STEIN ROE MUNICIPAL TRUST, N-30D, 1999-08-26

STEIN ROE MUNICIPAL TRUST
N-30D, 1999-08-26

Previous: PRICE T ROWE NEW AMERICA GROWTH FUND, NSAR-A, 1999-08-26

Next: RESIDENTIAL FUNDING MORTGAGE SECURITIES I INC, 424B5, 1999-08-26

Stein Roe Mutual Funds

Annual Report
June 30, 1999

[PHOTO OF BRIDGE]

Stein Roe Tax-Exempt Bond Funds

Tax-Exempt Funds

Municipal Money Market Fund
Intermediate Municipals Fund
Managed Municipals Fund
High-Yield Municipals Fund

STEIN ROE MUTUAL FUNDS
Sensible Risks. Intelligent Investments. (R)
<PAGE>

Contents
- --------------------------------------------------------------------------------

From the President................................................ 1

Tom Butch's thoughts on the markets and investing

Questions & Answers

Interviews with the portfolio manager and
a summary of investment activity
Municipal Money Market Fund.................................... 8
Intermediate Municipals Fund .................................. 11
Managed Municipals Fund ....................................... 14
High-Yield Municipals Fund .................................... 18

Portfolios of Investments......................................... 22

A complete list of investments with market values

Financial Statements.............................................. 48

Statements of assets and liabilities, operations
and changes in net assets

Notes to Financial Statements..................................... 58

Financial Highlights.............................................. 63

Selected per-share data

Report of Independent Auditors.................................... 67

Must be preceded or accompanied by a prospectus.

<PAGE>

From the President
- --------------------------------------------------------------------------------

To Our Shareholders

Fiscal 1999 was a frustrating period for municipal bonds. Fear of higher
inflation outweighed the potentially beneficial effects of a strong domestic
economy, driving down bond prices at the same time that bond issuance remained
high.
Municipal bonds generally performed in line with U.S. Treasury bonds of
comparable maturity between June 1998 and June 1999. However, preserving capital
was challenging. High yield municipal securities generally provided the highest
returns for the period.
The returns of Stein Roe's four municipal funds for the one-year and
longer-term periods ended June 30, 1999 are shown on page 3. Amid a tough
investing climate, each Fund - Stein Roe Municipal Money Market Fund, Stein Roe
Intermediate Municipals Fund, Stein Roe Managed Municipals Fund, and Stein Roe
High-Yield Municipals Fund -- provided positive results for shareholders who
reinvested monthly dividends.
Beginning on page 8, each Fund's manager(s) review events over the past 12
months that affected the tax-exempt securities market. While the past year's
market results were weak, we remain confident that municipal bonds can be a
rewarding asset class for a growing number of tax-sensitive investors as we
enter a new millennium.

Double-Edge Dilemma:

Growth and Inflation In the 1990s, advances in technology -- particularly
electronic commerce -- as well as prudent Federal Reserve monetary policy, have
helped fuel one of the longest and strongest U.S. economic booms since the end
of World War II. In May 1999, the nation's unemployment rate dropped to 4.2%, a
level not seen since the 1960s.
Our growing economy helps municipal bond issuers meet debt payments by
increasing tax revenue, but too much growth can cause the cost of living to
accelerate. Higher prices, in turn, reduce the purchasing power of bond income.
When the government reported that inflation in April was higher than
expected, bond traders demanded much higher yields from fixed-income
investments. Bond prices -- which move in the opposite direction of yields --
fell sharply. This fear of inflation was compounded by the resignation of a U.S.
Treasury Secretary who helped engineer the first budget surpluses in a
generation, higher oil prices and reports of building material and labor
shortages.

A Year of Volatility in Treasuries

As of June 30, 1999, the average yield of 30-year U.S. Treasury bonds stood at
5.98%, some 35 basis points (0.35%) higher than on June 30, 1988. However, this
modest increase masks a year of exceptional volatility that saw yields fluctuate
from a record low of 4.71% last October to a high of 6.19% in late June.

[PHOTO OF THOMAS W. BUTCH]

<PAGE>

From the President Continued
- --------------------------------------------------------------------------------

Fiscal 1999 initially began with positive developments for Treasuries and a
weak municipals market. Investors flocked to the safety of U.S. government debt
as credit concerns mounted and equity markets weakened. By this spring,
enthusiasm for Treasuries waned. U.S. corporate profits were generally better
than expected, stocks soared and the domestic economy showed vigorous growth.
This past June, the Fed raised short-term interest rates by 25 basis points
(0.25%) to 5%.
At Stein Roe, we believe the U.S. economic environment may become more
favorable for municipal bonds in the coming months as investors begin to realize
that inflation is not expected to rise much beyond 3%. In addition, we think
some companies may hold off on purchasing plans until after the year 2000,
helping to temper domestic growth.

Little Chance of Tax Relief

Despite huge federal budget surpluses, Washington appears unlikely to enact
across-the-board income tax relief for the people whose earnings have generated
the surplus -- America's high-income taxpayers.
With a divided Congress and an unreceptive executive branch, it appears that
municipal bonds remain one the few ways tax-sensitive investors can increase
their income potential without inflating their tax burden. Continued domestic
growth has helped many states maintain high credit ratings, helping to support
bond prices.
As interest rates have risen in 1999, new municipal bond issuance has dropped
more than 30% from year-earlier levels, according to The Bond Buyer, a municipal
bond trade publication. This is potentially good news for municipal bond
investors because if demand for tax-exempt securities remains steady or better,
bond prices should hold up well, all things being equal.
I urge you to review the role your municipal bond fund plays in your
portfolio and consider increasing your financial commitment to this asset class,
especially now that yields have become more attractive. Remember, too, that
tax-exempt investing can allow you to take maximum advantage of the compounding
effects of interest income.

Sincerely,

[SIGNATURE HERE]

Thomas W. Butch
President
July 19, 1999

Income may be subject to state or local taxes and the federal alternative
minimum tax. Capital gains, if any, are subject to federal, state and local
taxes.

<PAGE>

Fund Performance
- --------------------------------------------------------------------------------

Average Annual Total Returns
Periods Ended June 30, 1999

1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Stein Roe Municipal Money
Market Fund 2.73% 3.01% 3.23%
U.S. Consumer Price Index (Inflation) 2.00% 2.35% 3.04%
Lipper Tax-Exempt Money Market
Fund Average 2.68% 3.00% 2.94%
Number of Funds in Peer Group 128 106 69

Stein Roe Intermediate Municipals Fund 2.08% 5.59% 6.51%
Lehman Brothers 10-Year Municipal
Bond Index 2.29% 6.83% 7.50%
Lipper Intermediate Municipal
Debt Fund Average 1.93% 5.55% 6.30%
Number of Funds in Peer Group 131 87 24

Stein Roe Managed Municipals Fund 1.67% 6.36% 6.89%
Lehman Brothers Municipal Bond Index 2.76% 7.00% 7.43%
Lipper General Municipal Debt Fund Average 1.13% 6.18% 6.85%
Number of Funds in Peer Group 259 154 76

Stein Roe High-Yield Municipals Fund 3.18%(a) 7.14% 6.97%
Lehman Brothers Municipal Bond Index 2.76% 7.00% 7.43%
Lipper High-Yield Municipal Debt Fund Average 1.90% 6.64% 6.82%
Number of Funds in Peer Group 53 27 15
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. An
expense limitation of 0.70% was in effect for Municipal Money Market Fund and
Intermediate Municipals Fund for part of the periods shown. Returns would have
been lower without the limitation. Total return includes changes in share price
and reinvestment of income and capital gains distributions, if any. Each index
shown above is an unmanaged group of fixed-income securities that differs from
the composition of each Stein Roe fund; they are not available for direct
investment. The U.S. Consumer Price Index is the government's measure of annual
changes in the cost of living. Income may be subject to state or local taxes and
the federal alternative minimum tax. Capital gains, if any, are subject to
federal, state and local taxes. Sources: Lipper, Inc., a monitor of mutual fund
performance, and Bloomberg Business News.
(a) 0.50% of the return is attributable to a one-time revaluation of a portfolio
security reflecting the restructuring of this security. Absent this revaluation,
the total return would have been 2.68%.

<PAGE>

Total Return Comparison
- --------------------------------------------------------------------------------

Intermediate Municipals Fund
- --------------------------------------------------------------------------------

Growth of a $10,000 Investment June 30, 1989 to June 30, 1999

[LINE CHART HERE]

Intermediate Municipals Fund

Lipper
Lehman Brothers Intermediate
10-Year Intermediate Municipal
Municipal Municipals Debt Fund
Bond Index Fund Average (24 funds)
6/30/89 10000 10000 10000
6/30/90 10782 10687 10600
6/30/91 11916 11563 11443
6/30/92 13026 12751 12611
6/30/93 14665 14143 13894
6/30/94 14810 14307 14062
6/30/95 16110 15250 15022
6/30/96 17139 16089 15790
6/30/97 18567 17223 16875
6/30/98 20142 18401 18044
6/30/99 20604 18784 18427

Intermediate Municipals Fund--Income Review
- --------------------------------------------------------------------------------

Annual Income from a $100,000 Investment June 30, 1989 to June 30, 1999

[BAR CHART HERE]

Intermediate Municipals Fund - Income Review

6/30/90 6130
6/30/91 6444
6/30/92 6414
6/30/93 6413
6/30/94 6748
6/30/95 7008
6/30/96 7644
6/30/97 8034
6/30/98 8465
6/30/99 8628

Total Distributions = $80,778

Account Value = $187,731

Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The line chart assumes a $10,000 investment on
6/30/89, reinvestment of distributions and compares fund performance to an
unmanaged group of fixed income securities that differs from the composition of
any Stein Roe fund; it is not available for direct investment. The bar chart
assumes a $100,000 initial investment on 6/30/89, continuous reinvestment of
distributions. Each bar shows the amount of income dividends for each 12-month
period ended June 30 after the initial investment. An expense limitation of
0.70% was in effect for Intermediate Municipals Fund for part of the periods
shown. Returns would have been lower without the limitation. The Fund
distributed $8,529 in capital gains for the period shown. Sources:
Weisenberger(R) and Lipper, Inc.

<PAGE>

Total Return Comparison Continued
- --------------------------------------------------------------------------------

Managed Municipals Fund
- --------------------------------------------------------------------------------

Growth of a $10,000 Investment June 30, 1989 to June 30, 1999

[LINE CHART HERE]

Managed Municipals Fund line chart

Lipper
Municipal Lehman
Managed Debt Fund Brothers
Municipals Average Municipal
Fund (76 Funds) Bond Index
6/30/89 10000 10000 10000
6/30/90 10617 10538 10681
6/30/91 11566 11410 11643
6/30/92 12944 12822 13014
6/30/93 14342 14371 14571
6/30/94 14300 14266 14595
6/30/95 15318 15398 15883
6/30/96 16279 16303 16937
6/30/97 17667 17627 18335
6/30/98 19146 19146 19923
6/30/99 19466 19412 20473

Managed Municipals Fund--Income Review
- --------------------------------------------------------------------------------

Annual Income from a $100,000 Investment June 30, 1979 to June 30, 1999

[BAR CHART HERE]

Managed Municipals Fund bar chart

Managed Muncipals Fund
6/30/80 6166
6/30/81 7402
6/30/82 8777
6/30/83 9285
6/30/84 7357
6/30/85 11160
6/30/86 12456
6/30/87 13163
6/30/88 17277
6/30/89 15543
6/30/90 16240
6/30/91 16832
6/30/92 18061
6/30/93 18231
6/30/94 18908
6/30/95 19606
6/30/96 20618
6/30/97 21324
6/30/98 22756
6/30/99 23363

Total Distributions = $367,385

Account Value = $462,758

Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The line chart assumes a $10,000 investment on
6/30/89, reinvestment of distributions and compares fund performance to an
unmanaged group of fixed income securities that differs from the composition of
any Stein Roe fund; it is not available for direct investment. The bar chart
assumes a $100,000 initial investment on 6/30/79, continuous reinvestment of
distributions. Each bar shows the amount of income dividends for each 12-month
period ended June 30 after the initial investment. The Fund distributed $48,197
in capital gains for the 20-year period shown. Sources: Weisenberger(R) and
Lipper, Inc.

<PAGE>

Total Return Comparison Continued
- --------------------------------------------------------------------------------

High-Yield Municipals Fund
- --------------------------------------------------------------------------------

Growth of a $10,000 Investment June 30, 1989 to June 30, 1999

[LINE CHART HERE]

High Yield Municipals Fund

Lipper
High-Yield Lehman
High-Yield Municipal Debt Brothers
Municipals Fund Average Municipal
Fund (15 Funds) Bond Index
6/30/89 10000 10000 10000
6/30/90 10761 10502 10681
6/30/91 11709 11224 11643
6/30/92 12759 12481 13014
6/30/93 13765 13807 14571
6/30/94 13896 13959 14595
6/30/95 15084 15080 15883
6/30/96 16120 15999 16937
6/30/97 17551 17414 18335
6/30/98 19012 19058 19923
6/30/99 19633 19429 20473

High-Yield Municipals Fund--Income Review
- --------------------------------------------------------------------------------

Annual Income from a $100,000 Investment June 30, 1989 to June 30, 1999

[BAR CHART HERE]

High Yield Municipals Fund

6/30/90 7425
6/30/91 7813
6/30/92 8300
6/30/93 7880
6/30/94 8063
6/30/95 8264
6/30/96 9197
6/30/97 10298
6/30/98 10120
6/30/99 10331

Total Distributions = $97,982

Account Value = $195,810

Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The line chart assumes a $10,000 investment on
6/30/89, reinvestment of distributions and compares fund performance to an
unmanaged group of fixed income securities that differs from the composition of
any Stein Roe fund; it is not available for direct investment. The bar chart
assumes a $100,000 initial investment on 6/30/89, continuous reinvestment of
distributions. Each bar shows the amount of income dividends for each 12-month
period ended June 30 after the initial investment. The Fund distributed $9,899
in capital gains for the period shown. Sources: Weisenberger(R) and Lipper, Inc.

<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 Traditional, Roth and Education IRAs. We're
available seven days a week, from 7 a.m. to 7 p.m. weekdays and from 9 a.m. to 1
p.m. Saturday and Sunday (Central time).

Stein Roe's Funds-on-Call(R)
24-Hour Service Line
Using a touch-tone phone, call our toll-free number, day or night, for your
current account balance, the latest Stein Roe Fund prices and yields and other
information. In addition, if you have a Personal Identification Number (PIN),
you may place orders for the following transactions 24 hours a day: o Exchange
shares between your Stein Roe accounts; o Purchase fund shares by
electronic transfer;
o Order additional account statements and money market
fund checks;
o Redeem shares by check, wire or electronic transfer.

Retirement Plan Accounts
Call us for information about how we can assist you with your defined
contribution plan, including 401(k) plans. You can reach us toll free at
800-322-1130. For information on Traditional, Roth and Education IRA plans, call
us toll free at 800-338-2550.

By Mail or E-Mail

If you prefer to contact us by mail, please address all correspondence to: P.O.
Box 8900, Boston, MA 02205-8900. To contact us by e-mail, send correspondence
directly to: [email protected] or visit us at www.steinroe.com on the
Internet.

In Person

If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive. Our account representatives can
answer questions about your current Fund investments or provide you with
information about any of the Stein Roe Funds and retirement plans. Stop by
weekdays between 8 a.m. and 5:15 p.m.

Must be preceded or accompanied by a prospectus.

<PAGE>

Questions & Answers

An Interview with Veronica Wallace, Portfolio Manager of Stein Roe Municipal
Money Market Fund and SR&F Municipal Money Market Portfolio
- --------------------------------------------------------------------------------

Fund Data
Investment Objective:
Seeks maximum current tax-free income consistent with safety of capital and
maintenance of liquidity by investing principally in a diversified portfolio
of short-term municipal securities.

Fund Inception:
March 15, 1983

Total Net Assets:
$119.0 million

Q: How did the Fund perform for the fiscal year ended June 30, 1999?

Wallace: Overall it was a good year. We were positioned long early in the fiscal
year and we didn't have to buy into the rate decline in the fall. The Fund
posted a 2.73% one-year return, just slightly higher than the 2.68% return of
the average tax-exempt money market fund according to Lipper, Inc.

Q: How did you manage the Fund through the multiple rate decreases in the first
two quarters of the fiscal year?

Wallace: In the summer of 1998 we expected interest rates to decline, so we
extended maturity. The longer average maturity helped us going into the rate
decline in September and October of last year by allowing us to lock in higher
yields. As of Sept. 30, 1998, we had an average maturity of 64 days. This
supported the Fund's performance in the ensuing, although temporary, lower
interest rate environment.

Q: How did the Fund keep pace with inflation?

Wallace: The portfolio's 7-day yield as of Dec. 31, 1998 was 3.13%. As
securities in the portfolio matured this past spring, the portfolio's income
potential declined so that as of June 30, 1999, the portfolio's 7-day current
yield was 2.74%. Still, the portfolioreturn outpaced the cost of living, which
rose 2.0% for the period, preserving the purchasing power of your investment
dollars.
We expect that the Federal Reserve's recent interest rate increase will
benefit the Fund. We expect the income potential of variable rate notes in the
portfolio to rise. Going forward, we expect rates on other paper to look better
and the Fund's income potential to increase accordingly.

[PHOTO OF VERONICA WALLACE HERE]

<PAGE>

Questions & Answers Continued
- --------------------------------------------------------------------------------

Q: How was the supply of municipal securities this fiscal year?

Wallace: Municipalities did not need to borrow as much due to the strong
economy, and therefore supply was lower and many issues were expensive.
Municipal supply is also very cyclical. We usually see a huge supply in June
and heavy issuance in August. In fact, certain large municipalities always issue
at the same times each year. Supply normally dwindles at year-end and becomes a
trickle during the first calendar quarter.

Q: Did supply affect the Fund's performance?

Wallace: With supply so low during the first quarter, rates are generally poor
during this period. We are accustomed to the cyclical nature of the municipal
market and try to buy more cautiously at certain times of the year - looking for
attractively priced issues. To us, an attractive price means a note or paper
priced at 68% to 70% of U.S. Treasury bills. Anything priced below 65% of
Treasuries we consider too expensive for this Fund.

Q: You've increased your position in variable-rate notes. Why?

Wallace: Variables provide the potential for liquidity and stability and we use
them to try to increase our short-term yield. With commercial paper and notes
not as attractive recently, we've looked to weekly variable-rate notes for a
large portion of the portfolio.

Q: What is your outlook for the rest of 1999?

Wallace: We'll watch the Fed closely. They have a neutral stance right now, but
we don't feel it is significant enough to not keep a close eye on the U.S. and
global economies. If we see signs of the economy shifting toward inflation,
we'll look for another interest rate increase.
If, over the last half of this year, we see bonds priced at 70% of U.S.
Treasuries, we may buy them. If not, we'll sit where we are for awhile. We are
comfortable with where the portfolio is positioned and believe we would only
need to scramble if the market shifts dramatically toward a rate decline.

Past performance is no guarantee of future results. Total return includes
reinvestment of income. Yields fluctuate and are not guaranteed. An investment
in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance
Corp. (FDIC) or any government agency. Although the Fund seeks to preserve the
value of your investment at $1 per share, it is possible to lose money by
investing in the Fund. The Adviser currently limits expenses to 0.70% of average
net assets. Absent these limits, the 7-day current tax-free yield as of 6/30/99
would have been 2.59%, and total return would have been less. Tax-free income is
exempt from federal taxes but may be subject to the alternative minimum tax.
Current yield is net of all fees and represents annualization of dividends
declared and payable to shareholders for the last seven days of investment.
Portfolio composition is disclosed for SR&F Municipal Money Market Portfolio.
Portfolio holdings are as of 6/30/99 and subject to change. Source of Lipper
data: Lipper, Inc.

<PAGE>

Portfolio Highlights
- --------------------------------------------------------------------------------
SR&F Municipal Money Market Portfolio

Security Type Breakdown

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Variable-Rate Notes 75.0% 68.9%
Tax-Exempt Bonds 14.8 15.5
Other Tax-Exempt Notes 4.3 5.2
Put Bonds 3.8 4.3
Tax & Revenue Anticipation Notes 1.4 4.6
Commercial Paper 0.7 1.5
- --------------------------------------------------------------------------------

Total Investments 100.0% 100.0%

Portfolio Statistics

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
7-day Dollar-Weighted Average Maturity 45 days 68.4 days
7-day Current Yield* 2.74% 3.00%

*Net of all fees and expenses and represents an annualization of dividends
declared and payable to shareholders for the last seven days of investment.

- --------------------------------------------------------------------------------
Maturity

[PIE CHARTS HERE]

As of June 30, 1998

Greater than 299 Days - 11.0%

180-299 Days - 7.3%

90-179 Days - 6.5%

30-89 Days - 3.7%

1-29 Days - 71.5%

As of June 30, 1999

Greater than 299 Days - 7.1%

180-299 Days - 3.5%

90-179 Days - 7.8%

30-89 Days - 4.7%

1-29 Days - 76.9%

<PAGE>

Questions & Answers
- --------------------------------------------------------------------------------

An Interview with Joanne Costopoulos,
Portfolio Manager of Intermediate Municipals Fund

Fund Data
Investment Objective:
Seeks high current yield exempt from federal income tax, consistent with
capital preservation, through investment primarily in the three highest
grades of intermediate-term municipal securities. The dollar-weighted average
maturity of the Fund's portfolio is between three and 10 years.

Fund Inception:
Oct. 9, 1985

Total Net Assets:
$168.9 million

Q: How did the Fund perform in fiscal 1999?

Costopoulos: The Fund provided a total return of 2.08% for the fiscal year ended
June 30, 1999. This was more than the Lipper intermediate municipal debt fund
peer group return of 1.93%. The Lehman Brothers 10-Year Municipal Bond Index
returned 2.29% for the same period.

Q: To what do you attribute the Fund's lower relative return?

Costopoulos: The Fund's average duration was 5.9 years as of June 30,1999. As
intermediate and long-term interest rates rose during the period, the Fund
outperformed its peers. This is because when interest rates rise, a bond with a
long duration (which measures a bond's price sensitivity to interest rate
movements) generally is more susceptible to price volatility.

[PHOTO OF JOANNE COSTOPOULOS HERE]

The opposite is true when interest rates decline, which we believe will happen
over the course of the next six months. For this reason, we expect to maintain
the Fund's duration slightly longer.

Q: How did the Fund's strategic positioning change over the past 12 months?

Costopoulos: Our credit quality focus, though still firmly rooted in
investment-grade municipal bonds (90% of net assets), shifted somewhat during
the latter half of fiscal 1999 to try to take advantage of the strong income
potential available from lower-quality issues, primarily municipal bonds rated
BBB and select non-rated bonds. As credit spreads (the difference in yield
between lower-rated and higher-rated securities)

<PAGE>

Questions & Answers Continued
- --------------------------------------------------------------------------------

widened in the first six months of calendar year 1999, this translated into
higher relative yields from non-investment grade bonds. We believe the added
yield potential from these bonds has adequately compensated us for taking on
additional credit risk.

Q: Do you plan to add to the Fund's holdings in lower-rated bonds?

Costopoulos: No. If credit spreads move wider, we may swap lower-rated holdings
for comparably rated, higher-yielding securities, but we do not plan to shift
assets from the Fund's higher-quality holdings into lower-grade bonds. If
spreads tighten, as we saw in calendar year 1998, we may sell our lower-rated
holdings in favor of upgrading quality, while attempting to maintain income
potential.

Q: Looking ahead, what areas of the municipal market do you think look
attractive for fiscal 2000?

Costopoulos: We like the 10-year sector of the municipal yield curve. Bonds with
a 10-year maturity currently offer about 90% of the yield of 30-year bonds. We
plan to increase the portfolio's holdings in 10-year bonds since we see this as
an opportunity to get almost as much yield as a long bond, but without as much
interest rate risk. Historically, prices of 30-year bonds have fluctuated more
than bonds with shorter maturities.

Q: What is your outlook for the year ahead?

Costopoulos: We think that intermediate and long-term interest rates will move
lower over the next six months. If this happens, we may extend the portfolio's
duration to try to take advantage of potentially greater returns.
New issuance of municipal bonds should be more manageable than it was during
the past 12 months. In calendar year 1998, total municipal bond supply soared to
$286 billion--the second largest annual volume on record. Increased refinancing
activity contributed to the large issuance. In the first six months of 1999,
however, supply was down roughly 30% over the same period last year. We expect
supply to be average to lower in the coming year.

Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions, if any. Portfolio holdings are as of 6/30/99 and are
subject to change. The Advisor currently limits expenses to 0.70% of average net
assets. Fund return as of 6/30/99 would have been lower without the limit.
Absent past limits, the 30-day SEC and tax-equivalent yields as of 6/30/99 would
have been 3.93% and 6.51%, respectively. Income distributions are exempt from
federal income taxes but may be subject to the federal alternative minimum tax
and state and local taxes. Capital gains, if any, are also taxable. The Lehman
Brothers 10-Year Municipal Bond Index is an unmanaged group of investment grade
municipal bonds; it is not available for direct investment. Source of Lipper
data: Lipper, Inc.

<PAGE>

Fund Highlights
- --------------------------------------------------------------------------------
Intermediate Municipals Fund

Top Five States

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
New York 10.7% New York 14.1%
Georgia 10.0 Texas 8.8
Illinois 9.9 Illinois 8.7
Texas 8.6 Georgia 7.8
Arizona 6.7 California 7.6
Portfolio Statistics

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Average Duration 5.9 years 5.9 years
Average Weighted Maturity 8.6 years 8.8 years
Average Weighted Coupon 6.28% 6.26%

- --------------------------------------------------------------------------------

Maturity

[PIE CHARTS HERE]

As of June 30, 1998

Greater than 15 Years - 14.1%

10-15 Years - 18.9%

5-10 Years - 40.4%

0-5 Years - 26.6%

As of June 30, 1999

Greater than 15 Years - 14.0%

10-15 Years - 18.9%

5-10 Years - 40.5%

0-5 Years - 26.6%

- --------------------------------------------------------------------------------
Portfolio Quality

[PIE CHARTS HERE]

As of June 30, 1998

AAA - 71.7%

AA - 10.3%

A - 14.4%

BBB and Below - 3.6%

As of June 30, 1999

AAA - 67.6%

AA - 8.2%

A - 14.5%

BBB and Below - 9.7%

<PAGE>

Questions & Answers
- --------------------------------------------------------------------------------

An Interview with Brian Hartford and Bill Loring, Portfolio
Managers of Managed Municipals Fund

[PHOTOS OF BRIAN HARTFORD AND BILL LORING]

Fund Data
Investment Objective:
Pursues high tax-free income consistent with capital preservation by
investing in a quality-conscious portfolio of long-term municipal securities.

Fund Inception:
Feb. 23, 1977

Total Net Assets:
$538.3 million

Q: How did the Fund perform in fiscal 1999?

Hartford: Managed Municipals Fund provided a total return of 1.67% for the
fiscal year ended June 30, 1999. This was higher than the average return of its
Lipper general municipal debt fund peer group (see page 3). The Lehman Brothers
Municipal Bond Index returned 2.76% for the same period.

Q: Can you describe the market environment during the period?

Loring: Fiscal 1999 was a roller coaster year. Just a few weeks into our
reporting period last summer, a rally in the U.S. Treasury market pushed the
yield on the 30-year Treasury bond to just 4.71%. The rally was driven by a
flight to quality. Investors, wary of credit risk in the wake of global economic
uncertainty, avoided riskier bonds and equities and redeployed assets to
Treasury bonds for safety and liquidity.
Rising Treasury prices (and falling yields) created an opportunity for
value-oriented municipal bond investors. We started the fiscal year with
high-quality, 30-year municipal bonds yielding roughly 89% of 30-year Treasury
bonds. That increased to 98% by late autumn, making tax-exempt bonds an
attractive value compared to taxable bonds.
Since then, strong U.S. economic growth and an apparent bottoming out of
Southeast Asia's financial crisis restored investor confidence in riskier
investments. At the same time, however, fear of inflation increased, causing
Treasury prices to sink. By June 30, 1999, the average yield on 30-year U.S.
Treasuries had risen to 5.97%. Long-term, high-quality municipal bonds yielded
about 84% of 30-year Treasuries at fiscal year-end. We believe this is still an
attractive ratio for tax-sensitive, income-oriented investors.

<PAGE>

Questions & Answers Continued
- --------------------------------------------------------------------------------

Q: Did you make any adjustments to the portfolio since the start of fiscal 1999?

Hartford: We emphasized higher-quality bonds (bonds rated A or better) in the
portfolio. Still, we did add a few higher-yielding, lower-quality municipal
bonds to the Fund's holdings in response to wider credit spreads and the
resulting opportunity for strong income potential from this market segment in
calendar year 1999. As of June 30, bonds rated BBB and below made up 11.2% of
net assets.

- --------------------------------------------------------------------------------
We sold shorter, non-callable bonds and
bought longer, non-callable bonds in an
effort to modestly increase portfolio
duration and preserve call protection
- --------------------------------------------------------------------------------

We bought several non-rated issues, including AEI Resources, the parent
company of a large coal producer in the southeastern U.S., and Ladera Unified
School District (0.3% and 0.2% of net assets, respectively). Though these bonds
were non-rated at the time of purchase, we believe the financial standing of
their respective issuers is of sound quality.
We expect to maintain a large
portion of the portfolio's assets in non-callable bonds (59.4% as of
June 30) given our outlook for a
lower interest rate environment. We sold shorter, non-callable bonds and bought
longer, non-callable bonds in an effort to modestly increase portfolio duration
and preserve call protection.

Q: New issuance of municipal bonds has tapered off in 1999. What are the factors
that are affecting supply?

Loring: One is the absolute level of interest rates. As rates have risen, bonds
on the verge of being pre-refunded were no longer candidates for refinancing.
Issuers like to use lower rates to refinance or pre-refund bonds to pay off
older debt issued when rates were higher. Another factor is the psychology of
the prospective issuers. If they think the timing of bringing a new deal to
market is bad--for example, because rates are higher--they may postpone it. This
tends to be a more temporary phenomenon affecting supply.

Q: What's the status of credit quality among state and local governments?

Hartford: Throughout this ongoing economic expansion, we've seen a tremendous
amount of rating upgrades by national credit rating agencies. The ratio of
upgrades to downgrades is around seven-to-one. Credit quality continues to
improve because the strong economy raises tax revenues for the states and their
municipalities which helps generate higher tax receipts than were

<PAGE>

Questions & Answers Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
We believe the Fed will
likely maintain a
neutral stance through
late 1999, which could
ultimately boost bond
prices
- --------------------------------------------------------------------------------

budgeted. This has enabled state and local governments to bank that extra money
in their rainy day funds.

Q: What is your outlook for the economy for the rest of calendar year 1999?
Loring:We think the economy is starting to slow and that some of the
inflationary pressures that exist today will subside. Whether the Federal
Reserve raises the federal funds rate (now 5%) more than 0.25% going forward
poses some concern. We believe the Fed will likely maintain a neutral stance
through late 1999, which could ultimately boost bond prices.

Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions, if any. Portfolio holdings are as of 6/30/99 and are
subject to change. Income distributions are exempt from federal income taxes but
may be subject to the federal alternative minimum tax and state and local taxes.
Capital gains, if any, are also taxable. The Lehman Brothers Municipal Bond
Index is an unmanaged group of investment grade municipal bonds; it is not
available for direct investment. Source of Lipper data:
Lipper, Inc.

<PAGE>

Fund Highlights
- --------------------------------------------------------------------------------
Managed Municipals Fund

Top Five States

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Georgia 10.5% Georgia 13.6%
Illinois 10.4 New York 10.2
Massachusetts 9.9 Massachusetts 8.8
New York 9.2 Illinois 7.9
Washington 6.0 Washington 6.2

Portfolio Statistics

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Average Duration 7.8 years 7.3 years
Average Weighted Maturity 16.3 years 14.9 years
Average Weighted Coupon 5.90% 6.20%

- --------------------------------------------------------------------------------
Maturity

[PIE CHARTS HERE]

As of June 30, 1998

Greater than 25 Years - 10.3%

20-25 Years - 12.2%

15-20 Years - 23.8%

10-15 Years - 34.0%

5-10 Years - 7.2%

Less than 5 Years - 12.5%

As of June 30, 1999

Greater than 25 Years - 14.3%

20-25 Years - 17.0%

15-20 Years - 20.2%

10-15 Years - 29.6%

5-10 Years - 10.2%

Less than 5 Years - 8.7%

- --------------------------------------------------------------------------------
Portfolio Quality

[PIE CHARTS HERE]

As of June 30, 1998

AAA - 36.7%

AA - 32.0%

A - 25.8%

BBB and Below - 5.5%

As of June 30, 1999

AAA - 34.6%

AA - 29.2%

A - 25.0%

BBB and Below - 11.2%

<PAGE>

Questions & Answers
- --------------------------------------------------------------------------------

An Interview with Maureen Newman Portfolio Manager of Stein Roe High-Yield
Municipals Fund and SR&F High-Yield Municipals Portfolio

Q: How did the Fund perform in fiscal 1999?

Newman: High-Yield Municipals Fund outperformed the average of its Lipper peers
for the 12-month period ended June 30, 1999. With dividends reinvested, the Fund
had a total return of 3.18% for the 1999 fiscal year. Of the return of 3.18%,
0.50% was attributable to a one-time revaluation of a portfolio security
reflecting the restructuring of this security. Absent this revaluation, the
total return would have been 2.68%. The Lehman Brothers Municipal Bond Index
returned 2.76% for the same period.
We had a tremendous amount of volatility during the year. Deteriorating
economic conditions in Southeast Asia, Latin America and in parts of Europe last
summer triggered a flight to quality movement into U.S. Treasuries. Both
Treasury and municipal bond prices rose through late summer and early fall.
In late January, bond yields began to rise as reports of strong economic
growth in the fourth quarter proved the economy resilient to international
crises. Municipal bond yields rose as well, but not as much as those of
Treasuries.

[PHOTO OF MAUREEN NEWMAN]

Fund Data
Investment Objective:
Seeks a high level of tax-free income consistent with capital preservation by
investing in long-term municipal securities, principally of medium or lower
quality.

Fund Inception:
March 5, 1984

Total Net Assets:
$297.9 million

Q: You mentioned that January marked a turning point for the municipal bond
market. Since then, how have you adjusted the portfolio's positioning?

Newman: For much of the period, the Fund's duration remained fairly stable. More
recently, however, after U.S. Treasury prices have declined--and inversely
yields have risen--we have modestly lengthened the duration of the Fund in an
effort to take advantage of higher yields on municipal bonds at the long end of
the yield curve.

<PAGE>

Questions & Answers Continued
- --------------------------------------------------------------------------------

Q: Have you changed the portfolio's holdings?

Newman: Yes, and quite significantly. Total holdings in the portfolio have
increased to 139, up from just 114 issues last November, when I began managing
the Fund.
One of our goals has been to further diversify the portfolio's holdings.
Toward that end, we decreased our position in airline bonds, one of the Fund's
largest sector allocation last fall. For example, we sold bonds issued by United
Airlines and Continental Airlines. Because credit spreads in this sector did not
widen the way they did in most sectors, these bonds were richly priced, which
also made them attractive sell candidates given the amount of value we were able
to lock in.
We also have been increasing our holdings in selected health care, education
and housing issues--particularly senior housing and multifamily housing--since
these sectors historically have been less cyclical and therefore may perform
well in a slowing economy.

Q: Have you made any shifts in the portfolio's credit quality?

Newman: In keeping with our goal to maintain a broad mix of bonds, as well as
our objective to provide a high level of tax-free income, we have marginally
increased the portfolio's holdings of lower-rated securities. Typically we have
strong security provisions on the portfolio's lower-quality bonds. For example,
when we bought Walker Methodist, (0.4% of net assets), a Minnesota nursing home
whose credit quality was nonrated, we got a mortgage on the property to give us
added credit protection.

Q: In what areas of the country are you finding the best opportunities for
yield?

Newman: We hold bonds in many states. However, our practice has been to buy
fewer bonds in New York, California and Massachusetts because the yields in
these high tax-burden states are usually not as great as in other states that
have lower income tax rates or no income tax.

- --------------------------------------------------------------------------------
Our practice has been to buy fewer bonds in New York,
California and Massachusetts because the yields in
these high tax-burden states are usually not as great
as in other states that have lower income tax rates or
no income tax.
- --------------------------------------------------------------------------------

Our experience has been that the higher the taxes, the greater the demand for
tax-exempt bonds and the more investors are willing to pay, regardless of the
bond's coupon. As a result, the issuer historically hasn't had to offer as much
yield to attract investors.

<PAGE>

Questions & Answers Continued
- --------------------------------------------------------------------------------

Q: What is your outlook for the year ahead?

Newman: We believe that the U.S. economy will slow down to some extent in the
coming year. This may be driven in part by the effects of a strong U.S. dollar
on overseas trade which has started to moderate growth in the domestic
manufacturing sector.

- --------------------------------------------------------------------------------
We expect to reduce the Fund's exposure
to cyclical areas and increase holdings
in non-cyclical sectors such as schools,
health care and housing.
- --------------------------------------------------------------------------------

Currently, some U.S. manufacturers believe they are losing overseas sales
because their products are too expensive for foreigners to buy. As for
High-Yield Municipals Fund, we expect to reduce the Fund's exposure to cyclical
areas and increase holdings in non-cyclical sectors such as schools, health care
and housing. We are also leaning toward slightly lengthening the Fund's duration
to try to take advantage of any potential lowering of interest rates.

Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions, if any. Portfolio holdings are disclosed as a percentage of
SR&F High-Yield Municipals Portfolio as of 6/30/99 and are subject to change.
Investing in high yield bonds involves greater credit risks than investing in
higher-quality bonds. Income distributions are exempt from federal income taxes
but may be subject to the federal alternative minimum tax and state and local
taxes. Capital gains, if any, are also taxable. The Lehman Brothers Municipal
Bond Index is an unmanaged group of investment grade municipal bonds; it is not
available for direct investment. Source of Lipper data: Lipper, Inc.

<PAGE>

Portfolio Highlights
- --------------------------------------------------------------------------------
SR&F High-Yield Municipals Portfolio

Top Five States

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Indiana 11.9% Indiana 11.9%
Pennsylvania 11.2 Pennsylvania 9.8
Colorado 8.0 Texas 9.1
Texas 5.6 Colorado 6.4
New York 4.5 New York 4.8

Portfolio Statistics

PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Average Duration 7.9 years 6.3 years
Average Weighted Maturity 17.1 years 16.8 years
Average Weighted Coupon 6.68% 6.71%

- --------------------------------------------------------------------------------
Maturity

[PIE CHARTS HERE]

As of June 30, 1998

Greater than 25 Years - 24.4%

20-25 Years - 15.2%

15-20 Years - 21.3%

10-15 Years - 12.1%

5-10 Years - 9.7%

Less than 5 Years - 17.3%

As of June 30, 1999

Greater than 25 Years - 23.4%

20-25 Years - 18.4%

15-20 Years - 18.8%

10-15 Years - 13.2

5-10 Years - 12.3%

Less than 5 Years - 13.9%

- --------------------------------------------------------------------------------
Portfolio Quality

[PIE CHARTS HERE]

As of June 30, 1998

AAA - 20.7%

AA - 10.5%

A - 19.9%

BBB - 21.6%

BB and Below/Not Rated - 27.3%

As of June 30, 1999

AAA - 18.4%

AA - 6.9%

A - 19.5%

BBB - 23.3%

BB and Below/Not Rated - 31.9%

<PAGE>

SR&F Municipal Money Market Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)

Principal Amortized
Municipal Securities (105.0%) Amount Cost
- --------------------------------------------------------------------------------
Alabama (0.4%)
University of Alabama Revenue Series A (General Fee-Huntsville,
MBIA Insured, prerefunded to 11/1/99, escrowed in
U.S. Treasury securities) 7.000% 11/1/09.......... $ 500 $ 516

Alaska (0.2%)
Anchorage Alaska Water Revenue (FSA Insured) 4.500% 8/1/99 235 236

Arizona (1.7%)
Phoenix Industrial Development Authority (Spring Air Mattress Company
Project, LOC Bank One Arizona) VRDB 3.720% (a).... 1,870 1,870
Scottsdale GO Series C 7.750% 7/1/00................. 450 468
-------
2,338
Arkansas (2.2%)
Clark County Solid Waste Disposal Revenue (Reynolds Metals Project,
LOC SunTrust Bank) VRDB 3.400% (a)................ 3,000 3,000

California (1.5%)
California Higher Education Loan Authority Student Loan Revenue Series A

(LOC State Street) VRDB 3.200% (Mandatory
Put 6/1/00) (a)................................. 1,000 1,000
Los Angeles County Tax & Revenue Anticipation
Notes 4.000% 6/30/00............................ 1,000 1,007
-------
2,007
Colorado (3.1%)
Colorado Health Facilities Authority Revenue (AMC Cancer Research Center,
LOC U.S. Bank NA) 3.400% 1/15/28 (Mandatory Put 1/15/00) 440 440
Colorado Springs IDR (Catalano Family LLP Project, LOC Bank One
Colorado) VRDB 3.720% (a)......................... 1,145 1,145
Lowry Economic Redevelopment Authority Colorado Revenue Series B
(LOC Canadian Imperial Bank) VRDB 3.450% ......... 1,000 1,000
SBC Metropolitan District Colorado (LOC U.S. Bank NA)
3.350% 12/1/17 (Mandatory Put 12/1/99)............ 1,555 1,555
-------
4,140
Florida (1.0%)
Putnam County Development Authority PCR Series
D (Seminole Electric Cooperation) VRDB 3.125%
(Optional Put 12/15/99)......................... 1,400 1,400

Georgia (1.8%)
Gwinnett County Development Authority IDR (Price Companies Project,
LOC NationsBank of Georgia) VRDB 3.900% (a)....... 2,400 2,400

Illinois (24.5%)
ABN AMRO Munitops Certificates Trust Series 1998-14 (Cook County
GO Refunding Bond, ABN AMRO Liquidity Provider)
VRDB 3.640% (b)................................... 1,000 1,000
Chicago Economic Development Revenue (Crane Carton Project,
LOC Northern Trust) VRDB 3.700%................... 2,150 2,150
Chicago IDR (P S Greetings Incorporated Project) VRDB 3.800% 600 600
Chicago Multi-Family Housing Series B (Archer Courts Apartments)
VRDB 3.8500%...................................... 1,010 1,010
Chicago Revenue (De La Salle Institute Project, LOC Northern Trust)
VRDB 3.500%....................................... 900 900
Chicago School Finance Authority Series A
(FGIC Insured) 5.900% 6/1/00.................... 1,000 1,021

<PAGE>

SR&F Municipal Money Market Portfolio
- --------------------------------------------------------------------------------
Continued Principal Amortized
Amount Cost
- --------------------------------------------------------------------------------
Illinois (Continued)
Chicago Tax Increment Allocation (Stockyards, LOC Northern Trust)
Series A VRDB 3.500%.............................. $ 1,500 $ 1,500
Chicago Wastewater Transmission Revenue Second Lien Series B
(MBIA Insured) 4.250% 1/1/00...................... 500 502
Cook County Community College District Number 504 Triton Certificates
(FSA Insured) 4.300% 10/1/99 ..................... 275 276
Cook County School District Number 98 Berwyn GO
(FSA Insured) 9.000% 12/1/99...................... 145 148
Cook & Will Counties Illinois Community College District Number 515
(FSA Insured) 5.300% 12/1/99...................... 450 454
Country Club Hills (FSA Insured) 3.400% 12/1/99...... 605 606
Du Page & Cook Counties Community Unit School District Number 205
5.400% 1/1/00..................................... 767 775
Elgin Corporate Purpose Bonds 5.500% 1/1/00.......... 445 449
Glendale Heights IDR (Judy LLC/York Corrugated, LOC Harris Trust
and Savings Bank) VRDB 3.800% (a)................. 1,600 1,600
Homewood Flossmoor Park District GO (FSA Insured)
4.200% 12/1/99.................................. 135 136
Illinois Development Finance Authority Revenue
(Nutrasweet Project, gtd. by Monsanto) VRDB 3.750% (a) 4,400 4,400
(Wheaton Academy Project, LOC Northern Trust) VRDB
3.550%.......................................... 1,000 1,000
Illinois Educational Facilities Authority Revenues (Aurora University,
LOC Harris Trust & Savings Bank) VRDB 3.700%...... 1,200 1,200
Illinois Health Facility Authority Revenue (University of Chicago
Hospital Project) 3.200% 8/1/15 (Mandatory Put 10/5/99) 1,000 1,000
Illinois State Toll Highway Authority Highway Priority Revenue Series A
4.500% 1/1/00..................................... 1,000 1,006
Illinois Student Assistance Commission Student Loan Revenue (LOC
Bank of America Illinois) Series 96A VRDB 3.600% (a) 1,000 1,000
Jefferson & Franklin Counties Community College District Number 521
GO (FSA Insured) 3.250% 11/1/99................... 365 365
Montgomery & Bond Counties Community Unit School District
Number 3 (FSA Insured) 3.400% 11/1/99............. 395 395
Morton IDR Series A (Morton Welding Project, LOC Bank One
Illinois NA Chicago) VRDB 3.820% (a).............. 905 905
North Aurora IDR (Oberweis Dairy Incorporated Project, LOC LaSalle
National Bank) VRDB 3.610% ....................... 1,700 1,700
Palatine Special Facility Limited Obligation Revenue (Little City Community
Development Project, LOC Federal Home Loan Bank)
VRDB 3.550%..................................... 1,000 1,000
Quad Cities Regional Economic Development Authority Revenue
(Steel Warehouse, LOC Bank One Indiana) VRDB 3.720% (a) 2,000 2,000
(Steel Warehouse, LOC Bank One Indiana) VRDB 3.720% (a) 2,200 2,200
Rockford GO Series A (FGIC Insured) 4.380% 12/15/99.. 240 241
Springfield IDR (Phillips Brothers Incorporated Project, LOC Bank One
Illinois) VRDB 3.720% (a)......................... 1,350 1,350
-------
32,889
Indiana (9.4%)
Crawfordsville Economic Development Revenue (Pedcor Investments,
Shady Knoll Project, LOC FHLB) VRDB 3.670% (a).... 1,558 1,558
Indiana Health Facility Financing Authority Revenue (Capital Access
Designated Pool) VRDB 3.100% ..................... 300 300
Indiana State Development Finance Authority Economic Development
Revenue (Carr Metal Products Project, LOC Bank One, Indiana)
VRDB 3.8500%...................................... 1,440 1,440
Franklin Economic Development Revenue (Pedcor Investments,
Lakeview Apartments, LOC FHLB) VRDB 3.670% (a).... 2,839 2,839

<PAGE>

Kentucky (3.6%)
Covington Industrial Building Revenue (White Castle Distributing,
LOC Bank One Columbus) Series 1991 VRDB 3.720% (a) 3,205 3,205
Shelby County Industrial Building Revenue (Roll Forming,
LOC Bank One Kentucky) VRDB 3.720% (a)............ 1,595 1,595
-------
4,800
Louisiana (0.3%)
Lake Charles Harbor & Terminal District Pollution Control Revenue
(Conoco Incorporated Project) VRDB 3.550% (a)..... 400 400

Maryland (0.9%)
Anne Arundel County Economic Development Revenue (Baltimore Gas
and Electric Project) 3.200% 12/1/18
(Mandatory Put 9/15/99) (a)....................... 1,000 1,000
University of Maryland Auxiliary Facility & Tuition Revenue Series A
6.500% 4/1/07 (prerefunded to 4/1/00, escrowed in U.S.
Treasury Notes)................................... 250 260
-------
1,260
Michigan (3.3%)
ABN AMRO Munitops Certificates Trust Series 1998-13 (Michigan Trunk
Line Revenue, ABN AMRO Liquidity Provider)
VRDB 3.610% (b)................................. 2,000 2,000
Detroit City School District GO 4.500% 7/1/99........ 1,000 1,000
Detroit City School District (MBIA Insured) 3.250% 5/1/00 385 384
Detroit City School District State School
Aid Notes 4.000% 6/1/00......................... 1,000 1,007
-------
4,391
Minnesota (0.7%)
Minneapolis GO Series B (SPA Bayerische Vereinsbank)
VRDB 2.800%..................................... 900 900

Missouri (3.9%)
Jefferson County Industrial Development Authority IDR (GHF
Holdings Project, LOC Bank One Indiana) VRDB 3.720% (a) 3,700 3,700

<PAGE>

New Jersey (0.3%)
South Brunswick Township GO 4.400% 8/1/99............ 395 395

New Mexico (0.8%)
Albuquerque Educational Facilities Revenue (Menaul School Project,
LOC Norwest Bank Minnesota) VRDB 3.750%........... 290 290
Rio Rancho Public School District Number 94 GO Series B
(FSA Insured) 6.100% 8/1/99....................... 835 837
-------
1,127
Nevada (0.1%)
Washoe County GO Series A (AMBAC Insured) 4.500% 12/1/99 100 100

North Carolina (1.0%)
New Hanover County Industrial Facilities (Gang-Nail Systems Project,
LOC Harris Trust & Savings Bank) VRDB 3.650%...... 1,400 1,400

Ohio (2.6%)
Cleveland State University General Receipt Bond Anticipation Notes
Series A 3.800% 8/16/99........................... 750 751
Hancock County Multi-Family Revenue (Pedcor Investments, Crystal
Glen Apartments Project, LOC FHLB) VRDB 3.770% (a) 750 750
Ohio Environmental Improvement Revenue (U.S. Steel Project,
LOC Pittsburgh National Bank) VRDB 3.300%......... 400 400
Ohio State Building Authority Series C (prerefunded to 10/1/99,
escrowed in U.S. Treasury securities) 7.350% 10/1/04 500 520
Summit County Bond Anticipation Notes
Series A 3.800% 6/1/00............................ 1,000 1,005
-------
3,426
Oklahoma (0.1%)
Oklahoma State IDR Health System Series C (Baptist Center, AMBAC
Insured) 5.400% 8/15/99........................... 200 201

Pennsylvania (2.1%)
Pennsylvania State GO
Second Series A (MBIA Insured) 6.000% 11/1/99..... 200 202
Third Series A 5.700% 11/15/99.................... 130 131
Pennsylvania State Higher Educational Facilities Authority College &
University Revenue (Bryn Mawr College, FGIC Insured, prerefunded
to 12/1/99, escrowed in U.S. Treasury securities)
6.750% 12/1/01.................................... 750 776
Quakertown General Authority Revenue Series 96A
(LOC PNC Bank) VRDB 3.550%........................ 1,683 1,683
-------
2,792
Rhode Island (0.3%)
Convention Center Authority Revenue Series B (MBIA Insured)
4.600% 5/15/00.................................... 300 302

<PAGE>

Tennessee (2.1%)
Clarksville Public Building Authority Revenue (Pooled Financing-Tennessee
Muni Bond Fund, LOC Nationsbank) VRDB 3.800%...... 2,000 2,000
McMinn County Industrial Development Board IDR (Creative
Fabrication, LOC NBD Bank) VRDB 3.900% (a)........ 791 791
-------
2,791
Texas (5.4%)
Arlington GO 6.500% 8/15/99.......................... 660 663
Austin Certificates of Obligation 7.000% 9/1/99...... 620 623
Brazos Industrial Development Corporation Marine Term Revenue
(Monsanto Project) VRDB 3.550%.................... 400 400
Carrollton GO 6.250% 8/15/99......................... 335 336
Gulf Coast Industrial Development Authority Solid Waste Disposal
Revenue (Citgo Petroleum Project, LOC Banque Nationale de Paris)
VRDB 3.550% (a)................................... 400 400
Grand Prairie Industrial Development Revenue (W. W. Grainger Incorporated,
Liquidation Facility Northern Trust) VRDB 3.950%.. 800 800
Harris County Industrial Development Corporation IDR
(Precision General Project, LOC Morgan Guaranty Trust)
VRDB 3.720% (a)................................... 2,060 2,060
Harris County Revenue (MBIA Insured) 5.100% 8/15/99 (a) 235 235
Robertson County Industrial Development Corporation (Sanderson Farms
Project, LOC Harris Trust & Savings Bank) VRDB 3.650% (a) 300 300
Tarrant County Hospital District GO 5.000% 8/15/99... 500 501
University of Texas Revenue Series B 5.000% 8/15/99 . 500 501
Webb County Certificates of Obligation
(FGIC Insured) 6.000% 2/1/00....................... 355 360
-------
7,179
Utah (0.4%)
Davis County School District (FGIC Insured) 4.550% 6/1/00 250 250
Utah Municipal Power System Revenue (Hunter Project, AMBAC Insured)
4.200% 7/1/99..................................... 250 250
-------
500
Washington (8.6%)
Washington State Housing Finance Commission Multi-Family Housing
Revenue (Hamilton Place Senior Living Project, LOC U.S. Bank
of Washington) Series A VRDB 3.850% (a)........... 1,125 1,125
Washington State Public Power Supply System Revenue
Series A (Nuclear Project Number 1) 7.250% 7/1/99. 1,500 1,500
Series C (Nuclear Project Number 2) 7.200% 7/1/99. 3,650 3,650
Yakima County Public Corporation IDR (John I. Haas Project,
LOC Bayerische Vereinsbank) VRDB 3.650% (a)....... 5,300 5,300
-------
11,575
Wisconsin (13.3%)
Carlton PCR (Wisconsin Power & Light Project)
VRDB 3.550% (a).................................... 3,300 3,300
Campbellsport School District (FSA Insured)
3.500% 3/15/00..................................... 120 120
Chase IDR (Belgioioso Cheese Project, LOC Bank One Wisconsin)
VRDB 3.720% (a)................................... 1,000 1,000
Fond Du Lac IDR (Brenner Tank, LOC Bank One
Wisconsin) VRDB 3.720% (a)........................ 2,355 2,355
Fox Lake Redevelopment Authority IDR (Karavan Trailers Project,
LOC Bank One Wisconsin) VRDB 3.720% (a)........... 1,440 1,440

<PAGE>

Other Assets, Less Liabilities (-5.0%)............... (6,658)
-------
Total Net Assets (100.0%)............................ $134,049
=======
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a)Security is subject to federal alternative minimum tax. At June 30, 1999, the
aggregate amortized cost of these securities represented 54.2 percent of
total net assets.
(b)Represents private placement securities issued under Rule 144A, which are
exempt from the registration requirements of the Securities Act of 1933.
These securities are generally issued to qualified institutional buyers, such
as the Portfolio, and any resale by the Portfolio must be an exempt
transaction, normally to other qualified institutional investors. At June 30,
1999, the aggregate amortized cost of the Portfolio's private placement
securities was $3,000 which represented 2.2 percent of net assets.
(c)At June 30, 1999, the cost of investments for financial reporting and federal
income tax purposes was identical.

Variable rate demand bonds (VRDB) are securities whose yields are periodically
reset at levels that are generally comparable to tax-exempt commercial paper.
These securities are payable on demand within seven calendar days and normally
incorporate an irrevocable letter of credit or line of credit with a major bank.

See accompanying Notes to Financial Statements.

<PAGE>

Intermediate Municipals Fund
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)

Principal Market
Municipal Securities (98.3%) Amount Value
- --------------------------------------------------------------------------------
Arizona (6.7%)
Cochise County Unified School District No. 68 Sierra Vista GO
Series B (FGIC Insured) 9.000% 7/1/01............. $ 1,115 $ 1,217
Maricopa County Hospital Revenue (Samaritan Health Services,
escrowed in U.S. Treasury securities) 7.625% 1/1/08 2,050 2,318
Maricopa County Unified School District No. 97 Deer Valley GO
Series A (MBIA Insured) 6.250% 7/1/06............. 1,750 1,906
Phoenix Civic Improvement Corporation
Wastewater System Lease (escrowed in U.S. Treasury securities,
prerefunded to 7/1/03) 6.000% 7/1/07.............. 2,500 2,690
Pima County GO 6.300% 7/1/02......................... 2,500 2,641
Tempe Unified High School District No. 213 GO (FGIC Insured)
7.000% 7/1/08..................................... 500 574
-------
11,346
Arkansas (2.1%)
Baxter County Arkansas Hospital Series B 5.3750% 9/1/14 800 771
Beaver Water District Benton & Washington Counties Water Revenue
(MBIA Insured) 6.000% 11/15/04.................... 2,580 2,764
-------
3,535
California (3.9%)
California Educational Facilities Authority Revenue (University of
San Francisco, MBIA Insured) 5.600% 10/1/10....... 1,000 1,059
California Housing Finance Agency Revenue Home Mortgage
Series B-1 5.900% 2/1/04 (a)...................... 865 899
Central Coast Water Authority Revenue (AMBAC Insured,
escrowed in state and local government securities,
prerefunded to 10/1/02) 5.950% 10/1/03............ 2,000 2,144
La Quinta California Redevelopment Agency Tax Allocation
(MBIA Insured) 7.300% 9/1/09...................... 750 898
Los Angeles County Public Works Financing Authority Revenue
(escrowed in U.S. Treasury securities, prerefunded to 10/1/04)
5.800% 10/1/05.................................... 1,500 1,626
-------
6,626
Colorado (0.4%)
Adams County School District No. 12 Series A (MBIA Insured)
Zero Coupon (Effective Yield 5.950%) 12/15/12..... 1,300 636

Delaware (0.7%)
Delaware Economic Development Authority Revenue
(General Waterworks Corporation) 6.450% 12/1/07... 1,165 1,274

Florida (2.5%)
Greater Orlando Aviation Authority Airport Facilities Revenue
5.2500% 10/1/09 (a)............................... 1,000 1,013
Stoneybrook Community Development District Capital Improvement
Revenue Series B 5.700% 5/1/08.................... 3,285 3,240
-------
4,253

<PAGE>

Intermediate Municipals Fund Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Georgia (10.0%)
Atlanta Airport Facilities Revenue (AMBAC Insured)
6.500% 1/1/07...................................... $ 5,000 $ 5,517
Atlanta Water and Wastewater Revenue Series A (FGIC Insured)
5.5000% 11/1/22................................... 2,000 2,050
Fulton County Water & Sewer Revenue
(FGIC Insured) 5.625% 1/1/01....................... 1,000 1,023
Georgia GO Series A 6.250% 4/1/07.................... 2,000 2,199
Georgia Municipal Electric Authority Power Revenue Series Y
(AMBAC Insured) 6.4000% 1/1/13.................... 3,000 3,355
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue
(AMBAC Insured)
Series M 6.050% 7/1/01.......................... 1,600 1,660
Series P 5.800% 7/1/02.......................... 1,000 1,043
-------
16,847
Hawaii (0.7%)
Honolulu City & County GO Series A 7.350% 7/1/06..... 1,000 1,143

Illinois (9.9%)
Chicago Board of Education GO (MBIA Insured) 6.250% 12/1/12 2,100 2,311
Chicago Midway Airport Revenue Series A (MBIA Insured)
5.700% 1/1/04 (a)................................. 1,000 1,039
Chicago Public Building Commission Series B (FGIC Insured)
5.250% 12/1/18.................................... 2,000 1,976
Chicago Skyway Toll Bridge Revenue (escrowed in U.S. Treasury
securities, prerefunded to 1/1/04) 6.750% 1/1/17.. 1,500 1,662
Chicago Water Revenue (FGIC Insured) 6.500% 11/1/09.. 2,155 2,406
DuPage County Special Service Area No. 11 6.750% 1/1/14 1,135 1,264
Illinois Development Finance Authority Revenue Series A
(Provena Health, MBIA Insured) 5.250% 5/15/18..... 2,000 1,937
Metropolitan Pier & Exposition Authority Dedicated State Tax
Revenue (McCormick Place Expansion Project)
Series 1992A (escrowed in U.S. Treasury securities)
7.250% 6/15/05 385 435
Series 1992A 7.250% 6/15/05..................... 2,365 2,657
Southern Illinois University Revenue (MBIA Insured)
Zero Coupon (Effective Yield 5.650%) 4/1/15....... 1,175 486
Illinois Development Finance Authority Solid Waste Disposal Revenue
(Waste Management Project) 5.050% 1/1/10.......... 615 600
-------
16,773
Indiana (4.6%)
Indiana State Toll Road Commission Toll Road Revenue
(escrowed in U.S. Treasury securities) 9.000% 1/1/15 2,240 3,100
Indiana Transportation Finance Authority Airport Facilities
Lease Revenue Series A
6.500% 11/1/07 (escrowed in U.S. Treasury securities,
prerefunded to 11/1/02)....................... 1,040 1,115
6.500% 11/1/07.................................. 1,210 1,315
Indianapolis Local Public Improvement Bond Bank Series D
6.500% 2/1/06..................................... 2,100 2,286
-------
7,816
Kentucky (1.6%)
Kentucky State Turnpike Authority Economic Development
Road Revenue 5.800% 1/1/04........................ 2,500 2,619

Louisiana (1.4%)
Orleans Levee District Series A (FSA Insured)
5.950% 11/1/07.................................... 2,200 2,358

<PAGE>

Massachusetts (2.3%)
Massachusetts Bay Transportation Authority
Series A 7.000% 3/1/07............................ 2,250 2,547
Massachusetts State Health and Educational Facilities Authority
Revenue (Daughters of Charity)
Series C 7.250% 7/1/00.......................... 200 206
Series D 6.000% 7/1/09.......................... 1,000 1,058
-------
3,811
Michigan (5.6%)
Greater Detroit Resource Recovery Authority Revenue Series A
(AMBAC Insured) 6.250% 12/13/05................... 2,000 2,166
Michigan State Hospital Finance Authority Revenue (Daughters of Charity,
escrowed in state and local government
securities) 6.500% 11/1/01........................ 850 879
Michigan State Underground Storage Tank Financial Assurance
Authority (AMBAC Insured) Series I 6.000% 5/1/05.. 5,000 5,349
Michigan State Strategic FD LTD Obligation Revenue
(Waste Management Inc) 5.200% 4/1/10.............. 1,000 990
-------
9,384
Minnesota (0.3%)
New Hope Minnesota Housing and Health Care Facilities Revenue
5.400% 3/1/08..................................... 500 493

Missouri (0.5%)
Missouri State Regional Convention & Sports Complex Authority
Series A 6.600% 8/15/03........................... 830 889

Nebraska (1.4%)
Nebraska Public Gas Agency Gas Supply Systems Revenue
Series A 5.3000% 4/1/03........................... 1,250 1,274
Series A 5.4000% 4/1/04........................... 1,000 1,023
-------
2,297
Nevada (0.9%)
Clark County PCR (Southern California Edison) Series A
7.125% 6/1/09 (a)................................. 1,500 1,581

New Jersey (2.4%)
Bergen County Utility Authority (FGIC Insured) Series A
6.250% 6/15/06.................................... 2,000 2,180
New Jersey Health Care Facilities Finance Authority
(Christ Hospital Group, Connie Lee Insured)
7.000% 7/1/03..................................... 1,730 1,878
-------
4,058
New Mexico (1.7%)
Santa Fe Gross Receipts Tax Revenue (AMBAC Insured) Series A
6.500% 6/1/06..................................... 2,555 2,814

New York (10.7%)
New York City GO
Series 1996C 5.700% 2/1/06........................ 1,000 1,045
Series 1997J 6.125% 8/1/11........................ 5,000 5,352
Series 1997H 6.000% 8/1/17........................ 2,000 2,115

<PAGE>

Intermediate Municipals Fund Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
New York (Continued)
New York State Dormitory Authority Revenue
(State University Educational Facilities)
Series A 6.500% 5/15/05........................... $ 1,000 $ 1,085
(City University System, FGIC Insured)
Series A 5.625% 7/1/16............................ 5,000 5,232
New York State Environmental Facilities Corporation PCR
(State Revolving Fund) Series 1994D 6.300% 5/15/05 3,000 3,259
-------
18,088
North Carolina (2.7%)
North Carolina Eastern Municipal Power Agency Revenue Series C
5.500% 1/1/07..................................... 3,100 3,072
North Carolina Municipal Power Agency No. 1 Catawba Electric
Revenue (MBIA Insured) 5.900% 1/1/03.............. 1,500 1,568
-------
.................................................. 4,640
Ohio (2.8%)
Columbus GO (escrowed in U.S. Treasury securities,
prerefunded to 9/15/01) 6.750% 9/15/04............ 1,000 1,057
Loveland School District GO (MBIA Insured, escrowed in U.S. Treasury
securities, prerefunded to 12/1/02) 7.100% 12/1/09 3,000 3,323
Olmsted Falls Ohio City School District Tax Anticipation Notes
5.5000% 12/1/04................................... 420 420
-------
4,800
Oklahoma (0.9%)
Mc Alester Oklahoma Public Works Authority Utilities Systems Revenue
(FSA Insured) 5.7500% 2/1/20...................... 1,500 1,541

Oregon (1.5%)
Portland Sewer System Revenue Series B (FGIC Insured)
5.400% 4/1/02..................................... 2,500 2,576

Pennsylvania (1.9%)
Dauphin County General Authority Hospital Revenue
(Hapsco Group, MBIA Insured) Series B 5.800% 7/1/02 1,600 1,664
Erie Capital Appreciation Series B
Zero Coupon (Effective Yield 5.500%) 11/15/12..... 1,000 489
Westmoreland County Pennsylvania Industrial Development Authority
Revenue (Gtd. By Valley Landfill Project, Waste Management Inc)
5.100% 5/1/18..................................... 1,000 982
-------
3,135
South Carolina (2.8%)
Piedmont Municipal Power Agency Electric Revenue (FGIC Insured)
6.125% 1/1/07 (escrowed in U.S. Treasury securities) 335 365
6.125% 1/1/07 .................................... 2,015 2,165
Sumter County Hospital Facilities Revenue (Tuomey Regional
Medical Center, MBIA Insured) 6.625% 11/15/04..... 2,000 2,189
-------
4,719
Tennessee (3.0%)
Knox County Health Educational & Housing Facilities Board Health
Facilities Revenue (Baptist Health Systems, Connie Lee Insured)
5.500% 4/15/11.................................... 2,000 2,026
Metropolitan Nashville & Davidson County Water & Sewer Revenue
(FGIC Insured) 6.500% 1/1/10...................... 2,750 3,072
-------
5,098

<PAGE>

Intermediate Municipals Fund Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Texas (8.6%)
Alliance Airport Authority Special Facilities Revenue
(Federal Express Project) 6.375% 4/1/21 (a)....... $ 2,000 $ 2,085
Houston Water Conveyance System Participation Certificates
Series J (AMBAC Insured) 6.125% 12/15/06.......... 1,000 1,075
Retama Development Corporation Special Facilities Revenue
(escrowed in U.S. Treasury securities) 8.750% 12/15/10 2,885 3,832
Round Rock Independent School District GO
Series 1991 8.625% 8/15/00 (MBIA Insured) ........ 1,270 1,339
Series 1995 7.500% 8/1/02 (gtd. by PSF) .......... 1,200 1,308
San Antonio Water Revenue (FGIC Insured)
6.000% 5/15/01(escrowed in U.S. Treasury securities) 415 430
6.000% 5/15/01.................................... 2,460 2,543
Texas State Higher Education Revenue Student Loan Senior Lien
7.450% 10/1/06 (a)................................ 1,875 1,969
-------
14,581
Utah (0.6%)
Intermountain Power Agency Power Supply Revenue
(MBIA Insured) Series B 6.000% 7/1/07............. 1,000 1,073

Virginia (0.6%)
Danville Industrial Development Authority Hospital Revenue
(Danville Regional Medical Center, AMBAC Insured)
5.250% 10/1/13.................................... 1,000 998

Washington (2.2%)
Snohomish County School District No. 2 Everett GO (MBIA Insured)
7.000% 12/1/02.................................... 1,500 1,624
Washington State Series C
5.5000% 7/1/16.................................... 2,000 2,060
-------
3,684
-------
- --------------------------------------------------------------------------------
Total Municipal Securities (98.3%)
(Cost $158,890) (b)............................... 166,086
Other Assets, Less Liabilities (1.7%)................ 2,810
-------
Total Net Assets (100.0%)............................ $168,896
=======
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a) Security is subject to federal alternative minimum tax. At June 30, 1999,
the market value of these securities represented 4.8% of total net assets.
(b)At June 30, 1999, the cost of investments for financial reporting and federal
income tax purposes was identical. Net unrealized appreciation was $7,276,
consisting of gross unrealized appreciation of $7,693 and gross unrealized
depreciation of $417.

See accompanying Notes to Financial Statements.

<PAGE>

Managed Municipals Fund
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)

Principal Market
Municipal Securities (99.9%) Amount Value
- --------------------------------------------------------------------------------
Alaska (0.7%)
Alaska Student Loan Corporation Revenue
(AMBAC Insured) 6.200% 7/1/09 (a)................. $ 3,870 $ 4,029

Arkansas (0.2%)
Baxter County Hospital Revenue Series B 5.625% 9/1/28 1,000 958

California (4.7%)
California Health Facility Financing Authority Revenue (Sutter Health)
Series A VRDB 2.550%.............................. 100 100
Capistrano School District Community Facility
District 5.750% 9/1/29............................ 1,000 964
Central Contra Costa Sanitation District Revenue (MBIA Insured)
6.250% 9/1/13..................................... 2,025 2,239
6.250% 9/1/14..................................... 1,295 1,432
Foothill/Eastern Transportation Corridor Agency Toll Road Revenue
Series 1995A Zero Coupon (Yield to
Maturity 7.200%) 1/1/18........................... 10,000 3,522
Golden West Schools Financing Authority Series A
Zero Coupon (Yield to Maturity 0.000%) 8/1/15..... 2,500 1,051
Irvine Improvement Bond Act 1915 Assessment District No 97-17
(LOC Bayerische Vereinsbank) VRDB 2.550%.......... 600 600
Irvine Ranch Water District (LOC Commerzbank A.G.)
VRDB 2.550%....................................... 100 100
Long Beach Aquarium of the Pacific Revenue Series A
6.125% 7/1/15..................................... 4,000 4,126
6.125% 7/1/23..................................... 6,000 6,154
Newport Beach Revenue (Memorial Presbyterian Hospital)
VRDB 2.800%....................................... 100 100
Sanger Unified School District MBIA 5.600% 8/1/23.... 1,000 1,034
Southern California Public Power Authority Revenue
Zero Coupon (Yield to Maturity 6.000%) 7/1/14
(escrowed in U.S. Treasury securities, FGIC Insured) 8,155 3,672
-------
25,094
Colorado (3.1%)
Arapahoe County Capital Improvement Trust Fund Highway Revenue
(escrowed in U.S. Treasury securities, prerefunded to 8/31/05)
Zero Coupon (Yield to Maturity 6.930%) 8/31/15.... 25,000 9,099
Colorado Housing Finance Authority Multi-Family Mortgage Revenue
6.000% 10/1/09.................................... 1,490 1,492
6.000% 10/1/10.................................... 1,590 1,593
6.000% 10/1/11.................................... 1,710 1,713
6.000% 10/1/12.................................... 1,830 1,833
Colorado Housing Finance Authority Single-Family Mortgage Revenue
6.800% 10/1/30.................................... 1,000 1,099
-------
16,829
Delaware (0.9%)
Delaware Economic Development Authority Revenue
(General Waterworks Corporation)
6.450% 12/1/07 Series B ........................ 1,160 1,268
6.800% 12/1/23 Series A (a)..................... 3,500 3,691
-------
4,959

<PAGE>

Managed Municipals Fund Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Florida (2.6%)
Broward County GO
12.500% 1/1/03.................................... $ 1,000 $ 1,257
12.500% 1/1/04.................................... 1,195 1,573
12.500% 1/1/05.................................... 2,000 2,745
Florida GO (Broward County) 9.875% 7/1/09 ........... 1,100 1,474
Florida GO (Jacksonville Transportation Authority,
escrowed in U.S. Treasury securities) 9.200% 1/1/15 2,000 2,742
Jacksonville Health Facility Hospital Revenue
Series C 5.250% 8/15/19........................... 1,000 957
Jacksonville Water and Sewer Development Revenue
(General Waterworks Corporation) 6.750% 6/1/22 (a) 1,500 1,598
Orange County Housing Finance Authority Multi-Family
Revenue Series K (Palms at Brentwood) 6.500% 12/1/34 2,000 1,930
-------
14,276
Georgia (10.5%)
Atlanta Airport Facilities Revenue Series A (AMBAC Insured)
6.500% 1/1/10..................................... 2,000 2,227
Cartersville Development Authority (Anheuser-Busch)
7.375% 5/1/09 (a)................................. 9,000 10,436
Fulton County Water & Sewer Revenue (FGIC Insured)
(escrowed in U.S. Treasury securities) 6.375% 1/1/14 13,270 14,856
6.375% 1/1/14..................................... 430 478
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue
(AMBAC Insured) Series P 6.250% 7/1/20............ 4,000 4,467
Municipal Electric Authority of Georgia Power Revenue Series V
6.600% 1/1/18..................................... 21,300 23,984
-------
56,448
Hawaii (1.3%)
Hawaii Airports System Revenue Second Series (MBIA Insured)
6.900% 7/1/12 (a)................................. 6,000 6,837

Idaho (0.4%)
Health Facility Authority Revenue (St. Lukes Medical Center)
VRDB 3.050%....................................... 1,100 1,100
Idaho Housing Agency Single-Family Mortgage Revenue
7.875% 7/1/24 (a)................................. 860 902
-------
2,002
Illinois (10.4%)
Champaign County 8.250% 1/1/20....................... 1,015 1,377
Chicago Board of Education GO (MBIA Insured)
6.250% 12/1/12.................................... 2,500 2,751
6.000% 1/1/16..................................... 5,000 5,393
5.500% 12/1/26.................................... 2,250 2,278
Chicago Public Building School Reform 5.250% 12/1/18. 2,000 1,976
Chicago Skyway Toll Bridge Revenue
(escrowed in U.S. Treasury securities, prerefunded to 1/1/04)
6.750% 1/1/17..................................... 1,500 1,662
Illinois Development Finance Authority (Catholic Charities)
5.950% 1/1/09..................................... 1,450 1,455
Illinois Development Finance Authority Hospital Revenue
Adventist Health System 5.500% 11/15/20........... 3,000 2,859
Illinois Development Finance Authority Revenue VRDB 2.950% 200 200
Illinois Development Finance Authority Solid Waste Disposal
Revenue 5.050% 1/1/10............................. 500 488

<PAGE>

Kentucky (2.4%)
Kentucky Housing Corporation Housing Revenue
Series C 8.100% 1/1/22 (a)........................ 1,305 1,355
Kentucky Turnpike Authority Economic Development
Road Revenue (FGIC Insured)
Zero Coupon (Yield to Maturity 6.600%) 1/1/10..... 7,500 4,370
Trimble County PCR (Louisville Gas & Electric) Series A
7.625% 11/1/20 (a)................................ 6,670 7,038
-------
12,763
Louisiana (2.0%)
De Soto Parish Environmental Improvement Revenue
(International Paper) Series A 7.700% 11/1/18 (a). 3,250 3,684
New Orleans GO (AMBAC Insured)
Zero Coupon (Yield to Maturity 6.125%) 9/1/12..... 6,250 3,102
FGIC 4.750% 12/1/26............................... 2,000 1,784
Offshore Terminal Authority Deepwater Port Revenue
VRDB 3.000%....................................... 300 300
Public Facilities Authority Hospital Revenue (Touro Infirmary)
Series A 5.6250% 8/15/29.......................... 1,900 1,824
-------
10,694

<PAGE>

Managed Municipals Fund Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Maine (1.4%)
Maine Educational Loan Marketing Corporation Student Loan
Revenue Subordinate Series B-1 6.500% 11/1/09 (a). $ 3,000 $ 3,042
Maine Housing Authority Mortgage Revenue Series D-5
7.550% 11/15/19 (a)............................... 2,520 2,628
7.550% 11/15/22 (a)............................... 1,750 1,824
-------
7,494
Maryland (1.4%)
Washington Suburban Sanitation District
(escrowed in U.S. Treasury securities, prerefunded to 6/1/04)
6.600% 6/1/16................................... 2,795 3,051
6.625% 6/1/17................................... 1,660 1,814
6.625% 6/1/19................................... 2,320 2,535
-------
7,400
Massachusetts (9.9%)
Massachusetts Bay Transportation Authority
Series 1994A 7.000% 3/1/14........................ 3,150 3,712
Series 1992B 6.200% 3/1/16........................ 9,825 10,841
Series 1994A 7.000% 3/1/19........................ 2,500 2,967
Massachusetts Health & Educational Facilities Authority Revenue
(Brigham & Womens' Hospital, MBIA Insured, escrowed
in U.S. Treasury securities, prerefunded to 7/1/01)
6.750% 7/1/24................................... 7,365 7,886
(Massachusetts General Hospital, AMBAC Insured)
6.250% 7/1/12................................... 5,750 6,379
(Dana Farber Cancer Institute) 6.250% 12/1/22..... 6,500 6,838
(South Shore Hospital) Series F 5.750% 7/1/29..... 2,500 2,486
Massachusetts State College Building Authority Series A
7.500% 5/1/11..................................... 1,500 1,819
7.500% 5/1/14..................................... 3,500 4,297
Massachusetts State Development Finance Agency
(Boston Biomedical Research) 5.650% 2/1/19........ 310 299
(Boston University) Series P 5.450% 5/15/59 ...... 1,000 948
Massachusetts State Water Resource Authority
Series B 4.500% 8/1/22............................ 6,000 5,171
-------
53,643
Michigan (0.6%)
Dickinson County Healthcare Hospital Revenue
5.800% 11/1/24....................................... 1,000 964
Flint Hospital Building Authority Revenue (Hurley Medical Center)
Series B VRDB 2.950%.............................. 200 200
Michigan State Waste Management 5.200% 4/1/10........ 500 495
Michigan Strategic Fund Limited Obligation Revenue (Imperial Holly)
Series B 6.450% 11/1/25........................... 700 678
Series C 6.550% 11/1/25 (a)....................... 800 817
-------
3,154
Minnesota (1.6%)
Minneapolis Revenue (Walker Methodist Senior Services)
Series A 5.875% 11/15/18.......................... 450 435
Minneapolis/St. Paul Housing Finance Board Revenue
Single-Family Mortgage (collateralized by GNMA securities)
7.250% 8/1/21 (a)............................... 1,870 1,950
7.300% 8/1/31 (a)............................... 2,780 2,898
Minnesota State Housing Finance Agency Single-Family Mortgage
Series A 7.450% 7/1/22 (a)........................ 2,300 2,388
Victoria Private School Facility Revenue
Series A 5.850% 9/1/24............................ 1,000 983
-------
8,654

<PAGE>

Missouri (0.3%)
Missouri State Housing Development Commission Single-Family
Mortgage Revenue 9.375% 4/1/16.................... 25 26
Solid Waste Disposal Revenue (Procter & Gamble Paper)
5.200% 3/15/29.................................... 1,000 953
Springfield School District No. 12 GO Series B (FGIC Insured)
9.500% 3/1/07..................................... 600 775
-------
1,754
Nevada (1.0%)
Clark County GO (FGIC Insured) Series B 4.500% 12/1/17 2,675 2,359
Nevada Housing Division Single-Family Program Series A-2
7.750% 4/1/22 (a)................................. 2,720 2,843
-------
5,202
New Jersey (1.2%)
New Jersey Economic Development Authority
(Glimcher Properties Project) 6.000% 11/1/28 (a).. 850 822
New Jersey GO Series D 6.000% 2/15/11................ 5,150 5,595
-------
6,417
New Mexico (0.2%)
Albuquerque IDR (Motorola) 10.000% 6/1/13............ 1,000 1,022

New York (9.2%)
Long Island Power Authority and Electricity
Revenue VRDB 3.000%............................... 700 700
New York City GO
Series D 6.000% 2/15/25 (escrowed in U.S. Treasury
securities, prerefunded to 2/15/05)............... 1,245 1,338
Series D (Unrefunded Balance) 6.000% 2/15/25...... 11,735 12,287
New York City Industrial Development Authority
Special Facility Revenue (Terminal One Group
Association) 6.000% 1/1/15 (a).................... 8,340 8,662
New York City Municipal Water & Sewer System Revenue
Series A VRDB 3.050%.............................. 100 100
New York State Energy Development Authority Pollution
Control Revenue (Niagara Mohawk Pwr) Series A
VRDB 3.050%....................................... 700 700
New York State Environmental Facilities Corporation PCR
Water Revolving Fund 5.750% 6/15/10............... 5,000 5,283
Suffolk County Industrial Development Agency IDR
(Nissequogue Cogen Partners) 5.500% 1/1/23 (a).... 500 475
Triborough Bridge & Tunnel Authority Revenue
Series X 6.625% 1/1/12............................ 9,915 11,290
Series Y 6.125% 1/1/21............................ 6,890 7,614
Yonkers AMBAC Series A 4.500% 12/1/17................ 1,000 878
-------
49,327
North Carolina (1.7%)
North Carolina Eastern Municipal Power Agency Revenue
Series 1991A
6.500% 1/1/18 (escrowed in U.S. Treasury securities) 4,315 4,965
6.500% 1/1/18..................................... 2,185 2,329
Zero Coupon (Yield to Maturity 0.000%) MBIA 1/1/09 2,360 1,453
University Revenue Zero Coupon (Yield to Maturity
0.000%) 8/1/20.................................... 1,750 552
-------
9,299

<PAGE>

Oregon (0.2%)
Clackamas County School District No. 12 GO (FGIC Insured)
5.250% 6/1/11..................................... 1,000 1,014

Pennsylvania (4.4%)
Allegheny County Sanitation Authority Sewer Revenue Series A
(FGIC Insured) Zero Coupon (Yield to
Maturity 6.800%) 6/1/07........................... 2,370 1,603
Dauphin County Industrial Development Authority Water
Development Revenue (General Waterworks Corporation)
6.900% 6/1/24 (a)................................. 3,400 4,005
Economic Development Financing Authority (USG Corp Project)
6.000% 6/1/31..................................... 1,000 1,000
Higher Educational Facility Authority 4.500% 7/15/21. 1,355 1,172
Montgomery County Industrial Development Authority Retirement
Community Revenue (Adult Communities Total Services)
Series B 5.750% 11/15/17.......................... 3,500 3,445
Pennsylvania State GO 6.250% 7/1/12.................. 11,200 12,391
-------
23,616
Puerto Rico (0.7%)
Commonwealth GO 5.250% 7/1/17........................ 3,000 2,993
Industrial Tourist Educational, Medical & Environmental
Control Facility
5.375% 2/1/29..................................... 600 579
-------
3,572
Rhode Island (1.1%)
Rhode Island Housing & Mortgage Finance Corporation
7.550% 10/1/22 (a)................................ 5,650 5,914

South Carolina (2.5%)
Calhoun County Solid Waste Disposal Facilities Revenue
(Eastman Kodak, escrowed in U.S. Treasury securities)
6.750% 5/1/17 (a)................................. 3,000 3,460
Richland County Solid Waste Disposal Facilities Revenue
(Union Camp) Series B 7.125% 9/1/21 (a)........... 5,000 5,323
South Carolina Housing Finance & Development Authority
Series C 7.750% 7/1/22 (a)........................ 4,775 4,945
-------
13,728
South Dakota (3.1%)
Heartland Consumers Power District Electric Revenue
(FSA Insured) 6.000% 1/1/17....................... 8,000 8,615
South Dakota Student Loan Corporation Revenue Series B
(escrowed in U.S. Treasury securities) 7.450% 8/1/00 (a) 7,990 8,300
-------
16,915
Tennessee (1.9%)
Tennessee Housing Development Agency 7.300% 7/1/11 (a) 10,000 10,368

<PAGE>

Managed Municipals Fund Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Texas (3.3%)
Austin Texas Utility System Revenue 5.250% 5/15/25... $ 3,000 $ 2,950
Brazos Higher Education Authority Subordinate Series C-2
5.875% 6/1/04 (a)................................. 1,305 1,316
Harris County Texas 4.500% 10/1/23................... 1,000 861
Houston Higher Education 5.375% 11/15/29............. 2,000 1,972
Houston Water & Sewer System Revenue (AMBAC Insured)
Zero Coupon (Yield to Maturity 6.800%) 12/1/08.... 4,000 2,487
Zero Coupon (Yield to Maturity 6.813%) 12/1/09.... 4,000 2,348
Zero Coupon (Yield to Maturity 6.850%) 12/1/10.... 3,750 2,073
North East Independent School District 4.500% 10/1/28 2,000 1,698
Richardson Hospital Authority (Baylor/Richardson)
5.625% 12/1/28.................................... 500 468
Texas Municipal Power Agency Revenue (AMBAC Insured)
Zero Coupon (Yield to Maturity 6.900%) 9/1/08..... 1,475 929
Travis County Housing Finance Corporation Mortgage Revenue
(collateralized by GNMA, FGIC Insured) 8.000% 9/1/10 (a) 825 862
-------
17,964
Virginia (0.9%)
Peninsula Authority Revenue 6.900% 5/2/22............ 1,500 1,493
Richmond Metro Authority Expressway Revenue
FGIC 5.250% 7/15/22............................... 1,100 1,088
Virginia Beach GO 12.750% 7/15/01.................... 2,000 2,331
-------
4,912
Washington (6.0%)
Port of Longview Industrial Development Corporation Solid Waste
Disposal Revenue (Weyerhaeuser Company) 6.875%
10/1/08 (a)....................................... 8,750 9,523
Washington GO Series B & AT-7
6.000% 6/1/13 (escrowed in U.S. Treasury securities) 2,190 2,371
6.000% 6/1/13..................................... 5,090 5,511
Washington Public Power Supply System Nuclear Project No. 2
Series 1992A 6.300% 7/1/12........................ 3,500 3,840
Washington Public Power Supply System Nuclear Project No. 3
Series 1989B Zero Coupon (Yield to
Maturity 6.950%) 7/1/05........................... 5,000 3,752
Series 1989B Zero Coupon (Yield to Maturity 6.700%) 7/1/08
(FGIC Insured).................................. 7,000 4,413
Washington State Health Care Facilities Authority Revenue
Series A VRDB 3.100%.............................. 100 100
Series B VRDB 3.100%.............................. 200 200
Fred Hutchinson Cancer Center VRDB 3.600%......... 2,700 2,700
-------
32,410
Multi-State (0.4%)
Charter-Mac Equity Issue............................. 2,000 2,000

<PAGE>

Managed Municipals Fund Continued
- --------------------------------------------------------------------------------
Market
Value
- --------------------------------------------------------------------------------
Total Municipal Securities (99.9%)
(Cost $500,253) (b)............................... $537,980
Other Assets, Less Liabilities (0.1%)................ 342
-------
Total Net Assets (100.0%)............................ $538,322
=======

- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------

(a)Security is subject to federal alternative minimum tax. At June 30, 1999, the
market value of these securities represented 25.6% of total net assets.

(b)At June 30, 1999, the cost of investments for financial reporting and federal
income tax purposes was identical. Net unrealized appreciation was $37,727,
consisting of gross unrealized appreciation of $41,117 and gross unrealized
depreciation of $3,390.

See accompanying Notes to Financial Statements.

<PAGE>

SR&FHigh-Yield Municipals Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)

Principal Market
Municipal Securities (98.9%) Amount Value
- --------------------------------------------------------------------------------
Arizona (0.9%)
Arizona Health Facilities Authority Hospital System Revenue
(Phoenix Memorial Hospital) 8.125% 6/1/12......... $ 2,500 $ 2,578

California (2.7%)
Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue Series 1995A 6.500% 1/1/32................ 2,000 2,200
Long Beach Aquarium of the Pacific Revenue
Series A 6.125% 7/1/23............................ 5,750 5,898
-------
8,098
Colorado (8.0%)
Adams County Single-Family Mortgage Revenue Series B
(escrowed in U.S. Treasury securities)
11.250% 9/1/11 (prerefunded to 9/1/09).......... 325 483
11.250% 9/1/11 (prerefunded to 9/1/10).......... 360 545
11.250% 9/1/11.................................. 220 340
11.250% 9/1/12.................................. 1,440 2,256
Arapahoe County Capital Improvement Trust Fund Highway Revenue
(escrowed in U.S. Treasury securities, prerefunded to 8/31/05)
7.000% 8/31/26.................................... 7,000 8,072
Briargate Public Building Authority Landowner Assessment Lien
Series 1985A 10.250% 12/15/00 (a)................. 506 506
Series 1986A 9.500% 12/15/07 (a).................. 1,857 1,857
Colorado Health Facilities Authority Revenue
(Birchwood Manor Apartments, collateralized by GNMA securities)
Series A 7.250% 4/1/11.......................... 630 646
(PSL Health Systems, escrowed in U.S. Treasury securities,
prerefunded to 2/15/01) Series B 8.500% 2/15/21. 3,250 3,534
(Volunteers of America) Series A 5.750% 7/1/10.... 1,095 1,062
Denver City and County Airport Revenue Series D
7.750% 11/15/21 (escrowed in U.S. Treasury securities,
prerefunded to 11/15/01) (c).................... 830 912
7.750% 11/15/21 (c)............................... 3,170 3,417
LaJunta Hospital Revenue (Ark Valley Regional Medical Center Project)
6.100% 4/1/24..................................... 500 488
-------
24,118
Connecticut (0.9%)
Connecticut State Development Authority PCR
(Connecticut Light & Power) 5.850% 9/1/28......... 2,900 2,838

Florida (4.0%)
Florida Housing Finance Agency Multi-Family Housing Revenue
(Palm-Aire) 10.000% 1/1/20 (b) (c)................ 2,731 2,512
Leesburg Hospital Revenue (Leesburg Regional Medical Center,
escrowed in U.S. Treasury securities, prerefunded to 7/1/02)
Series A 7.375% 7/1/11............................ 775 856
Northern Palm Beach County Improvement District (Water Control and
Improvement Unit Development No. 9B) 6.000% 8/1/29 750 749
Orange County Health Facilities Authority
(Orlando Lutheran Towers) 8.625% 7/1/20........... 5,000 5,575
Orlando Special Assessment Revenue Series A
(Conroy Road Interchange Project)
5.500% 5/1/10................................... 200 195
5.800% 5/1/26................................... 500 483

<PAGE>

SR&FHigh-Yield Municipals Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
Florida (Continued)
Pinellas Country Health Facilities Revenue
(Pooled Hospital Loan Project) VRDB 2.550% ....... $ 300 $ 300
Stoneybrook Community Development District Capital
Improvement Revenue
Series B 5.700% 5/1/08.......................... 1,000 986
Series A 6.100% 5/1/19.......................... 330 323
-------
11,979
Georgia (4.1%)
Cartersville Development Authority (Anheuser-Busch)
7.375% 5/1/09 (c)................................. 3,000 3,479
Clayton County Housing Authority Multi-Family Housing
Revenue (Magnolia Park Apartments Project)
Series A 6.250% 6/1/30............................ 1,000 990
Municipal Electric Authority of Georgia Power Revenue
Series V
6.600% 1/1/18..................................... 6,065 6,829
Rockdale County Development Authority Solid Waste
Disposal Revenue (Visy Paper) 7.500% 1/1/26 (c)... 1,000 1,048
-------
12,346
Idaho (0.7%)
Idaho Health Facilities Authority Revenue (St. Lukes
Regional Medical Center Project) VRDB 2.550%...... 300 300
Idaho Housing Agency Single-Family Mortgage Series B
7.500% 7/1/24 (c)................................. 1,645 1,730
-------
2,030
Illinois (4.1%)
Chicago Skyway Toll Bridge Revenue (escrowed in U.S.
Treasury securities, prerefunded to 1/1/04)
6.750% 1/1/17..................................... 1,500 1,662
Illinois Development Finance Authority
(Catholic Charities) 5.950% 1/1/09................ 1,400 1,405
(Hoosier Care Project) Series A 7.125% 6/1/34..... 1,500 1,502
(Latin School of Chicago) 5.650% 8/1/28........... 1,725 1,629
Illinois Development Finance Authority Solid Waste
Disposal Revenue (Waste Management Incorporated
Project) 5.050% 1/1/10........................... 250 244
Illinois Educational Facilities Authority Revenue
(Cultural Pool) VRDB 3.000% ...................... 2,200 2,200
Illinois Health Facilities Authority Revenue
(United Medical Center, escrowed in U.S. Treasury
securities, prerefunded to 7/1/03)
8.125% 7/1/06..................................... 2,015 2,219
(Edward Hospital Association, escrowed in U.S.
Treasury securities, prerefunded to 2/15/02)
7.000% 2/15/22 ................................... 685 742
Illinois Housing Development Authority Multi-Family
Housing Series C 7.400% 7/1/23.................... 140 148
Southwestern Illinois Development Authority Revenue
(Anderson Hospital) 5.500% 8/15/20................ 500 471
(Anderson Hospital) 5.625% 8/15/29................ 250 238
-------
12,460
Indiana (11.9%)
Hammond Sewer & Solid Waste Disposal Revenue
(American Maize Products, gtd. by Eridania Beghin-Say)
8.000% 12/1/24 (c)................................ 4,000 4,535
Indiana Health Facility Financing Authority Revenue
(Metro Health/Indiana Project) 6.400% 12/1/33..... 1,500 1,436
(Hoosier Care Project) Series A 7.125% 6/1/34..... 150 150
Indiana Health Facility Financing Authority Hospital
Revenue (Riverview Hospital Project)
5.500% 8/1/24..................................... 575 541

<PAGE>

Kansas (0.7%)
Wichita Revenue (CSJ Health System) 7.000% 11/15/18.. 2,000 2,124

Louisiana (3.0%)
Calcasieu Parish Industrial Development Board PCR
(Entergy Gulf States) 5.450% 7/1/10............... 500 482
De Soto Parish Environmental Improvement Revenue
(International Paper) Series A 7.700% 11/1/18 (c). 2,500 2,834
Louisiana Public Facilities Authority Hospital Revenue
(Women's Hospital Foundation, escrowed in U.S. Treasury
securities, prerefunded to 10/1/02) 7.250% 10/1/22 2,300 2,536
(Progressive Healthcare Providers) 6.375% 10/1/28. 2,000 1,885
(Touro Infirmary Project) Series A 5.625% 8/15/29. 1,400 1,344
-------
9,081
Massachusetts (3.2%)
Massachusetts Bay Transportation Authority Series 92B
6.200% 3/1/16..................................... 5,825 6,427
Massachusetts State Development Finance Agency Revenue
(Boston Biomedical Research) 5.650% 2/1/19........ 250 241
(Loomis Community Project) Series A 5.625% 7/1/15. 500 481
(Loomis Community Project) Series A 5.750% 7/1/23. 250 239
Massachusetts State Health & Educational Facilities
Authority Revenue (Dana Farber Cancer Institute)
6.250% 12/1/22.................................... 2,000 2,104
-------
9,492
Michigan (1.2%)
Dickinson County Healthcare Systems Hospital Revenue
5.800% 11/1/24.................................... 1,300 1,253
Michigan State Hospital Finance Authority Revenue
(Detroit Medical Center) Series A 5.250% 8/15/28.. 1,000 856
Michigan Strategic Fund Limited Obligation Revenue
(Michigan Sugar Company-Carollton)
Series C 6.550% 11/1/25........................... 1,500 1,532
-------
3,641

<PAGE>

Nevada (1.8%)
Clark County IDR (Nevada Power Company)
Series A 5.900% 11/1/32 (c)....................... 3,000 3,007
Humboldt County PCR (Idaho Power Company) 8.300% 12/1/14 2,000 2,286
-------
5,293
New Hampshire (0.3%)
New Hampshire Higher Educational and Health Facilities
Authority Revenue (Littleton Hospital Association)
Series A 6.00% 5/1/28............................. 1,000 988

New Jersey (1.9%)
New Jersey Economic Development Authority Revenue Series A
(Winchester Gardens Project, Marcus L. Ward Home)
8.625% 11/1/25.................................... 5,000 5,644

New Mexico (3.1%)
Farmington PCR
(Public Service Company of New Mexico) 6.300% 12/1/16 5,000 5,175
(Tucson Electric Power Company) 6.950% 10/1/20.... 2,000 2,162
New Mexico Educational Assistance Foundation Student Loan
Revenue Subordinated Series A-2 6.650% 11/1/25 (c) 1,955 2,013
-------
9,350

<PAGE>

SR&FHigh-Yield Municipals Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
New York (4.5%)
New York City GO
Series B (FGIC Insured) VRDB 2.900% .............. $ 200 $ 200
Series B 7.250% 8/15/07 .......................... 1,000 1,145
Series G 5.750% 2/1/14 ........................... 5,720 5,872
New York City Industrial Development Authority
Special Facility Revenue (Terminal One Group
Association) 6.000% 1/1/15 (c)................... 3,465 3,599
New York City Municipal Water Finance Authority
Water & Sewer Systems Revenue Series A VRDB 2.900%... 300 300
Triborough Bridge & Tunnel Authority Revenue
Series E 7.250% 1/1/10............................ 2,000 2,269
-------
13,385
North Carolina (3.1%)
North Carolina Eastern Municipal Power Agency Revenue
Series A 6.500% 1/1/18 (escrowed in U.S.
Treasury securities).............................. 3,320 3,820
Series A 6.500% 1/1/18............................ 1,680 1,791
Series B 6.000% 1/1/26............................ 3,500 3,542
-------
9,153
Ohio (3.2%)
Franklin County Hospital Revenue
(Doctors OhioHealth Corporation) 5.600% 12/1/28... 2,650 2,470
Greater Allen County Housing Development Corporation Revenue
(Steiner-McBride Apartments) 10.250% 9/1/03....... 1,385 1,387
Highland County Joint Township Hospital Facilities Revenue
6.750% 12/1/29.................................... 1,250 1,278
Miami County Hospital Facility
(Upper Valley Medical Center) Series A 6.375% 5/15/26 1,015 1,038
Ohio State Water Development Authority Solid Waste
Disposal Revenue (Bay Shore Power Company) Series A
5.875% 9/1/20 (c)................................. 3,500 3,456
-------
9,629
Pennsylvania (11.2%)
Allentown Area Hospital Authority Revenue (Sacred Heart
Hospital) 7.500% 7/1/06........................... 3,460 3,704
Beaver County Industrial Development Authority PCR
(Toledo Edison Company) 7.625% 5/1/20............. 4,900 5,463
Dauphin County Industrial Development Authority Water
Development Revenue (General Waterworks Corporation)
Series A 6.900% 6/1/24 (c)........................ 3,200 3,770
Montgomery County Higher Education & Health Authority
Hospital Revenue (Jeanes Health Systems, escrowed in U.S.
Treasury securities, prerefunded to 7/1/00)
8.750% 7/1/20..................................... 3,200 3,422
Pennsylvania Economic Development Financing Authority
Resource Recovery Revenue (Northampton Generating)
Series B 6.750% 1/1/07 (c)...................... 3,000 3,203
Series A 6.500% 1/1/13 (c)...................... 2,000 2,088
Philadelphia Authority For Industrial Development Airport
Revenue (Aero Philadelphia LLC) 5.500% 1/1/24..... 1,000 919
Philadelphia Hospitals & Higher Education Facilities
Authority Revenue (Temple University Hospital)
5.875% 11/15/23................................... 4,000 3,936
Philadelphia Municipal Authority Revenue Lease Series
1993D 6.250% 7/15/13.............................. 2,500 2,611
Philadelphia Water & Sewer Revenue Tenth Series
(escrowed in U.S. Treasury securities)
7.350% 9/1/04 (d)................................. 4,085 4,481
-------
33,597

<PAGE>

Tennessee (0.5%)
Metropolitan Government of Nashville & Davidson Counties Health
and Educational Facilities Board Revenue (The Blakeford
at Green Hills) 5.650% 7/1/24..................... 1,500 1,427

Texas (5.6%)
Abilene Health Facilities Development Corporation Retirement
Facilities Revenue (Sears Methodist Retirement)
Series A 5.900% 11/15/25........................ 2,100 2,013
6.000% 11/15/29................................. 500 485
Alliance Airport Authority Special Facilities Revenue
(American Airlines) 7.000% 12/1/11 (c)............ 4,070 4,653
Brazos Higher Education Authority Subordinated Series C-2
5.875% 6/1/04 (c)................................. 390 393
Houston Airport System Revenue (Continental Airlines)
6.125% 7/15/17 (c)................................ 2,000 2,030
6.125% 7/15/27 (c)................................ 2,000 2,025
Richardson Hospital Authority (Baylor/Richardson)
5.625% 12/1/28.................................... 900 842
Texas City IDR (Atlantic Richfield Company) 7.375% 10/1/20 2,000 2,478
Tyler Health Facilities Development Corporation
(Mother Frances Hospital) Series A 5.625% 7/1/13.. 1,785 1,742
-------
16,661
Utah (0.1%)
Utah Housing Finance Agency Single-Family Mortgage
Series B-2 7.750% 1/1/23 (c)...................... 75 78
Series C-3 7.550% 7/1/23 (c)...................... 190 198
-------
276
Virginia (2.9%)
Greensville County Industrial Development Authority Revenue
(Wheeling Steel Project) Series A
6.375% 4/1/04 .................................. 125 124
7.000% 4/1/14................................... 555 543
Peninsula Ports Authority Revenue
(Port Facility-Ziegler Coal) 6.900% 5/2/22........ 825 821
Pittsylvania County Industrial Development Authority Revenue
(Multitrade of Pittsylvania County L.P.) Series A
7.450% 1/1/09 (c)............................... 3,500 3,776
7.550% 1/1/19 (c)............................... 3,100 3,344
-------
8,608
Washington (4.3%)
Quincy Water and Sewer Revenue Series I (escrowed in
U.S. Treasury securities, prerefunded to 11/1/00)
9.250% 11/1/10.................................... 2,375 2,534
Washington State Health Care Facilities Authority Revenue
(Sacred Heart Medical Center) 6.875% 2/15/12...... 1,500 1,589
Washington State Housing Finance Commission Single-Family
Mortgage Revenue Series C (collateralized by
GNMA/FNMA securities)
Zero Coupon 1/1/22 (c).......................... 1,165 207
Zero Coupon 7/1/22 (c).......................... 1,285 220
Zero Coupon 1/1/23 (c).......................... 1,290 213
Zero Coupon 7/1/23 (c).......................... 1,290 205
Zero Coupon 1/1/24 (c).......................... 1,290 197
Zero Coupon 7/1/24 (c).......................... 1,290 190

<PAGE>

Number of Contract Unrealized
Type Position Contracts Value Expiration Gain (Loss)
---------- -------- ---------- -------- ---------- ------------
U.S. T-Note Long 94 $10,452 Sep-99 $ 146
U.S. T-Bond Long 52 6,027 Sep-99 (109)

(e)At June 30, 1999, the cost of investments for financial reporting and federal
income tax purposes was identical. Net unrealized appreciation was $15,659,
consisting of gross unrealized appreciation of $18,958 and gross unrealized
depreciation of $3,299.

Variable rate demand bonds (VRDB) are securities whose yields are periodically
reset at levels that are generally comparable to tax-exempt commercial paper.
These securities are payable on demand within seven calender days and normally
incorporate an irrevocable letter of credit or line of credit from a major bank.

See accompanying Notes to Financial Statements.

<PAGE>

Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1999
(All amounts in thousands, except per-share data)

Municipal
Money Intermediate Managed High-Yield
Market Municipals Municipals Municipals
Fund Fund Fund Fund
----------- ----------- ----------- -----------
Assets
<S> <C> <C> <C> <C>
Investment in Portfolio, at value...................... $120,062 $ -- $ -- $298,733
Investments, at market value (cost $158,810
and $500,253, respectively)......................... -- 166,086 537,980 --
Accrued interest receivable............................ -- 2,915 9,509 --
Receivable for investments sold........................ -- 811 7,229 --
Receivable for fund shares sold........................ 496 367 29 152
Cash................................................... 18 1,012 42 25
Other assets........................................... 18 -- 83 84
--------- --------- --------- ---------
Total assets........................................ 120,594 171,191 554,872 298,994
--------- --------- --------- ---------
Liabilities
Payable for investments purchased...................... -- 484 14,754 --
Dividends payable...................................... 79 202 790 462
Payable for fund shares redeemed....................... 1,405 1,460 426 458
Payable to investment advisor and transfer agent....... 55 112 326 122
Other liabilities...................................... 23 37 254 78
--------- --------- --------- ---------
Total liabilities................................... 1,562 2,295 16,550 1,120
--------- --------- --------- ---------
Net assets.......................................... $119,032 $168,896 $538,322 $297,874

======== ======== ======== ========
Analysis of Net Assets
Paid-in capital........................................ $119,028 $160,894 $496,954 $291,899
Undistributed (overdistributed) net
investment income................................... 12 51 (216) (242)
Net unrealized appreciation on investments
and futures contracts .............................. -- 7,276 37,727 (9,486)
Accumulated net realized gain (loss) on
investments and futures transactions................ (8) 675 3,857 15,703
--------- --------- --------- ---------
Net assets.......................................... $119,032 $168,896 $538,322 $297,874

======== ======== ======== ========
Shares outstanding (unlimited number authorized)....... 118,970 15,042 59,378 25,443

======== ======== ======== ========
Net asset value per share.............................. $ 1.00 $ 11.23 $ 9.07 $ 11.71
======== ======== ======== ========
</TABLE>

See accompanying Notes to Financial Statements.

<PAGE>

Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended June 30, 1999
(All amounts in thousands)

Municipal
Money Intermediate Managed High-Yield
Market Municipals Municipals Municipals
Fund Fund Fund Fund
----------- ----------- ----------- -----------
Investment Income
<S> <C> <C> <C> <C>
Interest allocated from Portfolio.......................... $4,097 $ -- $ -- $19,776
Interest................................................... -- 10,250 32,911 --
------- -------- -------- --------
Total investment income................................. 4,097 10,250 32,911 19,776
------- -------- -------- --------
Expenses
Management fees............................................ -- 850 2,372 --
Expenses allocated from Portfolio.......................... 364 -- -- 1,493
Transfer agent fees........................................ 181 272 841 488
Administrative fees........................................ 301 267 649 424
Printing and postage....................................... 15 19 -- 36
Accounting fees............................................ 27 28 38 32
Audit and legal fees....................................... 19 26 28 4
Other...................................................... 49 79 184 44
------- -------- -------- --------
Total expenses.......................................... 956 1,541 4,112 2,521
Reimbursement of expenses by investment advisor............ (108) (179) -- --
------- -------- -------- --------
Net expenses............................................ 848 1,362 4,112 2,521
------- -------- -------- --------
Net investment income................................... 3,249 8,888 28,799 17,255
------- -------- -------- --------
Realized and Unrealized Gain (Loss) on Investments
and Futures Transactions
Net realized gain (loss) on investments and
futures transactions allocated from Portfolio........... -- -- -- 3,655
Net realized gain (loss) on investments.................... -- 1,053 5,166 --
Net change in unrealized appreciation or depreciation
on investments and futures transactions................. -- (5,460) (23,858) (10,380)
------- -------- -------- --------
Net loss on investments and futures transactions........ -- (4,407) (18,692) (6,725)
------- -------- -------- --------
Net Increase in Net Assets Resulting from Operations....... $3,249 $ 4,481 $ 10,107 $10,530
========= ========== ========== ===========
</TABLE>

See accompanying Notes to Financial Statements.

<PAGE>

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

For the Years Ended June 30, 1998 and 1999
(All amounts in thousands)

Municipal Money Intermediate
Market Fund Municipals Fund
1999 1998 1999 1998
--------------------------- --------------------------
Operations
<S> <C> <C> <C> <C>
Net investment income ............................... $ 3,249 $ 3,771 $ 8,888 $ 9,378
Net realized gain (loss) on investments.............. -- -- 1,053 753
Net change in unrealized appreciation or
depreciation on investments....................... -- -- (5,460) 3,083
--------- --------- --------- ---------
Net increase in net assets resulting from
operations........................................ 3,249 3,771 4,481 13,214
--------- --------- --------- ---------
Distributions to Shareholders
Distributions from net investment income............. (3,252) (3,771) (8,885) (9,378)
Distributions from net capital gains................. -- -- (926) (545)
--------- --------- --------- ---------
Total distributions to shareholders............... (3,252) (3,771) (9,811) (9,923)
--------- --------- --------- ---------
Share Transactions
Subscriptions to fund shares......................... 197,191 177,051 31,678 31,594
Value of distributions reinvested.................... 2,897 2,975 6,806 5,718
Redemptions of fund shares........................... (196,332) (183,171) (59,909) (40,958)
--------- ---------- ---------- ---------
Net increase (decrease) from share transactions... 3,756 (3,145) (21,425) (3,646)
--------- ---------- ---------- ---------
Net increase (decrease) in net assets............. 3,753 (3,145) (26,755) (355)
Total Net Assets
Beginning of period.................................. 115,279 118,424 195,651 196,006
--------- --------- --------- ---------
End of period........................................ $119,032 $115,279 $168,896 $195,651

========= ========== ========== ==========
Analysis of Changes in Shares of
Beneficial Interest
Subscriptions to fund shares ........................ 197,191 177,051 2,720 2,733
Issued in reinvestment of distributions.............. 2,897 2,975 586 494
Redemptions of fund shares........................... (196,332) (183,171) (5,169) (3,542)
--------- --------- --------- ---------
Net increase (decrease) in fund shares............ 3,756 (3,145) (1,863) (315)
Shares outstanding at beginning of period............ 115,214 118,359 16,905 17,220
--------- --------- --------- ---------
Shares outstanding at end of period.................. 118,970 115,214 15,042 16,905
========= ========== ========== ==========
</TABLE>

See accompanying Notes to Financial Statements.

<PAGE>

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

For the Years Ended June 30, 1998 and 1999
(All amounts in thousands)

Managed High-Yield
Municipals Fund Municipals Fund
1999 1998 1999 1998
--------------------------- --------------------------
Operations
<S> <C> <C> <C> <C>
Net investment income .................................. $ 28,799 $ 30,361 $ 17,255 $ 17,880
Net realized gain (loss) on investments and
futures transactions................................. 5,166 1,473 3,655 (3,850)
Net change in unrealized appreciation or
depreciation on investments and futures
transactions......................................... (23,858) 15,722 (10,380) 11,887
--------- --------- --------- ---------
Net increase in net assets resulting
from operations...................................... 10,107 47,556 10,530 25,917
--------- --------- --------- ---------
Distributions to Shareholders
Distributions from net investment income................ (28,945) (30,361) (17,606) (17,880)
--------- --------- --------- ---------
Share Transactions
Subscriptions to fund shares............................ 43,856 42,525 57,493 75,509
Value of distributions reinvested....................... 16,296 16,076 11,152 9,200
Redemptions of fund shares.............................. (86,130) (75,024) (105,475) (57,036)
--------- ---------- ---------- ---------
Net increase (decrease) from share transactions...... (25,978) (16,423) (36,830) 27,673
--------- ---------- ---------- ---------
Net increase (decrease) in net assets................ (44,816) 772 (43,906) 35,710
Total Net Assets
Beginning of period..................................... 583,138 582,366 341,780 306,070
--------- --------- --------- ---------
End of period........................................... $538,322 $583,138 $297,874 $341,780

========= ========== ========== ==========
Analysis of Changes in Shares of
Beneficial Interest
Subscriptions to fund shares ........................... 4,661 4,557 4,792 6,341
Issued in reinvestment of distributions................. 1,735 1,721 932 771
Redemptions of fund shares.............................. (9,176) (8,036) (8,823) (4,792)
--------- --------- --------- ---------
Net increase (decrease) in fund shares............... (2,780) (1,758) (3,099) 2,320
Shares outstanding at beginning of period............... 62,158 63,916 28,542 26,222
--------- --------- --------- ---------
Shares outstanding at end of period..................... 59,378 62,158 25,443 28,542
========== ========== ========== ==========
</TABLE>

See accompanying Notes to Financial Statements.

<PAGE>

Statements of Assets and Liabilities
- --------------------------------------------------------------------------------

June 30, 1999
(All amounts in thousands)

SR&F SR&F
Municipal High-Yield
Money Market Municipals
Portfolio Portfolio
---------- ----------
Assets
Investments, at market value (cost $140,707 and
$280,748, respectively)............................. $140,707 $296,407
Interest receivable.................................... 610 5,510
Receivable for investments sold........................ 839 1,608
Cash................................................... -- 30
Variation margin receivable on futures................. -- 131
Other.................................................. 5 --
--------- ---------
Total assets........................................ 142,161 303,686
--------- ---------
Liabilities
Payable for investments purchased...................... 8,035 3,905
Payable to investment advisor.......................... 30 117
Other liabilities...................................... 47 1
--------- ---------
Total liabilities................................... 8,112 4,023
--------- ---------
Net assets applicable to investors'
beneficial interest............................... $134,049 $299,663
========== ==========

Statements of Operations
- --------------------------------------------------------------------------------

For the Year Ended June 30, 1999
(All amounts in thousands)
<TABLE>
<CAPTION>

SR&F SR&F
Municipal High-Yield
Money Market Municipals
Portfolio Portfolio
---------- ----------
Investment Income
<S> <C> <C>
Interest................................................... $4,598 $19,891
------- --------
Expenses
Management fees............................................ 339 1,400
Accounting fees............................................ 27 32
Audit and legal fees....................................... 17 33
Trustees' fees............................................. 9 13
Custodian fees............................................. 4 2
Other...................................................... 13 22
------- --------
Total expenses.......................................... 409 1,502
------- --------
Net investment income................................... 4,189 18,389
------- --------
Realized and Unrealized Gain (Loss) on Investments
and Futures Transactions
Net realized gain on investments and futures transactions.. -- 3,631
Net change in unrealized appreciation or depreciation on investment
and futures transactions................................ -- (10,388)
------- --------
Net loss on investments ................................ -- (6,757)
------- --------
Net Increase in Net Assets Resulting from Operations....... $4,189 $11,632
======== =========
</TABLE>

See accompanying Notes to Financial Statements.

<PAGE>

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

For the Years Ended June 30, 1998 and 1999
(All amounts in thousands)

SR&F Municipal High-Yield Municipals
Money Market Portfolio Portfolio
1999 1998 1999 1998 (a)
--------- --------- --------- ---------
Operations
<S> <C> <C> <C> <C>
Net investment income............... $4,189 $4,891 $18,389 $7,847
Net realized gain (loss) on investments
and futures transactions......... -- -- 3,631 (214)
Net change in unrealized appreciation or
depreciation on investments
and futures transactions......... -- -- (10,388) (1,762)
--------- --------- --------- ---------
Net increase in net assets resulting
from operations................ 4,189 4,891 11,632 5,871
--------- --------- --------- ---------
Transactions in Investors' Beneficial Interest
Contributions....................... 101,419 80,237 27,867 349,343
Withdrawals......................... (103,577) (92,038) (83,002) (12,048)
--------- --------- --------- ---------
Net increase (decrease) from transactions
in investors' beneficial interest (2,158) (11,801) (55,135) 337,295
--------- --------- --------- ---------
Net increase (decrease) in net assets 2,031 (6,910) (43,503) 343,166
Total Net Assets
Beginning of period................. 132,018 138,928 343,166 --
--------- --------- --------- ---------
End of period....................... $134,049 $132,018 $299,663 $343,166
=========== =================================
</TABLE>

(a)From commencement of operations on February 2, 1998.

See accompanying Notes to Financial Statements.

<PAGE>

Notes to Financial Statements
- --------------------------------------------------------------------------------
(All amounts in thousands)

Note 1. Organization
Stein Roe Municipal Money Market Fund, Stein Roe Intermediate Municipals Fund,
Stein Roe Managed Municipals Fund and Stein Roe High-Yield Municipals Fund (the
"Funds") are series of Stein Roe Municipal Trust (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust.
Municipal Money Market Fund and High-Yield Municipals Fund invest substantially
all of their assets in SR&F Municipal Money Market Portfolio and SR&F High-Yield
Municipals Portfolio (the "Portfolios"), respectively.
The Portfolios are series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. SR&F High-Yield Municipals Portfolio commenced operations on February 2,
1998. At commencement, High-Yield Municipals Fund contributed $335,711 in
securities and other assets to SR&F High-Yield Municipals Portfolio in exchange
for beneficial ownership of the Portfolio. At February 4, 1998, Stein Roe
Advisor High-Yield Municipals Fund contributed cash of $100 to the Portfolio.
The Portfolios allocate income, expenses, realized and unrealized gains and
losses to each investor on a daily basis, based on methods approved by the
Internal Revenue Service. At June 30, 1999, Stein Roe Municipal Money Market
Fund and Colonial Municipal Money Market Fund owned 89.6 percent and 10.4
percent, respectively, of SR&F Municipal Money Market Portfolio; and Stein Roe
High-Yield Municipals Fund and Stein Roe Advisor High-Yield Municipals Fund
owned 99.7 percent and .3 percent, respectively, of SR&F High-Yield Municipals
Portfolio.

Note 2. Significant
Accounting Policies
The following summarizes the significant accounting policies of the Funds and
Portfolios. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Investment Transactions
and Investment Income
Investment transactions are accounted for on trade date. Interest income,
including premium amortization, is recorded daily on an accrual basis. Realized
gains or losses from investment transactions are reported on a specific
identified cost basis.

<PAGE>

Notes to Financial Statements Continued
- --------------------------------------------------------------------------------

Securities purchased on a when-issued or delayed delivery basis may be
settled a month or more after the transaction date. The values of such
securities are subject to market fluctuations during this period. None of the
Funds had when-issued or delayed delivery purchase commitments as of June 30,
1999.

Security Valuations

All securities are valued as of June 30, 1999. Municipal securities are valued
at a fair value using a procedure determined in good faith by the Board of
Trustees, which has authorized the use of bid valuations provided by a pricing
service, except for SR&F Municipal Money Market Portfolio. This Portfolio
utilizes the amortized cost method to value its investments. This technique
approximates market value and involves valuing a security initially at cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium. In the event that a deviation of .50 of 1 percent or more exists
between Stein Roe Municipal Money Market Fund's $1.00 per share net asset value,
calculated at amortized cost, and the net asset value calculated by reference to
market quotations, its Board of Trustees would consider what action, if any,
should be taken. Other securities and assets are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
Municipal Money Market Fund attempts to maintain a per-share net asset value
of $1.00, which management believes will be possible under most conditions.

Futures Contracts
Intermediate Municipals Fund, Managed Municipals Fund and SR&F High-Yield
Municipals Portfolio may enter into futures contracts to either hedge against
expected declines of their portfolio securities or as a temporary substitute for
the purchase of individual bonds. Risks of entering into futures contracts
include the possibility that there may be an illiquid market at the time a fund
seeks to close out a contract, and changes in the value of the futures contract
may not correlate with changes in the value of the portfolio securities being
hedged.
Upon entering into a futures contract, the Fund/Portfolio deposits with its
custodian cash or securities in an amount sufficient to meet the initial margin
requirements. Subsequent payments are made or received by the Fund/Portfolio
equal to the daily change in the contract value and are recorded as variation
margin payable or receivable and offset in unrealized gains or losses. The
Fund/Portfolio

<PAGE>

Notes to Financial Statements Continued
- --------------------------------------------------------------------------------

recognizes a realized gain or loss when the contract is closed or expires.
Federal Income Taxes
No provision is made for federal income taxes since (a) the Funds elect to be
taxed as "regulated investment companies" and make distributions to their
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolios are treated as partnerships for
federal income tax purposes and all of their income is allocated to their owners
based on methods approved by the Internal Revenue Service. All dividends paid
from net investment income by the Funds constitute tax-exempt interest that is
not taxable for federal income tax purposes; however, a portion of the dividends
paid may be inclusive in the alternative minimum tax calculation.
The Funds intend to utilize provisions of the federal income tax laws, which
allow them to carry a realized capital loss forward up to eight years following
the year of the loss, and offset such losses against any future realized gains.
At June 30, 1999, the Funds had capital loss carryforwards as follows:

Year of
Fund Amount Expiration
High Yield Municipals $8,575 2005-2006
Municipal Money Market 8 2002-2005

Distributions to Shareholders
Dividends from net investment income are declared daily and paid monthly.
Capital gains distributions, if any, are distributed annually. Dividends are
determined in accordance with income tax principles, which may treat certain
transactions differently than generally accepted accounting principles.
Distributions in excess of tax basis earnings are reported in the financial
statements as a return of capital. Permanent differences in the recognition or
classification of income between the financial statements and tax earnings are
reclassified to paid-in capital.

Note 3. Portfolio Composition
The Funds and Portfolios invest in municipal securities including, but not
limited to, general obligation bonds, revenue bonds and escrowed bonds (i.e.,
bonds that have been refinanced, the proceeds of which have been invested in
U.S. or state and local government obligations that are set aside to pay off the
original issue at the first call date or maturity). See Fund Highlights for a
breakdown of securities held by type at June 30, 1999.
The Funds and Portfolios hold investments that are insured by private
insurers who guarantee the payment of principal and interest in the event of
default. At June 30, 1999, investments in these securities for Intermediate
Municipals Fund, Managed Municipals

<PAGE>

Notes to Financial Statements Continued
- --------------------------------------------------------------------------------

Fund and SR&F High-Yield Municipals Portfolio represented 59.0 percent, 21.6
percent and 2.3 percent of holdings, respectively. SR&F Municipal Money Market
Portfolio invests in certain short-term securities that are backed by bank
letters of credit used to provide liquidity to the issuer and/or additional
security in the event of default. At June 30, 1999, 60.7 percent of the
Portfolio was backed by bank letters of credit. See the Portfolio of Investments
for each Fund or Portfolio for additional information regarding portfolio
composition.

Note 4. Trustees' Fees and
Transactions with Affiliates

The Funds and Portfolios pay monthly management and administrative fees,
computed and accrued daily, to Stein Roe & Farnham Incorporated (the "Advisor"),
an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for
its services as investment advisor and manager. The management fee for SR&F
Municipal Money Market Portfolio is computed at an annual rate of .25 of 1
percent of average daily net assets. The management fee for Inter mediate
Municipals Fund and SR&F High-Yield Municipals Portfolio is .45 of 1 percent of
the first $100 million of average daily net assets, .425 of 1 percent of the
next $100 million and .40 of 1 percent thereafter. The management fee for
Managed Municipals Fund is .45 of 1 percent of the first $100 million of average
daily net assets, .425 of 1 percent of the next $100 million, .40 of 1 percent
of the next $800 million and .375 of 1 percent thereafter.
The administrative fee for the Municipal Money Market Fund is computed at an
annual rate of .25 of 1 percent of average daily net assets up to $500 million,
.20 of 1 percent of average daily net assets for the next $500 million and .15
of 1 percent thereafter. The administrative fee for Intermediate Municipals Fund
and High-Yield Municipals Fund is computed at an annual rate of .15 of 1 percent
of the first $100 million of average daily net assets, .125 of 1 percent of the
next $100 million and .10 of 1 percent thereafter. The admin istrative fee for
Managed Municipals Fund is .15 of 1 percent of the first $100 million of average
daily net assets, .125 of 1 percent of the next $100 million, .10 of 1 percent
of the next $800 million and .075 of 1 percent thereafter.
The Advisor also provides accounting services to the Funds and Portfolios.
For the year ended June 30, 1999, Municipal Money Market Fund, Intermediate
Municipals Fund, Managed Municipals Fund,

<PAGE>

Notes to Financial Statements Continued
- --------------------------------------------------------------------------------

High-Yield Municipals Fund, SR&F Municipal Money Market Portfolio, and SR&F
High-Yield Municipals Portfolio incurred charges of $27, $28, $38, $32, $27 and
$32, respectively, for these services.
The Advisor has agreed to reimburse Municipal Money Market Fund and
Intermediate Municipals Fund for expenses in excess of .70 of 1 percent of
average annual net assets. This commitment expires on October 31, 1999, subject
to earlier termination by the Advisor on 30 days' notice.
Transfer agent fees are paid to SteinRoe Services, Inc. (SSI), an indirect,
majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has entered
into an agreement with Liberty Funds Services, Inc., formerly Colonial Investors
Service Center, Inc., also an indirect, majority-owned subsidiary of Liberty
Mutual Insurance Company, to act as subtransfer agent for the Funds.
Certain officers and trustees of the Trust are also officers of the Advisor.
No remuneration was paid to any other trustee or officer of the Trust.

Note 5. Short-Term Debt
To facilitate portfolio liquidity, the Funds and Portfolios maintain borrowing
arrangements under which they can borrow against portfolio securities. There
were no borrowings by any of the Funds or Portfolios during the year ended June
30, 1999.

Note 6. Investment Transactions
The aggregate cost of purchases and proceeds from sales or maturities of
securities, excluding short-term obligations, for the year ended June 30, 1999,
were as follows:
Purchases Sales
--------- ---------
Intermediate Municipals Fund........................... $90,031 $107,693
Managed Municipals Fund................................ 98,667 115,287
SR&F High-Yield Municipals Portfolio................... 60,915 91,044

<PAGE>

Financial Highlights
- --------------------------------------------------------------------------------

Municipal Money Market Fund

Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>

Years Ended June 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income.......... 0.027 0.031 0.030 0.031 0.030
Distributions from net
investment income............ (0.027) (0.031) (0.030) (0.031) (0.030)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000

==================================================
Ratio of net expenses to average
net assets (a).................. 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income to
average net assets (b).......... 2.69% 3.06% 2.98% 3.09% 2.96%
Total return (b)................... 2.73% 3.10% 3.04% 3.13% 3.02%
Net assets, end of period (000's). $119,032 $115,279 $118,424 $120,432 $146,704

</TABLE>

SR&F Municipal Money Market Portfolio

Period
Years Ended Ended
June 30, June 30,
1999 1998 1997 1996 (c)
-------- ---------------- --------
Selected Ratios
Ratio of net expenses to average net assets. 0.30% 0.34% 0.32% 0.30%(d)
Ratio of net investment income to average
net assets............................... 3.07% 3.41% 3.36% 3.50%(d)

(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Advisor, this ratio would have been 0.79, 0.86, 0.86, 0.84 and 0.78
percent for the years ended June 30, 1999 through June 30, 1995,
respectively.

(b) Computed giving effect to Advisor's expense limitation undertaking.

(c)From commencement of operations on September 28, 1995.

(d)Annualized.

<PAGE>

Financial Highlights Continued
- --------------------------------------------------------------------------------

Intermediate Municipals Fund

Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>

Years Ended June 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.57 $ 11.38 $ 11.22 $ 11.16 $ 11.00
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income.......... 0.54 0.54 0.55 0.55 0.53
Net realized and unrealized gain
(loss) on investments........ (0.30) 0.22 0.22 0.06 0.16
-------- -------- -------- -------- --------
Total from investment operations 0.24 0.76 0.77 0.61 0.69
-------- -------- -------- -------- --------
Distributions
Net investment income.......... (0.54) (0.54) (0.55) (0.55) (0.53)
Net realized gains............. (0.04) (0.03) (0.06) -- --
-------- -------- -------- -------- --------
Total distributions......... (0.58) (0.57) (0.61) (0.55) (0.53)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.... $ 11.23 $ 11.57 $ 11.38 $ 11.22 $ 11.16
==================================================

Ratio of net expenses to average
net assets (a)................. 0.70% 0.70% 0.70% 0.70% 0.74%
Ratio of net investment income to
average net assets (b)......... 4.58% 4.70% 4.84% 4.82% 4.94%
Portfolio turnover rate........... 48% 29% 44% 66% 67%
Total return (b).................. 2.08% 6.84% 7.07% 5.47% 6.59%
Net assets, end of period (000's). $168,896 $195,651 $196,006 $204,726 $212,489
</TABLE>

(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Advisor, this ratio would have been 0.79, 0.81, 0.82, 0.81 and 0.76
percent for the years ended June 30, 1999 through June 30, 1995,
respectively.
(b) Computed giving effect to Advisor's expense limitation undertaking.

- --------------------------------------------------------------------------------

Federal Income Tax Information (unaudited)
For the fiscal year ended June 30, 1999, the Fund paid capital gains
distributions of which 74% were long-term capital gains. All of the income
distributions will be treated as exempt income for federal income tax
purposes.

- --------------------------------------------------------------------------------

<PAGE>

Financial Highlights Continued
- --------------------------------------------------------------------------------

Managed Municipals Fund

Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>

Years Ended June 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.38 $ 9.11 $ 8.85 $ 8.79 $ 8.70
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income.......... 0.47 0.48 0.48 0.48 0.51
Net realized and unrealized gain
(loss) on investments........ (0.31) 0.27 0.26 0.06 0.09
-------- -------- -------- -------- --------
Total from investment operations 0.16 0.75 0.74 0.54 0.60
-------- -------- -------- -------- --------
Distributions
Net investment income.......... (0.47) (0.48) (0.48) (0.48) (0.51)
Net realized gains............. -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions......... (0.47) (0.48) (0.48) (0.48) (0.51)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.... $ 9.07 $ 9.38 $ 9.11 $ 8.85 $ 8.79
==================================================

Ratio of net expenses to average
net assets..................... 0.72% 0.72% 0.73% 0.72% 0.65%
Ratio of net investment income to
average net assets............. 5.02% 5.14% 5.31% 5.41% 5.85%
Portfolio turnover rate........... 17% 12% 16% 40% 33%
Total return ..................... 1.67% 8.37% 8.56% 6.24% 7.12%
Net assets, end of period (000's). $538,322 $583,138 $582,366 $606,359 $629,730
</TABLE>

- --------------------------------------------------------------------------------

Federal Income Tax Information (unaudited)
All of the income distributions will be treated as exempt income for federal
income tax purposes.

- --------------------------------------------------------------------------------

<PAGE>

Financial Highlights Continued
- --------------------------------------------------------------------------------

High-Yield Municipals Fund

Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>

Years Ended June 30,
1999 1998 1997 1996 1995
---------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.97 $ 11.67 $ 11.40 $ 11.31 $ 11.06
---------------- -------- -------- --------
Income From Investment Operations
Net investment income.......... 0.63 0.65 0.72 0.67 0.66
Net realized and unrealized gain
(loss) on investments and
futures transactions......... (0.25) 0.30 0.27 0.09 0.25
---------------- -------- -------- --------
Total from investment operations 0.38 0.95 0.99 0.76 0.91
---------------- -------- -------- --------
Distributions
Net investment income.......... (0.64) (0.65) (0.72) (0.67) (0.66)
Net realized gains............. -- -- -- -- --
---------------- -------- -------- --------
Total distributions......... (0.64) (0.65) (0.72) (0.67) (0.66)
---------------- -------- -------- --------
Net Asset Value, End of Period.... $ 11.71 $ 11.97 $ 11.67 $ 11.40 $ 11.31
=================================================

Ratio of net expenses to average
net assets..................... 0.77% 0.75% 0.77% 0.85% 0.86%
Ratio of net investment income to
average net assets............. 5.26% 5.48% 6.20% 5.86% 5.98%
Portfolio turnover rate........... N/A 8%(a) 11%(a) 34%(a) 23%(a)
Total return...................... 3.18%(b)8.32% 8.91% 6.83% 8.54%
Net assets, end of period (000's). $297,874 $341,780$306,070 $282,956 $281,155

</TABLE>

SR&F High-Yield Municipals Portfolio

Year Period
Ended Ended
June 30, June 30,
1999 1998 (c)
--------- ---------
Selected Ratios
Ratio of net expenses to average net assets ........... 0.45% 0.47%(d)
Ratio of net investment income to average net assets... 5.55% 5.72%(d)
Portfolio turnover rate................................ 19% 3%
(a)Prior to commencement of operations of the Portfolio.
(b)0.50% of the return is attributable to a one-time revaluation of a portfolio
security reflecting the restructuring of this security. Absent this
revaluation, the total return would have been 2.68%.
(c)From commencement of operations on February 2, 1998.
(d)Annualized.

- --------------------------------------------------------------------------------

Federal Income Tax Information (unaudited)
All of the income distributions will be treated as exempt income for federal
income tax purposes.

- --------------------------------------------------------------------------------

<PAGE>

Report of Independent Auditors
- --------------------------------------------------------------------------------

To the Shareholders, Holders
of Investors' Beneficial Interest, and
Board of Trustees of the Stein Roe
Municipal Trust and SR&F Base Trust

Stein Roe Municipal Money
Market Fund
Stein Roe Intermediate
Municipals Fund
Stein Roe Managed
Municipals Fund
Stein Roe High-Yield
Municipals Fund
SR&F Municipal Money
Market Portfolio
SR&F High Yield
Municipals Portfolio

We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Stein Roe Intermediate Municipals Fund, Stein
Roe Managed Municipals Fund, SR&F High Yield Municipals Portfolio and SR&F
Municipal Money Market Portfolio as of June 30, 1999, and the accompanying
statements of assets and liabilities of Stein Roe Municipal Money Market Fund
and Stein Roe High-Yield Municipals Fund as of June 30, 1999, and the related
statements of operations for the year then ended, and statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Funds' and Portfolios'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
state ments and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of Stein
Roe Municipal Money Market Fund, Stein Roe

Report of Independent Auditors Continued
- --------------------------------------------------------------------------------

Intermediate Municipals Fund, Stein Roe Managed Municipals Fund, Stein Roe
High-Yield Municipals Fund, SR&F Municipal Money Market Portfolio and SR&F
High-Yield Municipals Portfolio at June 30, 1999, and the results of their
operations, the changes in their net assets, and their financial highlights for
the periods referred to above in conformity with generally accepted accounting
principles.

[ERNST + YOUNG SIGNATURE]

Boston, Massachusetts
August 11, 1999

Municipal Trust
- --------------------------------------------------------------------------------

Trustees
John A. Bacon, Jr.
Private Investor
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial Officer,
United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners

Officers
Thomas W. Butch, President
William D. Andrews, Executive Vice President
Kevin M. Carome, Executive Vice President,
Assistant Secretary
Loren A. Hansen, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Treasurer
J. Kevin Connaughton, Vice President
Joanne T. Costopoulos, Vice President
Brian M. Hartford, Vice President
Timothy Jacoby, Vice President
Gail D. Knudsen, Vice President
William C. Loring, Vice President
Lynn C. Maddox, Vice President
Maureen Newman, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Sharlene Thomas, Vice President
Veronica M. Wallace, Vice President
Heidi J. Walter, Vice President, Secretary
Janet B. Rysz, Assistant Secretary
Patricia Judge, Controller

Agents and Advisors
Stein Roe & Farnham Incorporated
Investment Advisor
State Street Bank and Trust Company
Custodian
Liberty Funds Services Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Trust
Ernst & Young LLP
Independent Auditors

The Stein Roe Mutual Funds

Fixed Income Funds
Cash Reserves Fund
Municipal Money Market Fund
Intermediate Municipals Fund
Managed Municipals Fund
High-Yield Municipals Fund
Intermediate Bond Fund
Income Fund
High Yield Fund

Equity Funds
Balanced Fund
Growth & Income Fund
Disciplined Stock Fund*
Growth Stock Fund
Growth Investor Fund
Young Investor Fund
Large Company Focus Fund
Midcap Growth Fund**
Capital Opportunities Fund
International Fund
Small Company Growth Fund

* Formerly Special Fund
** Formerly Growth Opportunities Fund

Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
Financial Advisors call: 800-322-0593
Shareholders call: 800-338-2550
www.steinroe.com

In Chicago, visit our Fund Center at One South Wacker Drive

Liberty Funds Distributor, Inc.

TE11A 8/99