Stein Roe Mutual Funds
ANNUAL REPORT
JUNE 30, 1997
Photo of: Various Bonds
Stein Roe Fixed Income Funds
TAX-EXEMPT BOND FUNDS
MUNICIPAL MONEY MARKET FUND
INTERMEDIATE MUNICIPALS FUND
MANAGED MUNICIPALS FUND
HIGH-YIELD MUNICIPALS FUND
LOGO:
STEIN ROE MUTUAL FUNDS
BUILDING WEALTH FOR GENERATIONS (SM)
<PAGE>
Contents
From the President................................................ 1
Tim Armour's thoughts on the markets and investing
Fund Performance.................................................. 3
How the Stein Roe tax-exempt bond funds have done over time
Q&A
Municipal Money Market Fund....................................... 6
Intermediate Municipals Fund ..................................... 10
Managed Municipals Fund .......................................... 14
High-Yield Municipals Fund ....................................... 17
Interviews with the portfolio managers and
a summary of investment activity
Investments....................................................... 21
A complete list of investments with market values
Financial Statements.............................................. 46
Balance sheets, statements of operations
and changes in net assets
Notes to Financial Statements..................................... 56
Financial Highlights.............................................. 62
Selected per-share data
Report of Independent Auditors ................................... 70
General Information............................................... 72
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
Photo of: Tim Armour
To Our Shareholders
We are pleased to present this annual report for the Stein Roe tax-exempt bond
funds -- Municipal Money Market Fund, Intermediate Municipals Fund, Managed
Municipals Fund and High-Yield Municipals Fund. In the following pages, we'll
provide you with an overview of the economic events that occurred over the past
year and explain how we positioned the funds to respond to these events.
Will the Real Economic Numbers Please Stand Up?
The past 12 months were an eventful period for the U.S. bond market, as
investors reacted nervously to the release of each economic report --
particularly the monthly employment report, which investors tend to use as a
gauge of U.S. economic strength. Despite some lingering concerns, however, it
finally seemed as if things were starting to look up for the bond market by
October of 1996.
In early December, however, the good news dried up. First, comments voiced by
ranking Federal Reserve officials left many bond traders once again fearing a
possible rate hike. Next, foreign buyers started to cut back on their purchases
of U.S. government securities, crimping liquidity and depriving the market of a
key source of demand. Finally, year-end trading sent the bond markets reeling,
as investors pushed a glut of fixed income issues onto the market, while
potential buyers -- figuring they had little to gain and a lot to lose by
venturing into a shaky market -- stood on the sidelines.
In the end, however, economic reports showed no discernible increase in
inflation and only a modest uptick in job growth, suggesting there was little,
if any, need for a rate hike. Federal Reserve Chairman Alan Greenspan echoed
this belief when he told the Senate Budget Committee that he saw few signs of
the "inflationary tensions" that had hampered past economic expansions. It
appeared that Greenspan's comments were enough to calm bond investors' fears. In
fact, many started to believe that economic growth would slow in 1997, helping
to resolve many of the conflicts that had plagued them in 1996.
Yet as the new year unfolded, that notion was quickly dispelled. A wide range
of indicators -- stronger-than-anticipated growth in durable goods orders and
personal income, a surprisingly resilient housing market and a 10-year high in
consumer confidence levels -- suggested the economy was actually gaining
momentum. Despite this strong economic growth, inflation remained relatively
tame as lower health care and benefits costs helped keep overall labor costs in
check and a stronger dollar helped make imported goods less expensive for U.S.
consumers. Nonetheless, many believed the overwhelming evidence of more robust
economic growth would force the Federal Reserve to raise interest rates in an
effort to preempt higher inflation going forward. As a result, few were
surprised when, in late March, the Federal Reserve raised the federal funds rate
- -- the rate large commercial banks charge one another for overnight loans --
from 5.25 percent to 5.50 percent.
<PAGE>
Although most reports now suggest that inflation is under control, we think
there may be some continued pressure on interest rates going forward. We do not,
however, expect rates to move sharply higher. That's because the "real" federal
funds rate -- the federal funds rate minus the rate of inflation -- is already
at a level that would typically discourage economic growth. So while we think
it's possible the Federal Reserve may raise interest rates again, we think the
economy will slow enough to quell any remaining inflationary pressures.
Consequently, we believe a strong case can be made for bonds. First, we
expect continued low inflation, accompanied by a potentially significant decline
in long-term interest rates. In addition, declining budget deficits, both here
and abroad, also could help create an extremely bullish backdrop for bonds. And
finally, as long as the Federal Reserve remains vigilant against the ghost of
inflation past, we think this backdrop will become even more powerful. The
Basics Although no one can predict what might happen to the markets in the
future, we believe investors must understand the factors that move the markets,
not just to profit from them, but to gain the patience to ride out short-term
volatility. As always, no matter what direction you think the economy is
heading, it's important to remember the basics. Think long term and reevaluate
your investment portfolio to make sure it continues to match your goals, risk
tolerance and time horizon.
Please call us at 800-338-2550 with your comments and suggestions. As always,
we look forward to serving your investment needs.
Sincerely,
Timothy K. Armour
President
July 30, 1997
<PAGE>
Fund Performance
There are several ways to evaluate a fund's historical performance. You can look
at the cumulative return percentage, the average annual return percentage 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
fixed income securities that have grown in value).
<TABLE>
Average Annual Total Returns
Periods ended June 30, 1997
<CAPTION>
PAST 1 PAST 3 PAST 5 PAST 10
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
Municipal Money Market Fund 3.04% 3.07% 2.61% 3.65%
Intermediate Municipals Fund 7.07 6.38 6.20 6.87
Lehman 10-Year
Municipal Bond Index 8.34 7.83 7.35 8.08
Lehman 7-Year
Municipal Bond Index 7.03 6.92 6.51 --
Managed Municipals Fund 8.56 7.30 6.42 7.91
High-Yield Municipals Fund 8.91 8.09 6.58 8.06
Lehman Municipal Bond Index 8.25 7.90 7.10 8.17
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. The Lehman 10-Year
Municipal Bond Index, the Lehman 7-Year Municipal Bond Index and the Lehman
Municipal Bond Index are unmanaged groups of fixed income securities that differ
from the composition of each Stein Roe fund; they are not available for direct
investment.
<PAGE>
Investment Comparison
Comparison of change in value of a $10,000 investment.
Intermediate Municipals Fund
LINE CHART:
YEAR ENDED INTERMEDIATE MUNICIPALS FUND LEHMAN 10-YEAR
MUNICIPAL BOND INDEX
6/30/87 10000 10000
6/30/88 10561 10691
6/30/89 11284 11719
6/30/90 12057 12552
6/30/91 13043 13712
6/30/92 14888 15265
6/30/93 15959 17186
6/30/94 16144 17356
6/30/95 17208 18879
6/30/96 18149 20084
6/30/97 19432 21759
Managed Municipals Fund
LINE CHART:
YEAR ENDED MANAGED MUNICIPALS FUND LEHMAN MUNICIPAL BOND INDEX
6/30/87 10000 10000
6/30/88 10754 10742
6/30/89 12119 11965
6/30/90 12864 12780
6/30/91 14011 13932
6/30/92 15685 15272
6/30/93 17877 17434
6/30/94 17827 17464
6/30/95 18561 19004
6/30/96 19719 20266
6/30/97 21407 21939
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. These graphs compare the performance of the funds to the Lehman 10-Year
Municipal Bond Index and the Lehman Municipal Bond Index, each an unmanaged
group of fixed income securities that differs from the composition of the funds;
they are not available for direct investment. Total return performance includes
changes in share price and reinvestment of income and capital gains
distributions.
<PAGE>
Investment Comparison
Comparison of change in value of a $10,000 investment.
High-Yield Municipals Fund
LINE CHART:
YEAR ENDED HIGH-YIELD MUNICIPALS FUND LEHMAN MUNICIPAL BOND INDEX
6/30/87 10000 10000
6/30/88 10866 10742
6/30/89 12364 11965
6/30/90 13302 12780
6/30/91 14471 13932
6/30/92 15775 15272
6/30/93 17017 17434
6/30/94 17180 17464
6/30/95 18647 19004
6/30/96 19921 20266
6/30/97 21696 21939
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. This graph compares the performance of the fund to the Lehman Municipal
Bond Index, an unmanaged group of fixed income securities that differs from the
composition of the Fund; it is not available for direct investment. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions.
<PAGE>
Q&A
An Interview with Veronica Wallace, Portfolio Manager
of SR&F Municipal Money Market Portfolio
Photo of: Veronica Wallace
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:
$118.4 million
Q: For the year ended June 30, 1997, how did the Fund perform?
A: With a 3.04 percent one-year return, Municipal Money Market Fund finished the
year slightly ahead of its Lipper tax-exempt money market fund peer group, which
posted a return of 2.99 percent. The Fund's seven-day current tax-exempt yield
was 3.43 percent on June 30, 1997, which is a tax-equivalent yield of 5.67
percent for an investor in the 39.6 percent tax bracket.
Q: What drove performance?
A: Our heavy weighting in variable rate demand notes (VRDNs) -- 70 percent of
total net assets on June 30, 1997 -- has contributed strongly to performance
during the year. Variable rate demand notes are a very short-term investment
option for money market funds. They are termed "variable rate" because their
rates -- which are reset either daily or weekly -- are free to move with current
interest rates. In a rising rate environment, VRDNs will tend to offer higher
yields; when rates are falling, their yields typically will be depressed.
Q: What made variable rate demand notes so attractive in the current
environment?
A: In April, tax-related redemptions forced dealers to offer higher yields on
VRDNs in order to move their inventories. Although rates on VRDNs typically dip
after this tax-related pressure eases, it was different this year as rates on
VRDNs remained attractive right through the end of the Fund's fiscal year, which
is almost unheard of unless it's year end or tax season.
We think there are a number of factors that are responsible for this. First,
the stock market continued to attract assets that normally would be directed to
money funds. What's more, there also seemed to be an increased supply of not
only VRDNs but also derivatives. Finally, the number of corporate investors
using short-term tax-exempt securities to handle their cash management needs
dropped dramatically over the past year. Because these investors help support
the short-term municipal market when tax-free money funds experience seasonal
cash outflows, the loss of even a few corporate investors can drastically change
the environment of the market. Together, these three elements contributed to
reduced demand for VRDNs, which helped keep yields on these securities higher
than normal.
<PAGE>
Q: Money market funds are extremely sensitive to changes in interest rates. How
has the Fund responded to the interest rate environment of the past year?
A: Any movement in short-term rates will have a roughly corresponding effect on
a money market fund's seven-day yield. With the consistently strong economic
reports we've seen all year long, money market investors have been in almost
continual expectation of a tightening move by the Federal Open-Market Committee
(FOMC) -- the committee that sets interest rate policy for the Federal Reserve.
When investors expect an interest rate hike, actual rates usually will rise
during the period just before an FOMC meeting. If the FOMC chooses not to make a
move, rates will generally fall back to their previous levels. That's exactly
what happened between August 1996 and March of this year, when the FOMC finally
raised the federal funds rate by one-quarter point.
As a result, our strategy during much of the past year was to maintain a
short to neutral position. On June 30, 1996, the Fund's average maturity was at
53 days. By March 31, 1997, it had fallen to 38 days.
By June 30, 1997, the Fund had returned to a more neutral maturity level of 53
days.
Q: Where are you finding opportunities now?
A: Despite minor fluctuations, rates have remained in a fairly tight trading
range for much of the year. As a result, we added some one-year notes, which
helped boost performance in the first two quarters of the Fund's fiscal year.
More recently, in April and May we found pockets of opportunity in tax-exempt
bonds with maturities of less than one year, and we added several to the
portfolio. In June, we selectively participated in the annual issuance of
one-year notes.
<PAGE>
Q: What are your expectations for coming months?
A: While some institutional investors already are speculating about whether the
FOMC will raise interest rates at its August meeting, we think there is just too
much volatility in the market to make such a call. As a result, we'll try to
maintain a more neutral maturity profile so that we're positioned to respond
regardless of what happens to interest rates.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. Portfolio holdings as of June 30, 1997; portfolio data subject to
change. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. Tax-equivalent yield is
shown for the 39.6 percent tax bracket, which applies to investors with incomes
higher than $271,050 per year. Tax-free income is exempt from federal taxes, but
may be subject to state and local taxes and federal alternative minimum tax. The
Adviser currently limits expenses to 0.70 percent of average net assets, subject
to termination upon 30 days' notice to the Fund. Absent past limits, the
seven-day current tax-free and tax-equivalent yields at June 30, 1997, would
have been 3.28 percent and 5.43 percent, respectively, and total return would
have been less. An investment in the Fund is neither insured nor guaranteed by
the U.S. government, and there is no assurance that the Fund will be able to
maintain its stable net asset value of $1 per share. According to Lipper
Analytical Services, Inc., an independent monitor of mutual fund performance,
the median returns for the Fund's tax-exempt money market fund peer group for
the one-, five- and 10-year periods ended June 30, 1997, were 2.99 percent, 2.63
percent and 3.71 percent, respectively.
<PAGE>
Portfolio Highlights
Municipal Money Market Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1996 JUNE 30, 1997
General Obligation 7.9% 5.0%
Revenue:
Industrial 17.6 17.0
Housing 8.7 12.0
Other Revenue 13.5 11.4
Utility 16.3 8.7
Steel/Metal 6.6 8.7
Hospital 5.6 5.6
Education -- 5.1
Chemical -- 5.0
Student Loan 2.1 3.5
Waste Disposal 1.6 2.1
Airport/Port 2.6 --
Oil 1.6 --
Escrowed 0.7 2.1
Other 15.2 13.8
- ------------------------------------------------------------------------
Total 100.0% 100.0%
PIE CHART:
Maturity
As of June 30, 1996 As of June 30, 1997
180-375 Days 10.4% 12.0%
90-179 Days 5.4% 4.7%
60-89 Days 4.4% 5.5%
30-59 Days 12.7% 4.4%
0-29 Days 67.1% 73.4%
<PAGE>
Q&A
An Interview with Joanne Costopoulos, Portfolio Manager
of Intermediate Municipals Fund
Photo of: Joanne Costopoulos
Fund Data
Investment Objective:
Seeks high current yield exempt from federal income tax, consistent with
capital preservation, through investments 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:
October 9, 1985
Total Net Assets:
$196.0 million
Q: How did the Fund perform?
A: For the fiscal year ended June 30, 1997, Stein Roe Intermediate Municipals
Fund's return was 7.07 percent, handily outpacing the 6.50 percent return of
both the Lipper intermediate municipal debt fund peer group and placing in the
peer group's top quartile (31 of 134 funds). The Fund's 30-day standardized
yield was 4.23 percent on June 30, 1997. That translates into a tax-equivalent
yield of 7.00 percent for an investor in the 39.6 percent tax bracket.
The Fund trailed the 8.34 percent return of the Lehman 10-year Municipal Bond
Index, primarily because the Fund customarily maintains a shorter duration,
shorter maturity and higher-quality portfolio than the Index. The Lehman 10-Year
Municipal Bond Index tends to have a maturity of eight to 12 years and a
duration that averages roughly seven. Because the Fund's average maturity tends
to center around eight years, we think it may be useful to compare the Fund to
an index that measures performance for a similar maturity profile, such as the
Lehman 7-Year Municipal Bond Index. Intermediate Municipals Fund's one-year
return compares more favorably with the 7.03 percent return of the Lehman 7-Year
Municipal Bond Index.
Q: What drove performance?
A: Taking advantage of the relatively stable interest rate environment during
the year, many issuers refinanced older debt. In fact, a number of our
longer-maturity holdings have been prerefunded to their first call dates. As a
high-quality fund, we like to hold on to these bonds because, once they are
prerefunded, they are escrowed in U.S. Treasuries, which helps insulate them
from any credit risks associated with the issuer. Consequently, the Fund's
overall credit quality improves, average maturity decreases and some price
appreciation occurs.
At roughly 80 percent of the portfolio, our holdings of noncallable bonds
also have done well. Unlike callable bonds, noncallable bonds cannot be retired
at the option of the issuer. For example, a longer-term bond that can be called
within a few years typically has the volatility of a short-term bond when
interest rates are down, and it has the volatility of a long-term bond when
interest rates are high. As an investor, however, you would want the reverse to
occur. But if you own a noncallable bond, its price typically is not negatively
affected in a lower interest rate environment. In other words, if you have two
similar bonds, but one has a five-year call feature and the second one is
noncallable, the noncallable bond generally will appreciate more in a lower-rate
environment, but both bonds typically will have almost the same downside in a
rising-rate environment.
<PAGE>
Q: What's the environment for municipal bonds now?
A: The market has been plagued by narrow credit spreads and a squeeze in the
number of new issues coming to market. As a result, it has been a challenge to
find attractive investment opportunities. You can reach for yield by buying
issues of lower credit quality, but that hasn't made sense to us because these
issues don't pay enough to compensate for the added risks they present.
In addition, we've avoided making a number of trades in the Fund to minimize
gains that would result in greater tax consequences for our investors.
Q: In the current market, demand for yield has taken on extra urgency. What
effect has this had on the Fund?
A: Lower-rated issues offer higher yield potential, and investors who would
normally avoid these lower-rated issues are showing an increasing amount of
interest in them. That increased demand worked to our advantage when our
holdings of credits at the lower end of the investment-grade scale appreciated.
Q: What are your expectations for the coming months?
A: If issuers take advantage of lower interest rates to refund old debt, supply
in the municipal market may increase. This could cause municipal securities to
trail their taxable counterparts in the near term. Because we currently hold
roughly 70 percent of the Fund's assets in AAA-rated securities, however, we
think we are positioned to take advantage of any widening in yield spreads.
<PAGE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. Portfolio holdings as of June 30, 1997; portfolio data subject to
change. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. Tax-equivalent yield is
shown for the 39.6 percent tax bracket, which applies to investors with incomes
higher than $271,050 per year. Tax-free income is exempt from federal taxes, but
may be subject to state and local taxes and federal alternative minimum tax.
Capital gains are subject to federal, state and local taxes. The Adviser
currently limits expenses to 0.70 percent of average net assets, subject to
termination upon 30 days' notice to the Fund. Absent past limits, the 30-day
standardized tax-free and tax-equivalent yields at June 30, 1997, would have
been 4.08 percent and 6.75 percent, respectively, and total return would have
been less. The Lehman 10-Year Municipal Bond Index and the Lehman 7-Year
Municipal Bond Index are unmanaged groups of intermediate-term municipal bonds
that differ from the composition of the Fund; they are not available for direct
investment. According to Lipper Analytical Services, Inc., an independent
monitor of mutual fund performance, the median returns for the Fund's
intermediate municipal fund peer group for the one-, five- and 10-year periods
ended June 30, 1997, were 6.50 percent, 5.86 percent and 6.83 percent,
respectively.
<PAGE>
Fund Highlights
Intermediate Municipals Fund
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1996 JUNE 30, 1997
General Obligation 27.2% 24.5%
Revenue:
Other Revenue 13.3 13.0
Water & Sewer 13.6 11.2
Hospital 6.6 7.8
Airport 5.6 5.9
Electric 8.0 5.8
Toll 4.4 4.0
Colleges, Universities -- 3.7
Student Loan 2.9 2.9
Solid Waste 4.1 2.3
Escrowed 7.0 12.1
Pollution Control 7.3 6.8
- -----------------------------------------------------------------
Total 100% 100%
PIE CHART:
Maturity
As of June 30, 1996 As of June 30, 1997
Greater than 15 Years 17.6% 19.3%
10-15 Years 13.4% 12.7%
5-10 Years 5.8% 2.9%
1-5 Years 13.2% 19.9%
Less than 1 Year 50.0% 45.2%
PIE CHART:
Portfolio Quality
As of June 30, 1996 As of June 30, 1997
AAA (63.9%) AAA (70.8%)
BBB and Below (6.3%) BBB and Below (8.0%)
A (16.2%) A (11.7%)
AA (13.6%) AA (9.5%)
<PAGE>
Q&A
An Interview with Jane McCart, Portfolio Manager
of Managed Municipals Fund and High-Yield Municipals Fund
Photo of: Jane McCart
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:
February 23, 1977
Total Net Assets:
$582.4 million
Managed Municipals Fund Q&A
Q: How has the Fund performed?
A: With an 8.56 percent return for the fiscal year ended June 30, 1997, Stein
Roe Managed Municipals Fund outpaced both the 7.85 percent return of the Lipper
general municipal debt peer group and the 8.25 percent return of the Lipper
Municipal Bond Index.
As of June 30, 1997, the Fund's 30-day standardized yield was 4.73 percent --
for an investor in the 39.6 percent tax bracket, that translates into a
tax-equivalent yield of 7.83 percent.
Q: What drove performance during the year?
A: Our noncallable holdings have been a major factor in the Fund's
performance. The price movement of noncallables is not obstructed by call
features and, as a result, they offer increased appreciation potential in a
strong market. Our credits rated A or below also did well during the year as
credit spreads continued to tighten.
Q: Throughout much of the Fund's fiscal year, investors speculated that the
Federal Reserve might raise interest rates. Given this environment, what was
your strategy?
A: We were cautious and, as a result, we concentrated on maintaining the Fund's
liquidity. Then, when the Federal Reserve finally raised the federal funds rate
in late March, we increased our cash position substantially -- to nearly 7
percent of total net assets by early in the second quarter of 1997. We
temporarily redeployed most of that cash to student loan and housing obligations
- -- more defensive issues -- midway through the second quarter because we
believed these securities offered both income potential and low price
volatility.
We've also kept the Fund's duration shorter than it has been in the recent
past. Our weighted average adjusted duration was 7.46 on June 30, 1997, compared
to 8.20 on June 30, 1996. Duration, which measures the Fund's sensitivity to
changes in interest rates, represents the approximate percentage change in share
price for a 100-basis-point change in market interest rates. Simply put, the
shorter a fund's duration, the less impact an interest rate move tends to have
on its performance.
<PAGE>
Q: Tight credit spreads and narrow trading ranges have plagued the municipal
markets since mid-1995. How has this affected your strategy?
A: There's been little opportunity for trading, and conditions have been further
hampered by the equity market's riveting performance, which has dramatically
slowed cash inflows into the municipal markets. As a result, we've continued to
focus on relative value trades in order to take advantage of any tightening in
yield spreads between securities of different credit quality.
During the first six months of the Fund's fiscal year, for instance, we
swapped out of current coupon bonds and into discount bonds, since we believed
discount bonds would perform well in the sort of environment we were
experiencing. That's because they trade at a discount to face value, which means
they tend to offer better appreciation potential than other bonds when interest
rates fall. In the second half of the Fund's fiscal year, however, we believed
the Federal Reserve might raise interest rates so we began trimming these issues
in anticipation of a possible tightening move.
Where possible, we also have focused on noncallable bonds. As of June 30,
1997, roughly 40 percent of the Fund was held in these issues. While that's a
big bet, in our opinion, it has been the right bet, since they give us the
potential to benefit when rates go down and provide us with protection when
rates go up. In an uncertain market, these characteristics look especially
attractive.
Finally, we're watching the electric utility market closely. As a result of
deregulation, we expect to find some values there.
Q: While there have been pockets of new issuance in the past year, supply hasn't
been plentiful. Why?
A: One reason could be the fact that the federal government is increasingly
shifting responsibilities to the states. At first glance, it might seem like
this trend would spur states to increase the number of new issues they issue. In
reality, however, that hasn't been the case. That's because special projects --
such as schools, roads, prisons or hospitals -- require voter approval, and, in
many instances, voters have been turning them down. Basically, voters appear to
be sending a message to their state governments -- they want their taxes
minimized. Nonetheless, as roads across the country fall into disrepair and the
children of the baby boomers reach school age, we think voters will start to
recognize the need for new projects, and, as a result, we think there eventually
will be an increase in new municipal issues.
Another reason supply has been low is that legislation has put a damper on
supply, as it has limited the types of projects that qualify for municipal
funding.
<PAGE>
Q: What's your outlook?
A: We believe the moves we made during the quarter, and the fact that we plan to
continue to hold a high percentage of noncallable issues, positions the Fund
well for slower economic growth and a less restrictive Federal Reserve monetary
policy. We're cautious about the low levels of rates being offered and the lack
of cash flow into the market. While we intend to maintain our cash allocation at
current levels, we may increase it if we see any inflationary pressure.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. Portfolio holdings as of June 30, 1997; portfolio data subject to
change. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. Tax-equivalent yield is
shown for the 39.6 percent tax bracket, which applies to investors with incomes
higher than $271,050 per year. Tax-free income is exempt from most federal
taxes, but may be subject to state and local taxes and federal alternative
minimum tax. Capital gains are subject to federal, state and local taxes. The
Lehman Municipal Bond Index is an unmanaged group of municipal bonds that
differs from the composition of the Fund; it is not available for direct
investment. According to Lipper Analytical Services, Inc., an independent
monitor of mutual fund performance, the median returns for the Fund's general
municipal debt fund peer group for the one-, five- and 10-year periods ended
June 30, 1997, were 7.85 percent, 6.50 percent and 7.82 percent, respectively.
<PAGE>
Q&A
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.
Fund Inception:
March 5, 1984
Total Net Assets:
$306.1 million
High-Yield Municipals Fund Q&A
Q: How did the Fund perform?
A: For the fiscal year ended June 30, 1997, High-Yield Municipals Fund's return
was 8.91 percent, topping the 8.31 percent return of both the Lipper high yield
municipal debt fund peer group and the 8.25 percent return of the Lehman
Municipal Bond Index.
The Fund's 30-day standardized yield was 5.10 percent on June 30. That
translates into a tax-equivalent yield of 8.45 percent for an investor in the
39.6 percent tax bracket.
Q: Overall, the Fund's performance against both the peer group and Index was
strong. What drove performance?
A: Early in the year, strong demand for high yield holdings helped drive the
high yield sector's performance and, with our emphasis on high yield bonds, the
Fund benefited accordingly.
Our airline holdings continue to do well, thanks to a strong economy,
increased passenger traffic -- especially in business travel -- and good cost
control. Solid demand means airlines are enjoying higher fares. We're bullish on
this sector, as we believe many carriers are stronger today than they have been
in the past. Our optimism recently was rewarded when one of our airline holdings
was upgraded.
Finally, the health care sector also helped drive performance, with solid
returns posted by some of our continuing care and hospital holdings.
<PAGE>
Q: It's been a quiet year in the muni cipal market. Where are you finding
attractive investment opportunities?
A: Credit spreads continue to be tight, with yields on longer bonds
unattractive. In addition, issuance in general was light. As a result, we didn't
have a lot of opportunities to change the portfolio's structure during the year.
Nonetheless, we remain interested in the electric utility industry. As a
result, we added some electric utility holdings during the past year.
Deregulation has caused some turmoil in this industry, but by carefully
searching for companies that either are successfully emerging from difficult
times or utilities that we believe are well positioned for deregulation, we
think we have uncovered some good opportunities.
Finally, we purchased a District of Columbia general obligation issue (2.3
percent of total net assets) because our analysts believe it is a good candidate
for upgrade.
Q: You have focused on the airline, health care and paper industries for some
time. Are these sectors still interesting to you?
A: Yes. We've continued to add to our holdings of airline- and health
care-related securities. We're more cautious about the U.S. paper industry,
however, since growing competition from overseas has caused paper prices to
fall. As a result, we continued to look for attractive paper company securities,
but we concentrated on locating higher-quality issues.
Q: What are your expectations for the coming months?
A: We think municipal insurance will continue to keep spreads tight, forcing
investors to look for yield in lower-rated issues. As a result, we think it
could be more difficult to find attractive investment opportunities.
Nonetheless, in spite of this anticipated squeeze in supply, we don't plan on
purchasing nonrated debt unless we think the potential yield justifies taking on
additional risks.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. Portfolio holdings as of June 30, 1997; portfolio data subject to
change. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. Taxable-equivalent yield
is shown for the 39.6 percent tax bracket, which applies to investors with
incomes higher than $271,050 per year. Tax-free income is exempt from federal
taxes, but may be subject to state and local taxes and federal alternative
minimum tax. Capital gains are subject to federal, state and local taxes. The
Lehman Municipal Bond Index is an unmanaged group of municipal bonds that
differs from the composition of the Fund; it is not available for direct
investment. According to Lipper Analytical Services, Inc., an independent
monitor of mutual fund performance, the median returns for the Fund's high-yield
municipal debt fund peer group for the one-, five- and 10-year periods ended
June 30, 1997, were 8.31 percent, 6.54 percent and 8.00 percent, respectively.
Investing in high yield bonds involves greater credit and other risks not
associated with investing in higher-quality securities.
<PAGE>
Fund Highlights
Managed Municipals Fund
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1996 JUNE 30, 1997
General Obligation 18.0% 17.1%
Pollution Control 16.2 14.0
Escrowed 9.0 11.9
Revenue:
Housing 11.9 13.3
Electric 10.1 10.0
Toll 7.5 7.7
Other Revenue 8.8 7.1
Water & Sewer 6.3 6.8
Hospital 6.0 5.4
Airport 3.3 3.6
Student Loan 2.9 3.1
- ----------------------------------------------------------
Total 100% 100%
PIE CHART:
Maturity
As of June 30, 1996 As of June 30, 1997
Greater than 25 Years 19.0% 14.8%
20-25 Years 17.4% 17.4%
15-20 Years 30.2% 26.6%
10-15 Years 17.5% 22.6%
5-10 Years 4.0% 7.3%
1-5 Years 8.0% 8.5%
Less than 1 Year 3.9% 2.8%
PIECHART:
Portfolio Quality
As of June 30, 1996 As of June 30, 1997
AAA (34.2%) AAA (36.9%)
AA (33.3%) AA (26.8%)
A (22.3%) A (25.9%)
BBB and Below (10.2%) BBB and Below (10.4%)
<PAGE>
Fund Highlights
High-Yield Municipals Fund
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1996 JUNE 30, 1997
Pollution Control 25.1% 22.5%
Escrowed 15.5 17.8
General Obligation 6.5 8.4
Revenue:
Housing 12.5 12.2
Other Revenue 12.2 11.8
Hospital 12.0 8.8
Electric 5.2 7.2
Toll 5.5 4.8
Airport 2.8 4.2
Student Loan 2.7 2.3
- ------------------------------------------------------------
Total 100% 100%
PIE CHART:
Maturity
As of June 30, 1996 As of June 30, 1997
Over 25 Years 27.8% 24.6%
20-25 Years 28.0% 22.9%
15-20 Years 15.4% 19.3%
10-15 Years 10.2% 10.0%
5-10 Years 8.4% 9.3%
1-5 Years 7.5% 10.2%
Less than 1 Year 2.7% 3.7%
Portfolio Quality
As of June 30, 1996 As of June 30, 1997
AAA (15.9%) AAA (18.0%)
AA (11.7%) AA (9.0%)
A (22.7%) A (22.3%)
BBB (24.8%) BBB (22.2%)
BB/B (4.5%) BB/B (10.4%)
NR* (20.4%) NR* (18.1%)
* Not Rated
<PAGE>
<TABLE>
SR&F Municipal Money Market Portfolio
Investments as of June 30, 1997
(Dollar Amounts In Thousands)
<CAPTION>
Principal Market
MUNICIPAL SECURITIES (103.8%) Amount Value
<S> <C> <C>
ARIZONA (0.9%)
*Maricopa County I.D.A. Multi-Family Housing Revenue
(Vista Ventana Apartments Project gtd. by Federal National
Mortgage Association) V.R.D.B. 4.250%............. $ 1,200 $ 1,200
ARKANSAS (4.7%)
*Arkansas Development Finance Authority Revenue Refunding
Series C (ADFA Guaranty Project) (AMBAC Insured)
3.950% 12/01/97................................... 185 185
*Clark County Solid Waste Disposal Revenue (Reynolds
Metals Co. Project L.O.C. SunTrust Company Bank)
V.R.D.B. 4.200%................................... 3,000 3,000
Paragould Sales Tax Revenue (AMBAC Insured)
4.750% 7/01/97.................................... 550 550
*Pulaski County Public Facilities Board (Chenel Park
Apartments Project L.O.C. PNC Bank, Kentucky)
V.R.D.B. 4.350%................................... 2,750 2,750
--------
6,485
CALIFORNIA (5.4%)
California School Cash Reserve Program Authority Pool Series A
(MBIA Insured) 4.750% 7/02/97..................... 2,000 2,000
(AMBAC Insured) 4.750% 7/02/98.................... 1,000 1,009
California Statewide Community Development Authority T.R.A.N.
Series A (FSA Insured) 4.500% 6/30/98............. 2,000 2,013
City of Orange I.D.A. I.D.R. Series A (Control Air Conditioning
Project L.O.C. California State Teachers Retirement Fund)
V.R.D.B. 4.350%................................... 1,000 1,000
Los Angeles County G.O. T.R.A.N. Series A 4.500% 6/30/98 1,000 1,006
Los Angeles Unified School District G.O. T.R.A.N. 1997-98
4.500% 7/01/98.................................... 500 503
------
7,531
COLORADO (0.5%)
Arvada Urban Renewal Authority Revenue Refunding Series A
(Arvada City Center) (MBIA Insured) 3.650% 9/01/97 705 705
DELAWARE (0.7%)
Delaware G.O. Revenue Refunding Series A 5.600% 8/15/97 1,000 1,002
DISTRICT OF COLUMBIA (0.8%)
District of Columbia Revenue (American University L.O.C.
National Westminster Bank) V.R.D.B. 4.200%........ 1,100 1,100
FLORIDA (2.2%)
*Collier County Housing Financial Authority (Saxon Manor Isles
Project L.O.C. PNC Bank, Kentucky) V.R.D.B. 4.400% 2,600 2,600
Port of St. Lucie Special Assessment Revenue (Assessment District
No. 1-Phase II) (MBIA Insured) 3.600% 10/01/97.... 500 500
--------
3,100
GEORGIA (2.0%)
*Gwinnett County Development Authority I.D.R. (Price Companies
Inc. Project L.O.C. NationsBank of Georgia)
V.R.D.B. 4.200%................................... 2,800 2,800
HAWAII (0.5%)
Hawaii Highway Revenue 3.850% 7/01/97................ 750 750
<PAGE>
<CAPTION>
SR&F Municipal Money Market Portfolio
CONTINUED Principal Market
Amount Value
<S> <C> <C>
IDAHO (0.7%)
Idaho T.A.N. 4.625% 6/30/98.......................... $ 1,000 $ 1,007
ILLINOIS (8.1%)
Chicago Revenue (De La Salle Institute Project L.O.C. Northern
Trust, Chicago) V.R.D.B. 4.250%................... 1,000 1,000
Chicago Tax Increment Refunding Allocation Series A (Stockyards
L.O.C. Northern Trust, Chicago) V.R.D.B. 4.250%... 1,500 1,500
Illinois Development Finance Authority (Rest Haven, Illinois L.O.C.
Federal Home Loan Bank and South Holland Trust & Savings)
V.R.D.B. 4.150%................................... 1,000 1,000
*Illinois Development Finance Authority Sewage Facilities Revenue
(Nutrasweet Co. Project gtd. by Monsanto Co.) V.R.D.B.
4.400%............................................ 4,100 4,100
Illinois Health Facility Authority Revenue (University of Chicago
Project) 3.550% Mandatory Put 7/02/97............. 1,500 1,500
*Illinois Student Assistance Student Loan Revenue Series 1996 A
(L.O.C. Bank of America of Illinois) V.R.D.B. 4.200% 1,900 1,900
*Southwestern Illinois Development Authority Solid Waste Disposal
Revenue (Wood River Project) (Shell Oil Co.)
V.R.D.B. 4.250%................................... 200 200
--------
11,200
INDIANA (6.5%)
*Crawfordsville Economic Development Revenue (Pedcor
Investments Shady Knoll L.O.C. Federal Home Loan Bank)
V.R.D.B. 4.250%................................... 1,575 1,575
Fort Wayne Hospital Authority Revenue (Parkview Memorial
Hospital L.O.C. Bank of America, Illinois) V.R.D.B. 4.150%
Series B........................................ 1,000 1,000
Series C........................................ 1,000 1,000
*Franklin Economic Development Revenue Refunding (Pedcor
Investments-Lakeview I Apartments Project Federal Home
Loan Bank, Indianapolis) V.R.D.B. 4.250%.......... 2,927 2,927
Gary Environmental Improvement Revenue (U.S. Steel Corp.
Project L.O.C. Bank of Nova Scotia) V.R.D.B. 4.100% 500 500
*LaPorte County Economic Development Revenue (Woodland
Project L.O.C. Federal Home Loan Bank) V.R.D.B. 4.250% 2,000 2,000
--------
9,002
IOWA (5.4%)
*Clinton I.D.R. (Sethness Products Project) V.R.D.B. 4.350% 2,500 2,500
Iowa Higher Education Loan Authority Revenue Refunding Series
1996 (Private College Facilities) (MBIA Insured)
4.250% 8/01/97.................................... 600 600
Iowa School Corporations Cash Anticipation Program Warrant
Certificates (FSA Insured)
Series 1996-97 B 4.250% 1/30/98................. 1,000 1,004
Series 1997-98 A 4.500% 6/26/98................. 3,000 3,020
Muscatine County P.C.R. (Monsanto Co. Project)
V.R.D.B. 4.250%................................... 400 400
--------
7,524
KENTUCKY (5.9%)
Clark County P.C.R. Series J-1 (Eastern Kentucky Power gtd. by
National Rural Utilities Cooperative Finance Corp.)
3.750% Optional Put 10/15/97...................... 1,010 1,010
*Covington I.D.R. Series 1991 (White Castle Distributing L.O.C.
Bank One, Columbus) V.R.D.B. 4.300%............... 3,685 3,685
<PAGE>
<CAPTION>
SR&F Municipal Money Market Portfolio
CONTINUED Principal Market
Amount Value
<S> <C> <C>
KENTUCKY (CONTINUED)
Kentucky Economic Development Finance Authority Hospital
Facilities Revenue (Baptist Healthcare System L.O.C. Canadian
Imperial Bank) V.R.D.B. 4.100%.................... $ 500 $ 500
*Pulaski County Solid Waste Disposal Revenue Series B (East
Kentucky Power Corp. gtd. by National Rural Utilities
Cooperative Finance Corp.) 3.550% Optional Put 8/15/97 1,100 1,100
*Shelby County Industrial Building Revenue (Roll Forming Corp.
L.O.C. Bank One of Kentucky) V.R.D.B. 4.300%...... 1,865 1,865
-------
8,160
LOUISIANA (1.0%)
Lake Charles Harbor & Terminal District Port Facilities Revenue
(Conoco Inc. gtd. by E.I. Dupont) V.R.D.B. 4.100%. 400 400
City of Shreveport G.O. (MBIA Insured) 8.000% 6/01/98 685 709
St. Mary Parish Consolidated School District No. 1 (FSA Insured)
10.000% 3/01/98................................... 345 358
-------
1,467
MASSACHUSETTS (0.9%)
Massachusetts Industrial Finance Agency Revenue Series A
(Babson College)(MBIA Insured) 3.750% 10/01/97.... 250 250
Massachusetts Water Reserve Authority (Morgan Guaranty)
3.750% 9/30/97.................................... 1,000 1,000
-------
1,250
MICHIGAN (3.6%)
Detroit City School District Aid Notes 4.500% 5/01/98 2,000 2,010
Michigan Job Development Authority P.C.R. Series 1985 (Mazda
Motor Manufacturing USA Corp. L.O.C. Sumitomo Bank, Ltd.)
V.R.D.B. 4.375%................................... 3,000 3,000
-------
5,010
MINNESOTA (0.7%)
*Minnesota Housing Finance Authority Single Family Mortgage
Series J 3.650% Mandatory Put 12/11/97............ 1,000 1,000
MISSISSIPPI (0.3%)
Mississippi State University Educational Building Corporation
Revenue (MBIA Insured) 3.700% 8/01/97............. 350 350
MISSOURI (4.2%)
Clay County G.O. (FSA Insured) 4.000% 3/1/98......... 1,645 1,645
*Jefferson County I.D.A. Revenue Series A (GHF Holdings LLC
Project L.O.C. Bank One, Indianapolis) V.R.D.B. 4.300% 4,185 4,185
-------
5,830
NEBRASKA (0.3%)
Omaha G.O. 6.700% 12/01/97........................... 350 354
NEW HAMPSHIRE (4.0%)
New Hampshire Business Finance Authority P.C.R. Series 1992 D
(Public Service Company Project L.O.C. Barclays Bank PLC)
V.R.D.B. 4.300%................................... 600 600
New Hampshire Capital Improvement Boards Series B
5.450% 11/01/97................................... 500 503
<PAGE>
<CAPTION>
SR&F Municipal Money Market Portfolio
CONTINUED Principal Market
Amount Value
<S> <C> <C>
NEW HAMPSHIRE (CONTINUED)
*New Hampshire Industrial Development P.C.R. (New England
Power Co.)
3.650% Mandatory Put 7/10/97.................... $ 1,500 $ 1,500
3.850% Mandatory Put 7/10/97.................... 450 450
3.850% Mandatory Put 8/22/97.................... 1,500 1,500
3.850% Mandatory Put 9/25/97.................... 1,000 1,000
--------
5,553
NEW YORK (1.0%)
New York Medical Care Facilities Finance Agency Revenue
(Escrowed in U.S. Treasury Securities) (pre-refunded to
8/15/97) 8.875%................................... 1,350 1,385
NORTH DAKOTA (0.7%)
*Mercer County Solid Waste Disposal Revenue Series 1993 U (gtd.
by National Rural Utilities Cooperative Finance Corp.)
3.800% Optional Put 12/01/97...................... 1,000 1,000
OHIO (0.7%)
Cuyahoga County Hospital Revenue (Metrohealth Systems)
(MBIA Insured) 5.000% 2/15/98..................... 510 514
Ohio Environmental Improvement Revenue (U.S. Steel Corp.
Project L.O.C. Pittsburgh National Bank) V.R.D.B. 3.900% 400 400
--------
914
OKLAHOMA (1.1%)
Lawton Water Authority Sales Tax & Utility System Revenue
(AMBAC Insured) 5.375% 7/01/97.................... 1,585 1,585
OREGON (0.7%)
Eugene Electric Utilities Revenue (FSA Insured)
4.000% 8/01/97.................................... 420 420
Salem Water & Sewage Revenue (FGIC Insured) 4.000% 5/01/98 540 540
--------
960
PENNSYLVANIA (4.1%)
*Pennsylvania Higher Education Assistance Agency Student Loan
Revenue Series A (L.O.C. Student Loan Marketing Association)
V.R.D.B. 4.250%................................... 2,000 2,000
Philadelphia Redevelopment Authority Notes Series 1996 (Southwark
Plaza Project) (FGIC Insured) 3.850% 12/30/97..... 1,500 1,500
Quakertown General Authority Revenue Series 1996A (L.O.C. PNC
Bank, N.A.) V.R.D.B. 4.250%....................... 2,200 2,200
--------
5,700
SOUTH CAROLINA (2.2%)
*South Carolina Jobs Economic Development Authority Hospital
Facilities Revenue (Specialty Equipment Companies L.O.C.
Bank of America, Illinois) V.R.D.B. 4.300%........ 3,000 3,000
SOUTH DAKOTA (0.7%)
Yankton I.D.R. (Alumax Project L.O.C. Bank of America,
NT & SA) V.R.D.B. 4.100%.......................... 1,000 1,000
TENNESSEE (3.6%)
*McMinn County Industrial Development Board I.D.R. (Creative
Fabrication Corp. L.O.C. NBD Bank) V.R.D.B. 4.200% 3,700 3,700
<PAGE>
<CAPTION>
SR&F Municipal Money Market Portfolio
CONTINUED Principal Market
Amount Value
<S> <C> <C>
TENNESSEE (CONTINUED)
Metropolitan Government Nashville & Davidson County Health &
Educational Facilities Board Revenue Series 1993 (Richland Place
Inc. Project L.O.C. Societe Generale) V.R.D.B. 4.200% $ 1,300 $ 1,300
--------
5,000
TEXAS (9.1%)
*Gulf Coast Waste Disposal Authority (Amoco Oil Co. Project gtd.
by Amoco Corp.) V.R.D.B. 4.300%
Series 1994..................................... 700 700
Series 1996..................................... 200 200
Harlandale Independent School District Refunding (gtd. by PSF)
4.000% 2/01/98.................................... 450 450
*Harris County Industrial Development Corp. I.D.R. (Precision
General Inc. Project L.O.C. Morgan Guaranty Trust)
V.R.D.B. 4.300%................................... 2,060 2,060
*North Texas Higher Education Authority Student Loan Revenue
Refunding Series A (L.O.C. Student Loan Marketing Association)
V.R.D.B. 4.250%................................... 1,100 1,100
*Robertson County Industrial Development Corp. Series 1995
(Sanderson Farms Inc. Project L.O.C. Harris Trust and Savings
Bank) V.R.D.B. 4.350%............................. 1,900 1,900
Texas State T.R.A.N. Series 1996 4.750% 8/29/97...... 5,000 5,006
Tyler G.O. (Escrowed in U.S. Treasury Securities)
8.500% 9/01/97.................................... 1,200 1,209
--------
12,625
VERMONT (2.9%)
*Vermont I.D.A. Revenue (RyeGate Wood Energy Co. Project L.O.C.
ABN AMRO Bank, N.V.) V.R.D.B. 4.300%.............. 4,000 4,000
VIRGINIA (0.7%)
Bedford County I.D.A. I.D.R. Refunding (Nekoosa Packaging Project
L.O.C. Canadian Imperial Bank) V.R.D.B. 4.200%.... 1,000 1,000
WASHINGTON (3.1%)
*Washington Multi-family Housing Finance Commission Revenue
Series A (Hamilton Place Project L.O.C. U.S. Bank of
Washington) V.R.D.B. 4.300%....................... 1,140 1,140
*Yakima County Public Corp. I.D.R. (John I. Haas Inc. Project
L.O.C. Bayerische Vereinsbank AG) V.R.D.B. 4.400%. 3,150 3,150
--------
4,290
WISCONSIN (13.9%)
*Carlton P.C.R. Series 1988 (Wisconsin Power & Light Co.)
V.R.D.B. 4.300%................................... 6,500 6,500
*Fond Du Lac I.D.R. (Brenner Tank Inc. L.O.C. Bank One,
Milwaukee) V.R.D.B. 4.300%........................ 3,400 3,400
*Holland I.D.R. (White Clover Dairy Inc. Project L.O.C. Bank One,
Milwaukee) V.R.D.B. 4.300%........................ 2,600 2,600
*Kenosha I.D.R. (Monarch Plastics Inc. L.O.C. Bank One,
Milwaukee) V.R.D.B. 4.300%........................ 2,260 2,260
Milwaukee County G.O. Series A (AMBAC Insured)
5.000% 10/01/97................................... 500 502
*Oak Creek I.D.R. Series 1995 (McAdams Graphics Inc. L.O.C.
Bank One, Milwaukee) V.R.D.B. 4.300%.............. 1,800 1,800
<PAGE>
<CAPTION>
SR&F Municipal Money Market Portfolio
CONTINUED Principal Market
Amount Value
<S> <C> <C>
WISCONSIN (CONTINUED)
Wisconsin State Health Facility Authority Revenue Series A-2
(Franciscan Health Care L.O.C. Toronto Dominion Bank)
V.R.D.B. 4.150%................................... $ 1,700 $ 1,700
Wisconsin State Health & Educational Facilities Authority Revenue
Series A (United Health Group, Inc.) (AMBAC Insured)
4.000% 12/15/97................................... 550 550
--------
19,312
- -------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES (103.8%)
(Amortized cost $144,151)..................................... 144,151
OTHER ASSETS, LESS LIABILITIES (-3.8%)............................ (5,223)
--------
TOTAL NET ASSETS (100.0%)......................................... $138,928
========
- -------------------------------------------------------------------------------
<FN>
* These securities are subject to federal alternative minimum tax. At June 30,
1997, these securities represented 60.8 percent of net assets.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Intermediate Municipals Fund
Investments as of June 30, 1997
(Dollar Amounts In Thousands)
<CAPTION>
Principal Market
MUNICIPAL SECURITIES (98.9%) Amount Value
<S> <C> <C>
ALASKA (1.4%)
Kenai Peninsula Borough G.O. Refunding (AMBAC Insured)
8.300% 1/01/99.................................... $ 1,500 $ 1,589
North Slope Borough G.O. 8.350% 6/30/98.............. 1,200 1,248
--------
2,837
ARIZONA (7.0%)
Arizona Transportation Board Highway Revenue Subordinated
Series A 6.000% 7/01/00........................... 1,000 1,045
Cochise County Unified School District No. 68 Series B (FGIC
Insured) 9.000% 7/01/01........................... 1,115 1,303
Maricopa County Hospital Revenue (Samaritan Health Services)
(Escrowed in U.S. Treasury Securities) 7.625% 1/01/08 2,050 2,384
Maricopa County Unified High School District
6.250% 7/01/06 District No. 97 Deer Valley Series A
(MBIA Insured).................................. 1,750 1,937
7.000% 7/01/08 District No. 213 Tempe (FGIC insured) 500 585
Phoenix Civic Improvement Wastewater System Lease Revenue
(Escrowed in U.S. Treasury Securities)(pre-refunded to 7/01/03)
6.000% 7/01/07.................................... 2,500 2,725
Pima County Refunding G.O. 6.300% 7/01/02............ 2,500 2,692
Scottsdale Industrial Development Authority Hospital Revenue
Refunding Series A (Scottsdale Memorial Hospitals)(AMBAC
Insured) 6.500% 9/01/04........................... 1,000 1,104
--------
13,775
ARKANSAS (1.4%)
Beaver Water District Benton & Washington Counties Water
Revenue Refunding (MBIA Insured) 6.000% 11/15/04.. 2,580 2,795
CALIFORNIA (7.1%)
California Education Facility University of San Francisco (MBIA
Insured) 5.600% 10/01/10.......................... 1,000 1,048
*California Housing Finance Agency Revenue Home Mortgage
Series B-1 5.900% 2/01/04......................... 960 993
California Statewide Communities Development Authority
(Cedars-Sinai Medical Center) 5.400% 11/01/15..... 2,000 1,892
Central Coast Water Authority Revenue (AMBAC Insured)
(Escrowed in U.S. Treasury Securities)(pre-refunded to 10/01/02)
5.950% 10/01/03................................... 2,000 2,175
East Bay Municipal Utility District Water System Revenue (Escrowed
in U.S. Treasury Securities)(AMBAC Insured)
7.000% 6/01/00.................................... 1,400 1,506
La Quinta California Redevelopment Agency Tax Allocation
(MBIA Insured) 7.300% 9/01/09..................... 750 902
Los Angeles County Public Water Works Authority (Regional Parks
And Open Space Revenue) 5.800% 10/01/05........... 1,500 1,600
Los Angeles County Tax & Revenue Anticipation Note
Series A 4.500% 6/30/98........................... 1,000 1,006
Oakland Unified School District G.O. Series A (FGIC Insured)
Zero Coupon (Effective Yield 6.250%) 8/01/16...... 1,700 546
Vallejo Revenue Series B (Water Improvement Project)(FGIC Insured)
(Escrowed in U.S. Treasury Securities) 6.000% 11/01/01 2,030 2,168
--------
13,836
<PAGE>
<CAPTION>
Intermediate Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
COLORADO (0.3%)
Adams County School District No 12 Series A (MBIA Insured)
Zero Coupon (Effective Yield 5.850%) 12/15/12..... $ 1,300 $ 569
DELAWARE (0.7%)
Delaware Economic Development Authority Water Development
Revenue Refunding (General Waterworks Corp.-Wilmington
Suburban Water Corp.) 6.450% 12/01/07............. 1,165 1,295
GEORGIA (8.3%)
Atlanta Airport Facility Revenue Series 1996 (AMBAC Insured)
6.500% 1/01/07.................................... 5,000 5,603
Fulton County Water & Sewer Revenue Refunding (FGIC Insured)
5.625% 1/01/01.................................... 1,000 1,038
Georgia G.O. Series C 7.700% 4/01/00
7.700% 4/01/00 Series C........................... 1,250 1,358
6.250% 4/01/07 Series A........................... 2,000 2,226
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue
Refunding (AMBAC Insured)
6.050% 7/01/01.................................. 1,600 1,690
5.800% 7/01/02.................................. 1,000 1,055
Municipal Electric Authority of Georgia Special Obligation Fifth
Crossover Series (AMBAC Insured) 6.400% 1/01/13... 3,000 3,345
--------
16,315
HAWAII (2.8%)
*Hawaii Department of Budget & Finance Special Purpose
Mortgage Revenue (Hawaiian Electric Co.)(MBIA Insured)
7.375% 12/01/20................................... 4,000 4,357
Honolulu (City & County) Refunding G.O. Series 1990 A
7.350% 7/01/06.................................... 1,000 1,178
--------
5,535
ILLINOIS (6.7%)
Chicago Board of Education (MBIA Insured) 6.250% 12/01/12 2,100 2,303
*Chicago Midway Airport Revenue Series A (MBIA Insured)
5.700% 1/01/04.................................... 1,000 1,039
Chicago Skyway Toll Bridge Revenue Refunding Series 1994
(Escrowed in U.S. Treasury Securities)(pre-refunded to 1/01/04)
6.750% 1/01/17.................................... 1,500 1,687
Chicago Water Revenue Refunding (FGIC Insured)
6.500% 11/01/09................................... 2,130 2,383
DuPage County Special Service Area No. 11 Refunding
6.750% 1/01/14.................................... 1,220 1,315
Metropolitan Pier & Exposition Authority Dedicated State Tax
Revenue Series 1992 A (McCormick Place Expansion Project)
7.250% 6/15/05................................... 2,750 3,160
*Southwestern Illinois Development Authority Solid Waste Disposal
Revenue (Shell Oil Co.) V.R.D.B. 4.250%........... 1,300 1,300
--------
13,187
INDIANA (4.6%)
Indiana Toll Road Commission Toll Road Revenue (Escrowed in U.S.
Treasury Securities) 9.000% 1/01/15............... 2,240 3,108
Indiana Transportation Finance Authority Airport Facilities Lease
Revenue Series A
5.600% 11/01/99................................. 1,125 1,155
6.500% 11/01/07................................. 1,040 1,127
6.500% 11/01/07 (Escrowed in U.S. Treasury Securities) 1,210 1,339
<PAGE>
<CAPTION>
Intermediate Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
INDIANA (CONTINUED)
Indianapolis Local Public Improvement Bond Bank Series 1992 D
6.500% 2/01/06.................................... $ 2,100 $ 2,321
--------
9,050
KENTUCKY (1.3%)
Kentucky Turnpike Authority Economic Development Revenue
Refunding (Revitalization Projects) 5.800% 1/01/04 2,500 2,629
LOUISIANA (2.5%)
*Calcasieu Parish Industrial Development Board (Citgo Petroleum
Corp.) V.R.D.B. 4.300%............................ 100 100
Louisiana Public Facilities Authority Student Loan
Revenue Series A-1 5.900% 9/01/99................. 2,000 2,053
Orleans Levee District Series A (FSA Insured)
5.950% 11/01/07................................... 2,200 2,346
* St. Charles Parish P.C.R. (Shell Oil Co.)
V.R.D.B 4.250% Series A........................... 100 100
V.R.D.B 4.250% Norco Project...................... 300 300
-------
4,899
MAINE (0.4%)
*Maine Educational Loan Authority Educational Loan Revenue
Supplemental Education Loan Series A-2 6.650% 12/01/02 680 726
MASSACHUSETTS (2.2%)
Massachusetts Bay Transportation Authority Mass Refunding
General Transportation System Series A 7.000% 3/01/07 2,250 2,603
Massachusetts Health and Educational Facilities Authority Revenue
(Daughters of Charity Carney Hospital)
7.250% 7/01/00 Series C......................... 600 632
6.000% 7/01/09 Series D......................... 1,000 1,037
-------
4,272
MICHIGAN (4.6%)
Greater Detroit Resource Authority Revenue (AMBAC Insured)
6.250% 12/13/05................................... 2,000 2,184
Michigan Hospital Finance Authority Revenue (Daughters of Charity
Providence Hospital) 6.500% 11/01/01.............. 1,380 1,480
Michigan Underground Storage Tank Revenue (AMBAC Insured)
6.000% 5/01/05.................................... 5,000 5,384
-------
9,048
MISSOURI (0.5%)
Missouri Regional Convention & Sports Complex Authority
6.600% 8/15/03.................................... 830 904
NEVADA (0.8%)
*Clark County P.C.R. Series 1990 A (Southern California Edison Co.)
7.125% 6/01/09.................................... 1,500 1,609
NEW JERSEY (2.6%)
Bergen County Utility Authority Solid Waste System Revenue
Refunding Series A (FGIC Insured) 6.250% 6/15/06.. 2,000 2,205
New Jersey Health Care Facilities Finance Authority Revenue
6.100% 7/01/01 (Hackensack Medical Center) (FGIC
Insured).......................................... 1,000 1,058
7.000% 7/01/03 (Christ Hospital Group)(Connie
Lee Insured)...................................... 1,730 1,930
-------
5,193
<PAGE>
<CAPTION>
Intermediate Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
NEW MEXICO (2.5%)
Gallup P.C.R. (Plains Electric Transmission & Generating
Cooperative Inc.)(MBIA Insured) 6.100% 8/15/02.... $ 2,000 $ 2,137
Santa Fe Gross Receipts Tax Revenue Series A (AMBAC Insured)
6.500% 6/01/06.................................... 2,555 2,846
--------
4,983
NEW YORK (11.1%)
New York City G.O.
5.700% 2/1/06 Series 1996 C....................... 1,000 1,026
6.125% 8/01/11 Series 1997 J...................... 5,000 5,191
7.125% 8/15/11 Series 1995 C...................... 1,560 1,679
6.000% 8/01/17 Series 1997 H...................... 2,000 2,018
New York City Water & Sewer System Revenue Series A
7.000% 6/15/09.................................... 2,115 2,306
New York Dormitory Authority Revenue Series A
6.500% 5/15/05 (State University Educational Facilities) 1,000 1,087
5.625% 7/01/16 (City University System)........... 5,000 5,132
New York Environmental Facility Corp. P.C.R. State Water Series D
6.300% 5/15/05.................................... 3,000 3,296
--------
21,735
NORTH CAROLINA (2.4%)
North Carolina Eastern Municipal Power Refunding Series B
6.000% 1/01/05.................................... 3,000 3,106
North Carolina Municipal Power Agency No. 1 Catawba Electric
Revenue Refunding (MBIA Insured) 5.900% 1/01/03... 1,500 1,588
--------
4,694
OHIO (2.3%)
Columbus G.O. Sewer Improvement No. 26 6.750% 9/15/04 1,000 1,081
Loveland School District G.O. (MBIA Insured)
7.100% 12/01/09................................... 3,000 3,396
--------
4,477
OREGON (2.0%)
Oregon Department of Transportation Revenue (MBIA Insured)
5.700% 6/01/02.................................... 1,220 1,284
Portland Sewer System Revenue Refunding Series B (FGIC Insured)
5.400% 4/01/02.................................... 2,500 2,595
-------
3,879
PENNSYLVANIA (0.9%)
Dauphin County Hospital Authority Revenue Refunding Series B
(Hapsco Group Inc.)(MBIA Insured) 5.800% 7/01/02.. 1,600 1,685
SOUTH CAROLINA (4.0%)
*Berkeley County Facility Industrial Revenue (Amoco Chemical Co.
Project) V.R.D.B. 4.300%.......................... 1,900 1,900
Piedmont Municipal Power Agency Electric Revenue (FGIC Insured)
6.125% 1/01/07.................................... 2,350 2,556
*South Carolina Ports Authority Revenue (AMBAC Insured)
6.200% 7/01/01.................................... 1,000 1,058
Sumter County Hospital Facilities Revenue Refunding (Tuomey
Regional Medical Center)(MBIA Insured) 6.625% 11/15/04 2,000 2,232
--------
7,746
TENNESSEE (2.6%)
Knox County Health Educational & Housing Facilities Board
(Connie Lee Insured) 5.500% 4/15/11............... 2,000 2,001
<PAGE>
<CAPTION>
Intermediate Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
TENNESSEE (CONTINUED)
Metropolitan Nashville & Davidson County Water & Sewer
Revenue (FGIC Insured) 6.500% 1/01/10............. $ 2,750 $ 3,094
--------
5,095
TEXAS (12.3%)
Alief Independent School District G.O. (gtd. by Permanent School
Fund) 8.000% 2/15/99.............................. 1,305 1,384
Dallas-Fort Worth Regional Airport Revenue Series A (MBIA Insured)
5.500% 11/01/04................................... 2,400 2,504
Fort Bend Independent School District Unlimited Tax (gtd. by
Permanent School Fund) 7.500% 2/15/00............. 1,010 1,088
Fort Worth Limited Tax 8.350% 3/01/00................ 1,250 1,371
Houston Water Conveyance System Contract Certificates of
Participation Series J (AMBAC Insured) 6.125% 12/15/06 1,000 1,086
Northside Independent School District G.O. 9.400% 4/01/98 1,850 1,923
Plano Independent School District G.O. Unlimited Tax (FGIC
Insured) 8.625% 2/15/99........................... 1,900 2,031
Retama Development Corporation Special Facilities Revenue
(Retama Racetrack)(Escrowed in U.S. Treasury Securities)
8.750% 12/15/10................................... 2,885 3,857
Round Rock Independent School District G.O. Unlimited Tax
School Building and Refunding
8.625% 8/15/00 Series 1991 (MBIA Insured)....... 1,270 1,425
7.500% 8/01/02 Series 1995 A (gtd. by Permanent
School Fund).................................. 1,200 1,360
San Antonio Water System Revenue Refunding (FGIC Insured)
6.000% 5/15/01.................................... 3,000 3,155
Texas Higher Education Student Loan Senior Lien
7.450% 10/01/06................................... 2,695 2,853
--------
24,037
UTAH (0.5%)
Intermountain Power Agency Power Supply Revenue Series B (MBIA
Insured) 6.000% 7/01/07........................... 1,000 1,081
VIRGINIA (0.7%)
*Virginia Housing Development Authority Commonwealth
Mortgage Series A Subseries A-1 6.700% 7/01/05.... 1,280 1,353
WASHINGTON (2.3%)
Snohomish County School District No. 2 Refunding G.O. (Everett
School District #2) (MBIA Insured)
7.250% 12/01/00................................. 2,540 2,770
7.000% 12/01/02................................. 1,500 1,679
--------
4,449
WYOMING (0.1%)
Lincoln County Wyoming P.C.R. (Exxon Project)
V.R.D.B 4.000%.................................... 100 100
<PAGE>
<CAPTION>
Intermediate Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C>
TOTAL MUNICIPAL SECURITIES (98.9%)
(Amortized cost $184,135)..................................... $193,788
OTHER ASSETS, LESS LIABILITIES (1.1%)............................. 2,218
--------
TOTAL NET ASSETS (100.0%)......................................... $196,006
========
- -------------------------------------------------------------------------------
<FN>
* These securities are subject to federal alternative minimum tax. At June 30,
1997, these securities represented 7.6 percent of net assets.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Managed Municipals Fund
Investments as of June 30, 1997
(Dollar Amounts In Thousands)
<CAPTION>
Principal Market
MUNICIPAL SECURITIES (99.6%) Amount Value
<S> <C> <C>
ALASKA (0.7%)
*Alaska Student Loan Corporation Revenue Series A (AMBAC
Insured) 6.200% 7/01/09........................... $ 3,870 $ 4,008
ARKANSAS (0.3%)
Arkansas Development Financing Authority Single Family
Mortgage Revenue Series A (FHA Insured)
8.125% 8/01/14.................................... 1,895 1,946
CALIFORNIA (5.0%)
California P.C.R. Refunding Series A (San Diego Gas
& Electric Co.) 5.900% 6/01/14.................... 3,000 3,161
Central Contra Costa Sanitation District Revenue Wastewater
Facilities Improvement Project (MBIA Insured)
6.250% 9/01/13.................................. 2,025 2,168
6.250% 9/01/14.................................. 1,295 1,382
Foothill Eastern Transportation Corridor Agency Toll Road
Refunding Senior Lien Series 1995 A Zero Coupon (Effective
Yield 7.200%) 1/01/18............................. 10,000 2,866
Long Beach Aquarium of the Pacific Revenue Series 1995 A
6.125% 7/01/15.................................... 4,000 4,014
6.125% 7/01/23.................................... 6,000 5,999
Los Angeles County G.O. T.R.A.N. Series A 4.500% 6/30/98 2,000 2,012
Northern California Power Agency Public Power Revenue
Refunding Series B-1 (Hydroelectric Project #1)(Escrowed in
U.S. Treasury Securities)(pre-refunded to 7/01/98)
8.000% 7/01/24.................................... 2,000 2,083
Southern California Public Power Authority Revenue Refunding
Zero Coupon (Effective Yield 6.000%) 7/01/14 (FGIC Insured)
(Escrowed in U.S. Treasury Securities)............ 8,155 3,222
5.000% 7/01/17 Series A (Power Project)........... 2,500 2,295
--------
29,202
COLORADO (3.1%)
Araphoe County Capital Improvement Trust Fund Highway
Revenue Zero Coupon (Effective Yield 6.930%) 8/31/15 25,000 7,787
Colorado General Fund Revenue T.R.A.N. Series A
4.500% 6/26/98.................................... 1,000 1,006
Colorado Housing Finance Authority Multifamily Mortgage Revenue
6.000% 10/01/09................................... 1,490 1,492
6.000% 10/01/10................................... 1,590 1,592
6.000% 10/01/11................................... 1,710 1,712
6.000% 10/01/12................................... 1,830 1,831
Municipal Subdistrict Northern Colorado Water Conservancy
District Revenue Series D 6.000% 12/01/15......... 2,500 2,506
--------
17,926
CONNECTICUT (0.3%)
Connecticut Health and Educational Facilities Authority
Revenue Series E (St. Mary's Hospital Corp.)
5.500% 7/01/20.................................... 1,500 1,451
<PAGE>
<CAPTION>
Managed Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
DELAWARE (0.9%)
Delaware E.D.A. Water Development Revenue Refunding
(General Waterworks Corp.--Wilmington Suburban Water Corp.)
6.450% 12/01/07 Series 1992 B................... $ 1,160 $ 1,290
*6.800% 12/01/23 Series 1992 A.................. 3,500 3,688
--------
4,978
FLORIDA (1.8%)
Broward County Public Improvement Revenue Refunding G.O.
12.500% 1/01/03 Series 1986....................... 1,000 1,374
12.500% 1/01/04................................... 1,195 1,703
12.500% 1/01/05................................... 2,000 2,952
Florida G.O. (Jacksonville Transportation Authority Project)
(Escrowed in U.S. Treasury Securities) 9.200% 1/01/15 2,000 2,764
*Jacksonville Water and Sewer Development Revenue
(Jacksonville Suburban Utilities-General Waterworks
Corp.) 6.750% 6/01/22............................. 1,500 1,595
--------
10,388
GEORGIA (12.3%)
Atlanta Airport Facility Revenue Series 1994 A (AMBAC Insured)
6.500% 1/01/08.................................... 2,750 3,095
6.500% 1/01/10.................................... 2,000 2,246
*Cartersville Development Authority Revenue Water & Wasteworks
Facilities (Anheuser-Busch) 7.375% 5/01/09........ 9,000 10,675
Columbia County School District G.O. (MBIA Insured)
6.750% 4/01/09.................................... 1,900 2,190
7.000% 4/01/10.................................... 2,125 2,497
7.000% 4/01/11.................................... 2,370 2,795
Fulton County Water & Sewer Revenue Refunding (FGIC Insured)
6.375% 1/01/14.................................... 13,700 15,305
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue
Refunding Series P (AMBAC Insured) 6.250% 7/01/20. 4,000 4,378
Municipal Electric Authority of Georgia Power Revenue Series V
6.600% 1/01/18.................................... 21,300 23,934
Paulding County School District (MBIA Insured)
6.000% 2/01/10.................................... 4,235 4,580
--------
71,695
HAWAII (1.2%)
*Hawaii Airports System Revenue Series II (MBIA Insured)
6.900% 7/01/12.................................... 6,000 6,876
IDAHO (0.3%)
*Idaho Housing Agency Single Family Mortgage Revenue (FHA/VA
Insured) 7.875% 7/01/24........................... 1,525 1,647
ILLINOIS (8.9%)
Chicago Board of Education Refunding G.O. Lease Certificates
School Reform Series A (MBIA Insured)
6.250% 12/01/12................................. 2,500 2,742
6.000% 1/01/16.................................. 5,000 5,306
Chicago Gas Supply Revenue Series 1985 D (Peoples Gas Light &
Coke Company) 7.500% 3/01/15...................... 4,500 4,852
Chicago Skyway Toll Bridge Revenue Series 1994
(Escrowed in U.S. Treasury Securities)
(pre-refunded to 1/01/04) 6.750% 1/01/17.......... 1,500 1,687
Illinois Development Finance Authority
**5.950% 1/01/09 (Catholic Charities Housing
Development)...................................... 1,450 1,436
7.600% 9/01/13 P.C.R. (Central Illinois Public
Service).......................................... 3,000 3,262
<PAGE>
<CAPTION>
Managed Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
ILLINOIS (CONTINUED)
Illinois Housing Development Authority Series A (FHA Insured)
7.800% 12/01/12................................... $ 905 $ 942
8.000% 6/01/26.................................... 6,770 7,062
Illinois Sales Tax Revenue Refunding Series Q
6.000% 6/15/12.................................... 10,000 10,704
Illinois Toll Highway Authority Priority Revenue Series A
6.300% 1/01/11.................................... 7,500 8,238
Metropolitan Pier and Exposition Authority Dedicated Tax Revenue
Series A (McCormick Place Project)(MBIA Insured)
Zero Coupon (Effective Yield 6.020%) 6/15/12.... 5,000 2,180
Zero Coupon (Effective Yield 6.020%) 12/15/12... 8,300 3,520
--------
51,931
INDIANA (4.6%)
*Hammond Sewer & Solid Waste Disposal Revenue (American
Maize Products Co.) 8.000% 12/01/24............... 5,000 5,714
Indiana Transportation Finance Authority Airport Facilities
Revenue Series A
6.250% 11/01/16................................. 1,475 1,543
6.250% 11/01/16 (Escrowed in U.S. Treasury Securities)
(Pre-refunded to 11/01/02).................... 5,475 5,994
*Indianapolis Airport Authority Revenue Special Facilities
(United Airlines) 6.500% 11/15/31................. 5,000 5,134
Michigan City P.C.R. (Northern Indiana Public Service Company)
5.700% 10/01/03................................... 8,480 8,493
--------
26,878
IOWA (0.4%)
*Iowa Finance Authority Single Family Mortgage Revenue Series B
(collateralized by Government & Federal National Mortgage
Association Securities) 7.450% 7/01/23............ 1,050 1,100
Muscatine County P.C.R. (Monsanto Co. Project)
V.R.D.B. 4.250%................................... 1,200 1,200
--------
2,300
KANSAS (0.6%)
Kansas Department of Transportation Highway Revenue (Escrowed
in U.S. Treasury Securities)(pre-refunded to 3/01/02)
6.500% 3/01/12.................................... 3,000 3,284
KENTUCKY (2.9%)
*Kentucky Housing Corp. Revenue Series C (FHA/VA Insured)
8.100% 1/01/22.................................... 2,030 2,144
Kentucky Turnpike Authority Economic Development Revenue
Refunding Series 1992 (Revitalization Project)(FGIC Insured)
Zero Coupon (Effective Yield 6.600%) 1/01/10...... 7,500 3,840
Kentucky Turnpike Authority Revenue (Escrowed in U.S. Treasury
Securities)(pre-refunded to 7/01/97) 13.125% 7/01/09 2,425 2,425
*Trimble County P.C.R. Series A (Louisville Gas & Electric Co.)
7.625% 11/01/20................................... 6,670 7,320
7.625% 11/01/20 (Escrowed in U.S. Treasury Securities)
(pre-refunded to 11/01/00)..................... 1,330 1,475
-------
17,204
LOUISIANA (1.1%)
*De Soto Parish Environmental Improvement Revenue
(International Paper Co.) Series A 7.700% 11/01/18 3,250 3,722
New Orleans G.O. (AMBAC Insured) Zero Coupon (Effective Yield
6.125%) 9/01/12................................... 6,250 2,738
-------
6,460
<PAGE>
<CAPTION>
Managed Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
MAINE (1.3%)
*Maine Educational Loan Marketing Corporation Student Loan
Revenue Subordinate Series 1994 B-1 6.500% 11/01/09 $ 3,000 $ 3,190
*Maine Housing Authority Mortgage Revenue Series D-5
7.550% 11/15/19................................... 2,520 2,630
7.550% 11/15/22................................... 1,750 1,826
-------
7,646
MARYLAND (1.3%)
Washington Suburban Sanitation District Construction (Escrowed in
U.S. Treasury Securities)(Pre-refunded to 6/01/04)
6.600% 6/01/16.................................. 2,795 3,103
6.625% 6/01/17.................................. 1,660 1,846
6.625% 6/01/19.................................. 2,320 2,579
-------
7,528
MASSACHUSETTS (7.7%)
Massachusetts Bay Transportation Authority Refunding
7.000% 3/01/14 Series 1994 A...................... 3,150 3,722
6.200% 3/01/16 Series 1992 B...................... 9,825 10,815
7.000% 3/01/19 Series 1994 A...................... 2,500 2,993
Massachusetts College Building Authority Project Refunding
Series A
7.500% 5/01/11.................................... 1,500 1,839
7.500% 5/01/14.................................... 3,500 4,332
Massachusetts Health & Educational Facilities Authority
Revenue 6.250% 7/01/12 (Massachusetts General
Hospital Project)(AMBAC Insured)................ 5,750 6,379
6.250% 12/01/22 (Dana Farber Cancer Institute).... 6,500 6,738
6.750% 7/01/24 (Brigham & Women's Hospital)
(MBIA Insured).................................... 7,365 7,942
-------
44,760
MICHIGAN (0.6%)
Michigan Hospital Finance Authority Providence Hospital Revenue
Refunding (Daughters of Charity Health Systems Inc.)
7.000% 11/01/21................................... 3,000 3,242
MINNESOTA (1.7%)
*Minneapolis St. Paul Housing Finance Board Single Family
Mortgage Revenue (collateralized by Government National
Mortgage Association Securities)
7.250% 8/01/21.................................. 2,280 2,414
7.300% 8/01/31.................................. 3,400 3,590
*Minnesota Housing Finance Agency Single Family Mortgage
Series A 7.450% 7/01/22........................... 3,980 4,215
-------
10,219
MISSISSIPPI (0.4%)
Biloxi Mortgage Revenue Refunding Series 1987 (Biloxi Regional
Medical Center)(Escrowed in U.S. Treasury Securities)
19.000% 8/15/98................................... 2,000 2,307
MISSOURI (0.3%)
Little Blue Valley Sewer District Revenue Refunding (AMBAC
Insured)(Escrowed in U.S. Treasury Securities)(pre-refunded to
10/01/98) 9.000% 10/01/07......................... 1,000 1,060
Missouri Housing Community Development Single Family
Mortgage Revenue 9.375% 4/01/16................... 70 76
<PAGE>
<CAPTION>
Managed Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
MISSOURI (CONTINUED)
Springfield School District Refunding G.O. Series B
(FGIC Insured) 9.500% 3/01/07..................... $ 600 $ 811
--------
1,947
NEVADA (0.7%)
*Nevada Housing Division Single Family Mortgage (FHA/VA
Insured) 7.750% 4/01/22........................... 4,040 4,243
NEW JERSEY (1.0%)
New Jersey G.O. Series D 6.000% 2/15/11.............. 5,150 5,594
NEW MEXICO (0.2%)
Albuquerque I.D.R. (Motorola Inc.) 10.000% 6/01/13... 1,000 1,033
NEW YORK (9.7%)
Erie County Water Authority Water Revenue Refunding Series 1992
(AMBAC Insured) Zero Coupon (Effective Yield
7.300%) 12/01/17.................................. 660 153
New York City G.O.
5.750% 2/01/14 Series G........................... 3,145 3,118
6.000% 2/15/25 Series D........................... 12,980 13,076
*New York City I.D.A. Special Facility Revenue
Series 1994 (Terminal One Group, Associate L.P.
Project) 6.000% 1/01/15........................... 8,340 8,423
New York State Dormitory Authority Revenue (Rochester
Institute of Technology)(MBIA Insured)
5.250% 7/01/22.................................... 1,250 1,196
New York State Environmental Facilities Corporation
P.C.R. Water Revolving Fund-New York City
Municipal Water 5.750% 6/15/10.................... 10,000 10,578
New York State Urban Development Corp. State Facilities
Revenue Refunding 5.600% 04/01/15................. 2,600 2,579
Triborough Bridge & Tunnel Authority General Purpose Revenue
6.625% 1/01/12 Series X........................... 8,715 9,900
6.125% 1/01/21 Series Y........................... 6,890 7,484
--------
56,507
NORTH CAROLINA (2.0%)
North Carolina Eastern Municipal Power Agency Power Systems
Revenue
6.000% 1/01/06 Series B......................... 3,955 4,110
6.500% 1/01/18 Series 1991 A (Escrowed in U.S.
Treasury Securities).......................... 4,315 4,923
6.500% 1/01/18 Series 1991 A.................... 2,185 2,351
8.000% 1/01/21 (Escrowed in U.S. Treasury Securities)
(pre-refunded to 1/01/98)..................... 240 250
--------
11,634
OHIO (1.4%)
Columbus G.O. Revenue Bonds Series 1 V.R.D.B. 4.100%. 1,000 1,000
Franklin County Hospital Revenue Refunding and Improvement
(Riverside Hospital)(Escrowed in U.S. Treasury Securities)
(pre-refunded to 5/15/00) 7.600% 5/15/20.......... 3,900 4,311
*Ohio Housing Finance Agency Mortgage Revenue Residential
Series A-1 (Collateralized by Government National Mortgage
Association Securities) 6.050% 9/01/17............ 3,000 3,054
--------
8,365
<PAGE>
<CAPTION>
Managed Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
OKLAHOMA (0.3%)
*Tulsa County Home Finance Authority Mortgage Revenue
Series 1991 B (collateralized by Government National Mortgage
Association Securities) 7.550% 5/01/23............ $ 1,825 $ 1,928
PENNSYLVANIA (3.4%)
Allegheny County Sanitation Authority Sewer Revenue (FGIC
Insured) Zero Coupon (Effective Yield 6.800%) 6/01/07 2,370 1,434
*Dauphin County I.D.A. Water Development Revenue (Dauphin
Consolidated Water Supply General Waterworks Corp.)
6.900% 6/01/24.................................... 2,400 2,809
Montgomery County I.D.A. Retirement Community Revenue
Series B (Adult Communities Total Services)
5.750% 11/15/17................................... 3,500 3,470
Pennsylvania G.O. 6.250% 7/01/12..................... 11,200 12,351
--------
20,064
RHODE ISLAND (1.0%)
*Rhode Island Housing & Mortgage Finance Corporation
7.550% 10/01/22................................... 5,650 6,000
SOUTH CAROLINA (2.7%)
Berkeley County Exempt Facility Industrial Revenue (Amoco
Chemical Co. Project) V.R.D.B. 4.300%............. 1,800 1,800
*Calhoun County Solid Waste Disposal Facilities Revenue
(Eastman Kodak Co.)(Escrowed in U.S. Treasury Securities)
6.750% 5/01/17.................................... 3,000 3,437
*Richland County Solid Waste Disposal Facilities Revenue Series
1991 B (Union Camp Corp.) 7.125% 9/01/21.......... 5,000 5,401
*South Carolina Housing Finance Agency Single Family Mortgage
Revenue Series C 7.750% 7/01/22................... 4,775 5,005
--------
15,643
SOUTH DAKOTA (2.9%)
Heartland Consumers Power District Electric Revenue Refunding
(FSA Insured) 6.000% 1/01/17...................... 8,000 8,534
*South Dakota Student Loan Assistance Corp Student Loan Revenue
Series B 7.450% 8/01/00........................... 7,990 8,277
--------
16,811
TENNESSEE (2.1%)
Metropolitan Government Nashville & Davidson County Health &
Educational Facilities Board Revenue Series 1993
(Richland Place Inc.)(LOC. Societe Generale)
V.R.D.B. 4.200%................................... 2,100 2,100
*Tennessee Housing Development Agency (Homeownership Project)
7.300% 7/01/11.................................... 10,000 10,402
--------
12,502
TEXAS (5.8%)
*Brazos Higher Education Authority Student Loan Revenue
Subordinate Series 1993 C-2 5.875% 6/01/04........ 2,500 2,566
Brazos River Authority Pollution Control Revenue Series A
(Texas Utilities Electric Co.)(L.O.C. Morgan
Guaranty Trust) V.R.D.B. 4.250%................... 300 300
Houston Water & Sewer Systems Revenue Refunding
(AMBAC Insured)
Zero Coupon (Effective Yield 6.800%) 12/01/08... 4,000 2,212
Zero Coupon (Effective Yield 6.8125%) 12/01/09.. 4,000 2,075
Zero Coupon (Effective Yield 6.850%) 12/01/10... 3,750 1,821
<PAGE>
<CAPTION>
Managed Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
TEXAS (CONTINUED)
Texas G.O. Veteran's Welfare Fund (Escrowed in U.S.
Treasury Securities) (pre-refunded to
12/01/99) 8.300% 12/01/16......................... $15,275 $16,674
Texas Municipal Power Agency Revenue Refunding (AMBAC
Insured) Zero Coupon (Effective Yield 6.900%) 9/01/08 1,475 826
Texas T.R.A.N. Series 1996 Series 4.750% 8/29/97..... 6,200 6,208
*Travis County Housing Finance Agency Single Family Mortgage
(collateralized by Government National Mortgage Association
Securities)(FGIC Insured) 8.000% 9/01/10.......... 1,120 1,183
--------
33,865
UTAH (0.7%)
Utah County Hospital Revenue (IHC Health Services, Inc.)
(MBIA Insured) 5.250% 8/15/21..................... 4,000 3,760
VERMONT (0.2%)
*Vermont Housing Finance Agency Single Family Mortgage
Revenue Series A 8.150% 5/01/25................... 1,095 1,129
VIRGINIA (0.5%)
Virginia Beach G.O. Refunding Series B 12.750% 7/15/01 2,000 2,600
WASHINGTON (5.8%)
*Port of Longview Industrial Development Corporation
Solid Waste Disposal Revenue (Weyerhaeuser
Company) 6.875% 10/01/08.......................... 8,750 9,871
Washington G.O. Series B 6.000% 6/01/13.............. 7,280 7,863
Washington Public Power Supply Systems Revenue Refunding
Zero Coupon (Effective Yield 6.700%) 7/01/05 Series 1991 B
(Nuclear Project #3) (FGIC Insured)............. 5,000 3,344
Zero Coupon (Effective Yield 6.950%) 7/01/08 Series B
(Nuclear Project #3)............................ 7,000 3,830
6.300% 7/01/12 Series 1992 A (Nuclear Project #2). 3,500 3,760
6.500% 7/01/18 Series 1991 C (Nuclear Project #3). 5,000 5,246
--------
33,914
WISCONSIN (1.5%)
Wisconsin G.O. Series G (Escrowed in U.S. Treasury Securities)
(pre-refunded to 5/01/99) 6.750% 5/01/11.......... 5,000 5,272
Wisconsin Housing E.D.A. Revenue 7.750% 9/01/10...... 2,985 3,150
--------
8,422
- -------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES (99.6%)
(Amortized cost $533,974)..................................... 579,837
OTHER ASSETS, LESS LIABILITIES (0.4%)............................. 2,529
--------
TOTAL NET ASSETS (100.0%)......................................... $582,366
========
- -------------------------------------------------------------------------------
<FN>
* These securities are subject to federal alternative minimum tax. At June
30, 1997, these securities represented 25.2 percent of net assets.
** This security is subject to contractual or legal restrictions on its
resale. At June 30, 1997, the value of this security represented 0.2 percent of
net assets (aggregate cost $1,450).
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
High-Yield Municipals Fund
Investments as of June 30, 1997
(Dollar Amounts In Thousands)
<CAPTION>
Principal Market
MUNICIPAL SECURITIES (99.8%) Amount Value
<S> <C> <C>
ARIZONA (0.9%)
Arizona Health Facilities Hospital System Revenue Refunding
(Phoenix Memorial Hospital) 8.125% 6/01/12........ $ 2,500 $2,723
CALIFORNIA (4.0%)
Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue Sr. Lien Series 1995 A 6.500% 1/01/32..... 2,000 2,095
Long Beach Aquarium of the Pacific Revenue Series 1995 A
6.125% 7/01/23.................................... 5,000 4,999
Los Angeles County G.O. T.R.A.N. Series A 4.500% 6/30/98 2,000 2,012
M-S-R Public Power Agency Revenue Series H (San Juan Project)
5.900% 7/01/20.................................... 3,000 3,002
--------
12,108
COLORADO (7.2%)
Adams County Single Family Mortgage Revenue Series B
(Escrowed in U.S. Treasury Securities)
11.250% 9/01/11 (pre-refunded to 9/01/09)....... 325 503
11.250% 9/01/11 (pre-refunded to 9/01/10)....... 360 562
11.250% 9/01/11................................. 220 348
11.250% 9/01/12................................. 1,440 2,309
Arapahoe County Capital Improvement Trust Fund Highway
Revenue 7.000% 8/31/26............................ 7,000 7,960
***Briargate Public Building Authority Landowner's Assessment
Lien Revenue
10.250% 12/15/00 Series 1985 A.................. 416 354
9.500% 12/15/07 Series 1986 A................... 1,146 974
Colorado Health Facilities Authority Revenue
7.250% 4/01/11 (Birchwood Manor Apartments)
(collateralized by Government National Mortgage
Association Securities).......................... 680 713
8.500% 2/15/21 Series B (PSL Health Systems)(Escrowed in
U.S. Treasury Securities)(pre-refunded to 2/15/01) 3,250 3,739
*Denver City and County Airport Revenue Series D
7.750% 11/15/21................................... 4,000 4,464
--------
21,926
DISTRICT OF COLUMBIA (2.3%)
District of Columbia G.O. Series A 6.000% 6/01/26.... 7,000 6,944
FLORIDA (2.7%)
***Florida Housing Finance Agency Multi-Family Housing Revenue
(Palm-Aire) 10.000% 1/01/20....................... 2,835 1,984
Leesburg Capital Improvement Hospital Revenue Series 1991 A
(Leesburg Regional Medical Center)(Escrowed in U.S. Treasury
Securities)(pre-refunded to 7/01/01) 7.375% 7/01/11 775 884
Orange County Health Facilities Authority First Mortgage Revenue
(Orlando Lutheran Towers, Inc.) 8.625% 7/01/20.... 5,000 5,390
*St. Lucie County Solid Waste Disposal Revenue (Florida Light and
Power Company) V.R.D.B. 4.250%.................... 200 200
--------
8,458
<PAGE>
<CAPTION>
High-Yield Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
GEORGIA (4.2%)
*Cartersville Development Authority Water and Wastewater
Facilities Revenue (Anheuser Busch)
7.375% 5/01/09.................................... $ 5,000 $ 5,930
Municipal Electric Authority of Georgia Power Revenue
6.600% 1/01/18.................................... 6,065 6,815
--------
12,745
IDAHO (1.0%)
*Idaho Housing Agency Single Family Mortgage Revenue Series B
(FHA Insured) 7.500% 7/01/24...................... 2,860 2,996
ILLINOIS (2.2%)
Chicago Skyway Toll Bridge Revenue Series 1994 (Escrowed in
U.S. Treasury Securities) (pre-refunded to 1/01/04)
6.750% 1/01/17.................................... 1,500 1,687
**Illinois Development Finance Authority (Catholic Charities
Housing Development) 5.950% 1/01/09............... 1,400 1,387
Illinois Health Facilities Authority Revenue Refunding
8.125% 7/01/06 Series 1991 (United Medical Center)
(Escrowed in U.S. Treasury Securities)(pre-refunded
to 07/01/03).................................... 2,415 2,703
7.000% 2/15/22 Series 1992 (Edward Hospital Association) 685 727
Illinois Housing Development Authority Multi-Family Housing
Series C 7.400% 7/01/23........................... 140 147
*Southwestern Illinois Development Authority Solid Waste Disposal
Revenue Series 1991 (Shell Oil-Wood River Project)
V.R.D.B. 4.250%................................... 100 100
--------
6,751
INDIANA (11.5%)
*Hammond Sewer & Solid Waste Disposal Revenue (American
Maize Products Co.) 8.000% 12/01/24............... 4,000 4,571
Indiana Transportation Finance Authority Airport Facilities Lease
Revenue Series A
6.250% 11/01/16................................. 950 994
6.250% 11/01/16 (Escrowed in U.S. Treasury Securities)
(pre-refunded to 11/01/02).................... 3,550 3,886
*Indianapolis Airport Authority Revenue Special Facilities
7.100% 1/15/17 (Federal Express Corp.)............ 5,000 5,480
6.500% 11/15/31 (United Airlines)................. 7,000 7,187
Indianapolis Local Public Improvement Bond Bank Series 1991 C
(Escrowed in U.S. Treasury Securities)(pre-refunded to 1/01/02)
6.700% 1/01/17.................................... 8,900 9,811
New Castle Economic Development Revenue (Raintree Square Project)
8.650% 4/01/17 Series 1988 A (FHA Insured)........ 2,860 3,138
***Zero Coupon 3/01/18 Series 1988 B.............. 30,655 77
--------
35,144
IOWA (1.0%)
Iowa Housing Finance Authority Single Family Housing Revenue
Zero Coupon (Effective Yield 10.262%) 9/01/16..... 26,250 3,094
KANSAS (0.7%)
Wichita Revenue (CSJ Health System of Wichita Inc.)
7.000% 11/15/18................................... 2,000 2,125
<PAGE>
<CAPTION>
High-Yield Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
LOUISIANA (1.8%)
*De Soto Parish Environmental Impact Revenue
(International Paper Co.) Series A
7.700% 11/01/18................................... $ 2,500 $ 2,863
Louisiana Public Facilities Authority Hospital
Revenue (Women's Hospital Foundation)
7.250% 10/01/22................................... 2,300 2,610
-------
5,473
MASSACHUSETTS (3.0%)
Massachusetts Bay Transportation Authority Refunding Series B
6.200% 3/01/16.................................... 5,825 6,412
Massachusetts Health & Educational Facilities Authority Revenue
(Dana Farber Cancer Institution) 6.250% 12/01/22.. 2,000 2,073
*Massachusetts Housing Finance Agency Series A
9.000% 12/01/18................................... 850 872
-------
9,357
MISSISSIPPI (3.8%)
Adams County Hospital Revenue (Jefferson Davis Memorial Hospital)
(Escrowed in U.S. Treasury Securities)(pre-refunded to 10/01/01)
7.900% 10/01/08................................... 750 863
Claiborne County P.C.R. (Systems Energy)
9.500% 12/01/13 Series A.......................... 750 813
9.875% 12/01/14 Series C.......................... 1,000 1,089
7.300% 5/01/25.................................... 2,000 2,112
Lowndes County Solid Waste Disposal & P.C.R. Refunding
(Weyerhaeuser Company) 6.800% 4/01/22............. 5,995 6,926
-------
11,803
MISSOURI (1.7%)
Missouri Health & Educational Facilities Authority Revenue
(Lutheran Senior Services) 5.750% 2/01/17......... 2,000 1,963
*St. Louis I.D.A. Revenue Refunding (Kiel Center Multipurpose Arena)
7.875% 12/01/24................................... 3,000 3,227
-------
5,190
MONTANA (0.3%)
Montana Board of Housing Single Family Mortgage Revenue
(FHA/VA Insured)
7.300% 10/01/17 Series B-1...................... 445 469
*7.500% 4/01/23 Series B-2...................... 495 521
-------
990
NEBRASKA (1.4%)
*Nebraska Higher Education Loan Program Junior Subordinated
Series A-6 6.450% 6/01/18......................... 4,000 4,140
NEVADA (0.8%)
Humboldt County P.C.R. (Idaho Power Company)
8.300% 12/01/14................................... 2,000 2,357
NEW JERSEY (2.5%)
New Jersey Economic Development Authority Revenue
(Winchester Gardens) 8.625% 11/01/25.............. 5,000 5,228
New Jersey Health Care Facilities Financing Authority Revenue
Refunding (Raritan Bay Medical Center) 7.250% 7/01/27 2,200 2,316
-------
7,544
<PAGE>
<CAPTION>
High-Yield Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
NEW MEXICO (2.3%)
Farmington P.C.R. Series A (San Juan Project)
6.300% 12/01/16 1996 (Public Service Company of
New Mexico)....................................... $ 5,000 $ 5,093
6.950% 10/01/20 1997 (Tucson Electric Power Company) 2,000 2,082
--------
7,175
NEW YORK (4.2%)
Erie County Water Authority Revenue Refunding (AMBAC Insured)
Zero Coupon (Effective Yield 7.300%) 12/01/17..... 660 153
New York City G.O.
7.250% 8/15/07 Series 1996 B...................... 1,000 1,146
5.750% 2/01/14 Series 1996 F...................... 5,720 5,670
*New York City I.D.A. Special Facility Revenue Series 1994
(Terminal One Group Association L.P. Project)
6.000% 1/01/15.................................... 3,465 3,500
Triborough Bridge & Tunnel Authority General Purpose Revenue
Series E 7.250% 1/01/10........................... 2,000 2,295
--------
12,764
NORTH CAROLINA (3.0%)
North Carolina Eastern Municipal Power Agency Power Systems
Revenue
6.500% 1/01/18 Series 1991A..................... 1,680 1,807
6.500% 1/01/18 Series 1991 A (Escrowed in U.S. Treasury
Securities)................................... 3,320 3,788
6.000% 1/01/26 Series B......................... 3,500 3,544
--------
9,139
OHIO (2.1%)
*Greater Allen County Housing Development Corp.
Revenue First Lien (Steiner-McBride Apartments
Project) 10.250% 9/01/03.......................... 1,385 1,387
*Ohio Water Development Facilities Authority P.C.R.
(Cleveland Electric Illuminating Company)
Mandatory Put 11/01/97 9.750%..................... 5,060 5,124
--------
6,511
PENNSYLVANIA (12.8%)
Allentown Area Hospital Authority Revenue (Sacred
Heart Hospital of Allentown) 7.500% 7/01/06....... 3,460 3,735
Beaver County I.D.A. P.C.R. Revenue Refunding
(Toledo Edison Company) 7.625% 5/01/20............ 4,900 5,366
*Dauphin County I.D.A. Revenue Series A (Dauphin Consolidated
Water Supply General Waterworks Corp.) 6.900% 6/01/24 2,700 3,160
Delaware County Hospital Authority Revenue Series A (Mercy
Catholic Medical Center)(Escrowed in U.S. Treasury
Securities)(pre-refunded to 11/01/97)
7.375% 11/01/12................................... 1,100 1,134
Montgomery County Higher Education & Health Authority
Hospital Revenue (Jeanes Health Systems)(Escrowed
in U.S. Treasury Securities)(pre-refunded to
7/01/00) 8.750% 7/01/20........................... 3,200 3,637
Montgomery County I.D.A. Retirement Community Revenue
Refunding Series A (Adult Communities Total Services)
5.875% 11/15/22................................... 1,250 1,241
*Pennsylvania Economic Development Financing Authority
Recycling Revenue Series 1995 A (Ponderosa Fibres Project)
9.250% 1/01/22.................................... 6,000 4,500
*Pennsylvania Economic Development Financing Authority
Resource Recovery Revenue Refunding (Northhampton)
6.750% 1/01/07 Series 1995 B.................... 3,000 3,095
6.500% 1/01/13 Series A......................... 2,000 1,999
<PAGE>
<CAPTION>
High-Yield Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Hospitals & Higher Education Facilities
Authority Revenue (Temple University Hospital)
5.875% 11/15/23................................... $ 4,000 $ 3,945
Philadelphia Municipal Lease Revenue Refunding Series 1993 D
6.250% 7/15/13.................................... 2,500 2,552
Philadelphia Water & Sewer Revenue Tenth Series
(Escrowed in U.S. Treasury Securities)
7.350% 9/01/04.................................... 4,125 4,678
Schuylkill County I.D.A.(Westwood Energy Properties
L.P. L.O.C. Fuji Bank Ltd.) V.R.D.B. 4.250%....... 200 200
--------
39,242
PUERTO RICO (1.9%)
Puerto Rico Highway & Transportation Authority Highway
Revenue Refunding
6.625% 7/01/12 Series V......................... 2,000 2,152
6.625% 7/01/18 Series T (Escrowed in U.S.
Treasury Securities)(pre-refunded to 7/01/02)..... 3,200 3,553
--------
5,705
SOUTH DAKOTA (0.9%)
*South Dakota Student Loan Assistance Corp. Student
Loan Revenue Series B 7.450% 8/01/00.............. 2,700 2,797
TENNESSEE (0.7%)
Knox County Health, Educational and Housing Facilities
Revenue (Baptist Health Systems of East Tennessee)
(Escrowed in U.S. Treasury Securities)(pre-refunded
to 4/15/99) 8.600% 4/15/16........................ 2,005 2,195
TEXAS (8.6%)
*Alliance Airport Authority Special Facilities
Revenue Series 1991 (American Airlines)
7.000% 12/01/11................................... 4,000 4,505
*Bexar County Housing Financing Corp. Revenue Series B
(collateralized by Government National Mortgage Association
Securities) 9.250% 4/01/16........................ 365 377
Harris County Housing Finance Corp. Single Family Housing
Revenue Series 1983 9.625% 3/15/03................ 240 240
*Houston Airport System Special Facilities Revenue
Series 1997 B (Continental Airlines)
6.125% 7/15/17.................................. 3,000 2,991
6.125% 7/15/27.................................. 2,000 1,980
Montgomery County Health Facilities Development
Corp. Hospital Mortgage Revenue Refunding
(Woodlands Medical Center)(Escrowed in U.S.
Treasury Securities)(pre-refunded to 8/15/99)
8.850% 8/15/14.................................... 2,460 2,704
North Central Health Facilities Development
Corporation Hospital Revenue (Tri-City Health
Center) 9.500% 5/01/21............................ 7,430 5,574
*Port Bay City Authority Revenue (Hoechst Celanese Corp.)
6.500% 5/01/26.................................... 3,000 3,200
*Port Corpus Christi Industrial Development Corporation
Sewer and Solid Waste (Citgo Petroleum Corporation
Project L.O.C. Banque National de Paris)
V.R.D.B. 4.300%................................... 300 300
Southwest Higher Education Authority (Southern
Methodist University L.O.C. Morgan Guaranty
Trust) V.R.D.B. 4.100%............................ 300 300
*Texas Housing Agency Residential Mortgage Revenue
Series D 8.400% 1/01/21........................... 290 302
Texas T.R.A.N. Series 1996 4.750% 8/29/97............ 4,000 4,005
--------
26,478
<PAGE>
<CAPTION>
High-Yield Municipals Fund CONTINUED
Principal Market
Amount Value
<S> <C> <C>
UTAH (0.4%)
*Utah Housing Finance Agency Single Family Mortgage
7.750% 1/01/23 Series B-2 (FHA Insured)........... $ 445 $ 470
7.550% 7/01/23 Series C-3 (FHA/VA Insured)........ 705 744
--------
1,214
VIRGINIA (2.3%)
*Pittsylvania County I.D.A. Revenue Series A
(Multitrade of Pittsylvania County L.P.)
7.450% 1/01/09.................................. 3,500 3,696
7.550% 1/01/19.................................. 3,100 3,273
--------
6,969
WASHINGTON (6.0%)
Quincy Water and Sewer Revenue Series I (Escrowed in U.S.
Treasury Securities)(pre-refunded to 11/01/00)
9.250% 11/01/10................................... 2,565 2,898
Washington G.O. Series B 6.400% 6/01/17.............. 5,000 5,605
Washington Health Care Facilities Authority Revenue
(Sacred Heart Medical Center, Spokane)
6.875% 2/15/12................................... 1,500 1,619
*Washington Housing Finance Commission Single Family Mortgage
Revenue Series C (collateralized by Government and Federal
National Mortgage Association Securities)
Zero Coupon (Effective Yield 7.750%) 1/01/22.... 1,700 280
Zero Coupon (Effective Yield 7.750%) 7/01/22.... 1,880 298
Zero Coupon (Effective Yield 7.750%) 1/01/23.... 1,880 288
Zero Coupon (Effective Yield 7.750%) 7/01/23.... 1,885 278
Zero Coupon (Effective Yield 7.750%) 1/01/24.... 1,895 269
Zero Coupon (Effective Yield 7.750%) 7/01/24.... 1,885 258
Washington Public Power Supply Systems Revenue
(Nuclear Project #2)
Zero Coupon (Effective Yield 6.888%) 7/01/07...... 6,945 4,053
6.300% 7/01/12 Series 1992 A...................... 2,500 2,686
--------
18,532
WISCONSIN (1.0%)
*Wisconsin Housing and Economic Development
Authority Revenue 7.850% 3/01/24.................. 2,950 3,101
WYOMING (0.6%)
Wyoming Community Development Authority Single Family
Mortgage Revenue Series A (FHA Insured)
7.375% 6/01/17.................................... 1,730 1,824
- -------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES (99.8%)
(Amortized cost $291,318)...................................... 305,514
OTHER ASSETS, LESS LIABILITIES (0.2%)............................. 556
--------
TOTAL NET ASSETS (100.0%)......................................... $306,070
========
- -------------------------------------------------------------------------------
<FN>
* These securities are subject to the federal alternative minimum tax. At June
30, 1997, these securities represented 30.9 percent of net assets.
** This security is subject to contractual or legal restrictions on its resale.
At June 30, 1997, the value of this security represented 0.5 percent of net
assets aggregate cost $1,400.
*** Non-income producing securities.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Balance Sheets
June 30, 1997
(All amounts in thousands, except per-share data)
<CAPTION>
Municipal
Money Intermediate Managed High-Yield
Market Municipals Municipals Municipals
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Assets
Investments, at market value ......................... $ -- $ 193,788 $ 579,837 $ 305,514
Investment in SR&F Municipal Money
Market Portfolio, at value .................. 119,150 -- -- --
Receivable for investments sold ...................... -- 200 255 621
Receivable for fund shares sold ...................... 300 72 158 417
Accrued interest receivable .......................... -- 3,294 10,921 6,086
Cash and other assets ................................ 96 192 649 645
--------- --------- --------- ---------
Total Assets ................................ $ 119,546 $ 197,546 $ 591,820 $ 313,283
========= ========= ========= =========
Liabilities
Payable for investments purchased .................... $ -- $ 1,006 $ 8,020 $ 5,976
Payable for fund shares redeemed ..................... 944 87 -- 327
Dividends payable .................................... 111 263 839 494
Payable to investment adviser and transfer agent ..... 35 107 302 182
Other liabilities .................................... 32 77 293 234
--------- --------- --------- ---------
Total Liabilities ........................... 1,122 1,540 9,454 7,213
--------- --------- --------- ---------
Capital
Paid-in capital ...................................... 118,432 186,019 539,499 301,155
Net unrealized appreciation of investments ........... -- 9,653 45,863 14,196
Accumulated net realized gains (losses) on investments (8) 334 (2,996) (9,281)
--------- --------- --------- ---------
Total Capital (Net Assets) .................. 118,424 196,006 582,366 306,070
--------- --------- --------- ---------
Total Liabilities and Capital ............... $ 119,546 $ 197,546 $ 591,820 $ 313,283
========= ========= ========= =========
Shares Outstanding (Unlimited Number Authorized) ..... 118,359 17,220 63,916 26,222
========= ========= ========= =========
Net Asset Value (Capital) Per Share .................. $ 1.00 $ 11.38 $ 9.11 $ 11.67
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
For the Year Ended
June 30, 1997
(All amounts in thousands)
<CAPTION>
Municipal
Money Intermediate Managed High-Yield
Market Municipals Municipals Municipals
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Investment Income
Tax-exempt interest ..................................... -- $ 11,091 $ 36,314 $ 20,548
Tax-exempt interest income allocated from
SR&F Municipal Money Market Portfolio .......... $ 4,426 -- -- --
-------- -------- -------- --------
Total Investment Income ........................ 4,426 11,091 36,314 20,548
-------- -------- -------- --------
Expenses
Management fees ......................................... -- 876 2,482 1,255
Expenses allocated from
SR&F Municipal Money Market Portfolio .......... 388 -- -- --
Administrative fees ..................................... 300 274 674 369
Transfer agent fees ..................................... 180 280 842 413
Printing and postage .................................... 45 38 83 59
SEC and state registration fees ......................... 25 24 25 26
Legal and audit fees .................................... 16 22 22 63
Accounting fees ......................................... 27 29 39 31
Trustees' fees .......................................... 17 24 39 32
Other ................................................... 38 74 188 8
-------- -------- -------- --------
1,036 1,641 4,394 2,256
Reimbursement of expenses by investment adviser ......... (195) (240) -- --
-------- -------- -------- --------
Total Net Expenses ............................. 841 1,401 4,394 2,256
-------- -------- -------- --------
Net Investment Income .......................... 3,585 9,690 31,920 18,292
-------- -------- -------- --------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains (losses) on investments .............. (2) 913 1,088 (4,451)
Net change in unrealized appreciation or
depreciation of investments .................... -- 3,038 16,133 11,315
-------- -------- -------- --------
Net Gains (Losses) on Investments .............. (2) 3,951 17,221 6,864
-------- -------- -------- --------
Net Increase in Net Assets Resulting from Operations .... $ 3,583 $ 13,641 $ 49,141 $ 25,156
======== ======== ======== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
For The Years Ended June 30, 1996, and 1997
(All amounts in thousands)
<CAPTION>
Municipal Money Intermediate
Market Fund Municipals Fund
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Operations
Net investment income .......................................... $ 4,147 $ 3,585 $ 10,327 $ 9,690
Net realized gains (losses) on investments ..................... (5) (2) 1,659 913
Net change in unrealized appreciation or depreciation
of investments ........................................ -- -- (459) 3,038
--------- --------- --------- ---------
Net Increase in Net Assets Resulting
from Operations .................................... 4,142 3,583 11,527 13,641
--------- --------- --------- ---------
Distributions To Shareholders
Dividends from net investment income ........................... (4,147) (3,585) (10,327) (9,690)
Dividends from net capital gains ............................... -- -- -- (1,149)
--------- --------- --------- ---------
Total Distributions to Shareholders ................... (4,147) (3,585) (10,327) (10,839)
--------- --------- --------- ---------
Share Transactions
Subscriptions to fund shares ................................... 178,387 188,521 37,532 30,850
Investment income dividends reinvested ......................... 3,663 2,798 6,377 5,237
Capital gains distributions reinvested ......................... -- -- -- 768
Redemptions of fund shares ..................................... (208,317) (193,325) (52,872) (48,377)
--------- --------- --------- ---------
Net Decrease from Share Transactions .................. (26,267) (2,006) (8,963) (11,522)
--------- --------- --------- ---------
Net Decrease in Net Assets ............................ (26,272) (2,008) (7,763) (8,720)
Total Net Assets
Beginning of Period ............................................ 146,704 120,432 212,489 204,726
--------- --------- --------- ---------
End of Period .................................................. $ 120,432 $ 118,424 $ 204,726 $ 196,006
========= ========= ========= =========
Analyses of Changes in Shares of Beneficial Interest
Subscriptions to fund shares ................................... 178,387 188,521 3,308 2,725
Investment income dividends reinvested ......................... 3,663 2,798 562 463
Capital gains distributions reinvested ......................... -- -- -- 67
--------- --------- --------- ---------
182,050 191,319 3,870 3,255
Redemptions of fund shares ..................................... (208,317) (193,325) (4,662) (4,278)
--------- --------- --------- ---------
Net decrease in fund shares .................................... (26,267) (2,006) (792) (1,023)
Shares outstanding at beginning of period ...................... 146,632 120,365 19,035 18,243
--------- --------- --------- ---------
Shares outstanding at end of period ............................ 120,365 118,359 18,243 17,220
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
For The Years Ended June 30, 1996, and 1997
(All amounts in thousands)
<CAPTION>
Managed High-Yield
Municipals Fund Municipals Fund
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Operations
Net investment income .......................................... $ 33,699 $ 31,920 $ 16,389 $ 18,292
Net realized gains (losses) on investments ..................... 3,828 1,088 180 (4,451)
Net change in unrealized appreciation or depreciation
of investments ........................................ 864 16,133 2,229 11,315
--------- --------- --------- ---------
Net Increase in Net Assets Resulting
from Operations .................................... 38,391 49,141 18,798 25,156
--------- --------- --------- ---------
Distributions To Shareholders
Dividends from net investment income ........................... (33,699) (31,920) (16,389) (18,292)
--------- --------- --------- ---------
Share Transactions
Subscriptions to fund shares ................................... 43,018 42,898 48,888 58,262
Investment income dividends reinvested ......................... 18,841 16,555 9,372 8,959
Redemptions of fund shares ..................................... (89,922) (100,667) (58,868) (50,971)
--------- --------- --------- ---------
Net Increase (Decrease) from
Share Transactions ................................. (28,063) (41,214) (608) 16,250
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets ................. (23,371) (23,993) 1,801 23,114
Total Net Assets
Beginning of Period ............................................ 629,730 606,359 281,155 282,956
--------- --------- --------- ---------
End of Period .................................................. $ 606,359 $ 582,366 $ 282,956 $ 306,070
========= ========= ========= =========
Analyses of Changes in Shares of
Beneficial Interest
Subscriptions to fund shares ................................... 4,798 4,770 4,256 5,050
Investment income dividends reinvested ......................... 2,106 1,838 814 776
--------- --------- --------- ---------
6,904 6,608 5,070 5,826
Redemptions of fund shares ..................................... (10,050) (11,199) (5,111) (4,418)
--------- --------- --------- ---------
Net Increase (Decrease) in fund shares ......................... (3,146) (4,591) (41) 1,408
Shares outstanding at beginning of period ...................... 71,653 68,507 24,855 24,814
--------- --------- --------- ---------
Shares outstanding at end of period ............................ 68,507 63,916 24,814 26,222
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Municipal Money Market Portfolio
<CAPTION>
Balance Sheet
June 30, 1997
(All Amounts In Thousands)
<S> <C>
ASSETS
Investments, at market value .................................. $144,151
Receivable for investments sold ............................... 3,009
Accrued interest receivable ................................... 1,068
Cash .......................................................... 22
--------
Total Assets ............................................... 148,250
--------
LIABILITIES
Payable for investments purchased ............................. 9,274
Payable to investment adviser ................................. 31
Other liabilities ............................................. 17
--------
Total Liabilities .......................................... 9,322
--------
Net Assets applicable to investors' beneficial interests ...... $138,928
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For The Year Ended June 30, 1997
(All Amounts In Thousands)
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income .................................... $5,182
------
EXPENSES
Management fees ............................................... 352
Accounting fees ............................................... 27
Trustees' fees ................................................ 16
Audit and legal fees .......................................... 14
Custodian fees ................................................ 13
Other ......................................................... 32
------
Total Expenses ............................................. 454
------
Net Investment Income ......................................... $4,728
======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Municipal Money Market Portfolio
<CAPTION>
Statement of Changes in Net Assets
(All Amounts In Thousands)
PERIOD YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1996 (A) 1997
<S> <C> <C>
OPERATIONS
Net investment income .............................. $ 4,054 $ 4,728
--------- ---------
Transactions in Investors' Beneficial Interests
Contributions ...................................... 241,616 118,114
Withdrawals ........................................ (102,742) (126,842)
--------- ---------
Net Increase (Decrease) from transactions in
investors' beneficial interests ............... 138,874 (8,728)
--------- ---------
Net Increase (Decrease) in Net Assets ........... 142,928 (4,000)
TOTAL NET ASSETS
Beginning of Period ................................ -- 142,928
---------
End of Period ...................................... $ 142,928 $ 138,928
========= =========
<FN>
(a) The portfolio commenced operations September 28, 1995.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Note 1. Organization of the SR&F Municipal Money Market Portfolio
The SR&F Municipal Money Market Portfolio (the "Portfolio") is a separate series
of the SR&F Base Trust, a Massachusetts common trust organized under an
Agreement and Declaration of Trust dated August 23, 1993. The Declaration of
Trust permits the Trustees to issue non-transferable interests in the Portfolio.
The Portfolio allocates net asset value, income and expenses based on respective
percentage ownership of each investor on a daily basis. At June 30, 1997, Stein
Roe Municipal Money Market Fund and Colonial Municipal Money Market Fund owned
85.8 percent and 14.2 percent, respectively.
Note 2. Significant Accounting Policies
The following are the significant accounting policies of 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"), each a
series of the Stein Roe Municipal Trust (a Massachusetts business trust), and
the Portfolio. The policies are in conformity with generally accepted accounting
principles. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Security Valuations
All securities are valued as of June 30, 1997. 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 the Portfolio. Municipal securities of the Portfolio
are valued at amortized cost, which approxi mates market value. This method
involves valuing an instrument at cost on the purchase date and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument and does not take into account unrealized securities gains or
losses. 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 amor tized 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 by a method that the
Board of Trustees believes represents a fair value.
Futures Contracts
The Funds may enter into futures contracts to either hedge against expected
declines of their portfolio securities or as a temporary substi tute 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, a fund deposits with its custodian
cash or securities in an amount sufficient to meet the initial margin
requirements. Subsequent payments are made or received by a fund equal to the
daily change in the contract value and are recorded as unrealized gains or
losses. A fund recognizes a realized gain or loss when the contract is closed or
expires. None of the Funds entered into futures contracts during the year ended
June 30, 1997.
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 distribu tions to their
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 respective percentages of ownership. 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 includable 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, 1997, the Funds had capital loss carryforwards as follows:
<TABLE>
<CAPTION>
YEAR OF
FUND AMOUNT EXPIRATION
<S> <C> <C>
Managed
Municipals $1,660 2003-2004
High-Yield
Municipals $4,053 2003-2004
</TABLE>
<PAGE>
Distributions to Fund Shareholders
Dividends from net investment income are declared daily and paid monthly.
Capital gains distributions, if any, are distributed annually. Distributions in
excess of tax basis earnings are reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings that result in temporary
overdistri butions are classified as distributions in excess of net investment
income or net realized gains, and any perma nent differences are reclassified to
paid-in capital. None of the Funds had distri butions in excess of net
investment income or net realized gains for the year ended June 30, 1997.
Other Information
Realized gains or losses from sales of securities are determined on the
specific identified cost basis. Securities purchased on a when-issued or delayed
delivery basis may be settled a month or more after the transaction date. These
securities are subject to market fluctuation during this period. None of the
Funds had when-issued or delayed delivery purchase commitments as of June 30,
1997. Municipal Money Market Fund attempts to maintain its net asset value per
share at $1.00, which it believes will be possible under most conditions.
Original issue discounts and premiums on municipal securities of Intermediate
Municipals Fund, Managed Municipals Fund and High-Yield Municipals Fund are
accreted or amortized. A maturity date is not shown for municipal securities
bearing variable or floating interest rates that are adjusted periodically to
minimize fluctuations in the value of such securities. All amounts, except
per-share amounts, are shown in thousands.
Note 3. Portfolio Composition
The Funds and the Portfolio invest 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). See Fund Highlights for each Fund's
and the Portfolio's security type breakdowns. The Funds' and the Portfolio's
investments include certain municipal securities that are insured by private
insurers who guarantee the payment of principal and interest in the event of
default. At June 30, 1997, invest ments in these securities for Intermediate
Municipals Fund, High-Yield Municipals Fund and Managed Municipals Fund repre
sented 50.8 percent, 3.4 percent and 23.8 percent of holdings, respectively.
SR&F Municipal Money Market Portfolio's investments include certain short-term
securities that are backed by letters of credit used to provide liquidity to the
issuer and/or additional security in the event of default by the issuer. At June
30, 1997, 53.6 percent of the Portfolio was backed by bank letters of credit.
See each Fund's or the Portfolio's schedule of investments for addi tional
information on portfolio composition and Fund Highlights for each Fund's
portfolio quality (unaudited). Stein Roe Municipal Money Market Fund invests all
of its investable assets in the Portfolio.
Note 4. Trustees' Fees and Transactions with Affiliates
The Funds and the Portfolio pay monthly management fees, computed and accrued
daily, to Stein Roe & Farnham Incorporated (the "Adviser"), an indirect,
majority-owned subsidiary of Liberty Mutual Insurance Company, for its services
as investment adviser 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, and the administrative fee for the 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 management fee for Intermediate Municipals Fund and
High-Yield 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 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 Funds pay monthly adminis tra tive fees to the Adviser. Intermediate
Municipals Fund and High-Yield Municipals Fund administrative fee is .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 administrative 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.
<PAGE>
The administrative agreements of Municipal Money Market Fund Intermediate
Municipals Fund, Managed Municipals Fund, and High-Yield Municipals Fund provide
that the Adviser will reimburse each of the Funds to the extent that their
annual expenses, excluding certain expenses, exceed the applicable limits
prescribed by any state in which the Funds' shares are offered for sale. In
addition, the Adviser has agreed to reimburse Municipal Money Market Fund and
Intermediate Municipals Fund for expenses in excess of .70 of 1 percent of
average daily net assets. These expense limitations expire October 31, 1997,
subject to earlier termination by the Adviser on 30 days' notice.
The transfer agent fees of the Funds are paid to SteinRoe Services, Inc.
(SSI), an indirect, majority-owned subsidiary of Liberty Mutual Insurance
Company. SSI has entered into an agreement with Colonial Investors Service
Center, Inc., an indirect, majority-owned subsidiary of Liberty Mutual Insurance
Company, to act as sub-transfer agent for the Funds.
The Adviser also provides fund accounting services.
Certain officers and trustees of the Trusts are also officers of the Adviser.
Compensation is paid to trustees not affiliated with the Adviser. No remunera
tion was paid to any other trustee or officer of the Trusts.
Note 5. Short-Term Debt
To facilitate portfolio liquidity, the Funds and the Portfolio maintain
borrowing arrangements under which they can borrow against portfolio securities.
There were no borrowings for any of the Funds or the Portfolio during the year
ended June 30, 1997.
<PAGE>
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, 1997, were as follows:
<TABLE>
<CAPTION>
FUND Purchases Sales
--------- ---------
<S> <C> <C>
Intermediate Municipals Fund........................... $84,725 $ 94,054
Managed Municipals Fund................................ 90,470 127,617
High-Yield Municipals Fund............................. 53,379 31,972
</TABLE>
At June 30, 1997, the cost of investments for financial reporting purposes
and for federal income tax purposes were equal. Unrealized appreciation and
depreciation of investments on a tax basis were as follows:
<TABLE>
<CAPTION>
Net
Appreciation Depreciation Appreciation
<S> <C> <C> <C>
Intermediate Municipals Fund........... $ 9,653 $ -- $ 9,653
Managed Municipals Fund................ 45,950 87 45,863
High-Yield Municipals Fund............. 20,746 6,550 14,196
</TABLE>
<PAGE>
<TABLE>
Financial Highlights
Municipal Money Market Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------
Net investment income ........................ .040 .021 .056 .054
Distributions from net investment income ..... (.040) (.021) (.056) (.054)
------------ ------------ ------------ ------------
Net Asset Value, End of Period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============
Ratio of net expenses to average net assets (a) ....... 0.69% 0.67%* 0.67% 0.67%
Ratio of net investment income to average
net assets (b) ...................................... 4.08% 4.25%* 5.57% 5.40%
Total return (b) ...................................... 4.11% 2.13%** 5.74% 5.52%
Net assets, end of period (000s) ...................... $ 306,971 $ 294,116 $ 254,261 $ 255,953
<PAGE>
<CAPTION>
Years Ended June 30,
1991 1992 1993 1994
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------
Net investment income ........................ .046 .032 .020 .019
Distributions from net investment income ..... (.046) (.032) (.020) (.019)
------------ ------------ ------------ ------------
Net Asset Value, End of Period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============
Ratio of net expenses to average net assets (a) ....... 0.68% 0.70% 0.70% 0.70%
Ratio of net investment income to average
net assets (b) ..................................... 4.66% 3.19% 1.96% 1.88%
Total return (b) ...................................... 4.74% 3.25% 1.97% 1.90%
Net assets, end of period (000s) ...................... $ 237,403 $ 199,037 $ 195,887 $ 165,820
<PAGE>
<CAPTION>
Years Ended June 30,
1995 1996 1997
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .........$ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------
Net investment income ........................ .030 .031 .030
Distributions from net investment income ..... (.030) (.031) (.030)
------------ ------------ ------------
Net Asset Value, End of Period ........................$ 1.000 $ 1.000 $ 1.000
============ ============ ============
Ratio of net expenses to average net assets (a) ....... 0.70% 0.70% 0.70%
Ratio of net investment income to average
net assets (b) ..................................... 2.96% 3.09% 2.98%
Total return (b) ...................................... 3.02% 3.13% 3.04%
Net assets, end of period (000s) ......................$ 146,704 $ 120,432 $ 118,424
<FN>
* Annualized
** Not annualized
(a) If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this ratio would have been 0.78, 0.84 and 0.86 percent for the
years ended June 30, 1995 through June 30, 1997, respectively. (b) Computed
giving effect to the Adviser's expense limitation undertaking.
</FN>
</TABLE>
<PAGE>
<TABLE>
SR&F Municipal Money Market Portfolio
<CAPTION>
PERIOD YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1996 (A) 1997
<S> <C> <C>
Ratios to average net assets
Ratio of net investment income to average net assets 3.50%* 3.36%
Ratio of net expenses to average net assets.... 0.30%* 0.32%
<FN>
* Annualized
(a) The portfolio commenced operations on September 28, 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
Intermediate Municipals Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..................... $ 10.76 $ 10.37 $ 10.43 $ 10.50
---------- ---------- ---------- ----------
Income From Investment Operations
Net investment income ........................... .57 .29 .62 .63
Net realized and unrealized gains (losses)
on investments .............................. (.38) .06 .07 .07
---------- ---------- ---------- ----------
Total from investment operations .............. .19 .35 .69 .70
Distributions
Net investment income ........................... (.57) (.29) (.62) (.63)
Net realized gains .............................. (.01) -- -- (.03)
In excess of realized gains ..................... -- -- -- --
---------- ---------- ---------- ----------
Total distributions ........................... (.58) (.29) (.62) (.66)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........................... $ 10.37 $ 10.43 $ 10.50 $ 10.54
========== ========== ========== ==========
Ratio of net expenses to average net assets (a) .......... 0.80% 0.80%* 0.80% 0.80%
Ratio of net investment income to
average net assets (b) .......................... 5.47% 5.66%* 5.96% 5.96%
Portfolio turnover rate .................................. 49% 22%** 83% 141%
Total return (b) ......................................... 1.93% 3.45%** 6.85% 6.85%
Net assets, end of period (000s) ......................... $ 96,143 $ 97,308 $ 91,304 $ 98,918
<PAGE>
<CAPTION>
Years Ended June 30,
1991 1992 1993 1994
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.54 $ 10.73 $ 11.06 $ 11.57
----------- ----------- ----------- -----------
Income From Investment Operations
Net investment income ............................. .62 .57 .54 .53
Net realized and unrealized gains (losses)
on investments ................................ .22 .50 .63 (.39)
----------- ----------- ----------- -----------
Total from investment operations ................ .84 1.07 1.17 .14
Distributions
Net investment income ............................. (.62) (.57) (.54) (.53)
Net realized gains ................................ (.03) (.17) (.12) (.17)
In excess of realized gains ....................... -- -- -- (.01)
----------- ----------- ----------- -----------
Total distributions ............................. (.65) (.74) (.66) (.71)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ............................. $ 10.73 $ 11.06 $ 11.57 $ 11.00
=========== =========== =========== ===========
Ratio of net expenses to average net assets (a) ............ 0.80% 0.79% 0.72% 0.71%
Ratio of net investment income to
average net assets (b) ............................ 5.79% 5.23% 4.79% 4.63%
Portfolio turnover rate .................................... 96% 109% 96% 55%
Total return (b) ........................................... 8.18% 10.31% 10.92% 1.16%
Net assets, end of period (000s) ........................... $ 118,651 $ 165,401 $ 245,441 $ 238,053
<PAGE>
<CAPTION>
Years Ended June 30,
1995 1996 1997
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 11.00 $ 11.16 $ 11.22
----------- ----------- -----------
Income From Investment Operations
Net investment income ............................. .53 .55 .55
Net realized and unrealized gains (losses)
on investments ................................ .16 .06 .22
----------- ----------- -----------
Total from investment operations ................ .69 .61 .77
Distributions
Net investment income ............................. (.53) (.55) (.55)
Net realized gains ................................ -- -- (.06)
In excess of realized gains ....................... -- -- --
----------- ----------- -----------
Total distributions ............................. (.53) (.55) (0.61)
----------- ----------- -----------
Net Asset Value, End of Period ............................. $ 11.16 $ 11.22 $ 11.38
=========== =========== ===========
Ratio of net expenses to average net assets (a) ............ 0.74% 0.70% 0.70%
Ratio of net investment income to
average net assets (b) ............................ 4.94% 4.82% 4.84%
Portfolio turnover rate .................................... 67% 66% 44%
Total return (b) ........................................... 6.59% 5.47% 7.07%
Net assets, end of period (000s) ........................... $ 212,489 $ 204,726 $ 196,006
<FN>
* Annualized
** Not annualized
(a) If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser in connection with the expense limitation which expired October
31, 1993, this ratio would have been 0.83 percent for the year ended December
31, 1987, 0.87 percent for the six months ended June 30, 1988, 0.82, 0.81 and
0.81 percent for the years ended June 30, 1989, through June 30, 1991, and 0.76,
0.81 and 0.82 percent for the years ended June 30, 1995, through June 30, 1997.
(b) Computed giving effect to the Adviser's expense limitation undertaking.
</FN>
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
Managed Municipals Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 9.22 $ 8.50 $ 8.61 $ 9.02
----------- ----------- ----------- -----------
Income From Investment Operations
Net investment income .............................. .61 .30 .61 .59
Net realized and unrealized gains (losses)
on investments .................................. (.59) .11 .44 (.06)
----------- ----------- ----------- -----------
Total from investment operations ................. .02 .41 1.05 .53
Distributions
Net investment income .............................. (.61) (.30) (.61) (.59)
Net realized gains ................................. (.13) -- (.03) (.25)
In excess of realized gains ........................ -- -- -- --
----------- ----------- ----------- -----------
Total distributions .............................. (.74) (.30) (.64) (.84)
----------- ----------- ----------- -----------
Net Asset Value, End of Period .............................. $ 8.50 $ 8.61 $ 9.02 $ 8.71
=========== =========== =========== ===========
Ratio of net expenses to average net assets ................. 0.65% 0.65%* 0.65% 0.66%
Ratio of net investment income to average net assets ........ 6.99% 7.03%* 7.00% 6.66%
Portfolio turnover rate ..................................... 113% 28%** 102% 95%
Total return ................................................ 0.39% 4.90%** 12.69% 6.15%
Net assets, end of period (000s) ............................ $ 458,170 $ 467,595 $ 514,898 $ 584,081
<PAGE>
<CAPTION>
Years Ended June 30,
1991 1992 1993 1994
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................... $ 8.71 $ 8.85 $ 9.11 $ 9.38
----------- ----------- ----------- -----------
Income From Investment Operations
Net investment income .......................... .56 .55 .52 .50
Net realized and unrealized gains (losses)
on investments .............................. .19 .46 .42 (.51)
----------- ----------- ----------- -----------
Total from investment operations ............. .75 1.01 .94 (.01)
Distributions
Net investment income .......................... (.56) (.55) (.52) (.50)
Net realized gains ............................. (.05) (.20) (.15) (.11)
In excess of realized gains .................... -- -- -- (.06)
----------- ----------- ----------- -----------
Total distributions .......................... (.61) (.75) (.67) (.67)
----------- ----------- ----------- -----------
Net Asset Value, End of Period .......................... $ 8.85 $ 9.11 $ 9.38 $ 8.70
=========== =========== =========== ===========
Ratio of net expenses to average net assets ............. 0.66% 0.64% 0.64% 0.65%
Ratio of net investment income to average net assets .... 6.39% 6.17% 5.65% 5.45%
Portfolio turnover rate ................................. 203% 94% 63% 36%
Total return ............................................ 8.92% 11.95% 10.79% (0.29%)
Net assets, end of period (000s) ........................ $ 655,930 $ 725,472 $ 776,694 $ 687,252
<PAGE>
<CAPTION>
Years Ended June 30,
1995 1996 1997
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................... $ 8.70 $ 8.79 $ 8.85
----------- ----------- -----------
Income From Investment Operations
Net investment income .......................... .51 .48 .48
Net realized and unrealized gains (losses)
on investments .............................. .09 .06 .26
----------- ----------- -----------
Total from investment operations ............. .60 .54 .74
Distributions
Net investment income .......................... (.51) (.48) (.48)
Net realized gains ............................. -- -- --
In excess of realized gains .................... -- -- --
----------- ----------- -----------
Total distributions .......................... (.51) (.48) (.48)
----------- ----------- -----------
Net Asset Value, End of Period .......................... $ 8.79 $ 8.85 $ 9.11
=========== =========== ===========
Ratio of net expenses to average net assets ............. 0.65% 0.72% 0.73%
Ratio of net investment income to average net assets .... 5.85% 5.41% 5.31%
Portfolio turnover rate ................................. 33% 40% 16%
Total return ............................................ 7.12% 6.24% 8.56%
Net assets, end of period (000s) ........................ $ 629,730 $ 606,359 $ 582,366
<FN>
* Annualized
** Not annualized
</FN>
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
High-Yield Municipals Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......................... $ 12.06 $ 11.06 $ 11.37 $ 11.97
----------- ----------- ----------- -----------
Income From Investment Operations
Net investment income ............................... .87 .44 .88 .85
Net realized and unrealized gains (losses)
on investments ................................... (.89) .31 .63 .02
----------- ----------- ----------- -----------
Total from investment operations .................. (.02) .75 1.51 .87
Distributions
Net investment income ............................... (.87) (.44) (.88) (.85)
Net realized gains .................................. (.11) -- (.03) (.21)
In excess of realized gains ......................... -- -- -- --
----------- ----------- ----------- -----------
Total distributions ............................... (.98) (.44) (.91) (1.06)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ............................... $ 11.06 $ 11.37 $ 11.97 $ 11.78
=========== =========== =========== ===========
Ratio of net expenses to average net assets .................. 0.73% 0.76%* 0.73% 0.71%
Ratio of net investment income to average net assets ......... 8.20% 7.87%* 7.54% 7.22%
Portfolio turnover rate ...................................... 110% 53%** 208% 261%
Total return ................................................. (0.16%) 6.89%** 13.79% 7.59%
Net assets, end of period (000s) ............................. $ 181,600 $ 201,274 $ 277,620 $ 310,582
<PAGE>
<CAPTION>
Years Ended June 30,
1991 1992 1993 1994
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 11.78 $ 11.79 $ 11.83 $ 11.84
----------- ----------- ----------- -----------
Income From Investment Operations
Net investment income ............................. .82 .80 .71 .67
Net realized and unrealized gains (losses)
on investments ................................. .17 .22 .18 (.54)
----------- ----------- ----------- -----------
Total from investment operations ................ .99 1.02 .89 .13
Distributions
Net investment income ............................. (.82) (.80) (.71) (.67)
Net realized gains ................................ (.16) (.18) (.17) (.17)
In excess of realized gains ....................... -- -- -- (.07)
----------- ----------- ----------- -----------
Total distributions ............................. (.98) (.98) (.88) (.91)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ............................. $ 11.79 $ 11.83 $ 11.84 $ 11.06
=========== =========== =========== ===========
Ratio of net expenses to average net assets ................ 0.71% 0.69% 0.73% 0.76%
Ratio of net investment income to average net assets ....... 7.00% 6.75% 6.04% 5.76%
Portfolio turnover rate .................................... 195% 88% 75% 36%
Total return ............................................... 8.79% 9.01% 7.88% 0.95%
Net assets, end of period (000s) ........................... $ 373,948 $ 410,613 $ 359,103 $ 308,181
<PAGE>
<CAPTION>
Years Ended June 30,
1995 1996 1997
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 11.06 $ 11.31 $ 11.40
----------- ----------- -----------
Income From Investment Operations
Net investment income ............................. .66 .67 .72
Net realized and unrealized gains (losses)
on investments ................................. .25 .09 .27
----------- ----------- -----------
Total from investment operations ................ .91 .76 .99
Distributions
Net investment income ............................. (.66) (.67) (.72)
Net realized gains ................................ -- -- --
In excess of realized gains ....................... -- -- --
----------- ----------- -----------
Total distributions ............................. (.66) (.67) (.72)
----------- ----------- -----------
Net Asset Value, End of Period ............................. $ 11.31 $ 11.40 $ 11.67
=========== =========== ===========
Ratio of net expenses to average net assets ................ 0.86% 0.85% 0.77%
Ratio of net investment income to average net assets ....... 5.98% 5.86% 6.20%
Portfolio turnover rate .................................... 23% 34% 11%
Total return ............................................... 8.54% 6.83% 8.91%
Net assets, end of period (000s) ........................... $ 281,155 $ 282,956 $ 306,070
<FN>
* Annualized
** Not annualized
</FN>
</TABLE>
<PAGE>
Report of Independent Auditors
To the Shareholders 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
We have audited the accompanying balance sheets, including the schedules of
investments, of Stein Roe Municipal Money Market Fund, Stein Roe Intermediate
Municipals Fund, Stein Roe Managed Municipals Fund, Stein Roe High-Yield
Municipals Fund, and SR&F Municipal Money Market Portfolio as of June 30, 1997,
and the related statements of operations for the year then ended and changes in
net assets for each of the two years in the period then ended (except for SR&F
Municipal Money Market Portfolio, which is for the year then ended and the
period from September 28, 1995, to June 30, 1996), and the financial highlights
for each of the fiscal periods since 1987. These financial statements and
financial highlights are the responsibility of the Funds' and Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, 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 Intermediate Municipals Fund, Stein
Roe Managed Municipals Fund, Stein Roe High-Yield Municipals Fund, and SR&F
Municipal Money Market Portfolio at June 30, 1997, 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 LLP
Chicago, Illinois
August 12, 1997
<PAGE>
A Guide to Stein Roe Services
We encourage you to take advantage of our free shareholder services. If you
would like additional information about how to establish or use a Stein Roe
service, just call us at 800-338-2550.
Purchases
In addition to sending us a check or wire to purchase additional fund shares,
you can take advantage of these convenient automatic services:
o Automatic Investment Plan -- Make regular investments ($50 minimum) in your
Stein Roe account directly from your bank checking account. You select
monthly, quarterly, semiannual or annual purchases.
o Special Investments -- Purchase shares by telephone and pay for them by
electronic transfer from your bank checking account.
Exchanges
o Telephone Exchange -- Call us to exchange $50 or more from your existing
account in one Stein Roe fund to an identically registered existing account
in another Stein Roe fund. You receive this service when you open a Stein
Roe fund account, unless you elect not to.*
o Automatic Exchange -- Stein Roe will regularly exchange shares from your
account in one Stein Roe fund to your account in another. You select
twice-monthly, monthly, quarterly, semiannual or annual exchanges.
Redemptions
o Telephone Redemption by Check -- Call to redeem $1,000 or more from your
account. A check will be sent to your registered address. You automatically
receive this service when you open a Stein Roe account, unless you elect
not to.
o Telephone Redemption by Wire -- Redeem shares by phone from your account
($1,000 minimum) and wire the proceeds to your bank checking account. A
small fee for wiring proceeds will be deducted from the amount wired.
o Special Redemption Option-- If you do not want to pre-schedule your
redemptions, you can redeem shares by telephone ($50 minimum/
$100,000 maximum) and have the proceeds sent directly to your bank
checking account.
o Automatic Redemption Plan -- Redeem either a fixed dollar or share amount,
or a fixed percentage of your account automatically on a schedule you
establish. You select monthly, quarterly, semiannual or annual withdrawals
($50 minimum/ $100,000 maximum), and the proceeds are sent either to your
bank checking account or to an address you specify.
o Money Market Fund Check
Writing -- Write checks for $50 or more on your money market fund account.
* Stein Roe reserves the right to discontinue or modify the exchange
privilege, and certain restrictions apply. Please refer to your prospectus for
details.
<PAGE>
Distributions
Most investors like to reinvest their dividends and capital gains
distributions and put them back to work. If, however, you do not want them
reinvested, consider these alternatives:
o Dividend Purchase Option -- Use the distributions from one Stein Roe fund
account ($25 minimum) to automatically purchase shares in your account with
another Stein Roe fund.
o Automatic Dividend Deposit -- Instead of receiving your dividends by check,
your distributions are deposited automatically into your bank checking
account.
Recordkeeping
o Summary of Investments -- Consolidates quarterly transaction and investment
information for any or all of your household's Stein Roe accounts on one
easy-to-read statement. At year end, Stein Roe provides a complete summary
of all account activity for the year.
<PAGE>
Funds for Every Investment Objective
The Stein Roe family of mutual funds offers a variety of funds so you can select
the right fund, or combina tion of funds, to meet your investment objectives.
Call us at 800-338-2550 for a prospectus and more complete information on any of
the funds, including management fees and expenses. Please read the prospectus
carefully before you invest or send money.
Money Market Funds
Money market funds seek to provide income while preserving principal and
maintaining liquidity. These funds offer free check writing.
o Government Reserves Fund -- Invests primarily in securities issued
or guaranteed by the U.S. government and its agencies and
instrumentalities.*
o Cash Reserves Fund -- Invests in high-quality, short-term money market
securities such as certificates of deposit, banker's acceptances and
commercial paper.*
Tax-Exempt Funds
These funds help investors keep more of their earnings by investing in
instruments that earn income free from federal income tax. Income may be subject
to federal alternative minimum tax and state and local taxes; capital gains are
subject to state, local and federal taxes.
o Municipal Money Market Fund -- Seeks to provide the liquidity and
stability of a money market fund plus current tax-free income.
Free check writing available.*
o Intermediate Municipals Fund -- Seeks high current yield through
investments primarily in the three highest grades of intermediate-term
municipal securities.
o Managed Municipals Fund -- Pursues high tax-free income by investing in a
quality- conscious portfolio of long-term municipal bonds.
o High-Yield Municipals Fund -- Seeks a higher level of tax-free income from
long-term municipal securities, primarily of medium or lower quality.
Bond Funds
Bond funds seek high current income by investing primarily in fixed income
securities.
o Government Income Fund -- Invests primarily in securities issued or
guaranteed by the U.S. government and its agencies.*
o Intermediate Bond Fund-- Invests primarily in marketable debt
securities with an average life of three to 10 years.
*Money market mutual funds strive to maintain a $1 per share net asset
value, but there is no assurance that these funds will be able to maintain a
stable net asset value. The net asset value of a fund that invests in securities
issued or guaranteed by the U.S. government is not guaranteed.
o Income Fund -- Pursues a higher level of current income by investing
primarily in medium- and lower-quality bonds.
o High Yield Fund -- Invests in high yield, high-risk, medium- and
lower-quality debt securities that may involve greater risk.
Growth and Income Funds
These funds seek to provide a conservative investment that is well positioned
for long-term growth and current income. Each fund's approach is designed to
limit the effects of market volatility.
o Balanced Fund -- Seeks long-term growth of capital and current income
consistent with reasonable investment risk by investing in equities, debt
securities and cash equivalents.
o Growth & Income Fund -- Pursues income and long-term capital growth by
investing primarily in large, well-established companies.
Growth Funds
Growth funds offer long-term capital appreciation potential by investing
primarily in various types of stocks.
o Growth Stock Fund -- Pursues long-term capital appreciation from
stocks with strong growth potential.
o Young Investor Fund -- Invests in securities of companies that affect the
lives of children or teenagers.
o Special Fund -- Invests in securities believed to have limited downside
risk relative to their potential for above-average growth, including
securities of undervalued, under- followed or out-of-favor companies.
o Growth Opportunities Fund -- Invests in the common stocks of small,
mid-sized and large companies believed to have the potential to generate
and sustain earnings growth at an above-average rate.
o Special Venture Fund -- Seeks capital appreciation through equity
securities of entrepreneurially managed companies.
o Capital Opportunities Fund -- Takes a long-term approach to aggressive
growth by selecting quality companies with the potential to generate high
levels of earnings growth over a three- to five-year period.
o International Fund -- Invests in a diversified portfolio of
foreign securities.
o Emerging Markets Fund -- Seeks long-term capital opportunities through
emerging market investment opportunities.
<PAGE>
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 IRAs. We're available seven days a week, from 7
a.m. to 8 p.m. weekdays and from 9 a.m. to 2 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 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, 32nd Floor. 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.
<PAGE>
Stein Roe Municipal Trust
Trustees
Timothy K. Armour
President, Mutual Fund Division and
Director, Stein Roe & Farnham Incorporated
Kenneth L. Block
Chairman Emeritus, A.T. Kearney, Inc.
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
Francis W. Morley
Chairman, Employer Plan Administrators
and Consultants Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Director, William Blair Capital Partners
Officers
Timothy K. Armour, President
Jilaine H. Bauer, Executive Vice President,
Secretary
Thomas W. Butch, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Joanne Costopoulos, Vice President
Philip J. Crosley, Vice President
Lynn C. Maddox, Vice President
Anne E. Marcel, Vice President
M. Jane McCart, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Cynthia A. Prah, Vice President
Thomas P. Sorbo, Vice President
Veronica Wallace, Vice President
Heidi J. Walter, Vice President
Stacy H. Winick, Vice President
Sharon R. Robertson, Controller
Margaret O. Zwick, Assistant Treasurer
Janet B. Rysz, Assistant Secretary
Agents and Advisers
Stein Roe & Farnham Incorporated
Investment Advisor
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>
THE STEIN ROE MUTUAL FUNDS
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Growth Opportunities Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, Massachusetts 02205-8900
1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd Floor
Liberty Securities Corporation, Distributor
Member SIPC
TE11A 8/97
