STEIN ROE ADVISOR FUNDS
SEMIANNUAL REPORT
DEC. 31, 1998
PHOTO OF GLOBE
STEIN ROE ADVISOR FUND
TAX-EXEMPT BOND FUND
STEIN ROE ADVISOR HIGH-YIELD MUNICIPALS FUND
LOGO: STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS (SM)
<PAGE>
Contents
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Performance.................................................................. 1
How the Stein Roe Advisor High-Yield Municipals Fund has done over time
Questions & Answers.......................................................... 2
Interview with the portfolio manager and summary of investment activity
Stein Roe Advisor High-Yield Municipals Fund
Portfolio of Investments..................................................... 3
A complete list of investments with market values
Financial Statements......................................................... 9
Statements of assets and liabilities, operations and changes in net assets
Notes to Financial Statements............................................... 15
Financial Highlights........................................................ 17
Selected per-share data
MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
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Fund Performance
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There are several ways to evaluate a fund's historical performance. You can look
at the total percentage change in value, the average annual percentage change or
the growth of a hypothetical $10,000 investment. Each performance figure
includes changes in a fund's share price, plus reinvestment of any dividends
(net investment income) and capital gains (the profits the fund earns when it
sells stocks that have grown in value).
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<CAPTION>
CUMULATIVE SIX-MONTH AND AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DEC. 31, 1998
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6 Months 1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
STEIN ROE ADVISOR HIGH-YIELD MUNICIPALS FUND 2.57% 4.94% 6.08% 7.38%
Lehman Brothers Municipal Bond Index 3.69 6.48 6.22 8.22
Lipper High Yield Municipal Debt Fund Average 2.36 5.25 5.98 7.58
Number of Funds in Peer Group 56 52 28 16
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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.
Investment Comparison
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COMPARISON of change in value of a $10,000 investment.
Advisor Lehman Brothers
High-Yield Municipal
Municipals Bond
Fund Index
12/31/88 10000 10000
12/31/89 11113 11079
12/31/90 11935 11886
12/31/91 13076 13329
12/31/92 13742 14504
12/31/93 15172 16286
12/31/94 14522 15444
12/31/95 17049 18140
12/31/96 17773 18943
12/31/97 19418 20685
12/31/98 20378 22025
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. Total return figures do not include sales
charges or contingent deferred sales charges (CDSC). Class K shares may be
purchased only through certain intermediaries, including certain bank trust
departments, wrap fee programs and retirement plans. The Advisor currently
limits expenses on Class K shares to 1.00% of average net assets. Absent this
limit, total return would be less. Historical performance for Class K shares for
the period prior to 2/4/98 is based on the performance of the SR&F High-Yield
Municipals Portfolio, restated to reflect 12b-1 fees and any other expenses
applicable to that class, without giving any effect to fee waivers and assuming
reinvestment of dividends and capital gains. This graph compares the performance
of the Stein Roe Advisor High-Yield Municipals Fund to the Lehman Brothers
Municipal Bond Index, an unmanaged group of stocks not associated with any Stein
Roe fund.
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Questions & Answers
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AN INTERVIEW WITH MAUREEN NEWMAN PORTFOLIO MANAGER OF
STEIN ROE ADVISOR HIGH-YIELD MUNICIPALS FUND AND SR&F HIGH-YIELD
MUNICIPALS PORTFOLIO
FUND DATA
INVESTMENT OBJECTIVE:
Seeks a high level of tax-free income consistent with capital preservation by
investing in longer-term municipal securities, principally of medium and
lower quality.
MAUREEN NEWMAN WAS NAMED PORTFOLIO MANAGER OF ADVISOR HIGH-YIELD MUNICIPALS
FUND EFFECTIVE NOV. 1, 1998.
Q: HOW DID THE FUND PERFORM FOR THE FIRST HALF OF FISCAL 1999?
A: Advisor High-Yield Municipals Fund provided strong results, outpacing the
average returns of a peer group of municipal bond funds (See page 1). As of Dec.
31, 1998, the Fund's 30-day SEC yield was 3.92% -- that's a tax-equivalent yield
of 6.49%.
Weak corporate earnings reports last summer caused riskier,
lower-quality municipal bonds backed by less-stable corporations to
underperform. We hold a high-quality composition, and that helped the Fund
perform better than the average fund in its category between June and December.
To help preserve principal, the Fund maintained a shorter-than-average
maturity. When the high yield municipal bond market rallied this past autumn,
this positioning did not allow the Fund's net asset value to rise as much as
comparable funds.
During the last six months, high yield bond issuance increased firmly.
This tremendous amount of new supply presented us with the opportunity to buy
attractive bonds with high income potential at discount prices.
Q: HOW DID YOU ADJUST THE PORTFOLIO'S COMPOSITION?
A: We used a barbell strategy to manage credit risk. We increased the
portfolio's weighting in bonds with credit quality ratings of BB and lower
between June and December. This reflected our efforts to take advantage of the
opportunities available in lower-quality bonds.
Q: WHAT STRATEGIES DO YOU USE FOR SECURITY SELECTION?
A: We use a relative value approach. Our analysts focus on the fundamentals of
the individual credit, including management, financials and market factors, in
order to discern issuers that are likely to be stable or improving. We evaluate
the pricing of the security to determine whether there are favorable income
and/or capital appreciation opportunities. We actively manage our holdings to
provide long term value to our shareholders.
Due to the uncertainty in the outlook for cyclical industries, we are
currently focusing our purchases in industries that are less dependent on
economic activity, such as education and nursing homes. One example is our
holding of 5.65% Latin School of Chicago bonds (0.5% of total net assets). We
bought these BBB-rated bonds at par and they have performed better than other
bonds in their rating category. This private school is enjoying strong
enrollment and community support. It appears to have effective management and
strong fund-raising capabilities.
Q: WHAT HAVE YOU ADDED TO THE PORTFOLIO?
A: We purchased bonds of Walker Methodist, a senior living/nursing home group in
Minneapolis, MN (0.4% of total net assets). The bonds of this large,
well-established group were offered at an attractive price due to concerns about
historical results. More recently, management has focused its attention on its
core business, which we believe will result in improved operating performance.
Q: WHAT'S YOUR OUTLOOK FOR THE BALANCE OF FISCAL 1999?
A: If corporate earnings are weak in 1999, we believe this may affect bond
prices in the high yield market. Industrial development bonds could be most
affected by this as their issuers are traditionally sensitive to economic
weakness. We expect that non-cyclical areas such as housing, schools and nursing
homes will continue to provide value, so that's where we plan to focus new
purchases.
With yields at their highest level relative to Treasuries since the
mid-1980s, we believe municipal bonds are likely to remain an attractive
alternative to taxable fixed-income securities for investors in high tax
brackets.
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. Tax-free income is exempt from federal taxes but
may be subject to state and local taxes and federal alternative minimum tax.
Tax-equivalent yield shown above is for an investor in the 39.6% federal tax
bracket. Portfolio holdings are as of 12/31/98 and are subject to change.
Holdings disclosed as a percentage of SR&F High-Yield Municipals Portfolio. See
page 1 for a comparison of the Fund's performance with that of its Lipper peer
group average. Investing in high-yield bonds involves greater credit risks than
investing in higher quality bonds.
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<CAPTION>
SR&F High-Yield Municipals Portfolio
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Portfolio of Investments at December 31, 1998
(Dollar amounts in thousands)
(Unaudited)
Principal Market
MUNICIPAL SECURITIES (98.9%) Amount Value
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ARIZONA (2.3%)
<S> <C> <C>
Arizona Health Facilities Authority Hospital System Revenue (Phoenix Memorial Hospital)
8.125% 6/1/12................................................................................. $ 2,500 $ 2,675
Pima County Industrial Development Authority IDR (Tucson Electric Power Company)
Series B 6.000% 9/1/29....................................................................... 1,000 998
Series C 6.000% 9/1/29....................................................................... 4,000 3,990
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7,663
CALIFORNIA (2.9%)
California Health Facilities Financing Authority Revenue (Sutter Health) Series A VRDB 5.100%.... 1,200 1,200
Foothill/Eastern Transportation Corridor Agency Toll Road Revenue Series 1995A 6.500% 1/1/32.... 2,000 2,240
Long Beach Aquarium of the Pacific Revenue Series A 6.125% 7/1/23............................... 5,750 6,088
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9,528
COLORADO (6.5%)
Adams County Single-Family Mortgage Revenue Series B (escrowed in U.S. Treasury securities)
11.250% 9/1/11 (prerefunded to 9/1/09)........................................................ 325 509
11.250% 9/1/11 (prerefunded to 9/1/10)....................................................... 360 574
11.250% 9/1/11............................................................................... 220 358
11.250% 9/1/12............................................................................... 1,440 2,383
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 8,356
Briargate Public Building Authority Landowner Assessment Lien
Series 1985A 10.250% 12/15/00 (b)............................................................ 220 187
Series 1986A 9.500% 12/15/07 (b)............................................................. 807 686
Colorado Health Facilities Authority Revenue
(Birchwood Manor Apartments, collateralized by GNMA securities) Series A 7.250% 4/1/11....... 645 672
(PSL Health Systems, escrowed in U.S. Treasury securities, prerefunded to 2/15/01) Series B
8.500% 2/15/21............................................................................. 3,250 3,628
Denver City and County Airport Revenue Series D
7.750% 11/15/21 (escrowed in U.S. Treasury securities, prerefunded to 11/15/01) (a).......... 830 933
7.750% 11/15/21 (a).......................................................................... 3,170 3,491
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21,777
CONNECTICUT (0.9%)
Connecticut State Development Authority PCR (Connecticut Light & Power) 5.850% 9/1/28........... 2,900 2,911
DISTRICT OF COLUMBIA (2.2%)
District of Columbia GO Series A 6.000% 6/01/26................................................. 7,000 7,350
FLORIDA (3.3%)
Florida Housing Finance Agency Multi-Family Housing Revenue (Palm-Aire) 10.000% 1/1/20 (a) (b).. 2,731 2,348
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................................................ 775 880
Orange County Health Facilities Authority (Orlando Lutheran Towers) 8.625% 7/1/20............... 5,000 5,856
Orlando Special Assessment Revenue Series A (Conroy Road Interchange Project)
5.500% 5/1/10................................................................................ 200 199
5.800% 5/1/26................................................................................. 500 499
Stoneybrook Community Development District Capital Improvement Revenue
Series B 5.700% 5/1/08....................................................................... 760 759
Series A 6.100% 5/1/19........................................................................ 330 330
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10,871
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SR&F High-Yield Municipals Portfolio CONTINUED
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Principal Market
Amount Value
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<S> <C> <C>
GEORGIA (3.5%)
Cartersville Development Authority (Anheuser-Busch) 7.375% 5/1/09 (a)........................... $ 3,000 $ 3,656
Municipal Electric Authority of Georgia Power Revenue Series V 6.600% 1/1/18.................... 6,065 7,096
Rockdale County Development Authority Solid Waste Disposal Revenue (Visy Paper)
7.500% 1/1/26 (a)............................................................................ 1,000 1,065
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11,817
IDAHO (0.6%)
Idaho Housing Agency Single-Family Mortgage Series B 7.500% 7/1/24 (a)........................... 2,060 2,163
ILLINOIS (2.5%)
Chicago Skyway Toll Bridge Revenue (escrowed in U.S. Treasury securities, prerefunded to 1/1/04)
6.750% 1/1/17................................................................................ 1,500 1,710
Illinois Development Finance Authority
(Catholic Charities) 5.950% 1/1/09........................................................... 1,400 1,463
(Latin School of Chicago) 5.650% 8/1/28...................................................... 1,725 1,716
Illinois Health Facilities Authority Revenue
(United Medical Center, escrowed in U.S. Treasury securities, prerefunded to 7/1/03)
8.125% 7/1/06.............................................................................. 2,225 2,500
(Edward Hospital Association, escrowed in U.S. Treasury securities, prerefunded to 2/15/02)
7.000% 2/15/22 ............................................................................ 685 760
Illinois Housing Development Authority Multi-Family Housing Series C 7.400% 7/1/23.............. 140 146
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8,295
INDIANA (12.5%)
Hammond Sewer & Solid Waste Disposal Revenue (American Maize Products, gtd. by Eridania
Beghin-Say) 8.000% 12/1/24 (a)............................................................... 4,000 4,680
Indiana Health Facility Financing Authority Revenue (Metro Health/Indiana Project)
6.400% 12/1/33............................................................................... 1,500 1,489
Indiana State Development Finance Authority Revenue (Inland Steel Company) 5.750% 10/1/11....... 5,000 4,737
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 3,923
6.250% 11/1/16............................................................................... 950 1,014
Indianapolis Airport Authority Revenue Special Facilities
(Federal Express) 7.100% 1/15/17 (a)......................................................... 5,000 5,556
(United Airlines) 6.500% 11/15/31 (a)........................................................ 7,000 7,490
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 9,790
New Castle Economic Development Revenue
8.650% 4/1/17 (escrowed in U.S. Treasury securities, prerefunded to 4/1/99).................. 2,860 3,039
Zero Coupon (Yield to Maturity 10.855%) 3/1/18 (b)........................................... 30,655 77
-----------
41,795
IOWA (0.7%)
Iowa Housing Finance Authority (AMBAC Insured) Zero Coupon
(Yield to Maturity 10.262%) 9/1/16........................................................... 15,620 2,187
KANSAS (0.6%)
Wichita Revenue (CSJ Health System) 7.000% 11/15/18............................................. 2,000 2,158
LOUISIANA (2.2%)
De Soto Parish Environmental Improvement Revenue (International Paper) Series A
7.700% 11/1/18 (a)........................................................................... 2,500 2,881
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 2,611
(Progressive Healthcare Providers) 6.375% 10/1/28............................................ 2,000 1,952
-----------
7,444
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<CAPTION>
SR&F High-Yield Municipals Portfolio CONTINUED
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Principal Market
Amount Value
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<S> <C> <C>
MASSACHUSETTS (2.7%)
Massachusetts Bay Transportation Authority Series 92B 6.200% 3/1/16............................. $ 5,825 $ 6,713
Massachusetts State Health & Educational Facilities Authority Revenue (Dana Farber
Cancer Institute) 6.250% 12/1/22............................................................. 2,000 2,175
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8,888
MICHIGAN (0.5%)
Michigan Strategic Fund Limited Obligation Revenue (Imperial Holly) Series C
6.550% 11/1/25 (a)........................................................................... 1,500 1,504
MINNESOTA (0.4%)
Minneapolis Revenue (Walker Methodist Senior Services) Series C 6.000% 11/15/28................. 1,300 1,298
MISSISSIPPI (3.4%)
Adams County Hospital Revenue (Jefferson Davis Memorial Hospital, escrowed in
U.S. Treasury securities, prerefunded to 10/1/01) 7.900% 10/1/08............................. 750 846
Claiborne County PCR (System Energy Resources)
9.500% 12/1/13 .............................................................................. 600 626
7.300% 5/1/25................................................................................ 2,000 2,100
Lowndes County Solid Waste Disposal PCR (Weyerhaeuser Company) 6.800% 4/1/22.................... 5,995 7,329
Perry County PCR (Leaf River Forest Project, LOC Wachovia Bank) VRDB 5.100%..................... 400 400
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11,301
MISSOURI (1.6%)
Missouri Health & Educational Facilities Authority Health Facilities Revenue (Lutheran
Senior Services) 5.750% 2/1/17............................................................... 2,000 2,077
St. Louis Industrial Development Authority IDR (Kiel Center) 7.875% 12/1/24 (a)................. 3,000 3,285
-----------
5,362
MONTANA (0.3%)
Montana State Board of Housing Single-Family Mortgage
Series B-1 7.300% 10/1/17..................................................................... 375 393
Series B-2 7.500% 4/1/23 (a)................................................................. 415 435
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828
NEBRASKA (1.3%)
Nebraska Higher Education Loan Program Series A-6
Junior Subordinated (MBIA Insured) 6.450% 6/1/18 (a)......................................... 4,000 4,300
NEVADA (1.6%)
Clark County IDR (Nevada Power Company) Series A 5.900% 11/1/32 (a)............................. 3,000 3,030
Humboldt County PCR (Idaho Power Company) 8.300% 12/1/14........................................ 2,000 2,372
-----------
5,402
NEW JERSEY (3.6%)
New Jersey Economic Development Authority Revenue Series A
(Winchester Gardens Project, Marcus L. Ward Home) 8.625% 11/1/25............................. 5,000 5,756
(Kapkowski Road Landfill, NJ Metromall Urban Renewal) 6.375% 4/1/31.......................... 6,000 6,188
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11,944
NEW MEXICO (2.9%)
Farmington PCR
(Public Service Company of New Mexico) 6.300% 12/1/16........................................ 5,000 5,294
(Tucson Electric Power Company) 6.950% 10/1/20............................................... 2,000 2,232
(Arizona Public Service Company, LOC Barclays Bank) VRDB 5.100%.............................. 200 200
New Mexico Educational Assistance Foundation Student Loan Revenue Subordinated
Series A-2 6.650% 11/1/25 (a)................................................................ 1,955 2,099
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9,825
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<CAPTION>
SR&F High-Yield Municipals Portfolio CONTINUED
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Principal Market
Amount Value
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<S> <C> <C>
NEW YORK (4.3%)
New York City GO
Series B (FGIC Insured) VRDB 5.100%.......................................................... $ 300 $ 300
Series B 7.250% 8/15/07 ..................................................................... 1,000 1,200
Series G 5.750% 2/1/14 ...................................................................... 5,720 6,113
New York City Industrial Development Authority Special Facility Revenue (Terminal One
Group Association) 6.000% 1/1/15 (a)......................................................... 3,465 3,712
New York City Municipal Water Finance Authority Water & Sewer Systems Revenue
Series A VRDB 5.200%......................................................................... 800 800
Triborough Bridge & Tunnel Authority Revenue Series E 7.250% 1/1/10............................. 2,000 2,353
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14,478
NORTH CAROLINA (2.9%)
North Carolina Eastern Municipal Power Agency Revenue
Series A 6.500% 1/1/18 (escrowed in U.S. Treasury securities)................................. 3,320 3,980
Series A 6.500% 1/1/18........................................................................ 1,680 1,926
Series B 6.000% 1/1/26........................................................................ 3,500 3,819
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9,725
OHIO (4.9%)
Franklin County Hospital Revenue (Doctors OhioHealth Corporation) 5.600% 12/1/28................ 2,650 2,587
Greater Allen County Housing Development Corporation Revenue (Steiner-McBride Apartments)
10.250% 9/1/03............................................................................... 1,385 1,388
Montgomery County Health Care Facilities Revenue (Friendship Village of Dayton)
Series B 6.250% 2/1/22....................................................................... 5,250 5,322
Ohio State Water Development Authority Solid Waste Disposal Revenue (Bay Shore Power
Company) Series A 5.875% 9/1/20 (a).......................................................... 7,000 7,053
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16,350
PENNSYLVANIA (10.1%)
Allentown Area Hospital Authority Revenue (Sacred Heart Hospital) 7.500% 7/1/06................. 3,460 3,754
Beaver County Industrial Development Authority PCR (Toledo Edison Company) 7.625% 5/1/20........ 4,900 5,580
Dauphin County Industrial Development Authority Water Development Revenue (General
Waterworks Corporation) Series A 6.900% 6/1/24 (a)........................................... 3,200 3,972
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 3,504
Pennsylvania Economic Development Financing Authority Resource Recovery Revenue
(Northampton Generating)
Series B 6.750% 1/1/07 (a)................................................................. 3,000 3,263
Series A 6.500% 1/1/13 (a)................................................................. 2,000 2,120
Philadelphia Hospitals & Higher Education Facilities Authority Revenue (Temple University
Hospital) 5.875% 11/15/23.................................................................... 4,000 4,145
Philadelphia Municipal Authority Revenue Lease Series 1993D 6.250% 7/15/13...................... 2,500 2,669
Philadelphia Water & Sewer Revenue Tenth Series (escrowed in U.S. Treasury securities)
7.350% 9/1/04 (d)............................................................................ 4,085 4,626
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33,633
PUERTO RICO (1.7%)
Puerto Rico Highway & Transportation Authority
Series T 6.625% 7/1/18 (escrowed in U.S. Treasury securities, prerefunded to 7/1/02)......... 3,200 3,552
Series V 6.625% 7/1/12 ...................................................................... 2,000 2,185
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5,737
SOUTH DAKOTA (0.9%)
South Dakota Student Loan Assistance Corporation Series C (escrowed in U.S. Treasury securities)
7.450% 8/1/00 (a)............................................................................ 2,700 2,859
TENNESSEE (0.4%)
Metropolitan Government of Nashville & Davidson Counties Health and Educational Facilities
Board Revenue (The Blakeford at Green Hills) 5.650% 7/1/24................................... 1,500 1,474
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SR&F High-Yield Municipals Portfolio CONTINUED
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Principal Market
Amount Value
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<S> <C> <C>
TEXAS (6.9%)
Abilene Health Facilities Development Corporation Retirement Facilities Revenue (Sears Methodist
Retirement) Series A 5.900% 11/15/25......................................................... $ 2,100 $ 2,082
Alliance Airport Authority Special Facilities Revenue (American Airlines) 7.000% 12/1/11 (a).... 4,070 4,808
Brazos Higher Education Authority Subordinated Series C-2 5.875% 6/1/04 (a)..................... 835 851
Harris County Housing Finance Corporation Single-Family Mortgage Revenue 9.625% 3/15/03......... 171 172
Houston Airport System Revenue (Continental Airlines)
6.125% 7/15/17 (a)........................................................................... 4,000 4,165
6.125% 7/15/27 (a)........................................................................... 2,000 2,075
Port of Bay City Authority Matagorda County Revenue (Hoechst Celanese Corporation)
6.500% 5/1/26 (a)............................................................................ 3,000 3,300
Richardson Hospital Authority (Baylor/Richardson) 5.625% 12/1/28................................ 900 887
Texas City IDR (Atlantic Richfield Company) 7.375% 10/1/20...................................... 2,000 2,610
Texas Housing Agency Residential Development Revenue Series D 8.400% 1/1/21 (a)................. 255 264
Tyler Health Facilities Development Corporation (Mother Francis Hospital) Series A 5.625% 7/1/13 1,785 1,796
-----------
23,010
UTAH (0.2%)
Utah Housing Finance Agency Single-Family Mortgage
Series B-2 7.750% 1/1/23 (a)................................................................. 160 167
Series C-3 7.550% 7/1/23 (a)................................................................. 355 372
-----------
539
VIRGINIA (2.2%)
Pittsylvania County Industrial Development Authority Revenue (Multitrade of Pittsylvania
County L.P.) Series A
7.450% 1/1/09 (a).......................................................................... 3,500 3,846
7.550% 1/1/19 (a).......................................................................... 3,100 3,402
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7,248
WASHINGTON (4.1%)
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 2,580
Washington State Health Care Facilities Authority Revenue (Sacred Heart Medical Center)
6.875% 2/15/12............................................................................... 1,500 1,626
Washington State Housing Finance Commission Single-Family Mortgage Revenue Series C
(collateralized by GNMA/FNMA securities)
Zero Coupon (Yield to Maturity 7.750%) 1/1/22 (a).......................................... 1,455 271
Zero Coupon (Yield to Maturity 7.750%) 7/1/22 (a).......................................... 1,605 287
Zero Coupon (Yield to Maturity 7.750%) 1/1/23 (a).......................................... 1,605 277
Zero Coupon (Yield to Maturity 7.750%) 7/1/23 (a).......................................... 1,610 268
Zero Coupon (Yield to Maturity 7.750%) 1/1/24 (a).......................................... 1,615 258
Zero Coupon (Yield to Maturity 7.750%) 7/1/24 (a).......................................... 1,605 249
Washington State Public Power Supply System Nuclear Project No. 2 Revenue Series A
Zero Coupon (Yield to Maturity 6.888%) 7/1/07.............................................. 6,945 4,792
6.300% 7/1/12.............................................................................. 2,500 2,897
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13,505
WISCONSIN (1.2%)
Wisconsin State Health & Educational Facilities Authority Revenue
(Attic Angel Community) 5.750% 11/15/27...................................................... 1,250 1,222
(Clement Manor) 5.750% 8/15/24............................................................... 3,000 2,906
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4,128
WYOMING (0.1%)
Wyoming Community Development Authority Single-Family
Mortgage Series A 7.375% 6/1/17.............................................................. 180 189
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SR&F High-Yield Municipals Portfolio CONTINUED
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Market
Value
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<S> <C>
TOTAL MUNICIPAL SECURITIES
(Cost $304,861) (c)........................................................................... $329,486
OTHER ASSETS, LESS LIABILITIES (1.1%)............................................................ 3,621
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TOTAL NET ASSETS (100.0%)........................................................................ $333,107
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</TABLE>
(a) Security is subject to the federal alternative minimum tax. At
December 31, 1998, the market value of these securities represented
29.0% of total net assets.
(b) Issuer is in default of certain debt covenants. Income is not being accrued.
(c) At December 31, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$24,625, consisting of gross unrealized appreciation of $27,983 and gross
unrealized depreciation of $3,358. (d) Security was pledged to cover
margin requirements for open future contracts. The following contracts
were open at December 31, 1998:
<TABLE>
<CAPTION>
Number of Contract Unrealized
Type Position Contracts Value Expiration Gain
----- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
U.S. T-Bond Long 85 $10,861 3/99 $103
</TABLE>
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.
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Advisor High-Yield Municipals Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1998
(All amounts in thousands, except per-share amount)
(Unaudited)
ASSETS
<S> <C>
Investment in SR&F High-Yield Municipals Portfolio, at value.................................................... $ 2,452
Cash ........................................................................................................... 26
Other assets.................................................................................................... 9
---------
Total assets................................................................................................. 2,487
---------
LIABILITIES
Dividends payable............................................................................................... 11
Payable to investment adviser .................................................................................. 9
Accrued expenses payable........................................................................................ 12
---------
Total liabilities............................................................................................ 32
---------
Net assets................................................................................................... $ 2,455
=========
ANALYSIS OF NET ASSETS
Paid-in capital................................................................................................. $2,458
Net unrealized appreciation on investments...................................................................... 9
Accumulated net realized losses on investments ................................................................. (12)
---------
Net assets................................................................................................... $ 2,455
=========
Shares outstanding (unlimited number authorized)................................................................ 247
=========
Net asset value per share....................................................................................... $ 9.94
=========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Advisor High-Yield Municipals Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended December 31, 1998
(All amounts in thousands)
(Unaudited)
INVESTMENT INCOME
<S> <C>
Tax-exempt interest allocated from SR&F High-Yield Municipals Portfolio......................................... $ 59
---------
EXPENSES
Amortization of organization expenses........................................................................... 16
Accounting fees................................................................................................. 13
Audit and legal fees............................................................................................ 7
SEC and state registration fees................................................................................. 5
Expenses allocated from SR&F High-Yield Municipals Portfolio.................................................... 4
Printing and postage............................................................................................ 4
Transfer agent fees............................................................................................. 3
Trustees' fees.................................................................................................. 3
12b-1 distribution and service fees............................................................................. 2
Administrative fees............................................................................................. 1
Other........................................................................................................... 2
---------
Total expenses............................................................................................... 60
Reimbursement of expenses by investment adviser................................................................. (49)
---------
Net expenses................................................................................................. 11
---------
Net investment income........................................................................................ 48
---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized losses on
investments allocated from SR&F High-Yield
Municipals Portfolio......................................................................................... (10)
Change in unrealized appreciation or depreciation on investments................................................ 8
---------
Net losses on investments.................................................................................... (2)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................................ $ 46
=========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Advisor High Yield Municipals Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
(All amounts in thousands)
(Unaudited)
SIX MONTHS PERIOD
ENDED ENDED
DEC. 31, JUNE 30,
1998 1998 (a)
---------- ------------
OPERATIONS
<S> <C> <C>
Net investment income $ 48 $ 10
Net realized losses on investments (10) (2)
Net change in unrealized appreciation or depreciation on investments 8 1
-------------- -------------
Net increase in net assets resulting from operations 46 9
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income (48) (10)
-------------- -------------
SHARE TRANSACTIONS
Subscriptions to fund shares 1,622 1,078
Value of distributions reinvested 3 2
Redemptions of fund shares (197) (50)
-------------- -------------
Net increase from share transactions 1,428 1,030
-------------- -------------
Net increase in net assets 1,426 1,029
TOTAL NET ASSETS
Beginning of period 1,029 --
-------------- -------------
End of period $ 2,455 $ 1,029
============== =============
ANALYSES OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares 163 108
Redemptions of fund shares (19) (5)
-------------- -------------
Net increase in fund shares 144 103
-------------- -------------
Shares outstanding at beginning of period 103 --
-------------- -------------
Shares outstanding at end of period.............................................................. 247 103
============== =============
</TABLE>
(a)From commencement of operations on February 4, 1998.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SR&F High-Yield Municipals Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1998
(All amounts in thousands)
(Unaudited)
ASSETS
<S> <C>
Investments, at market value (cost $304,861).................................................................... $329,486
Accrued interest receivable..................................................................................... 6,132
Receivable for investments sold................................................................................. 785
Cash............................................................................................................ 343
-----------
Total assets................................................................................................. 336,746
-----------
LIABILITIES
Payable for investments purchased............................................................................... 3,528
Payable to investment adviser................................................................................... 102
Other liabilities............................................................................................... 9
-----------
Total liabilities............................................................................................ 3,639
-----------
Net assets applicable to investors' beneficial interests..................................................... $333,107
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SR&F High-Yield Municipals Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended December 31, 1998
(All amounts in thousands)
(Unaudited)
INVESTMENT INCOME
<S> <C>
Tax-exempt interest............................................................................................. $ 10,388
----------
EXPENSES
Management fees................................................................................................. 730
Audit and legal fees............................................................................................ 23
Accounting fees................................................................................................. 16
Trustees' fees.................................................................................................. 6
Other........................................................................................................... 3
----------
Total expenses............................................................................................... 778
----------
Net investment income........................................................................................ 9,610
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains on investments............................................................................... 1,334
Net change in unrealized appreciation or depreciation on investments............................................ (1,355)
----------
Net losses on investments ................................................................................... (21)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................................ $ 9,589
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SR&F High-Yield Municipals Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
(All amounts in thousands)
(Unaudited)
SIX MONTHS PERIOD
ENDED ENDED
DEC. 31, JUNE 30,
1998 1998 (a)
---------- ------------
OPERATIONS
<S> <C> <C>
Net investment income $ 9,610 $ 7,847
Net realized gains (losses) on investments 1,334 (214)
Net change in unrealized appreciation or depreciation on investments (1,355) (1,762)
------------- -------------
Net increase in net assets resulting from operations 9,589 5,871
------------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions 21,587 349,343
Withdrawals (41,235) (12,048)
------------- -------------
Net increase (decrease) from transactions in investors' beneficial interests (19,648) 337,295
------------- -------------
Net increase (decrease) in net assets (10,059) 343,166
TOTAL NET ASSETS
Beginning of period.............................................................................. 343,166 --
------------- -------------
End of period.................................................................................... $333,107 $343,166
============= =============
</TABLE>
(a)From commencement of operations on February 2, 1998.
See accompanying Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(All amounts in thousands)
NOTE 1. ORGANIZATION
Stein Roe Advisor High-Yield Municipals Fund (the "Fund") is a series of Stein
Roe Advisor Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust. The Fund invests substantially all
of its assets in SR&F High-Yield Municipals Portfolio (the "Portfolio"), which
seeks a high level of tax-free income by investing in long-term municipal
securities principally of medium and lower quality.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on February 2, 1998. At commencement,
Stein Roe High-Yield Municipals Fund contributed $335,711 in securities and
other assets in exchange for beneficial ownership of the Portfolio. At February
4, 1998, Advisor High-Yield Municipals Fund contributed $100 in securities and
other assets. The Portfolio allocates income, expenses, realized and unrealized
gains and losses to each investor on a daily basis, based on their respective
percentage of ownership. At December 31, 1998, Stein Roe High-Yield Municipals
Fund and Advisor High-Yield Municipals Fund owned 99.3% and 0.7%, respectively,
of the Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Fund and
Portfolio. 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 discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
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. At December
31, 1998, investments in these securities for SR&F High-Yield Municipals
Portfolio represented 1.0% of net assets.
INVESTMENT VALUATIONS
All securities are valued as of December 31, 1998. 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. Other securities and assets are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
FUTURES CONTRACTS
During the six months ended December 31, 1998, SR&F High-Yield Municipals
Portfolio entered into U.S. Treasury security futures contracts to either hedge
against expected declines in the value of its 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 the Portfolio seeks to close out a contract, and changes in the value of
the futures contract may not correlate with changes in the value of the
portfolio securities being hedged.
Upon entering into a futures contract, the Portfolio deposits with its
custodian cash or securities in an amount sufficient to meet the initial margin
requirements. Subsequent payments are made or received by the Portfolio equal to
the daily change in the contract value and are recorded as unrealized gains or
losses. The Portfolio recognizes a realized gain or loss when the contract is
closed or expires. See SR&F High-Yield Municipals Portfolio's portfolio of
investments for a summary of open futures contracts at December 31, 1998.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elects to
be taxed as a "regulated investment company" and makes distributions to its
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on their respective percentages of ownership.
DISTRIBUTION 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.
<PAGE>
Notes to Financial Statements CONTINUED
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO COMPOSITION
The Portfolio invests in municipal securities including, but not limited to,
general obligation bonds, revenue bonds and escrowed bonds (which are bonds that
have been refinanced, the proceeds of which have been invested in U.S.
government or agency obligations and set aside to pay off the original issue at
the first call date or maturity). Among the Portfolio's investments are
securities that are insured by private insurers who guarantee the payment of
principal and interest in the event of default. At December 31, 1998,
investments in these securities represented 2.0% of the Portfolio's net assets.
See the Portfolio's schedule of investments for additional information regarding
portfolio composition.
NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee to Stein Roe & Farnham Incorporated (the "Adviser"), an
indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), for its services as investment adviser
and manager.
The management fee for the Portfolio is computed at an annual rate of .45%
of the first $100 million of average daily net assets, .425% of the next $100
million, and .40% thereafter. The administrative fee for the Fund is computed at
an annual rate of .15% of the first $100 million of average daily net assets,
.125% of the next $100 million, and .10% thereafter.
The Adviser also provides fund accounting services.
The Adviser has agreed to reimburse the Fund to the extent that annual
expenses exceed 1.10% of average daily net assets. This expense limitation
expires on January 31, 2000, subject to earlier termination by the Adviser on 30
days notice.
Shares of the Fund are distributed by Liberty Funds Distributor, Inc. (the
"Distributor"), an indirect, wholly-owned subsidiary of Liberty. The trustees of
the Trust have adopted a plan of distribution and service pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Plan"). The Plan provides that,
as compensation for services and/or distribution, the Distributor receives from
the Fund a fee at an annual rate not to exceed 0.25% of average daily net
assets.
Transfer agent fees are paid to Liberty Funds Services, Inc., an indirect,
wholly-owned subsidiary of Liberty.
Certain officers and trustees of the Trust are also officers of the
Adviser. Compensation is paid to trustees not affliliated with the Adviser. No
remuneration was paid to any other trustee or officer of the Trust.
NOTE 5. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Fund and Portfolio maintain borrowing
arrangements under which they can borrow against portfolio securities. There
were no borrowings by either the Fund or the Portfolio during the six months
ended December 31, 1998.
NOTE 6. INVESTMENT TRANSACTIONS
The Portfolio's aggregate cost of purchases and proceeds from sales or
maturity of securities, excluding short-term obligations, for the six months
ended December 31, 1998, were $33,622 and $26,564, respectively.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Stein Roe Advisor High Yield Municipals Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
SIX MONTHS PERIOD
ENDED ENDED
DEC. 31, JUNE 30,
(UNAUDITED) 1998 (d)
--------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................................. $9.94 $10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................................................................... 0.25 0.20
Net realized and unrealized losse............................................................. -- (0.06)
-------- --------
Total from investment operations.............................................................. 0.25 0.14
-------- --------
DISTRIBUTIONS
Net investment income......................................................................... (0.25) (0.20)
-------- --------
NET ASSET VALUE, END OF PERIOD................................................................... $ 9.94 $ 9.94
======== ========
Ratio of net expenses to average net assets (a).................................................. 1.10% (c) 1.10%(c)
Ratio of net investment income to average net assets (b)......................................... 4.93% (c) 5.13%(c)
Total return (b)................................................................................. 2.57% 1.42%
Net assets, end of period (000's)................................................................ $2,455 $1,029
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this ratio would have been 6.11% for the six months ended
December 31, 1998 and 16.25% for the period ended June 30,1998.
(b)Computed giving effect to Adviser's expense limitation undertaking.
(c)Annualized
(d)From commencement of operations on February 4, 1998.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SR&F High Yield Municipals Portfolio
SIX MONTHS
ENDED PERIOD
DEC. 31, ENDED,
1998 JUNE 30,
SELECT RATIOS (UNAUDITED) 1998 (b)
---------------------------------
Ratio of net expenses to average net assets....................................................... 0.45% (a) 0.47% (a)
Ratio of net investment income to average net assets.............................................. 5.56% (a) 5.72% (a)
Portfolio turnover rate........................................................................... 8% 3%
(a)Annualized
(b)From commencement of operations on February 2, 1998.
</TABLE>
<PAGE>
Advisor 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
Loren A. Hansen, EXECUTIVE VICE PRESIDENT
Hans P. Ziegler, EXECUTIVE VICE PRESIDENT
Gary A. Anetsberger, SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
Kevin M. Carome, VICE PRESIDENT, ASSISTANT SECRETARY
Kevin Connaughton, VICE PRESIDENT
Timothy Jacoby, VICE PRESIDENT
Joanne T. Costopoulos, VICE PRESIDENT
Brian M. Hartford, VICE PRESIDENT
Gail Knudsen, VICE PRESIDENT
William C. Loring, VICE PRESIDENT
Lynn C. Maddox, VICE PRESIDENT
Maureen Newman, VICE PRESIDENT
Nicolette D. Parrish, VICE PRESIDENT, ASSISTANT SECRETARY
Veronica M. Wallace, VICE PRESIDENT
Heidi J. Walter, VICE PRESIDENT, SECRETARY
Sharon R. Robertson, CONTROLLER
Janet B. Rysz, ASSISTANT SECRETARY
Scott E. Volk, TREASURER
Margaret O. Zwick, ASSISTANT TREASURER
AGENTS AND ADVISERS
Stein Roe & Farnham Incorporated
INVESTMENT ADVISER
State Street Bank and Trust Company
CUSTODIAN
SteinRoe Services Inc.
TRANSFER AGENT
Bell, Boyd & Lloyd
LEGAL COUNSEL TO THE TRUST
Ernst & Young LLP
INDEPENDENT AUDITORS
<PAGE>
Stein Roe & Farnham
One South Wacker Drive
Chicago, IL 60606-1130
www.steinroe.com
Liberty Funds Distributor, Inc. 2/99
