mix of bonds, as well as our objective to provide a high level of tax-free income, we have marginally increased the portfolio's holdings of lower-rated securities. Typically we have strong security provisions on the portfolio's lower-quality bonds. For example, when we bought Walker Methodist, (0.4% of net assets), a Minnesota nursing home whose credit quality was nonrated, we got a mortgage on the property to give us added credit protection. Q: In what areas of the country are you finding the best opportunities for yield? Newman: We hold bonds in many states. However, our practice has been to buy fewer bonds in New York, California and Massachusetts because the yields in these high tax-burden states are usually not as great as in other states that have lower income tax rates or no income tax. - -------------------------------------------------------------------------------- Our practice has been to buy fewer bonds in New York, California and Massachusetts because the yields in these high tax-burden states are usually not as great as in other states that have lower income tax rates or no income tax. - -------------------------------------------------------------------------------- Our experience has been that the higher the taxes, the greater the demand for tax-exempt bonds and the more investors are willing to pay, regardless of the bond's coupon. As a result, the issuer historically hasn't had to offer as much yield to attract investors. Questions & Answers Continued - -------------------------------------------------------------------------------- Q: What is your outlook for the year ahead? Newman: We believe that the U.S. economy will slow down to some extent in the coming year. This may be driven in part by the effects of a strong U.S. dollar on overseas trade which has started to moderate growth in the domestic manufacturing sector. - -------------------------------------------------------------------------------- We expect to reduce the Fund's exposure to cyclical areas and increase holdings in non-cyclical sectors such as schools, health care and housing. - -------------------------------------------------------------------------------- Currently, some U.S. manufacturers believe they are losing overseas sales because their products are too expensive for foreigners to buy. As for High-Yield Municipals Fund, we expect to reduce the Fund's exposure to cyclical areas and increase holdings in non-cyclical sectors such as schools, health care and housing. We are also leaning toward slightly lengthening the Fund's duration to try to take advantage of any potential lowering of interest rates. 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 6/30/99 and are subject to change. Investing in high yield bonds involves greater credit risks than investing in higher-quality bonds. Income distributions are exempt from federal income taxes but may be subject to the 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. Source of Lipper data: Lipper, Inc. Portfolio Highlights - -------------------------------------------------------------------------------- SR&F High-Yield Municipals Portfolio Top Five States PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Indiana 11.9% Indiana 11.9% Pennsylvania 11.2 Pennsylvania 9.8 Colorado 8.0 Texas 9.1 Texas 5.6 Colorado 6.4 New York 4.5 New York 4.8 Portfolio Statistics PORTFOLIO PORTFOLIO JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Average Duration 7.9 years 6.3 years Average Weighted Maturity 17.1 years 16.8 years Average Weighted Coupon 6.68% 6.71% - -------------------------------------------------------------------------------- Maturity [PIE CHARTS HERE] As of June 30, 1998 Greater than 25 Years - 24.4% 20-25 Years - 15.2% 15-20 Years - 21.3% 10-15 Years - 12.1% 5-10 Years - 9.7% Less than 5 Years - 17.3% As of June 30, 1999 Greater than 25 Years - 23.4% 20-25 Years - 18.4% 15-20 Years - 18.8% 10-15 Years - 13.2 5-10 Years - 12.3% Less than 5 Years - 13.9% - -------------------------------------------------------------------------------- Portfolio Quality [PIE CHARTS HERE] As of June 30, 1998 AAA - 20.7% AA - 10.5% A - 19.9% BBB - 21.6% BB and Below/Not Rated - 27.3% As of June 30, 1999 AAA - 18.4% AA - 6.9% A - 19.5% BBB - 23.3% BB and Below/Not Rated - 31.9% SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Portfolio of Investments at June 30, 1999 (All amounts in thousands) Principal Amortized Municipal Securities (105.0%) Amount Cost - -------------------------------------------------------------------------------- Alabama (0.4%) University of Alabama Revenue Series A (General Fee-Huntsville, MBIA Insured, prerefunded to 11/1/99, escrowed in U.S. Treasury securities) 7.000% 11/1/09.......... $ 500 $ 516 Alaska (0.2%) Anchorage Alaska Water Revenue (FSA Insured) 4.500% 8/1/99 235 236 Arizona (1.7%) Phoenix Industrial Development Authority (Spring Air Mattress Company Project, LOC Bank One Arizona) VRDB 3.720% (a).... 1,870 1,870 Scottsdale GO Series C 7.750% 7/1/00................. 450 468 ------- 2,338 Arkansas (2.2%) Clark County Solid Waste Disposal Revenue (Reynolds Metals Project, LOC SunTrust Bank) VRDB 3.400% (a)................ 3,000 3,000 California (1.5%) California Higher Education Loan Authority Student Loan Revenue Series A (LOC State Street) VRDB 3.200% (Mandatory Put 6/1/00) (a)................................. 1,000 1,000 Los Angeles County Tax & Revenue Anticipation Notes 4.000% 6/30/00............................ 1,000 1,007 ------- 2,007 Colorado (3.1%) Colorado Health Facilities Authority Revenue (AMC Cancer Research Center, LOC U.S. Bank NA) 3.400% 1/15/28 (Mandatory Put 1/15/00) 440 440 Colorado Springs IDR (Catalano Family LLP Project, LOC Bank One Colorado) VRDB 3.720% (a)......................... 1,145 1,145 Lowry Economic Redevelopment Authority Colorado Revenue Series B (LOC Canadian Imperial Bank) VRDB 3.450% ......... 1,000 1,000 SBC Metropolitan District Colorado (LOC U.S. Bank NA) 3.350% 12/1/17 (Mandatory Put 12/1/99)............ 1,555 1,555 ------- 4,140 Florida (1.0%) Putnam County Development Authority PCR Series D (Seminole Electric Cooperation) VRDB 3.125% (Optional Put 12/15/99)......................... 1,400 1,400 Georgia (1.8%) Gwinnett County Development Authority IDR (Price Companies Project, LOC NationsBank of Georgia) VRDB 3.900% (a)....... 2,400 2,400 Illinois (24.5%) ABN AMRO Munitops Certificates Trust Series 1998-14 (Cook County GO Refunding Bond, ABN AMRO Liquidity Provider) VRDB 3.640% (b)................................... 1,000 1,000 Chicago Economic Development Revenue (Crane Carton Project, LOC Northern Trust) VRDB 3.700%................... 2,150 2,150 Chicago IDR (P S Greetings Incorporated Project) VRDB 3.800% 600 600 Chicago Multi-Family Housing Series B (Archer Courts Apartments) VRDB 3.8500%...................................... 1,010 1,010 Chicago Revenue (De La Salle Institute Project, LOC Northern Trust) VRDB 3.500%....................................... 900 900 Chicago School Finance Authority Series A (FGIC Insured) 5.900% 6/1/00.................... 1,000 1,021 SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Continued Principal Amortized Amount Cost - -------------------------------------------------------------------------------- Illinois (Continued) Chicago Tax Increment Allocation (Stockyards, LOC Northern Trust) Series A VRDB 3.500%.............................. $ 1,500 $ 1,500 Chicago Wastewater Transmission Revenue Second Lien Series B (MBIA Insured) 4.250% 1/1/00...................... 500 502 Cook County Community College District Number 504 Triton Certificates (FSA Insured) 4.300% 10/1/99 ..................... 275 276 Cook County School District Number 98 Berwyn GO (FSA Insured) 9.000% 12/1/99...................... 145 148 Cook & Will Counties Illinois Community College District Number 515 (FSA Insured) 5.300% 12/1/99...................... 450 454 Country Club Hills (FSA Insured) 3.400% 12/1/99...... 605 606 Du Page & Cook Counties Community Unit School District Number 205 5.400% 1/1/00..................................... 767 775 Elgin Corporate Purpose Bonds 5.500% 1/1/00.......... 445 449 Glendale Heights IDR (Judy LLC/York Corrugated, LOC Harris Trust and Savings Bank) VRDB 3.800% (a)................. 1,600 1,600 Homewood Flossmoor Park District GO (FSA Insured) 4.200% 12/1/99.................................. 135 136 Illinois Development Finance Authority Revenue (Nutrasweet Project, gtd. by Monsanto) VRDB 3.750% (a) 4,400 4,400 (Wheaton Academy Project, LOC Northern Trust) VRDB 3.550%.......................................... 1,000 1,000 Illinois Educational Facilities Authority Revenues (Aurora University, LOC Harris Trust & Savings Bank) VRDB 3.700%...... 1,200 1,200 Illinois Health Facility Authority Revenue (University of Chicago Hospital Project) 3.200% 8/1/15 (Mandatory Put 10/5/99) 1,000 1,000 Illinois State Toll Highway Authority Highway Priority Revenue Series A 4.500% 1/1/00..................................... 1,000 1,006 Illinois Student Assistance Commission Student Loan Revenue (LOC Bank of America Illinois) Series 96A VRDB 3.600% (a) 1,000 1,000 Jefferson & Franklin Counties Community College District Number 521 GO (FSA Insured) 3.250% 11/1/99................... 365 365 Montgomery & Bond Counties Community Unit School District Number 3 (FSA Insured) 3.400% 11/1/99............. 395 395 Morton IDR Series A (Morton Welding Project, LOC Bank One Illinois NA Chicago) VRDB 3.820% (a).............. 905 905 North Aurora IDR (Oberweis Dairy Incorporated Project, LOC LaSalle National Bank) VRDB 3.610% ....................... 1,700 1,700 Palatine Special Facility Limited Obligation Revenue (Little City Community Development Project, LOC Federal Home Loan Bank) VRDB 3.550%..................................... 1,000 1,000 Quad Cities Regional Economic Development Authority Revenue (Steel Warehouse, LOC Bank One Indiana) VRDB 3.720% (a) 2,000 2,000 (Steel Warehouse, LOC Bank One Indiana) VRDB 3.720% (a) 2,200 2,200 Rockford GO Series A (FGIC Insured) 4.380% 12/15/99.. 240 241 Springfield IDR (Phillips Brothers Incorporated Project, LOC Bank One Illinois) VRDB 3.720% (a)......................... 1,350 1,350 ------- 32,889 Indiana (9.4%) Crawfordsville Economic Development Revenue (Pedcor Investments, Shady Knoll Project, LOC FHLB) VRDB 3.670% (a).... 1,558 1,558 Indiana Health Facility Financing Authority Revenue (Capital Access Designated Pool) VRDB 3.100% ..................... 300 300 Indiana State Development Finance Authority Economic Development Revenue (Carr Metal Products Project, LOC Bank One, Indiana) VRDB 3.8500%...................................... 1,440 1,440 Franklin Economic Development Revenue (Pedcor Investments, Lakeview Apartments, LOC FHLB) VRDB 3.670% (a).... 2,839 2,839 SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Continued Principal Amortized Amount Cost - -------------------------------------------------------------------------------- Indiana (Continued) Kokomo Economic Development Revenue (Village Community Partners IV Project, LOC FHLB) VRDB 3.670% (a).... $ 2,940 $ 2,940 La Porte County Economic Development Revenue (Pedcor Investments, Woodland Project, LOC FHLB) VRDB 3.670% (a)....... 1,965 1,965 Plymouth Economic Development Revenue Series A (Hillcrest Apartments Project, LOC LaSalle National Bank) VRDB 3.750% (a) 1,000 1,000 Portage Economic Development Revenue Series A (Pedcor Investments, LOC Federal Home Loan Bank) VRDB 3.850%........... 500 500 ------- 12,542 Iowa (7.2%) Clinton IDR (Sethness Products Project, LOC Northern Trust) VRDB 3.650% (a)................................... 3,500 3,500 Iowa Higher Education Loan Authority Revenue (Saint Ambrose University, LOC Norwest Bank Minnesota) VRDB 3.750%........... 1,000 1,000 Mount Pleasant GO Series A (MBIA Insured ) 3.600% 12/1/99 190 190 Muscatine County PCR (Monsanto Project) VRDB 3.650%.. 2,000 2,000 Scott County Industrial Waste Revenue (Recycling Nichols Aluminum Project, LOC Firstar Bank Milwaukee) VRDB 3.600% . 3,000 3,000 ------- 9,690 Kansas (0.6%) Olathe IDR (Garmin International Project, LOC NationsBank) VRDB 3.750% (a)................................... 800 800 Kentucky (3.6%) Covington Industrial Building Revenue (White Castle Distributing, LOC Bank One Columbus) Series 1991 VRDB 3.720% (a) 3,205 3,205 Shelby County Industrial Building Revenue (Roll Forming, LOC Bank One Kentucky) VRDB 3.720% (a)............ 1,595 1,595 ------- 4,800 Louisiana (0.3%) Lake Charles Harbor & Terminal District Pollution Control Revenue (Conoco Incorporated Project) VRDB 3.550% (a)..... 400 400 Maryland (0.9%) Anne Arundel County Economic Development Revenue (Baltimore Gas and Electric Project) 3.200% 12/1/18 (Mandatory Put 9/15/99) (a)....................... 1,000 1,000 University of Maryland Auxiliary Facility & Tuition Revenue Series A 6.500% 4/1/07 (prerefunded to 4/1/00, escrowed in U.S. Treasury Notes)................................... 250 260 ------- 1,260 Michigan (3.3%) ABN AMRO Munitops Certificates Trust Series 1998-13 (Michigan Trunk Line Revenue, ABN AMRO Liquidity Provider) VRDB 3.610% (b)................................. 2,000 2,000 Detroit City School District GO 4.500% 7/1/99........ 1,000 1,000 Detroit City School District (MBIA Insured) 3.250% 5/1/00 385 384 Detroit City School District State School Aid Notes 4.000% 6/1/00......................... 1,000 1,007 ------- 4,391 Minnesota (0.7%) Minneapolis GO Series B (SPA Bayerische Vereinsbank) VRDB 2.800%..................................... 900 900 Missouri (3.9%) Jefferson County Industrial Development Authority IDR (GHF Holdings Project, LOC Bank One Indiana) VRDB 3.720% (a) 3,700 3,700 SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Continued Principal Amortized Amount Cost - -------------------------------------------------------------------------------- Missouri (Continued) Kansas City Industrial Development Authority IDR (Lanter Project, LOC Harris Trust & Savings Bank) VRDB 3.800% ..... $ 480 $ 480 St Louis General Federal Revenue Tax & Revenue Anticipation Notes 4.000% 6/30/00.................................... 1,000 1,007 ------- 5,187 Nebraska (0.1%) Omaha Public Power District Nebraska Electric Revenue Series A 4.850% 2/1/00..................................... 125 126 New Jersey (0.3%) South Brunswick Township GO 4.400% 8/1/99............ 395 395 New Mexico (0.8%) Albuquerque Educational Facilities Revenue (Menaul School Project, LOC Norwest Bank Minnesota) VRDB 3.750%........... 290 290 Rio Rancho Public School District Number 94 GO Series B (FSA Insured) 6.100% 8/1/99....................... 835 837 ------- 1,127 Nevada (0.1%) Washoe County GO Series A (AMBAC Insured) 4.500% 12/1/99 100 100 North Carolina (1.0%) New Hanover County Industrial Facilities (Gang-Nail Systems Project, LOC Harris Trust & Savings Bank) VRDB 3.650%...... 1,400 1,400 Ohio (2.6%) Cleveland State University General Receipt Bond Anticipation Notes Series A 3.800% 8/16/99........................... 750 751 Hancock County Multi-Family Revenue (Pedcor Investments, Crystal Glen Apartments Project, LOC FHLB) VRDB 3.770% (a) 750 750 Ohio Environmental Improvement Revenue (U.S. Steel Project, LOC Pittsburgh National Bank) VRDB 3.300%......... 400 400 Ohio State Building Authority Series C (prerefunded to 10/1/99, escrowed in U.S. Treasury securities) 7.350% 10/1/04 500 520 Summit County Bond Anticipation Notes Series A 3.800% 6/1/00............................ 1,000 1,005 ------- 3,426 Oklahoma (0.1%) Oklahoma State IDR Health System Series C (Baptist Center, AMBAC Insured) 5.400% 8/15/99........................... 200 201 Pennsylvania (2.1%) Pennsylvania State GO Second Series A (MBIA Insured) 6.000% 11/1/99..... 200 202 Third Series A 5.700% 11/15/99.................... 130 131 Pennsylvania State Higher Educational Facilities Authority College & University Revenue (Bryn Mawr College, FGIC Insured, prerefunded to 12/1/99, escrowed in U.S. Treasury securities) 6.750% 12/1/01.................................... 750 776 Quakertown General Authority Revenue Series 96A (LOC PNC Bank) VRDB 3.550%........................ 1,683 1,683 ------- 2,792 Rhode Island (0.3%) Convention Center Authority Revenue Series B (MBIA Insured) 4.600% 5/15/00.................................... 300 302 SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Continued Principal Amortized Amount Cost - -------------------------------------------------------------------------------- South Carolina (1.5%) South Carolina Jobs Economic Development Authority IDR (Specialty Equipment Companies, LOC Bank of America, Illinois) VRDB 3.720% (a)................................... $ 2,045 $ 2,045 Tennessee (2.1%) Clarksville Public Building Authority Revenue (Pooled Financing-Tennessee Muni Bond Fund, LOC Nationsbank) VRDB 3.800%...... 2,000 2,000 McMinn County Industrial Development Board IDR (Creative Fabrication, LOC NBD Bank) VRDB 3.900% (a)........ 791 791 ------- 2,791 Texas (5.4%) Arlington GO 6.500% 8/15/99.......................... 660 663 Austin Certificates of Obligation 7.000% 9/1/99...... 620 623 Brazos Industrial Development Corporation Marine Term Revenue (Monsanto Project) VRDB 3.550%.................... 400 400 Carrollton GO 6.250% 8/15/99......................... 335 336 Gulf Coast Industrial Development Authority Solid Waste Disposal Revenue (Citgo Petroleum Project, LOC Banque Nationale de Paris) VRDB 3.550% (a)................................... 400 400 Grand Prairie Industrial Development Revenue (W. W. Grainger Incorporated, Liquidation Facility Northern Trust) VRDB 3.950%.. 800 800 Harris County Industrial Development Corporation IDR (Precision General Project, LOC Morgan Guaranty Trust) VRDB 3.720% (a)................................... 2,060 2,060 Harris County Revenue (MBIA Insured) 5.100% 8/15/99 (a) 235 235 Robertson County Industrial Development Corporation (Sanderson Farms Project, LOC Harris Trust & Savings Bank) VRDB 3.650% (a) 300 300 Tarrant County Hospital District GO 5.000% 8/15/99... 500 501 University of Texas Revenue Series B 5.000% 8/15/99 . 500 501 Webb County Certificates of Obligation (FGIC Insured) 6.000% 2/1/00....................... 355 360 ------- 7,179 Utah (0.4%) Davis County School District (FGIC Insured) 4.550% 6/1/00 250 250 Utah Municipal Power System Revenue (Hunter Project, AMBAC Insured) 4.200% 7/1/99..................................... 250 250 ------- 500 Washington (8.6%) Washington State Housing Finance Commission Multi-Family Housing Revenue (Hamilton Place Senior Living Project, LOC U.S. Bank of Washington) Series A VRDB 3.850% (a)........... 1,125 1,125 Washington State Public Power Supply System Revenue Series A (Nuclear Project Number 1) 7.250% 7/1/99. 1,500 1,500 Series C (Nuclear Project Number 2) 7.200% 7/1/99. 3,650 3,650 Yakima County Public Corporation IDR (John I. Haas Project, LOC Bayerische Vereinsbank) VRDB 3.650% (a)....... 5,300 5,300 ------- 11,575 Wisconsin (13.3%) Carlton PCR (Wisconsin Power & Light Project) VRDB 3.550% (a).................................... 3,300 3,300 Campbellsport School District (FSA Insured) 3.500% 3/15/00..................................... 120 120 Chase IDR (Belgioioso Cheese Project, LOC Bank One Wisconsin) VRDB 3.720% (a)................................... 1,000 1,000 Fond Du Lac IDR (Brenner Tank, LOC Bank One Wisconsin) VRDB 3.720% (a)........................ 2,355 2,355 Fox Lake Redevelopment Authority IDR (Karavan Trailers Project, LOC Bank One Wisconsin) VRDB 3.720% (a)........... 1,440 1,440 SR&F Municipal Money Market Portfolio - -------------------------------------------------------------------------------- Continued Principal Amortized Amount Cost - -------------------------------------------------------------------------------- Wisconsin (Continued) Holland IDR (White Clover Dairy Project, LOC Bank One Wisconsin) VRDB 3.720% (a)........................ $ 2,275 $ 2,275 Kenosha IDR (Monarch Plastics Project, LOC Bank One Wisconsin) VRDB 3.720% (a)........................ 1,920 1,920 Mukwonago School District Bond Anticipation Notes 3.750% 11/1/99............................... 1,000 1,002 Oshkosh Area School District GO Bond Anticipation Notes 3.330% 12/15/99............................. 1,000 1,000 Two Rivers GO Series B (FSA Insured) 3.500% 4/1/00... 100 100 Whitnall School District GO (FSA Insured) 3.900% 4/1/00 255 256 Wisconsin Housing & Economic Development Authority Home Ownership Revenue Series H (GO of Authority Insured) 4.350% 3/1/00..................................... 525 529 Wisconsin State Health & Educational Facilities Authority Revenue (Grace Lutheran Foundation Project) VRDB 3.750%....................................... 2,555 2,555 ------- 17,852 ------- - -------------------------------------------------------------------------------- Total Municipal Securities (cost of $140,707) (c)............................ 140,707 Other Assets, Less Liabilities (-5.0%)............... (6,658) ------- Total Net Assets (100.0%)............................ $134,049 ======= - -------------------------------------------------------------------------------- Notes to Portfolio of Investments - -------------------------------------------------------------------------------- (a)Security is subject to federal alternative minimum tax. At June 30, 1999, the aggregate amortized cost of these securities represented 54.2 percent of total net assets. (b)Represents private placement securities issued under Rule 144A, which are exempt from the registration requirements of the Securities Act of 1933. These securities are generally issued to qualified institutional buyers, such as the Portfolio, and any resale by the Portfolio must be an exempt transaction, normally to other qualified institutional investors. At June 30, 1999, the aggregate amortized cost of the Portfolio's private placement securities was $3,000 which represented 2.2 percent of net assets. (c)At June 30, 1999, the cost of investments for financial reporting and federal income tax purposes was identical. Variable rate demand bonds (VRDB) are securities whose yields are periodically reset at levels that are generally comparable to tax-exempt commercial paper. These securities are payable on demand within seven calendar days and normally incorporate an irrevocable letter of credit or line of credit with a major bank. See accompanying Notes to Financial Statements. Intermediate Municipals Fund - -------------------------------------------------------------------------------- Portfolio of Investments at June 30, 1999 (All amounts in thousands) Principal Market Municipal Securities (98.3%) Amount Value - -------------------------------------------------------------------------------- Arizona (6.7%) Cochise County Unified School District No. 68 Sierra Vista GO Series B (FGIC Insured) 9.000% 7/1/01............. $ 1,115 $ 1,217 Maricopa County Hospital Revenue (Samaritan Health Services, escrowed in U.S. Treasury securities) 7.625% 1/1/08 2,050 2,318 Maricopa County Unified School District No. 97 Deer Valley GO Series A (MBIA Insured) 6.250% 7/1/06............. 1,750 1,906 Phoenix Civic Improvement Corporation Wastewater System Lease (escrowed in U.S. Treasury securities, prerefunded to 7/1/03) 6.000% 7/1/07.............. 2,500 2,690 Pima County GO 6.300% 7/1/02......................... 2,500 2,641 Tempe Unified High School District No. 213 GO (FGIC Insured) 7.000% 7/1/08..................................... 500 574 ------- 11,346 Arkansas (2.1%) Baxter County Arkansas Hospital Series B 5.3750% 9/1/14 800 771 Beaver Water District Benton & Washington Counties Water Revenue (MBIA Insured) 6.000% 11/15/04.................... 2,580 2,764 ------- 3,535 California (3.9%) California Educational Facilities Authority Revenue (University of San Francisco, MBIA Insured) 5.600% 10/1/10....... 1,000 1,059 California Housing Finance Agency Revenue Home Mortgage Series B-1 5.900% 2/1/04 (a)...................... 865 899 Central Coast Water Authority Revenue (AMBAC Insured, escrowed in state and local government securities, prerefunded to 10/1/02) 5.950% 10/1/03............ 2,000 2,144 La Quinta California Redevelopment Agency Tax Allocation (MBIA Insured) 7.300% 9/1/09...................... 750 898 Los Angeles County Public Works Financing Authority Revenue (escrowed in U.S. Treasury securities, prerefunded to 10/1/04) 5.800% 10/1/05.................................... 1,500 1,626 ------- 6,626 Colorado (0.4%) Adams County School District No. 12 Series A (MBIA Insured) Zero Coupon (Effective Yield 5.950%) 12/15/12..... 1,300 636 Delaware (0.7%) Delaware Economic Development Authority Revenue (General Waterworks Corporation) 6.450% 12/1/07... 1,165 1,274 Florida (2.5%) Greater Orlando Aviation Authority Airport Facilities Revenue 5.2500% 10/1/09 (a)............................... 1,000 1,013 Stoneybrook Community Development District Capital Improvement Revenue Series B 5.700% 5/1/08.................... 3,285 3,240 ------- 4,253 Intermediate Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Georgia (10.0%) Atlanta Airport Facilities Revenue (AMBAC Insured) 6.500% 1/1/07...................................... $ 5,000 $ 5,517 Atlanta Water and Wastewater Revenue Series A (FGIC Insured) 5.5000% 11/1/22................................... 2,000 2,050 Fulton County Water & Sewer Revenue (FGIC Insured) 5.625% 1/1/01....................... 1,000 1,023 Georgia GO Series A 6.250% 4/1/07.................... 2,000 2,199 Georgia Municipal Electric Authority Power Revenue Series Y (AMBAC Insured) 6.4000% 1/1/13.................... 3,000 3,355 Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue (AMBAC Insured) Series M 6.050% 7/1/01.......................... 1,600 1,660 Series P 5.800% 7/1/02.......................... 1,000 1,043 ------- 16,847 Hawaii (0.7%) Honolulu City & County GO Series A 7.350% 7/1/06..... 1,000 1,143 Illinois (9.9%) Chicago Board of Education GO (MBIA Insured) 6.250% 12/1/12 2,100 2,311 Chicago Midway Airport Revenue Series A (MBIA Insured) 5.700% 1/1/04 (a)................................. 1,000 1,039 Chicago Public Building Commission Series B (FGIC Insured) 5.250% 12/1/18.................................... 2,000 1,976 Chicago Skyway Toll Bridge Revenue (escrowed in U.S. Treasury securities, prerefunded to 1/1/04) 6.750% 1/1/17.. 1,500 1,662 Chicago Water Revenue (FGIC Insured) 6.500% 11/1/09.. 2,155 2,406 DuPage County Special Service Area No. 11 6.750% 1/1/14 1,135 1,264 Illinois Development Finance Authority Revenue Series A (Provena Health, MBIA Insured) 5.250% 5/15/18..... 2,000 1,937 Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue (McCormick Place Expansion Project) Series 1992A (escrowed in U.S. Treasury securities) 7.250% 6/15/05 385 435 Series 1992A 7.250% 6/15/05..................... 2,365 2,657 Southern Illinois University Revenue (MBIA Insured) Zero Coupon (Effective Yield 5.650%) 4/1/15....... 1,175 486 Illinois Development Finance Authority Solid Waste Disposal Revenue (Waste Management Project) 5.050% 1/1/10.......... 615 600 ------- 16,773 Indiana (4.6%) Indiana State Toll Road Commission Toll Road Revenue (escrowed in U.S. Treasury securities) 9.000% 1/1/15 2,240 3,100 Indiana Transportation Finance Authority Airport Facilities Lease Revenue Series A 6.500% 11/1/07 (escrowed in U.S. Treasury securities, prerefunded to 11/1/02)....................... 1,040 1,115 6.500% 11/1/07.................................. 1,210 1,315 Indianapolis Local Public Improvement Bond Bank Series D 6.500% 2/1/06..................................... 2,100 2,286 ------- 7,816 Kentucky (1.6%) Kentucky State Turnpike Authority Economic Development Road Revenue 5.800% 1/1/04........................ 2,500 2,619 Louisiana (1.4%) Orleans Levee District Series A (FSA Insured) 5.950% 11/1/07.................................... 2,200 2,358 Intermediate Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - ------------------------------------------------------------------------------- Maine (0.4%) Maine Educational Loan Authority Educational Loan Revenue Series A-2 6.650% 12/1/02 (a)..................... $ 580 $ 600 Massachusetts (2.3%) Massachusetts Bay Transportation Authority Series A 7.000% 3/1/07............................ 2,250 2,547 Massachusetts State Health and Educational Facilities Authority Revenue (Daughters of Charity) Series C 7.250% 7/1/00.......................... 200 206 Series D 6.000% 7/1/09.......................... 1,000 1,058 ------- 3,811 Michigan (5.6%) Greater Detroit Resource Recovery Authority Revenue Series A (AMBAC Insured) 6.250% 12/13/05................... 2,000 2,166 Michigan State Hospital Finance Authority Revenue (Daughters of Charity, escrowed in state and local government securities) 6.500% 11/1/01........................ 850 879 Michigan State Underground Storage Tank Financial Assurance Authority (AMBAC Insured) Series I 6.000% 5/1/05.. 5,000 5,349 Michigan State Strategic FD LTD Obligation Revenue (Waste Management Inc) 5.200% 4/1/10.............. 1,000 990 ------- 9,384 Minnesota (0.3%) New Hope Minnesota Housing and Health Care Facilities Revenue 5.400% 3/1/08..................................... 500 493 Missouri (0.5%) Missouri State Regional Convention & Sports Complex Authority Series A 6.600% 8/15/03........................... 830 889 Nebraska (1.4%) Nebraska Public Gas Agency Gas Supply Systems Revenue Series A 5.3000% 4/1/03........................... 1,250 1,274 Series A 5.4000% 4/1/04........................... 1,000 1,023 ------- 2,297 Nevada (0.9%) Clark County PCR (Southern California Edison) Series A 7.125% 6/1/09 (a)................................. 1,500 1,581 New Jersey (2.4%) Bergen County Utility Authority (FGIC Insured) Series A 6.250% 6/15/06.................................... 2,000 2,180 New Jersey Health Care Facilities Finance Authority (Christ Hospital Group, Connie Lee Insured) 7.000% 7/1/03..................................... 1,730 1,878 ------- 4,058 New Mexico (1.7%) Santa Fe Gross Receipts Tax Revenue (AMBAC Insured) Series A 6.500% 6/1/06..................................... 2,555 2,814 New York (10.7%) New York City GO Series 1996C 5.700% 2/1/06........................ 1,000 1,045 Series 1997J 6.125% 8/1/11........................ 5,000 5,352 Series 1997H 6.000% 8/1/17........................ 2,000 2,115 Intermediate Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- New York (Continued) New York State Dormitory Authority Revenue (State University Educational Facilities) Series A 6.500% 5/15/05........................... $ 1,000 $ 1,085 (City University System, FGIC Insured) Series A 5.625% 7/1/16............................ 5,000 5,232 New York State Environmental Facilities Corporation PCR (State Revolving Fund) Series 1994D 6.300% 5/15/05 3,000 3,259 ------- 18,088 North Carolina (2.7%) North Carolina Eastern Municipal Power Agency Revenue Series C 5.500% 1/1/07..................................... 3,100 3,072 North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue (MBIA Insured) 5.900% 1/1/03.............. 1,500 1,568 ------- .................................................. 4,640 Ohio (2.8%) Columbus GO (escrowed in U.S. Treasury securities, prerefunded to 9/15/01) 6.750% 9/15/04............ 1,000 1,057 Loveland School District GO (MBIA Insured, escrowed in U.S. Treasury securities, prerefunded to 12/1/02) 7.100% 12/1/09 3,000 3,323 Olmsted Falls Ohio City School District Tax Anticipation Notes 5.5000% 12/1/04................................... 420 420 ------- 4,800 Oklahoma (0.9%) Mc Alester Oklahoma Public Works Authority Utilities Systems Revenue (FSA Insured) 5.7500% 2/1/20...................... 1,500 1,541 Oregon (1.5%) Portland Sewer System Revenue Series B (FGIC Insured) 5.400% 4/1/02..................................... 2,500 2,576 Pennsylvania (1.9%) Dauphin County General Authority Hospital Revenue (Hapsco Group, MBIA Insured) Series B 5.800% 7/1/02 1,600 1,664 Erie Capital Appreciation Series B Zero Coupon (Effective Yield 5.500%) 11/15/12..... 1,000 489 Westmoreland County Pennsylvania Industrial Development Authority Revenue (Gtd. By Valley Landfill Project, Waste Management Inc) 5.100% 5/1/18..................................... 1,000 982 ------- 3,135 South Carolina (2.8%) Piedmont Municipal Power Agency Electric Revenue (FGIC Insured) 6.125% 1/1/07 (escrowed in U.S. Treasury securities) 335 365 6.125% 1/1/07 .................................... 2,015 2,165 Sumter County Hospital Facilities Revenue (Tuomey Regional Medical Center, MBIA Insured) 6.625% 11/15/04..... 2,000 2,189 ------- 4,719 Tennessee (3.0%) Knox County Health Educational & Housing Facilities Board Health Facilities Revenue (Baptist Health Systems, Connie Lee Insured) 5.500% 4/15/11.................................... 2,000 2,026 Metropolitan Nashville & Davidson County Water & Sewer Revenue (FGIC Insured) 6.500% 1/1/10...................... 2,750 3,072 ------- 5,098 Intermediate Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Texas (8.6%) Alliance Airport Authority Special Facilities Revenue (Federal Express Project) 6.375% 4/1/21 (a)....... $ 2,000 $ 2,085 Houston Water Conveyance System Participation Certificates Series J (AMBAC Insured) 6.125% 12/15/06.......... 1,000 1,075 Retama Development Corporation Special Facilities Revenue (escrowed in U.S. Treasury securities) 8.750% 12/15/10 2,885 3,832 Round Rock Independent School District GO Series 1991 8.625% 8/15/00 (MBIA Insured) ........ 1,270 1,339 Series 1995 7.500% 8/1/02 (gtd. by PSF) .......... 1,200 1,308 San Antonio Water Revenue (FGIC Insured) 6.000% 5/15/01(escrowed in U.S. Treasury securities) 415 430 6.000% 5/15/01.................................... 2,460 2,543 Texas State Higher Education Revenue Student Loan Senior Lien 7.450% 10/1/06 (a)................................ 1,875 1,969 ------- 14,581 Utah (0.6%) Intermountain Power Agency Power Supply Revenue (MBIA Insured) Series B 6.000% 7/1/07............. 1,000 1,073 Virginia (0.6%) Danville Industrial Development Authority Hospital Revenue (Danville Regional Medical Center, AMBAC Insured) 5.250% 10/1/13.................................... 1,000 998 Washington (2.2%) Snohomish County School District No. 2 Everett GO (MBIA Insured) 7.000% 12/1/02.................................... 1,500 1,624 Washington State Series C 5.5000% 7/1/16.................................... 2,000 2,060 ------- 3,684 ------- - -------------------------------------------------------------------------------- Total Municipal Securities (98.3%) (Cost $158,890) (b)............................... 166,086 Other Assets, Less Liabilities (1.7%)................ 2,810 ------- Total Net Assets (100.0%)............................ $168,896 ======= - -------------------------------------------------------------------------------- Notes to Portfolio of Investments - -------------------------------------------------------------------------------- (a) Security is subject to federal alternative minimum tax. At June 30, 1999, the market value of these securities represented 4.8% of total net assets. (b)At June 30, 1999, the cost of investments for financial reporting and federal income tax purposes was identical. Net unrealized appreciation was $7,276, consisting of gross unrealized appreciation of $7,693 and gross unrealized depreciation of $417. Variable rate demand bonds (VRDB) are securities whose yields are periodically reset at levels that are generally comparable to tax-exempt commercial paper. These securities are payable on demand within seven calendar days and normally incorporate an irrevocable letter of credit or line of credit from a major bank. See accompanying Notes to Financial Statements. Managed Municipals Fund - -------------------------------------------------------------------------------- Portfolio of Investments at June 30, 1999 (All amounts in thousands) Principal Market Municipal Securities (99.9%) Amount Value - -------------------------------------------------------------------------------- Alaska (0.7%) Alaska Student Loan Corporation Revenue (AMBAC Insured) 6.200% 7/1/09 (a)................. $ 3,870 $ 4,029 Arkansas (0.2%) Baxter County Hospital Revenue Series B 5.625% 9/1/28 1,000 958 California (4.7%) California Health Facility Financing Authority Revenue (Sutter Health) Series A VRDB 2.550%.............................. 100 100 Capistrano School District Community Facility District 5.750% 9/1/29............................ 1,000 964 Central Contra Costa Sanitation District Revenue (MBIA Insured) 6.250% 9/1/13..................................... 2,025 2,239 6.250% 9/1/14..................................... 1,295 1,432 Foothill/Eastern Transportation Corridor Agency Toll Road Revenue Series 1995A Zero Coupon (Yield to Maturity 7.200%) 1/1/18........................... 10,000 3,522 Golden West Schools Financing Authority Series A Zero Coupon (Yield to Maturity 0.000%) 8/1/15..... 2,500 1,051 Irvine Improvement Bond Act 1915 Assessment District No 97-17 (LOC Bayerische Vereinsbank) VRDB 2.550%.......... 600 600 Irvine Ranch Water District (LOC Commerzbank A.G.) VRDB 2.550%....................................... 100 100 Long Beach Aquarium of the Pacific Revenue Series A 6.125% 7/1/15..................................... 4,000 4,126 6.125% 7/1/23..................................... 6,000 6,154 Newport Beach Revenue (Memorial Presbyterian Hospital) VRDB 2.800%....................................... 100 100 Sanger Unified School District MBIA 5.600% 8/1/23.... 1,000 1,034 Southern California Public Power Authority Revenue Zero Coupon (Yield to Maturity 6.000%) 7/1/14 (escrowed in U.S. Treasury securities, FGIC Insured) 8,155 3,672 ------- 25,094 Colorado (3.1%) Arapahoe County Capital Improvement Trust Fund Highway Revenue (escrowed in U.S. Treasury securities, prerefunded to 8/31/05) Zero Coupon (Yield to Maturity 6.930%) 8/31/15.... 25,000 9,099 Colorado Housing Finance Authority Multi-Family Mortgage Revenue 6.000% 10/1/09.................................... 1,490 1,492 6.000% 10/1/10.................................... 1,590 1,593 6.000% 10/1/11.................................... 1,710 1,713 6.000% 10/1/12.................................... 1,830 1,833 Colorado Housing Finance Authority Single-Family Mortgage Revenue 6.800% 10/1/30.................................... 1,000 1,099 ------- 16,829 Delaware (0.9%) Delaware Economic Development Authority Revenue (General Waterworks Corporation) 6.450% 12/1/07 Series B ........................ 1,160 1,268 6.800% 12/1/23 Series A (a)..................... 3,500 3,691 ------- 4,959 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Florida (2.6%) Broward County GO 12.500% 1/1/03.................................... $ 1,000 $ 1,257 12.500% 1/1/04.................................... 1,195 1,573 12.500% 1/1/05.................................... 2,000 2,745 Florida GO (Broward County) 9.875% 7/1/09 ........... 1,100 1,474 Florida GO (Jacksonville Transportation Authority, escrowed in U.S. Treasury securities) 9.200% 1/1/15 2,000 2,742 Jacksonville Health Facility Hospital Revenue Series C 5.250% 8/15/19........................... 1,000 957 Jacksonville Water and Sewer Development Revenue (General Waterworks Corporation) 6.750% 6/1/22 (a) 1,500 1,598 Orange County Housing Finance Authority Multi-Family Revenue Series K (Palms at Brentwood) 6.500% 12/1/34 2,000 1,930 ------- 14,276 Georgia (10.5%) Atlanta Airport Facilities Revenue Series A (AMBAC Insured) 6.500% 1/1/10..................................... 2,000 2,227 Cartersville Development Authority (Anheuser-Busch) 7.375% 5/1/09 (a)................................. 9,000 10,436 Fulton County Water & Sewer Revenue (FGIC Insured) (escrowed in U.S. Treasury securities) 6.375% 1/1/14 13,270 14,856 6.375% 1/1/14..................................... 430 478 Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue (AMBAC Insured) Series P 6.250% 7/1/20............ 4,000 4,467 Municipal Electric Authority of Georgia Power Revenue Series V 6.600% 1/1/18..................................... 21,300 23,984 ------- 56,448 Hawaii (1.3%) Hawaii Airports System Revenue Second Series (MBIA Insured) 6.900% 7/1/12 (a)................................. 6,000 6,837 Idaho (0.4%) Health Facility Authority Revenue (St. Lukes Medical Center) VRDB 3.050%....................................... 1,100 1,100 Idaho Housing Agency Single-Family Mortgage Revenue 7.875% 7/1/24 (a)................................. 860 902 ------- 2,002 Illinois (10.4%) Champaign County 8.250% 1/1/20....................... 1,015 1,377 Chicago Board of Education GO (MBIA Insured) 6.250% 12/1/12.................................... 2,500 2,751 6.000% 1/1/16..................................... 5,000 5,393 5.500% 12/1/26.................................... 2,250 2,278 Chicago Public Building School Reform 5.250% 12/1/18. 2,000 1,976 Chicago Skyway Toll Bridge Revenue (escrowed in U.S. Treasury securities, prerefunded to 1/1/04) 6.750% 1/1/17..................................... 1,500 1,662 Illinois Development Finance Authority (Catholic Charities) 5.950% 1/1/09..................................... 1,450 1,455 Illinois Development Finance Authority Hospital Revenue Adventist Health System 5.500% 11/15/20........... 3,000 2,859 Illinois Development Finance Authority Revenue VRDB 2.950% 200 200 Illinois Development Finance Authority Solid Waste Disposal Revenue 5.050% 1/1/10............................. 500 488 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Illinois (Continued) Illinois Housing Development Authority Series A 7.800% 12/1/12.................................... $ 905 $ 940 8.000% 6/1/26..................................... 6,770 7,082 Illinois Sales Tax Revenue Series Q 6.000% 6/15/12... 10,000 10,747 Illinois State Toll Highway Authority Priority Revenue Series A 6.300% 1/1/11..................................... 7,500 8,249 Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue Series A (MBIA Insured) Zero Coupon (Yield to Maturity 6.020%) 6/15/12.. 5,000 2,500 Zero Coupon (Yield to Maturity 6.020%) 12/15/12. 8,300 4,041 Will County Preservation District FGIC Zero Coupon (Yield to Maturity 0.000%) 12/1/16.... 4,660 1,784 ------- 55,782 Indiana (5.9%) Hammond Sewer & Solid Waste Disposal Revenue (American Maize Products gtd. by Eridania Beghin-Say) 8.000% 12/1/24 (a)................................ 5,000 5,668 Indiana Health Facility Finance Authority Revenue (Metro Health/Indiana Project) 6.400% 12/1/33..... 1,400 1,341 (Hoosier Care Project) Series A 7.125% 6/1/34..... 2,500 2,503 Indiana Transportation Finance Authority Airport Facilities Lease Revenue Series A 6.250% 11/1/16 (escrowed in U.S. Treasury securities, prerefunded to 11/1/02)....................... 5,475 5,907 6.250% 11/1/16 ................................. 1,475 1,564 Indianapolis Airport Authority Revenue Special Facilities (United Airlines) 6.500% 11/15/31 (a)............. 5,000 5,238 Michigan City PCR (Northern Indiana Public Service Company) 5.700% 10/1/03.................................... 7,635 7,659 Purdue University Indiana University Revenues VRDB 2.850% 1,800 1,800 ------- 31,680 Iowa (0.1%) Financing Authority Single Family Revenue Series B 7.450% 7/1/23............................ 695 725 Kentucky (2.4%) Kentucky Housing Corporation Housing Revenue Series C 8.100% 1/1/22 (a)........................ 1,305 1,355 Kentucky Turnpike Authority Economic Development Road Revenue (FGIC Insured) Zero Coupon (Yield to Maturity 6.600%) 1/1/10..... 7,500 4,370 Trimble County PCR (Louisville Gas & Electric) Series A 7.625% 11/1/20 (a)................................ 6,670 7,038 ------- 12,763 Louisiana (2.0%) De Soto Parish Environmental Improvement Revenue (International Paper) Series A 7.700% 11/1/18 (a). 3,250 3,684 New Orleans GO (AMBAC Insured) Zero Coupon (Yield to Maturity 6.125%) 9/1/12..... 6,250 3,102 FGIC 4.750% 12/1/26............................... 2,000 1,784 Offshore Terminal Authority Deepwater Port Revenue VRDB 3.000%....................................... 300 300 Public Facilities Authority Hospital Revenue (Touro Infirmary) Series A 5.6250% 8/15/29.......................... 1,900 1,824 ------- 10,694 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Maine (1.4%) Maine Educational Loan Marketing Corporation Student Loan Revenue Subordinate Series B-1 6.500% 11/1/09 (a). $ 3,000 $ 3,042 Maine Housing Authority Mortgage Revenue Series D-5 7.550% 11/15/19 (a)............................... 2,520 2,628 7.550% 11/15/22 (a)............................... 1,750 1,824 ------- 7,494 Maryland (1.4%) Washington Suburban Sanitation District (escrowed in U.S. Treasury securities, prerefunded to 6/1/04) 6.600% 6/1/16................................... 2,795 3,051 6.625% 6/1/17................................... 1,660 1,814 6.625% 6/1/19................................... 2,320 2,535 ------- 7,400 Massachusetts (9.9%) Massachusetts Bay Transportation Authority Series 1994A 7.000% 3/1/14........................ 3,150 3,712 Series 1992B 6.200% 3/1/16........................ 9,825 10,841 Series 1994A 7.000% 3/1/19........................ 2,500 2,967 Massachusetts Health & Educational Facilities Authority Revenue (Brigham & Womens' Hospital, MBIA Insured, escrowed in U.S. Treasury securities, prerefunded to 7/1/01) 6.750% 7/1/24................................... 7,365 7,886 (Massachusetts General Hospital, AMBAC Insured) 6.250% 7/1/12................................... 5,750 6,379 (Dana Farber Cancer Institute) 6.250% 12/1/22..... 6,500 6,838 (South Shore Hospital) Series F 5.750% 7/1/29..... 2,500 2,486 Massachusetts State College Building Authority Series A 7.500% 5/1/11..................................... 1,500 1,819 7.500% 5/1/14..................................... 3,500 4,297 Massachusetts State Development Finance Agency (Boston Biomedical Research) 5.650% 2/1/19........ 310 299 (Boston University) Series P 5.450% 5/15/59 ...... 1,000 948 Massachusetts State Water Resource Authority Series B 4.500% 8/1/22............................ 6,000 5,171 ------- 53,643 Michigan (0.6%) Dickinson County Healthcare Hospital Revenue 5.800% 11/1/24....................................... 1,000 964 Flint Hospital Building Authority Revenue (Hurley Medical Center) Series B VRDB 2.950%.............................. 200 200 Michigan State Waste Management 5.200% 4/1/10........ 500 495 Michigan Strategic Fund Limited Obligation Revenue (Imperial Holly) Series B 6.450% 11/1/25........................... 700 678 Series C 6.550% 11/1/25 (a)....................... 800 817 ------- 3,154 Minnesota (1.6%) Minneapolis Revenue (Walker Methodist Senior Services) Series A 5.875% 11/15/18.......................... 450 435 Minneapolis/St. Paul Housing Finance Board Revenue Single-Family Mortgage (collateralized by GNMA securities) 7.250% 8/1/21 (a)............................... 1,870 1,950 7.300% 8/1/31 (a)............................... 2,780 2,898 Minnesota State Housing Finance Agency Single-Family Mortgage Series A 7.450% 7/1/22 (a)........................ 2,300 2,388 Victoria Private School Facility Revenue Series A 5.850% 9/1/24............................ 1,000 983 ------- 8,654 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Mississippi (0.3%) Pollution Control Revenue 5.900% 5/1/22.............. $ 1,600 $ 1,560 Missouri (0.3%) Missouri State Housing Development Commission Single-Family Mortgage Revenue 9.375% 4/1/16.................... 25 26 Solid Waste Disposal Revenue (Procter & Gamble Paper) 5.200% 3/15/29.................................... 1,000 953 Springfield School District No. 12 GO Series B (FGIC Insured) 9.500% 3/1/07..................................... 600 775 ------- 1,754 Nevada (1.0%) Clark County GO (FGIC Insured) Series B 4.500% 12/1/17 2,675 2,359 Nevada Housing Division Single-Family Program Series A-2 7.750% 4/1/22 (a)................................. 2,720 2,843 ------- 5,202 New Jersey (1.2%) New Jersey Economic Development Authority (Glimcher Properties Project) 6.000% 11/1/28 (a).. 850 822 New Jersey GO Series D 6.000% 2/15/11................ 5,150 5,595 ------- 6,417 New Mexico (0.2%) Albuquerque IDR (Motorola) 10.000% 6/1/13............ 1,000 1,022 New York (9.2%) Long Island Power Authority and Electricity Revenue VRDB 3.000%............................... 700 700 New York City GO Series D 6.000% 2/15/25 (escrowed in U.S. Treasury securities, prerefunded to 2/15/05)............... 1,245 1,338 Series D (Unrefunded Balance) 6.000% 2/15/25...... 11,735 12,287 New York City Industrial Development Authority Special Facility Revenue (Terminal One Group Association) 6.000% 1/1/15 (a).................... 8,340 8,662 New York City Municipal Water & Sewer System Revenue Series A VRDB 3.050%.............................. 100 100 New York State Energy Development Authority Pollution Control Revenue (Niagara Mohawk Pwr) Series A VRDB 3.050%....................................... 700 700 New York State Environmental Facilities Corporation PCR Water Revolving Fund 5.750% 6/15/10............... 5,000 5,283 Suffolk County Industrial Development Agency IDR (Nissequogue Cogen Partners) 5.500% 1/1/23 (a).... 500 475 Triborough Bridge & Tunnel Authority Revenue Series X 6.625% 1/1/12............................ 9,915 11,290 Series Y 6.125% 1/1/21............................ 6,890 7,614 Yonkers AMBAC Series A 4.500% 12/1/17................ 1,000 878 ------- 49,327 North Carolina (1.7%) North Carolina Eastern Municipal Power Agency Revenue Series 1991A 6.500% 1/1/18 (escrowed in U.S. Treasury securities) 4,315 4,965 6.500% 1/1/18..................................... 2,185 2,329 Zero Coupon (Yield to Maturity 0.000%) MBIA 1/1/09 2,360 1,453 University Revenue Zero Coupon (Yield to Maturity 0.000%) 8/1/20.................................... 1,750 552 ------- 9,299 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Ohio (1.1%) Franklin County Hospital Revenue Series A (Doctors OhioHealth Corp.) 5.600% 12/1/28 $ 3,000 $ 2,796 Ohio Housing Finance Agency Mortgage Revenue Series A-1 (collateralized by GNMA) 6.050% 9/1/17 (a) 2,975 3,122 ------- 5,918 Oklahoma (0.3%) Tulsa County Home Finance Authority Mortgage Revenue (collateralized by GNMA securities) Series 1991 B7.550% 5/1/23 (a)................................ 1,590 1,647 Oregon (0.2%) Clackamas County School District No. 12 GO (FGIC Insured) 5.250% 6/1/11..................................... 1,000 1,014 Pennsylvania (4.4%) Allegheny County Sanitation Authority Sewer Revenue Series A (FGIC Insured) Zero Coupon (Yield to Maturity 6.800%) 6/1/07........................... 2,370 1,603 Dauphin County Industrial Development Authority Water Development Revenue (General Waterworks Corporation) 6.900% 6/1/24 (a)................................. 3,400 4,005 Economic Development Financing Authority (USG Corp Project) 6.000% 6/1/31..................................... 1,000 1,000 Higher Educational Facility Authority 4.500% 7/15/21. 1,355 1,172 Montgomery County Industrial Development Authority Retirement Community Revenue (Adult Communities Total Services) Series B 5.750% 11/15/17.......................... 3,500 3,445 Pennsylvania State GO 6.250% 7/1/12.................. 11,200 12,391 ------- 23,616 Puerto Rico (0.7%) Commonwealth GO 5.250% 7/1/17........................ 3,000 2,993 Industrial Tourist Educational, Medical & Environmental Control Facility 5.375% 2/1/29..................................... 600 579 ------- 3,572 Rhode Island (1.1%) Rhode Island Housing & Mortgage Finance Corporation 7.550% 10/1/22 (a)................................ 5,650 5,914 South Carolina (2.5%) Calhoun County Solid Waste Disposal Facilities Revenue (Eastman Kodak, escrowed in U.S. Treasury securities) 6.750% 5/1/17 (a)................................. 3,000 3,460 Richland County Solid Waste Disposal Facilities Revenue (Union Camp) Series B 7.125% 9/1/21 (a)........... 5,000 5,323 South Carolina Housing Finance & Development Authority Series C 7.750% 7/1/22 (a)........................ 4,775 4,945 ------- 13,728 South Dakota (3.1%) Heartland Consumers Power District Electric Revenue (FSA Insured) 6.000% 1/1/17....................... 8,000 8,615 South Dakota Student Loan Corporation Revenue Series B (escrowed in U.S. Treasury securities) 7.450% 8/1/00 (a) 7,990 8,300 ------- 16,915 Tennessee (1.9%) Tennessee Housing Development Agency 7.300% 7/1/11 (a) 10,000 10,368 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Texas (3.3%) Austin Texas Utility System Revenue 5.250% 5/15/25... $ 3,000 $ 2,950 Brazos Higher Education Authority Subordinate Series C-2 5.875% 6/1/04 (a)................................. 1,305 1,316 Harris County Texas 4.500% 10/1/23................... 1,000 861 Houston Higher Education 5.375% 11/15/29............. 2,000 1,972 Houston Water & Sewer System Revenue (AMBAC Insured) Zero Coupon (Yield to Maturity 6.800%) 12/1/08.... 4,000 2,487 Zero Coupon (Yield to Maturity 6.813%) 12/1/09.... 4,000 2,348 Zero Coupon (Yield to Maturity 6.850%) 12/1/10.... 3,750 2,073 North East Independent School District 4.500% 10/1/28 2,000 1,698 Richardson Hospital Authority (Baylor/Richardson) 5.625% 12/1/28.................................... 500 468 Texas Municipal Power Agency Revenue (AMBAC Insured) Zero Coupon (Yield to Maturity 6.900%) 9/1/08..... 1,475 929 Travis County Housing Finance Corporation Mortgage Revenue (collateralized by GNMA, FGIC Insured) 8.000% 9/1/10 (a) 825 862 ------- 17,964 Virginia (0.9%) Peninsula Authority Revenue 6.900% 5/2/22............ 1,500 1,493 Richmond Metro Authority Expressway Revenue FGIC 5.250% 7/15/22............................... 1,100 1,088 Virginia Beach GO 12.750% 7/15/01.................... 2,000 2,331 ------- 4,912 Washington (6.0%) Port of Longview Industrial Development Corporation Solid Waste Disposal Revenue (Weyerhaeuser Company) 6.875% 10/1/08 (a)....................................... 8,750 9,523 Washington GO Series B & AT-7 6.000% 6/1/13 (escrowed in U.S. Treasury securities) 2,190 2,371 6.000% 6/1/13..................................... 5,090 5,511 Washington Public Power Supply System Nuclear Project No. 2 Series 1992A 6.300% 7/1/12........................ 3,500 3,840 Washington Public Power Supply System Nuclear Project No. 3 Series 1989B Zero Coupon (Yield to Maturity 6.950%) 7/1/05........................... 5,000 3,752 Series 1989B Zero Coupon (Yield to Maturity 6.700%) 7/1/08 (FGIC Insured).................................. 7,000 4,413 Washington State Health Care Facilities Authority Revenue Series A VRDB 3.100%.............................. 100 100 Series B VRDB 3.100%.............................. 200 200 Fred Hutchinson Cancer Center VRDB 3.600%......... 2,700 2,700 ------- 32,410 Multi-State (0.4%) Charter-Mac Equity Issue............................. 2,000 2,000 Managed Municipals Fund Continued - -------------------------------------------------------------------------------- Market Value - -------------------------------------------------------------------------------- Total Municipal Securities (99.9%) (Cost $500,253) (b)............................... $537,980 Other Assets, Less Liabilities (0.1%)................ 342 ------- Total Net Assets (100.0%)............................ $538,322 ======= - -------------------------------------------------------------------------------- Notes to Portfolio of Investments - -------------------------------------------------------------------------------- (a)Security is subject to federal alternative minimum tax. At June 30, 1999, the market value of these securities represented 25.6% of total net assets. (b)At June 30, 1999, the cost of investments for financial reporting and federal income tax purposes was identical. Net unrealized appreciation was $37,727, consisting of gross unrealized appreciation of $41,117 and gross unrealized depreciation of $3,390. Variable rate demand bonds (VRDB) are securities whose yields are periodically reset at levels that are generally comparable to tax-exempt commercial paper. These securities are payable on demand within seven calendar days and normally incorporate an irrevocable letter of credit or line of credit from a major bank. See accompanying Notes to Financial Statements. SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Portfolio of Investments at June 30, 1999 (All amounts in thousands) Principal Market Municipal Securities (98.9%) Amount Value - -------------------------------------------------------------------------------- Arizona (0.9%) Arizona Health Facilities Authority Hospital System Revenue (Phoenix Memorial Hospital) 8.125% 6/1/12......... $ 2,500 $ 2,578 California (2.7%) Foothill/Eastern Transportation Corridor Agency Toll Road Revenue Series 1995A 6.500% 1/1/32................ 2,000 2,200 Long Beach Aquarium of the Pacific Revenue Series A 6.125% 7/1/23............................ 5,750 5,898 ------- 8,098 Colorado (8.0%) Adams County Single-Family Mortgage Revenue Series B (escrowed in U.S. Treasury securities) 11.250% 9/1/11 (prerefunded to 9/1/09).......... 325 483 11.250% 9/1/11 (prerefunded to 9/1/10).......... 360 545 11.250% 9/1/11.................................. 220 340 11.250% 9/1/12.................................. 1,440 2,256 Arapahoe County Capital Improvement Trust Fund Highway Revenue (escrowed in U.S. Treasury securities, prerefunded to 8/31/05) 7.000% 8/31/26.................................... 7,000 8,072 Briargate Public Building Authority Landowner Assessment Lien Series 1985A 10.250% 12/15/00 (a)................. 506 506 Series 1986A 9.500% 12/15/07 (a).................. 1,857 1,857 Colorado Health Facilities Authority Revenue (Birchwood Manor Apartments, collateralized by GNMA securities) Series A 7.250% 4/1/11.......................... 630 646 (PSL Health Systems, escrowed in U.S. Treasury securities, prerefunded to 2/15/01) Series B 8.500% 2/15/21. 3,250 3,534 (Volunteers of America) Series A 5.750% 7/1/10.... 1,095 1,062 Denver City and County Airport Revenue Series D 7.750% 11/15/21 (escrowed in U.S. Treasury securities, prerefunded to 11/15/01) (c).................... 830 912 7.750% 11/15/21 (c)............................... 3,170 3,417 LaJunta Hospital Revenue (Ark Valley Regional Medical Center Project) 6.100% 4/1/24..................................... 500 488 ------- 24,118 Connecticut (0.9%) Connecticut State Development Authority PCR (Connecticut Light & Power) 5.850% 9/1/28......... 2,900 2,838 Florida (4.0%) Florida Housing Finance Agency Multi-Family Housing Revenue (Palm-Aire) 10.000% 1/1/20 (b) (c)................ 2,731 2,512 Leesburg Hospital Revenue (Leesburg Regional Medical Center, escrowed in U.S. Treasury securities, prerefunded to 7/1/02) Series A 7.375% 7/1/11............................ 775 856 Northern Palm Beach County Improvement District (Water Control and Improvement Unit Development No. 9B) 6.000% 8/1/29 750 749 Orange County Health Facilities Authority (Orlando Lutheran Towers) 8.625% 7/1/20........... 5,000 5,575 Orlando Special Assessment Revenue Series A (Conroy Road Interchange Project) 5.500% 5/1/10................................... 200 195 5.800% 5/1/26................................... 500 483 SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Continued Principal Market Amount Value - -------------------------------------------------------------------------------- Florida (Continued) Pinellas Country Health Facilities Revenue (Pooled Hospital Loan Project) VRDB 2.550% ....... $ 300 $ 300 Stoneybrook Community Development District Capital Improvement Revenue Series B 5.700% 5/1/08.......................... 1,000 986 Series A 6.100% 5/1/19.......................... 330 323 ------- 11,979 Georgia (4.1%) Cartersville Development Authority (Anheuser-Busch) 7.375% 5/1/09 (c)................................. 3,000 3,479 Clayton County Housing Authority Multi-Family Housing Revenue (Magnolia Park Apartments Project) Series A 6.250% 6/1/30............................ 1,000 990 Municipal Electric Authority of Georgia Power Revenue Series V 6.600% 1/1/18..................................... 6,065 6,829 Rockdale County Development Authority Solid Waste Disposal Revenue (Visy Paper) 7.500% 1/1/26 (c)... 1,000 1,048 ------- 12,346 Idaho (0.7%) Idaho Health Facilities Authority Revenue (St. Lukes Regional Medical Center Project) VRDB 2.550%...... 300 300 Idaho Housing Agency Single-Family Mortgage Series B 7.500% 7/1/24 (c)................................. 1,645 1,730 ------- 2,030 Illinois (4.1%) Chicago Skyway Toll Bridge Revenue (escrowed in U.S. Treasury securities, prerefunded to 1/1/04) 6.750% 1/1/17..................................... 1,500 1,662 Illinois Development Finance Authority (Catholic Charities) 5.950% 1/1/09................ 1,400 1,405 (Hoosier Care Project) Series A 7.125% 6/1/34..... 1,500 1,502 (Latin School of Chicago) 5.650% 8/1/28........... 1,725 1,629 Illinois Development Finance Authority Solid Waste Disposal Revenue (Waste Management Incorporated Project) 5.050% 1/1/10........................... 250 244 Illinois Educational Facilities Authority Revenue (Cultural Pool) VRDB 3.000% ...................... 2,200 2,200 Illinois Health Facilities Authority Revenue (United Medical Center, escrowed in U.S. Treasury securities, prerefunded to 7/1/03) 8.125% 7/1/06..................................... 2,015 2,219 (Edward Hospital Association, escrowed in U.S. Treasury securities, prerefunded to 2/15/02) 7.000% 2/15/22 ................................... 685 742 Illinois Housing Development Authority Multi-Family Housing Series C 7.400% 7/1/23.................... 140 148 Southwestern Illinois Development Authority Revenue (Anderson Hospital) 5.500% 8/15/20................ 500 471 (Anderson Hospital) 5.625% 8/15/29................ 250 238 ------- 12,460 Indiana (11.9%) Hammond Sewer & Solid Waste Disposal Revenue (American Maize Products, gtd. by Eridania Beghin-Say) 8.000% 12/1/24 (c)................................ 4,000 4,535 Indiana Health Facility Financing Authority Revenue (Metro Health/Indiana Project) 6.400% 12/1/33..... 1,500 1,436 (Hoosier Care Project) Series A 7.125% 6/1/34..... 150 150 Indiana Health Facility Financing Authority Hospital Revenue (Riverview Hospital Project) 5.500% 8/1/24..................................... 575 541 SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Continued Principal Market Amount Value - -------------------------------------------------------------------------------- Indiana (Continued) Indiana State Development Finance Authority Revenue (Inland Steel Company) 5.750% 10/1/11............. $ 5,000 $ 4,625 Indiana Transportation Finance Authority Airport Facilities Lease Revenue Series A 6.250% 11/1/16 (escrowed in U.S. Treasury securities, prerefunded to 11/1/02) ....................... 3,550 3,830 6.250% 11/1/16.................................. 950 1,008 Indianapolis Airport Authority Revenue Special Facilities (Federal Express) 7.100% 1/15/17 (c).............. 5,000 5,494 (United Airlines) 6.500% 11/15/31 (c)............. 3,000 3,143 Indianapolis Local Public Improvement Bond Bank Series C (escrowed in U.S. Treasury securities, prerefunded to 1/1/02) 6.700% 1/1/17.......................... 8,900 9,575 Jasper County Economic Development Revenue (Georgia Pacific Project) 5.600% 4/1/29........... 1,000 958 New Castle Economic Development Revenue Series B Zero Coupon 3/1/18 (b)............................ 30,655 77 Purdue University Indiana University Revenue (Student Fee) Series O VRDB 2.950%................ 295 295 ------- 35,667 Iowa (0.5%) Iowa Housing Finance Authority (AMBAC Insured) Zero Coupon 9/1/16................................ 11,160 1,568 Kansas (0.7%) Wichita Revenue (CSJ Health System) 7.000% 11/15/18.. 2,000 2,124 Louisiana (3.0%) Calcasieu Parish Industrial Development Board PCR (Entergy Gulf States) 5.450% 7/1/10............... 500 482 De Soto Parish Environmental Improvement Revenue (International Paper) Series A 7.700% 11/1/18 (c). 2,500 2,834 Louisiana Public Facilities Authority Hospital Revenue (Women's Hospital Foundation, escrowed in U.S. Treasury securities, prerefunded to 10/1/02) 7.250% 10/1/22 2,300 2,536 (Progressive Healthcare Providers) 6.375% 10/1/28. 2,000 1,885 (Touro Infirmary Project) Series A 5.625% 8/15/29. 1,400 1,344 ------- 9,081 Massachusetts (3.2%) Massachusetts Bay Transportation Authority Series 92B 6.200% 3/1/16..................................... 5,825 6,427 Massachusetts State Development Finance Agency Revenue (Boston Biomedical Research) 5.650% 2/1/19........ 250 241 (Loomis Community Project) Series A 5.625% 7/1/15. 500 481 (Loomis Community Project) Series A 5.750% 7/1/23. 250 239 Massachusetts State Health & Educational Facilities Authority Revenue (Dana Farber Cancer Institute) 6.250% 12/1/22.................................... 2,000 2,104 ------- 9,492 Michigan (1.2%) Dickinson County Healthcare Systems Hospital Revenue 5.800% 11/1/24.................................... 1,300 1,253 Michigan State Hospital Finance Authority Revenue (Detroit Medical Center) Series A 5.250% 8/15/28.. 1,000 856 Michigan Strategic Fund Limited Obligation Revenue (Michigan Sugar Company-Carollton) Series C 6.550% 11/1/25........................... 1,500 1,532 ------- 3,641 SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Continued Principal Market Amount Value - -------------------------------------------------------------------------------- Minnesota (1.2%) Maplewood Health Care Facility Revenue (Health East Project) 5.700% 11/15/02............. $ 500 $ 501 Minneapolis Revenue (Walker Methodist Senior Services) Series C 6.000% 11/15/28.......................... 1,300 1,256 New Hope Housing and Health Care Facilities Revenue (Minnesota Masonic Home North Ridge) 5.875% 3/1/29 900 858 Victoria Private School Facility Revenue (Holy Family Catholic High School) Series A 5.875% 9/1/29............................ 1,200 1,178 ------- 3,793 Mississippi (3.0%) Adams County Hospital Revenue (Jefferson Davis Memorial Hospital, escrowed in U.S. Treasury securities, prerefunded to 10/1/01) 7.900% 10/1/08............ 750 822 Lowndes County Solid Waste Disposal PCR (Weyerhaeuser Company) 6.800% 4/1/22.............. 5,995 6,821 Mississippi Business Finance Corporation PCR (Systems Energy Research Project) 5.900% 5/1/22... 1,250 1,219 ------- 8,862 Missouri (1.8%) Missouri Health & Educational Facilities Authority Health Facilities Revenue (Lutheran Senior Services) 5.750% 2/1/17..................................... 2,000 2,013 St. Louis Industrial Development Authority IDR (Kiel Center) 7.875% 12/1/24 (c)................................ 3,000 3,233 ------- 5,246 Montana (0.2%) Montana State Board of Housing Single-Family Mortgage Series B-1 7.300% 10/1/17......................... 335 350 Series B-2 7.500% 4/1/23 (c)...................... 370 386 ------- 736 Nebraska (1.4%) Nebraska Higher Education Loan Program Series A-6 Junior Subordinated (MBIA Insured) 6.450% 6/1/18 (c) 4,000 4,197 Nevada (1.8%) Clark County IDR (Nevada Power Company) Series A 5.900% 11/1/32 (c)....................... 3,000 3,007 Humboldt County PCR (Idaho Power Company) 8.300% 12/1/14 2,000 2,286 ------- 5,293 New Hampshire (0.3%) New Hampshire Higher Educational and Health Facilities Authority Revenue (Littleton Hospital Association) Series A 6.00% 5/1/28............................. 1,000 988 New Jersey (1.9%) New Jersey Economic Development Authority Revenue Series A (Winchester Gardens Project, Marcus L. Ward Home) 8.625% 11/1/25.................................... 5,000 5,644 New Mexico (3.1%) Farmington PCR (Public Service Company of New Mexico) 6.300% 12/1/16 5,000 5,175 (Tucson Electric Power Company) 6.950% 10/1/20.... 2,000 2,162 New Mexico Educational Assistance Foundation Student Loan Revenue Subordinated Series A-2 6.650% 11/1/25 (c) 1,955 2,013 ------- 9,350 SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Continued Principal Market Amount Value - -------------------------------------------------------------------------------- New York (4.5%) New York City GO Series B (FGIC Insured) VRDB 2.900% .............. $ 200 $ 200 Series B 7.250% 8/15/07 .......................... 1,000 1,145 Series G 5.750% 2/1/14 ........................... 5,720 5,872 New York City Industrial Development Authority Special Facility Revenue (Terminal One Group Association) 6.000% 1/1/15 (c)................... 3,465 3,599 New York City Municipal Water Finance Authority Water & Sewer Systems Revenue Series A VRDB 2.900%... 300 300 Triborough Bridge & Tunnel Authority Revenue Series E 7.250% 1/1/10............................ 2,000 2,269 ------- 13,385 North Carolina (3.1%) North Carolina Eastern Municipal Power Agency Revenue Series A 6.500% 1/1/18 (escrowed in U.S. Treasury securities).............................. 3,320 3,820 Series A 6.500% 1/1/18............................ 1,680 1,791 Series B 6.000% 1/1/26............................ 3,500 3,542 ------- 9,153 Ohio (3.2%) Franklin County Hospital Revenue (Doctors OhioHealth Corporation) 5.600% 12/1/28... 2,650 2,470 Greater Allen County Housing Development Corporation Revenue (Steiner-McBride Apartments) 10.250% 9/1/03....... 1,385 1,387 Highland County Joint Township Hospital Facilities Revenue 6.750% 12/1/29.................................... 1,250 1,278 Miami County Hospital Facility (Upper Valley Medical Center) Series A 6.375% 5/15/26 1,015 1,038 Ohio State Water Development Authority Solid Waste Disposal Revenue (Bay Shore Power Company) Series A 5.875% 9/1/20 (c)................................. 3,500 3,456 ------- 9,629 Pennsylvania (11.2%) Allentown Area Hospital Authority Revenue (Sacred Heart Hospital) 7.500% 7/1/06........................... 3,460 3,704 Beaver County Industrial Development Authority PCR (Toledo Edison Company) 7.625% 5/1/20............. 4,900 5,463 Dauphin County Industrial Development Authority Water Development Revenue (General Waterworks Corporation) Series A 6.900% 6/1/24 (c)........................ 3,200 3,770 Montgomery County Higher Education & Health Authority Hospital Revenue (Jeanes Health Systems, escrowed in U.S. Treasury securities, prerefunded to 7/1/00) 8.750% 7/1/20..................................... 3,200 3,422 Pennsylvania Economic Development Financing Authority Resource Recovery Revenue (Northampton Generating) Series B 6.750% 1/1/07 (c)...................... 3,000 3,203 Series A 6.500% 1/1/13 (c)...................... 2,000 2,088 Philadelphia Authority For Industrial Development Airport Revenue (Aero Philadelphia LLC) 5.500% 1/1/24..... 1,000 919 Philadelphia Hospitals & Higher Education Facilities Authority Revenue (Temple University Hospital) 5.875% 11/15/23................................... 4,000 3,936 Philadelphia Municipal Authority Revenue Lease Series 1993D 6.250% 7/15/13.............................. 2,500 2,611 Philadelphia Water & Sewer Revenue Tenth Series (escrowed in U.S. Treasury securities) 7.350% 9/1/04 (d)................................. 4,085 4,481 ------- 33,597 SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Continued Principal Market Amount Value - -------------------------------------------------------------------------------- South Dakota (0.9%) South Dakota Student Loan Assistance Corporation Series C (escrowed in U.S. Treasury securities) 7.450% 8/1/00 (c)................................. $ 2,700 $ 2,805 Tennessee (0.5%) Metropolitan Government of Nashville & Davidson Counties Health and Educational Facilities Board Revenue (The Blakeford at Green Hills) 5.650% 7/1/24..................... 1,500 1,427 Texas (5.6%) Abilene Health Facilities Development Corporation Retirement Facilities Revenue (Sears Methodist Retirement) Series A 5.900% 11/15/25........................ 2,100 2,013 6.000% 11/15/29................................. 500 485 Alliance Airport Authority Special Facilities Revenue (American Airlines) 7.000% 12/1/11 (c)............ 4,070 4,653 Brazos Higher Education Authority Subordinated Series C-2 5.875% 6/1/04 (c)................................. 390 393 Houston Airport System Revenue (Continental Airlines) 6.125% 7/15/17 (c)................................ 2,000 2,030 6.125% 7/15/27 (c)................................ 2,000 2,025 Richardson Hospital Authority (Baylor/Richardson) 5.625% 12/1/28.................................... 900 842 Texas City IDR (Atlantic Richfield Company) 7.375% 10/1/20 2,000 2,478 Tyler Health Facilities Development Corporation (Mother Frances Hospital) Series A 5.625% 7/1/13.. 1,785 1,742 ------- 16,661 Utah (0.1%) Utah Housing Finance Agency Single-Family Mortgage Series B-2 7.750% 1/1/23 (c)...................... 75 78 Series C-3 7.550% 7/1/23 (c)...................... 190 198 ------- 276 Virginia (2.9%) Greensville County Industrial Development Authority Revenue (Wheeling Steel Project) Series A 6.375% 4/1/04 .................................. 125 124 7.000% 4/1/14................................... 555 543 Peninsula Ports Authority Revenue (Port Facility-Ziegler Coal) 6.900% 5/2/22........ 825 821 Pittsylvania County Industrial Development Authority Revenue (Multitrade of Pittsylvania County L.P.) Series A 7.450% 1/1/09 (c)............................... 3,500 3,776 7.550% 1/1/19 (c)............................... 3,100 3,344 ------- 8,608 Washington (4.3%) Quincy Water and Sewer Revenue Series I (escrowed in U.S. Treasury securities, prerefunded to 11/1/00) 9.250% 11/1/10.................................... 2,375 2,534 Washington State Health Care Facilities Authority Revenue (Sacred Heart Medical Center) 6.875% 2/15/12...... 1,500 1,589 Washington State Housing Finance Commission Single-Family Mortgage Revenue Series C (collateralized by GNMA/FNMA securities) Zero Coupon 1/1/22 (c).......................... 1,165 207 Zero Coupon 7/1/22 (c).......................... 1,285 220 Zero Coupon 1/1/23 (c).......................... 1,290 213 Zero Coupon 7/1/23 (c).......................... 1,290 205 Zero Coupon 1/1/24 (c).......................... 1,290 197 Zero Coupon 7/1/24 (c).......................... 1,290 190 SR&FHigh-Yield Municipals Portfolio - -------------------------------------------------------------------------------- Continued Principal Market Amount Value - -------------------------------------------------------------------------------- Washington (Continued) Washington State Public Power Supply System Nuclear Project No. 2 Revenue Series A Zero Coupon 7/1/07.............................. $ 6,945 $ 4,645 6.300% 7/1/12................................... 2,500 2,743 ------- 12,743 Wisconsin (1.3%) Wisconsin State Health & Educational Facilities Authority Revenue (Attic Angel Community) 5.750% 11/15/27........... 1,250 1,181 (Clement Manor) 5.750% 8/15/24.................... 3,000 2,813 ------- 3,994 Multi-State (0.7%) Charter Mac Equity 6.625% 6/30/49.................... 2,000 2,000 - -------------------------------------------------------------------------------- Total Municipal Securities (98.9%) (Cost $280,748) (e)............................... 296,407 Other Assets, Less Liabilities (1.1%)................ 3,256 ------- Total Net Assets (100.0%)............................ $299,663 ======= - -------------------------------------------------------------------------------- Notes to Portfolio of Investments - -------------------------------------------------------------------------------- (a)These securities have been restructured. Under the restructuring agreement, the maturity date has been extended to 2015 and the stated rates have been reduced. The securities earned 6.500% through December, 1998 and are currently accruing 7.500%. The accrual rate is scheduled to increase to 8.500% in November, 2001. (b)Issuer is in default of certain debt covenants. Income is not being accrued. (c)Security is subject to the federal alternative minimum tax. At June 30, 1999, the market value of these securities represented 26.2% of total net assets. (d)Security was pledged to cover margin requirements for open future contracts. The following contracts were open at June 30, 1999: Number of Contract Unrealized Type Position Contracts Value Expiration Gain (Loss) ---------- -------- ---------- -------- ---------- ------------ U.S. T-Note Long 94 $10,452 Sep-99 $ 146 U.S. T-Bond Long 52 6,027 Sep-99 (109) (e)At June 30, 1999, the cost of investments for financial reporting and federal income tax purposes was identical. Net unrealized appreciation was $15,659, consisting of gross unrealized appreciation of $18,958 and gross unrealized depreciation of $3,299. Variable rate demand bonds (VRDB) are securities whose yields are periodically reset at levels that are generally comparable to tax-exempt commercial paper. These securities are payable on demand within seven calender days and normally incorporate an irrevocable letter of credit or line of credit from a major bank. See accompanying Notes to Financial Statements. Statements of Assets and Liabilities - -------------------------------------------------------------------------------- June 30, 1999 (All amounts in thousands, except per-share data)
Municipal Money Intermediate Managed High-Yield Market Municipals Municipals Municipals Fund Fund Fund Fund ----------- ----------- ----------- ----------- Assets Investment in Portfolio, at value...................... $120,062 $ -- $ -- $298,733 Investments, at market value (cost $158,810 and $500,253, respectively)......................... -- 166,086 537,980 -- Accrued interest receivable............................ -- 2,915 9,509 -- Receivable for investments sold........................ -- 811 7,229 -- Receivable for fund shares sold........................ 496 367 29 152 Cash................................................... 18 1,012 42 25 Other assets........................................... 18 -- 83 84 --------- --------- --------- --------- Total assets........................................ 120,594 171,191 554,872 298,994 --------- --------- --------- --------- Liabilities Payable for investments purchased...................... -- 484 14,754 -- Dividends payable...................................... 79 202 790 462 Payable for fund shares redeemed....................... 1,405 1,460 426 458 Payable to investment advisor and transfer agent....... 55 112 326 122 Other liabilities...................................... 23 37 254 78 --------- --------- --------- --------- Total liabilities................................... 1,562 2,295 16,550 1,120 --------- --------- --------- --------- Net assets.......................................... $119,032 $168,896 $538,322 $297,874 ======== ======== ======== ======== Analysis of Net Assets Paid-in capital........................................ $119,028 $160,894 $496,954 $291,899 Undistributed (overdistributed) net investment income................................... 12 51 (216) (242) Net unrealized appreciation on investments and futures contracts .............................. -- 7,276 37,727 (9,486) Accumulated net realized gain (loss) on investments and futures transactions................ (8) 675 3,857 15,703 --------- --------- --------- --------- Net assets.......................................... $119,032 $168,896 $538,322 $297,874 ======== ======== ======== ======== Shares outstanding (unlimited number authorized)....... 118,970 15,042 59,378 25,443 ======== ======== ======== ======== Net asset value per share.............................. $ 1.00 $ 11.23 $ 9.07 $ 11.71 ======== ======== ======== ========
See accompanying Notes to Financial Statements. Statements of Operations - -------------------------------------------------------------------------------- For the Year Ended June 30, 1999 (All amounts in thousands)
Municipal Money Intermediate Managed High-Yield Market Municipals Municipals Municipals Fund Fund Fund Fund ----------- ----------- ----------- ----------- Investment Income Interest allocated from Portfolio.......................... $4,097 $ -- $ -- $19,776 Interest................................................... -- 10,250 32,911 -- ------- -------- -------- -------- Total investment income................................. 4,097 10,250 32,911 19,776 ------- -------- -------- -------- Expenses Management fees............................................ -- 850 2,372 -- Expenses allocated from Portfolio.......................... 364 -- -- 1,493 Transfer agent fees........................................ 181 272 841 488 Administrative fees........................................ 301 267 649 424 Printing and postage....................................... 15 19 -- 36 Accounting fees............................................ 27 28 38 32 Audit and legal fees....................................... 19 26 28 4 Other...................................................... 49 79 184 44 ------- -------- -------- -------- Total expenses.......................................... 956 1,541 4,112 2,521 Reimbursement of expenses by investment advisor............ (108) (179) -- -- ------- -------- -------- -------- Net expenses............................................ 848 1,362 4,112 2,521 ------- -------- -------- -------- Net investment income................................... 3,249 8,888 28,799 17,255 ------- -------- -------- -------- Realized and Unrealized Gain (Loss) on Investments and Futures Transactions Net realized gain (loss) on investments and futures transactions allocated from Portfolio........... -- -- -- 3,655 Net realized gain (loss) on investments.................... -- 1,053 5,166 -- Net change in unrealized appreciation or depreciation on investments and futures transactions................. -- (5,460) (23,858) (10,380) ------- -------- -------- -------- Net loss on investments and futures transactions........ -- (4,407) (18,692) (6,725) ------- -------- -------- -------- Net Increase in Net Assets Resulting from Operations....... $3,249 $ 4,481 $ 10,107 $10,530 ========= ========== ========== ===========
See accompanying Notes to Financial Statements. Statements of Changes in Net Assets - -------------------------------------------------------------------------------- For the Years Ended June 30, 1998 and 1999 (All amounts in thousands)
Municipal Money Intermediate Market Fund Municipals Fund 1999 1998 1999 1998 --------------------------- -------------------------- Operations Net investment income ............................... $ 3,249 $ 3,771 $ 8,888 $ 9,378 Net realized gain (loss) on investments.............. -- -- 1,053 753 Net change in unrealized appreciation or depreciation on investments....................... -- -- (5,460) 3,083 --------- --------- --------- --------- Net increase in net assets resulting from operations........................................ 3,249 3,771 4,481 13,214 --------- --------- --------- --------- Distributions to Shareholders Distributions from net investment income............. (3,252) (3,771) (8,885) (9,378) Distributions from net capital gains................. -- -- (926) (545) --------- --------- --------- --------- Total distributions to shareholders............... (3,252) (3,771) (9,811) (9,923) --------- --------- --------- --------- Share Transactions Subscriptions to fund shares......................... 197,191 177,051 31,678 31,594 Value of distributions reinvested.................... 2,897 2,975 6,806 5,718 Redemptions of fund shares........................... (196,332) (183,171) (59,909) (40,958) --------- ---------- ---------- --------- Net increase (decrease) from share transactions... 3,756 (3,145) (21,425) (3,646) --------- ---------- ---------- --------- Net increase (decrease) in net assets............. 3,753 (3,145) (26,755) (355) Total Net Assets Beginning of period.................................. 115,279 118,424 195,651 196,006 --------- --------- --------- --------- End of period........................................ $119,032 $115,279 $168,896 $195,651 ========= ========== ========== ========== Analysis of Changes in Shares of Beneficial Interest Subscriptions to fund shares ........................ 197,191 177,051 2,720 2,733 Issued in reinvestment of distributions.............. 2,897 2,975 586 494 Redemptions of fund shares........................... (196,332) (183,171) (5,169) (3,542) --------- --------- --------- --------- Net increase (decrease) in fund shares............ 3,756 (3,145) (1,863) (315) Shares outstanding at beginning of period............ 115,214 118,359 16,905 17,220 --------- --------- --------- --------- Shares outstanding at end of period.................. 118,970 115,214 15,042 16,905 ========= ========== ========== ==========
See accompanying Notes to Financial Statements. Statements of Changes in Net Assets - -------------------------------------------------------------------------------- For the Years Ended June 30, 1998 and 1999 (All amounts in thousands)
Managed High-Yield Municipals Fund Municipals Fund 1999 1998 1999 1998 --------------------------- -------------------------- Operations Net investment income .................................. $ 28,799 $ 30,361 $ 17,255 $ 17,880 Net realized gain (loss) on investments and futures transactions................................. 5,166 1,473 3,655 (3,850) Net change in unrealized appreciation or depreciation on investments and futures transactions......................................... (23,858) 15,722 (10,380) 11,887 --------- --------- --------- --------- Net increase in net assets resulting from operations...................................... 10,107 47,556 10,530 25,917 --------- --------- --------- --------- Distributions to Shareholders Distributions from net investment income................ (28,945) (30,361) (17,606) (17,880) --------- --------- --------- --------- Share Transactions Subscriptions to fund shares............................ 43,856 42,525 57,493 75,509 Value of distributions reinvested....................... 16,296 16,076 11,152 9,200 Redemptions of fund shares.............................. (86,130) (75,024) (105,475) (57,036) --------- ---------- ---------- --------- Net increase (decrease) from share transactions...... (25,978) (16,423) (36,830) 27,673 --------- ---------- ---------- --------- Net increase (decrease) in net assets................ (44,816) 772 (43,906) 35,710 Total Net Assets Beginning of period..................................... 583,138 582,366 341,780 306,070 --------- --------- --------- --------- End of period........................................... $538,322 $583,138 $297,874 $341,780 ========= ========== ========== ========== Analysis of Changes in Shares of Beneficial Interest Subscriptions to fund shares ........................... 4,661 4,557 4,792 6,341 Issued in reinvestment of distributions................. 1,735 1,721 932 771 Redemptions of fund shares.............................. (9,176) (8,036) (8,823) (4,792) --------- --------- --------- --------- Net increase (decrease) in fund shares............... (2,780) (1,758) (3,099) 2,320 Shares outstanding at beginning of period............... 62,158 63,916 28,542 26,222 --------- --------- --------- --------- Shares outstanding at end of period..................... 59,378 62,158 25,443 28,542 ========== ========== ========== ==========
See accompanying Notes to Financial Statements. Statements of Assets and Liabilities - -------------------------------------------------------------------------------- June 30, 1999 (All amounts in thousands) SR&F SR&F Municipal High-Yield Money Market Municipals Portfolio Portfolio ---------- ---------- Assets Investments, at market value (cost $140,707 and $280,748, respectively)............................. $140,707 $296,407 Interest receivable.................................... 610 5,510 Receivable for investments sold........................ 839 1,608 Cash................................................... -- 30 Variation margin receivable on futures................. -- 131 Other.................................................. 5 -- --------- --------- Total assets........................................ 142,161 303,686 --------- --------- Liabilities Payable for investments purchased...................... 8,035 3,905 Payable to investment advisor.......................... 30 117 Other liabilities...................................... 47 1 --------- --------- Total liabilities................................... 8,112 4,023 --------- --------- Net assets applicable to investors' beneficial interest............................... $134,049 $299,663 ========== ========== Statements of Operations - -------------------------------------------------------------------------------- For the Year Ended June 30, 1999 (All amounts in thousands)
SR&F SR&F Municipal High-Yield Money Market Municipals Portfolio Portfolio ---------- ---------- Investment Income Interest................................................... $4,598 $19,891 ------- -------- Expenses Management fees............................................ 339 1,400 Accounting fees............................................ 27 32 Audit and legal fees....................................... 17 33 Trustees' fees............................................. 9 13 Custodian fees............................................. 4 2 Other...................................................... 13 22 ------- -------- Total expenses.......................................... 409 1,502 ------- -------- Net investment income................................... 4,189 18,389 ------- -------- Realized and Unrealized Gain (Loss) on Investments and Futures Transactions Net realized gain on investments and futures transactions.. -- 3,631 Net change in unrealized appreciation or depreciation on investment and futures transactions................................ -- (10,388) ------- -------- Net loss on investments ................................ -- (6,757) ------- -------- Net Increase in Net Assets Resulting from Operations....... $4,189 $11,632 ======== =========
See accompanying Notes to Financial Statements. Statements of Changes in Net Assets - -------------------------------------------------------------------------------- For the Years Ended June 30, 1998 and 1999 (All amounts in thousands)
SR&F Municipal High-Yield Municipals Money Market Portfolio Portfolio 1999 1998 1999 1998 (a) --------- --------- --------- --------- Operations Net investment income............... $4,189 $4,891 $18,389 $7,847 Net realized gain (loss) on investments and futures transactions......... -- -- 3,631 (214) Net change in unrealized appreciation or depreciation on investments and futures transactions......... -- -- (10,388) (1,762) --------- --------- --------- --------- Net increase in net assets resulting from operations................ 4,189 4,891 11,632 5,871 --------- --------- --------- --------- Transactions in Investors' Beneficial Interest Contributions....................... 101,419 80,237 27,867 349,343 Withdrawals......................... (103,577) (92,038) (83,002) (12,048) --------- --------- --------- --------- Net increase (decrease) from transactions in investors' beneficial interest (2,158) (11,801) (55,135) 337,295 --------- --------- --------- --------- Net increase (decrease) in net assets 2,031 (6,910) (43,503) 343,166 Total Net Assets Beginning of period................. 132,018 138,928 343,166 -- --------- --------- --------- --------- End of period....................... $134,049 $132,018 $299,663 $343,166 =========== =================================
(a)From commencement of operations on February 2, 1998. See accompanying Notes to Financial Statements. Notes to Financial Statements - -------------------------------------------------------------------------------- (All amounts in thousands) Note 1. Organization Stein Roe Municipal Money Market Fund, Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund and Stein Roe High-Yield Municipals Fund (the "Funds") are series of Stein Roe Municipal Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. Municipal Money Market Fund and High-Yield Municipals Fund invest substantially all of their assets in SR&F Municipal Money Market Portfolio and SR&F High-Yield Municipals Portfolio (the "Portfolios"), respectively. The Portfolios are series of SR&F Base Trust, a Massachusetts common law trust organized under an Agreement and Declaration of Trust dated August 23, 1993. SR&F High-Yield Municipals Portfolio commenced operations on February 2, 1998. At commencement, High-Yield Municipals Fund contributed $335,711 in securities and other assets to SR&F High-Yield Municipals Portfolio in exchange for beneficial ownership of the Portfolio. At February 4, 1998, Stein Roe Advisor High-Yield Municipals Fund contributed cash of $100 to the Portfolio. The Portfolios allocate 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, 1999, Stein Roe Municipal Money Market Fund and Colonial Municipal Money Market Fund owned 89.6 percent and 10.4 percent, respectively, of SR&F Municipal Money Market Portfolio; and Stein Roe High-Yield Municipals Fund and Stein Roe Advisor High-Yield Municipals Fund owned 99.7 percent and .3 percent, respectively, of SR&F High-Yield Municipals Portfolio. Note 2. Significant Accounting Policies The following summarizes the significant accounting policies of the Funds and Portfolios. These policies are in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Investment Transactions and Investment Income Investment transactions are accounted for on trade date. Interest income, including premium amortization, is recorded daily on an accrual basis. Realized gains or losses from investment transactions are reported on a specific identified cost basis. Notes to Financial Statements Continued - -------------------------------------------------------------------------------- Securities purchased on a when-issued or delayed delivery basis may be settled a month or more after the transaction date. The values of such securities are subject to market fluctuations during this period. None of the Funds had when-issued or delayed delivery purchase commitments as of June 30, 1999. Security Valuations All securities are valued as of June 30, 1999. 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, except for SR&F Municipal Money Market Portfolio. This Portfolio utilizes the amortized cost method to value its investments. This technique approximates market value and involves valuing a security initially at cost and, thereafter, assuming a constant amortization to maturity of any discount or premium. In the event that a deviation of .50 of 1 percent or more exists between Stein Roe Municipal Money Market Fund's $1.00 per share net asset value, calculated at amortized cost, and the net asset value calculated by reference to market quotations, its Board of Trustees would consider what action, if any, should be taken. Other securities and assets are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Municipal Money Market Fund attempts to maintain a per-share net asset value of $1.00, which management believes will be possible under most conditions. Futures Contracts Intermediate Municipals Fund, Managed Municipals Fund and SR&F High-Yield Municipals Portfolio may enter into futures contracts to either hedge against expected declines of their portfolio securities or as a temporary substitute for the purchase of individual bonds. Risks of entering into futures contracts include the possibility that there may be an illiquid market at the time a fund seeks to close out a contract, and changes in the value of the futures contract may not correlate with changes in the value of the portfolio securities being hedged. Upon entering into a futures contract, the Fund/Portfolio deposits with its custodian cash or securities in an amount sufficient to meet the initial margin requirements. Subsequent payments are made or received by the Fund/Portfolio equal to the daily change in the contract value and are recorded as variation margin payable or receivable and offset in unrealized gains or losses. The Fund/Portfolio Notes to Financial Statements Continued - -------------------------------------------------------------------------------- recognizes a realized gain or loss when the contract is closed or expires. Federal Income Taxes No provision is made for federal income taxes since (a) the Funds elect to be taxed as "regulated investment companies" and make distributions to their shareholders to be relieved of all federal income taxes under provisions of current federal tax law; and (b) the Portfolios are treated as partnerships for federal income tax purposes and all of their income is allocated to their owners based on methods approved by the Internal Revenue Service. All dividends paid from net investment income by the Funds constitute tax-exempt interest that is not taxable for federal income tax purposes; however, a portion of the dividends paid may be inclusive in the alternative minimum tax calculation. The Funds intend to utilize provisions of the federal income tax laws, which allow them to carry a realized capital loss forward up to eight years following the year of the loss, and offset such losses against any future realized gains. At June 30, 1999, the Funds had capital loss carryforwards as follows: Year of Fund Amount Expiration High Yield Municipals $8,575 2005-2006 Municipal Money Market 8 2002-2005 Distributions to Shareholders Dividends from net investment income are declared daily and paid monthly. Capital gains distributions, if any, are distributed annually. Dividends are determined in accordance with income tax principles, which may treat certain transactions differently than generally accepted accounting principles. Distributions in excess of tax basis earnings are reported in the financial statements as a return of capital. Permanent differences in the recognition or classification of income between the financial statements and tax earnings are reclassified to paid-in capital. Note 3. Portfolio Composition The Funds and Portfolios invest in municipal securities including, but not limited to, general obligation bonds, revenue bonds and escrowed bonds (i.e., bonds that have been refinanced, the proceeds of which have been invested in U.S. or state and local government obligations that are set aside to pay off the original issue at the first call date or maturity). See Fund Highlights for a breakdown of securities held by type at June 30, 1999. The Funds and Portfolios hold investments that are insured by private insurers who guarantee the payment of principal and interest in the event of default. At June 30, 1999, investments in these securities for Intermediate Municipals Fund, Managed Municipals Notes to Financial Statements Continued - -------------------------------------------------------------------------------- Fund and SR&F High-Yield Municipals Portfolio represented 59.0 percent, 21.6 percent and 2.3 percent of holdings, respectively. SR&F Municipal Money Market Portfolio invests in certain short-term securities that are backed by bank letters of credit used to provide liquidity to the issuer and/or additional security in the event of default. At June 30, 1999, 60.7 percent of the Portfolio was backed by bank letters of credit. See the Portfolio of Investments for each Fund or Portfolio for additional information regarding portfolio composition. Note 4. Trustees' Fees and Transactions with Affiliates The Funds and Portfolios pay monthly management and administrative fees, computed and accrued daily, to Stein Roe & Farnham Incorporated (the "Advisor"), an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for its services as investment advisor and manager. The management fee for SR&F Municipal Money Market Portfolio is computed at an annual rate of .25 of 1 percent of average daily net assets. The management fee for Inter mediate Municipals Fund and SR&F High-Yield Municipals Portfolio is .45 of 1 percent of the first $100 million of average daily net assets, .425 of 1 percent of the next $100 million and .40 of 1 percent thereafter. The management fee for Managed Municipals Fund is .45 of 1 percent of the first $100 million of average daily net assets, .425 of 1 percent of the next $100 million, .40 of 1 percent of the next $800 million and .375 of 1 percent thereafter. The administrative fee for the Municipal Money Market Fund is computed at an annual rate of .25 of 1 percent of average daily net assets up to $500 million, .20 of 1 percent of average daily net assets for the next $500 million and .15 of 1 percent thereafter. The administrative fee for Intermediate Municipals Fund and High-Yield Municipals Fund is computed at an annual rate of .15 of 1 percent of the first $100 million of average daily net assets, .125 of 1 percent of the next $100 million and .10 of 1 percent thereafter. The admin istrative fee for Managed Municipals Fund is .15 of 1 percent of the first $100 million of average daily net assets, .125 of 1 percent of the next $100 million, .10 of 1 percent of the next $800 million and .075 of 1 percent thereafter. The Advisor also provides accounting services to the Funds and Portfolios. For the year ended June 30, 1999, Municipal Money Market Fund, Intermediate Municipals Fund, Managed Municipals Fund, Notes to Financial Statements Continued - -------------------------------------------------------------------------------- High-Yield Municipals Fund, SR&F Municipal Money Market Portfolio, and SR&F High-Yield Municipals Portfolio incurred charges of $27, $28, $38, $32, $27 and $32, respectively, for these services. The Advisor has agreed to reimburse Municipal Money Market Fund and Intermediate Municipals Fund for expenses in excess of .70 of 1 percent of average annual net assets. This commitment expires on October 31, 1999, subject to earlier termination by the Advisor on 30 days' notice. Transfer agent fees are paid to SteinRoe Services, Inc. (SSI), an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has entered into an agreement with Liberty Funds Services, Inc., formerly Colonial Investors Service Center, Inc., also an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, to act as subtransfer agent for the Funds. Certain officers and trustees of the Trust are also officers of the Advisor. No remuneration was paid to any other trustee or officer of the Trust. Note 5. Short-Term Debt To facilitate portfolio liquidity, the Funds and Portfolios maintain borrowing arrangements under which they can borrow against portfolio securities. There were no borrowings by any of the Funds or Portfolios during the year ended June 30, 1999. Note 6. Investment Transactions The aggregate cost of purchases and proceeds from sales or maturities of securities, excluding short-term obligations, for the year ended June 30, 1999, were as follows: Purchases Sales --------- --------- Intermediate Municipals Fund........................... $90,031 $107,693 Managed Municipals Fund................................ 98,667 115,287 SR&F High-Yield Municipals Portfolio................... 60,915 91,044 Financial Highlights - -------------------------------------------------------------------------------- Municipal Money Market Fund Selected per-share data (for a share outstanding throughout each period), ratios and supplemental data.
Years Ended June 30, 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------- -------- -------- -------- -------- Net investment income.......... 0.027 0.031 0.030 0.031 0.030 Distributions from net investment income............ (0.027) (0.031) (0.030) (0.031) (0.030) -------- -------- -------- -------- -------- Net Asset Value, End of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ================================================== Ratio of net expenses to average net assets (a).................. 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income to average net assets (b).......... 2.69% 3.06% 2.98% 3.09% 2.96% Total return (b)................... 2.73% 3.10% 3.04% 3.13% 3.02% Net assets, end of period (000's). $119,032 $115,279 $118,424 $120,432 $146,704
SR&F Municipal Money Market Portfolio Period Years Ended Ended June 30, June 30, 1999 1998 1997 1996 (c) -------- ---------------- -------- Selected Ratios Ratio of net expenses to average net assets. 0.30% 0.34% 0.32% 0.30%(d) Ratio of net investment income to average net assets............................... 3.07% 3.41% 3.36% 3.50%(d) (a)If the Fund had paid all of its expenses and there had been no reimbursement by the Advisor, this ratio would have been 0.79, 0.86, 0.86, 0.84 and 0.78 percent for the years ended June 30, 1999 through June 30, 1995, respectively. (b) Computed giving effect to Advisor's expense limitation undertaking. (c)From commencement of operations on September 28, 1995. (d)Annualized. Financial Highlights Continued - -------------------------------------------------------------------------------- Intermediate Municipals Fund Selected per-share data (for a share outstanding throughout each period), ratios and supplemental data.
Years Ended June 30, 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period $ 11.57 $ 11.38 $ 11.22 $ 11.16 $ 11.00 -------- -------- -------- -------- -------- Income From Investment Operations Net investment income.......... 0.54 0.54 0.55 0.55 0.53 Net realized and unrealized gain (loss) on investments........ (0.30) 0.22 0.22 0.06 0.16 -------- -------- -------- -------- -------- Total from investment operations 0.24 0.76 0.77 0.61 0.69 -------- -------- -------- -------- -------- Distributions Net investment income.......... (0.54) (0.54) (0.55) (0.55) (0.53) Net realized gains............. (0.04) (0.03) (0.06) -- -- -------- -------- -------- -------- -------- Total distributions......... (0.58) (0.57) (0.61) (0.55) (0.53) -------- -------- -------- -------- -------- Net Asset Value, End of Period.... $ 11.23 $ 11.57 $ 11.38 $ 11.22 $ 11.16 ================================================== Ratio of net expenses to average net assets (a)................. 0.70% 0.70% 0.70% 0.70% 0.74% Ratio of net investment income to average net assets (b)......... 4.58% 4.70% 4.84% 4.82% 4.94% Portfolio turnover rate........... 48% 29% 44% 66% 67% Total return (b).................. 2.08% 6.84% 7.07% 5.47% 6.59% Net assets, end of period (000's). $168,896 $195,651 $196,006 $204,726 $212,489
(a)If the Fund had paid all of its expenses and there had been no reimbursement by the Advisor, this ratio would have been 0.79, 0.81, 0.82, 0.81 and 0.76 percent for the years ended June 30, 1999 through June 30, 1995, respectively. (b) Computed giving effect to Advisor's expense limitation undertaking. - -------------------------------------------------------------------------------- Federal Income Tax Information (unaudited) For the fiscal year ended June 30, 1999, the Fund paid capital gains distributions of which 74% were long-term capital gains. All of the income distributions will be treated as exempt income for federal income tax purposes. - -------------------------------------------------------------------------------- Financial Highlights Continued - -------------------------------------------------------------------------------- Managed Municipals Fund Selected per-share data (for a share outstanding throughout each period), ratios and supplemental data.
Years Ended June 30, 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period $ 9.38 $ 9.11 $ 8.85 $ 8.79 $ 8.70 -------- -------- -------- -------- -------- Income From Investment Operations Net investment income.......... 0.47 0.48 0.48 0.48 0.51 Net realized and unrealized gain (loss) on investments........ (0.31) 0.27 0.26 0.06 0.09 -------- -------- -------- -------- -------- Total from investment operations 0.16 0.75 0.74 0.54 0.60 -------- -------- -------- -------- -------- Distributions Net investment income.......... (0.47) (0.48) (0.48) (0.48) (0.51) Net realized gains............. -- -- -- -- -- -------- -------- -------- -------- -------- Total distributions......... (0.47) (0.48) (0.48) (0.48) (0.51) -------- -------- -------- -------- -------- Net Asset Value, End of Period.... $ 9.07 $ 9.38 $ 9.11 $ 8.85 $ 8.79 ================================================== Ratio of net expenses to average net assets..................... 0.72% 0.72% 0.73% 0.72% 0.65% Ratio of net investment income to average net assets............. 5.02% 5.14% 5.31% 5.41% 5.85% Portfolio turnover rate........... 17% 12% 16% 40% 33% Total return ..................... 1.67% 8.37% 8.56% 6.24% 7.12% Net assets, end of period (000's). $538,322 $583,138 $582,366 $606,359 $629,730
- -------------------------------------------------------------------------------- Federal Income Tax Information (unaudited) All of the income distributions will be treated as exempt income for federal income tax purposes. - -------------------------------------------------------------------------------- Financial Highlights Continued - -------------------------------------------------------------------------------- High-Yield Municipals Fund Selected per-share data (for a share outstanding throughout each period), ratios and supplemental data.
Years Ended June 30, 1999 1998 1997 1996 1995 ---------------- -------- ---------------- Net Asset Value, Beginning of Period $ 11.97 $ 11.67 $ 11.40 $ 11.31 $ 11.06 ---------------- -------- -------- -------- Income From Investment Operations Net investment income.......... 0.63 0.65 0.72 0.67 0.66 Net realized and unrealized gain (loss) on investments and futures transactions......... (0.25) 0.30 0.27 0.09 0.25 ---------------- -------- -------- -------- Total from investment operations 0.38 0.95 0.99 0.76 0.91 ---------------- -------- -------- -------- Distributions Net investment income.......... (0.64) (0.65) (0.72) (0.67) (0.66) Net realized gains............. -- -- -- -- -- ---------------- -------- -------- -------- Total distributions......... (0.64) (0.65) (0.72) (0.67) (0.66) ---------------- -------- -------- -------- Net Asset Value, End of Period.... $ 11.71 $ 11.97 $ 11.67 $ 11.40 $ 11.31 ================================================= Ratio of net expenses to average net assets..................... 0.77% 0.75% 0.77% 0.85% 0.86% Ratio of net investment income to average net assets............. 5.26% 5.48% 6.20% 5.86% 5.98% Portfolio turnover rate........... N/A 8%(a) 11%(a) 34%(a) 23%(a) Total return...................... 3.18%(b)8.32% 8.91% 6.83% 8.54% Net assets, end of period (000's). $297,874 $341,780$306,070 $282,956 $281,155
SR&F High-Yield Municipals Portfolio Year Period Ended Ended June 30, June 30, 1999 1998 (c) --------- --------- Selected Ratios Ratio of net expenses to average net assets ........... 0.45% 0.47%(d) Ratio of net investment income to average net assets... 5.55% 5.72%(d) Portfolio turnover rate................................ 19% 3% (a)Prior to commencement of operations of the Portfolio. (b)0.50% of the return is attributable to a one-time revaluation of a portfolio security reflecting the restructuring of this security. Absent this revaluation, the total return would have been 2.68%. (c)From commencement of operations on February 2, 1998. (d)Annualized. - -------------------------------------------------------------------------------- Federal Income Tax Information (unaudited) All of the income distributions will be treated as exempt income for federal income tax purposes. - -------------------------------------------------------------------------------- Report of Independent Auditors - -------------------------------------------------------------------------------- To the Shareholders, Holders of Investors' Beneficial Interest, and Board of Trustees of the Stein Roe Municipal Trust and SR&F Base Trust Stein Roe Municipal Money Market Fund Stein Roe Intermediate Municipals Fund Stein Roe Managed Municipals Fund Stein Roe High-Yield Municipals Fund SR&F Municipal Money Market Portfolio SR&F High Yield Municipals Portfolio We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Stein Roe Intermediate Municipals Fund, Stein Roe Managed Municipals Fund, SR&F High Yield Municipals Portfolio and SR&F Municipal Money Market Portfolio as of June 30, 1999, and the accompanying statements of assets and liabilities of Stein Roe Municipal Money Market Fund and Stein Roe High-Yield Municipals Fund as of June 30, 1999, and the related statements of operations for the year then ended, and statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' and Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial state ments and financial highlights. Our procedures included confirmation of securities owned as of June 30, 1999, 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 positions of Stein Roe Municipal Money Market Fund, Stein Roe Report of Independent Auditors Continued - -------------------------------------------------------------------------------- Intermediate Municipals Fund, Stein Roe Managed Municipals Fund, Stein Roe High-Yield Municipals Fund, SR&F Municipal Money Market Portfolio and SR&F High-Yield Municipals Portfolio at June 30, 1999, and the results of their operations, the changes in their net assets, and their financial highlights for the periods referred to above in conformity with generally accepted accounting principles. [ERNST + YOUNG SIGNATURE] Boston, Massachusetts August 11, 1999 Municipal Trust - -------------------------------------------------------------------------------- Trustees John A. Bacon, Jr. Private Investor William W. Boyd Chairman and Director, Sterling Plumbing Group Inc. Lindsay Cook Senior Vice President, Liberty Financial Companies, Inc. Douglas A. Hacker Senior Vice President and Chief Financial Officer, United Airlines Janet Langford Kelly Senior Vice President, Secretary and General Counsel, Sara Lee Corporation Charles R. Nelson Van Voorhis Professor of Political Economy, University of Washington Thomas C. Theobald Managing Partner, William Blair Capital Partners Officers Thomas W. Butch, President William D. Andrews, Executive Vice President Kevin M. Carome, Executive Vice President, Assistant Secretary Loren A. Hansen, Executive Vice President Gary A. Anetsberger, Senior Vice President, Treasurer J. Kevin Connaughton, Vice President Joanne T. Costopoulos, Vice President Brian M. Hartford, Vice President Timothy Jacoby, Vice President Gail D. Knudsen, Vice President William C. Loring, Vice President Lynn C. Maddox, Vice President Maureen Newman, Vice President Nicolette D. Parrish, Vice President, Assistant Secretary Sharlene Thomas, Vice President Veronica M. Wallace, Vice President Heidi J. Walter, Vice President, Secretary Janet B. Rysz, Assistant Secretary Patricia Judge, Controller Agents and Advisors Stein Roe & Farnham Incorporated Investment Advisor State Street Bank and Trust Company Custodian Liberty Funds Services Inc. Transfer Agent Bell, Boyd & Lloyd Legal Counsel to the Trust Ernst & Young LLP Independent Auditors The Stein Roe Mutual Funds Fixed Income Funds Cash Reserves Fund Municipal Money Market Fund Intermediate Municipals Fund Managed Municipals Fund High-Yield Municipals Fund Intermediate Bond Fund Income Fund High Yield Fund Equity Funds Balanced Fund Growth & Income Fund Disciplined Stock Fund* Growth Stock Fund Growth Investor Fund Young Investor Fund Large Company Focus Fund Midcap Growth Fund** Capital Opportunities Fund International Fund Small Company Growth Fund * Formerly Special Fund ** Formerly Growth Opportunities Fund Stein Roe Mutual Funds P.O. Box 8900 Boston, MA 02205-8900 Financial Advisors call: 800-322-0593 Shareholders call: 800-338-2550 www.steinroe.com In Chicago, visit our Fund Center at One South Wacker Drive Liberty Funds Distributor, Inc. TE11A 8/99 -----END PRIVACY-ENHANCED MESSAGE-----