Stein Roe Mutual Funds
Annual Report
June 30, 2000
[CURRENCY PHOTO HERE]
Stein Roe Fixed Income Fund
Taxable Bond Fund
Institutional Client High Yield Fund
[Stein Roe logo]
STEIN ROE MUTUAL FUNDS
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Sensible Risks. Intelligent Investments.(R)
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Contents
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Performance.................................................................. 1
How the Stein Roe Institutional Client High Yield Fund has done over time
Questions & Answers.......................................................... 2
Interview with the portfolio manager and summary of investment activity
Portfolio of Investments..................................................... 4
A complete list of investments with market values
Financial Statements......................................................... 9
Statements of assets and liabilities, operations and changes in net assets
Notes to Financial Statements................................................15
Financial Highlights.........................................................17
Selected per-share data
Report of Independent Auditors...............................................18
Must be preceded or accompanied by a prospectus.
<PAGE>
Fund Performance
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One way to evaluate a Fund's historical performance is to look at the cumulative
return percentage, the average annual total return percentage or the growth of a
hypothetical $10,000 investment. Below we compare the returns of the Stein Roe
Institutional Client High Yield Fund with its unmanaged benchmark and its peer
group.
Each performance figure includes changes in a Fund's share price,
reinvestment of dividends (net investment income) and capital gains, if any (the
taxable profits a fund earns when it sells bonds that have grown in value).
Average Annual Total Returns
Periods Ended June 30, 2000
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Life
1 Year of Fund(1)
--------------------------------
STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND 0.37% 7.26%
Merrill Lynch High Yield Master II Index -0.97 4.46
Lipper High Current
Yield Fund Average (Peer Group) -0.77 11.40
Number of Funds in Lipper Peer Group 351 181
(1) The Merrill Lynch High Yield Master II Index and the Peer Group returns are
calculated for the period 2/28/97 - 6/30/00.
Investment Comparison
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COMPARISON of change in value of a $10,000 investment.
[CHART DATA]
Institutional Merrill Lynch
Client High High Yield
Yield Fund Master II Index
2/28/97(1) 10,000 10,000
3/31/97 9,820.0 9,862.5
6/30/97 10,463.2 10,356.9
9/30/97 11,012.5 10,809.6
12/31/97 11,260.3 11,072.0
3/31/98 11,977.6 11,401.2
6/30/98 12,019.5 11,578.5
9/30/98 11,289.9 11,092.9
12/31/98 11,812.6 11,398.9
3/31/99 12,425.7 11,607.4
6/30/99 12,520.2 11,682.2
9/30/99 12,323.6 11,527.9
12/31/99 12,874.5 11,684.9
3/31/00 12,619.5 11,493.9
6/30/00 12,565.7 11,568.6
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. An
expense limitation of .50% is currently in effect for Institutional Client High
Yield Fund, which began operating on Feb. 14, 1997. Returns would have been
lower without the limitation. Total return includes changes in share price and
reinvestment of income and capital gains distributions. 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. Source of data: Lipper, Inc., a monitor of mutual fund performance;
Bloomberg; Liberty Funds Distributor, Inc.
(1) The Merrill Lynch High Yield Master II Index and the Peer Group returns are
calculated for the period 2/28/97 - 6/30/00.
1
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Questions & Answers
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AN INTERVIEW WITH STEVE LOCKMAN, PORTFOLIO MANAGER OF STEIN ROE INSTITUTIONAL
CLIENT HIGH YIELD FUND AND SR&F HIGH YIELD PORTFOLIO
Q: HOW DID THE FUND'S PERFORM DURING THE PERIOD?
Lockman: For the fiscal year ended June 30, 2000, the Stein Roe Institutional
Client High Yield Fund continued to outperform its peers, returning 0.37%, while
the Fund's Lipper peer group average returned negative 0.77%(1). The Merrill
Lynch High Yield Master II Index returned negative -0.97% for the same period.
The Fund's performance in the first half of the fiscal year was exceptionally
strong, as robust equity market activity supported the performance of the
high-yield bond market. Companies issued high-yield debt as well as equities,
and the market was receptive to both investment categories.
As the fiscal year progressed, high default rates and rising short-term
interest rates became problematic for the high-yield market. Combined with a
sell-off in equities in the second half of the fiscal year, these factors hurt
the market, particularly the lower-rated credits and the telecommunications
sector.
Q: WHERE DID YOU POSITION THE MAJORITY OF THE PORTFOLIO'S ASSETS, AND WHY?
Lockman: The majority of the Portfolio's exposure
has historically been in the B-rated bond category, where there is a large
dispersion of value and valuations. That area underperformed during the second
half of the year, reflecting the high-yield market downfalls. We took advantage
of the tremendous value we saw in BBB-rated bonds at that time, and increased
the Portfolio's allocation to around 8%.
In December of 1999 and again in June 2000, the Portfolio received a large
influx of cash. We used some of those assets to make the BBB-rated bond
purchases and are reserving the rest to invest in the anticipated market
recovery in the coming months.
Q: HOW DID THE HIGH-YIELD MARKET'S DEFAULT RATE IMPACT THE FUND?
Lockman: The high default rate has caused a great deal of uncertainty in the
high-yield market in recent months, but has only had an indirect effect on the
Fund's performance. The default trend has escalated over the past 12 months,
fueled in large part by the excessive amount of new issuance from 1997 through
1999. (During this time, new issuance caused the bond market to swell to
two-and-a-half times the size it was four years ago.) Much of the issuance came
from lower-quality companies that are now not succeeding because of either a
cyclical nature or an inability to execute their business plans as expected.
This trend will likely continue going forward, but we expect it to be less
severe. So far, new issuance in the year 2000 is 50%-60% lower than one year
ago. Like the stock market of late, the high-yield bond market has become much
less receptive to funding new issues from lower-quality companies.
Thus far, the Portfolio has been able to avoid serious default problems due
to our knowledge and experience in this complex market. Our in-house research
staff carefully reviews the creditworthiness of all issuers before we make an
investment decision. Going forward, we think much of the uncertainty related to
excessive defaults will be priced into the market. This should provide an
excellent opportunity for long-term, high-yield investing.
Q: ARE THERE ANY SECTORS THAT HAD A STRONG IMPACT ON THE MARKET AND THE
PORTFOLIO?
Lockman: Media and telecommunications continue to be the driving sectors in the
high-yield bond market, making up well over three-quarters of the market's new
issuance in 2000, and 35%-45% of the existing issues in the market. These "new
economy" companies use the high-yield market as a key source of their funding,
along with banks and the equity market. The decline in the NASDAQ during recent
months has dramatically affected the valuations of these companies in general,
which has impacted the high-yield market.
Despite recent frustrations, we expect continued dominance from media and
telecommunications sectors. Media and telecommunications companies are still in
their development phases and therefore will likely need continued access to the
high-yield market. We plan to maintain a market weighting to these sectors. We
always focus on owning the largest players, or well-funded companies that are
the leaders within their subsectors, such as Global Crossing Ltd. (fiber optics
providers), NextLink Communications Inc.
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FUND DATA
INVESTMENT OBJECTIVE:
Seeks its total return by investing for a high level of current income and
capital appreciation. The Fund invests substantially all of its assets in
SR&F High Yield Portfolio, which invests primarily in high-yield, high-risk
debt securities.
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(1) Lipper, Inc., a widely respected data provider in the industry,
calculates total returns for mutual funds with investment objectives
similar to the Fund.
2
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Questions & Answers Continued
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(telecommunications) and PSInet Inc. (internet providers) (1.11%, 0.72%, and
1.07% of net assets, respectively).
We are also investing in the European telecommunications sector because of
deregulation and a newly open market. We perceive an opportunity to take market
share and build substantial businesses away from the large incumbent
government-owned telephone companies across Europe. We believe that holdings
such as Viatel Inc. and Communications Tele1 Europe Holding will benefit (0.87%
and 1.16% of total net assets, respectively).
Q: WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF CALENDAR YEAR 2000?
Lockman: We expect high-yield bonds to improve in the intermediate term. We
anticipate taking profits from higher-quality investments and reinvesting assets
in lower-tier credits with strong appreciation potential.
The market is coming off of a two-and-a-half year period of below-average
returns due to defaults and higher interest rates. We will maintain strong
exposure to B-rated bonds, as this sector provides diversification opportunities
across different industries. We expect strong demand to materialize in the
high-yield market due to the tremendous relative value and an investment
alternative to a volatile stock market. High-yield bonds could also benefit from
heavy merger and acquisition activity this year, and we look forward to an
excellent market environment for the Stein Roe Institutional Client High Yield
Fund.
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. Portfolio holdings are as of 6/30/00, and are subject to
change.
Investing in high-yield bonds involves greater credit and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease. Foreign investments involve market, political, accounting
and currency risks not associated with other investments. The Merrill Lynch High
Yield Master II Index is an unmanaged group of bonds that vary in quality; it is
not available for direct investment. Source of Lipper data: Lipper, Inc.
3
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SR&F High Yield Portfolio
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Portfolio of Investments at June 30, 2000
(All amounts in thousands)
CORPORATE FIXED INCOME BONDS & NOTES - 87.5% Par Value
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CONSTRUCTION-1.5%
BUILDING CONSTRUCTION
Beazer Homes USA, Inc., 8.875% 4/1/08................ $1,000 $ 900
D.R. Horton, Inc., 8.000% 2/1/09..................... 500 430
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1,330
FINANCE, INSURANCE & REAL ESTATE - 7.3%
DEPOSITORY INSTITUTIONS - 0.9%
Sovereign Bancorp, Inc., 10.500% 11/15/06............ 750 744
--------
FINANCIAL SERVICES - 5.0%
Finova Capital Corp., 7.250% 11/8/04................. 1,000 875
Grupo Elektra SA, 12.000% 4/1/08 (a)................. 1,000 902
LaBranche & Co., Inc., 12.000% 3/1/07 (a)............ 1,500 1,489
Orion Power Holdings, Inc., 12.000% 5/1/10 (a)....... 1,000 1,050
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4,316
NONDEPOSITORY CREDIT INSTITUTIONS - 0.8%
Mego Mortgage Home Loan Trust, Series 1997-3,
Class CTFS, 8.010% 8/25/23...................... 1,000 690
--------
REAL ESTATE - 0.6%
Lennar Corp., 9.950% 5/1/10.......................... 500 490
--------
MANUFACTURING - 21.6%
CHEMICALS & ALLIED PRODUCTS - 3.2%
Allied Waste North America, Inc., 10.000% 8/1/09..... 1,000 835
Bio-Rad Laboratories, Inc., 11.625% 2/15/07 (a)...... 1,000 1,030
Cia Petrolifera Marlim, 13.125% 12/17/04 (a)......... 900 929
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2,794
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.9%
Flextronics International Ltd., 9.875% 7/1/10 (a).... 750 759
--------
FOOD & KINDRED PRODUCTS - 1.1%
Pepsi-Gemex S.A., 9.750% 3/30/04..................... 1,000 990
--------
FURNITURE & FIXTURES - 1.1%
Sleepmaster LLC, 11.000% 5/15/09..................... 1,000 940
--------
MACHINERY & COMPUTER EQUIPMENT - 1.4%
Axia, Inc., 10.750% 7/15/08.......................... 1,500 1,170
--------
MEASURING & ANALYZING INSTRUMENTS - 1.8%
Lifepoint Hospitals, Inc., 10.750% 5/15/09........... 1,500 1,541
--------
MISCELLANEOUS MANUFACTURING - 2.4%
Chippac International Co. Ltd., 12.750% 8/1/09....... 1,000 1,085
Station Casinos, 9.875% 7/1/10 (a)................... 1,000 1,005
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2,090
PAPER PRODUCTS - 0.3%
Indah Kiat Finance Mauritius, 10.000% 7/1/07......... 500 302
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4
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SR&F High Yield Portfolio Continued
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Par Value
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PRINTING & PUBLISHING - 2.1%
Perry-Judd's, Inc., 10.625% 12/15/07................. $1,000 $ 840
World Color Press, Inc., 8.375% 11/15/08............. 1,000 955
--------
1,795
RUBBER & PLASTIC - 3.4%
Callahan Nordrhein, 14.000% 7/15/10 (a).............. 1,500 1,504
Metromedia Fiber Network, Inc., 10.000% 12/15/09..... 1,500 1,470
--------
2,974
TRANSPORTATION EQUIPMENT - 3.9%
BE Aerospace, Inc.:
8.000% 3/1/08..................................... 1,000 845
9.500% 11/1/08.................................... 750 686
Derlan Manufacturing, Inc., 10.000% 1/15/07.......... 583 554
Fairchild Corp., 10.750% 4/15/09..................... 1,000 670
Westinghouse Air Brake Co., 9.375% 6/15/05........... 600 579
--------
3,334
MINING & ENERGY - 3.0%
COAL MINING - 0.2%
AEI Resources, Inc., 11.500% 12/15/06 (a)............ 1,500 150
--------
OIL & GAS EXTRACTION - 1.3%
Key Energy Services, Inc., 14.000% 1/15/09........... 1,000 1,125
--------
OIL & GAS FIELD SERVICES - 1.5%
Lomak Petroleum, Inc., 8.750% 1/15/07................ 1,500 1,290
--------
RETAIL TRADE - 6.9%
APPAREL & ACCESSORY STORES - 1.1%
William Carter Co., 10.375% 12/1/06.................. 1,000 950
--------
FOOD STORES - 2.6%
Marsh Supermarkets, Inc., 8.875% 8/1/07.............. 1,000 935
Stater Bros. Holdings, Inc., 10.750% 8/15/06......... 1,500 1,320
--------
2,255
GENERAL MERCHANDISE STORES - 1.8%
Buhrmann US, Inc., 12.250% 11/1/09................... 1,500 1,560
--------
RESTAURANTS - 1.4%
AFC Enterprises, Inc., 10.250% 5/15/07............... 1,250 1,194
--------
SERVICES - 15.1%
AMUSEMENT & RECREATION - 6.1%
Boyd Gaming Corp., 9.500% 7/15/07.................... 750 718
Horseshoe Gaming Holding Corp., 8.625% 5/15/09....... 1,000 930
Mohegan Tribal Gaming Authority, 8.750% 1/1/09....... 1,000 950
Park Place Entertainment, 9.375% 2/15/07............. 1,000 1,002
Premier Parks, Inc.:
9.250% 4/1/06..................................... 250 237
9.750% 1/15/07.................................... 250 250
(b) 4/1/08........................................ 1,750 1,194
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5,281
5
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SR&F High Yield Portfolio Continued
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Par Value
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BUSINESS SERVICES - 3.1%
NationsRent, Inc., 10.375% 12/15/08.................. $ 500 $ 320
PSINet, Inc., 10.000% 2/15/05........................ 1,000 925
Penhall Acquisition Corp., 12.000% 8/1/06............ 1,500 1,440
--------
2,685
HEALTH SERVICES - 4.2%
Express Scripts, Inc., 9.625% 6/15/09................ 500 487
InSight Health Services Corp., 9.625% 6/15/08........ 1,250 1,119
Tenet Healthcare Corp., 9.250% 9/1/10 (a)............ 1,000 1,008
Triad Hospitals Holdings, Inc., 11.000% 5/15/09...... 1,000 1,025
--------
3,639
HOTELS, CAMPS & LODGING - 1.7%
Prime Hospitality Corp., 9.750% 4/1/07............... 1,490 1,445
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 32.2%
AIR TRANSPORTATION - 1.1%
Atlas Air, Inc., 9.375% 11/15/06..................... 1,000 970
BROADCASTING - 1.2%
Knology Holdings, Inc., (b) 10/15/07................. 2,000 1,080
CABLE - 1.2%
Charter Communications Holding LLC:
10.000% 4/1/09.................................... 500 485
(b) 4/1/11........................................ 1,000 568
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1,053
COMMUNICATIONS - 11.2%
BTI Telecom Corp., 10.500% 9/15/07................... 1,000 763
Concentric Network Corp., 12.750% 12/15/07........... 1,500 1,579
Exodus Communications, 11.625% 7/15/10 (a)........... 1,000 1,005
Focal Communications Corp., 11.875% 1/15/10 (a)...... 1,000 995
Holt Group, Inc., 9.750% 1/15/06..................... 1,000 100
ICG Services, Inc., (b) 5/1/08....................... 2,250 1,195
Intermedia Communications, Inc., (b) 3/1/09.......... 1,500 885
MGC Communications, Inc., 13.000% 4/1/10............. 845 794
Nextlink Communications, Inc., (b) 6/1/09............ 1,000 620
Tele1 Europe BV, 13.000% 5/15/09..................... 1,000 1,005
Viatel, Inc., 11.250% 4/15/08........................ 1,000 750
--------
9,691
TELECOMMUNICATION - 15.8%
Allegiance Telecom, Inc., (b) 2/15/08................ 1,500 1,095
Comtel Brasileira Ltd., 10.750% 9/26/04 (a).......... 250 237
Crown Castle International Corp., 10.750% 8/1/11..... 750 761
Carrier One International SA, 13.250% 2/15/09........ 1,000 985
Covad Communications Group, Inc., 12.000% 2/15/10.... 1,000 840
GT Group Telecom, Inc., (b) 2/1/10 (a)............... 1,750 963
Global Crossing Ltd., 9.125% 11/15/06................ 1,000 963
GlobeNet Communications Group Ltd., 13.000% 7/15/07.. 1,500 1,523
Level 3 Communications, Inc.:
11.000% 3/15/08 (a)............................... 1,000 990
(b) 12/1/08 (a)................................... 1,000 600
MetroNet Communications Corp.:
12.000% 8/15/07 .................................. 1,000 1,133
(b) 6/15/08 ...................................... 1,000 795
6
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SR&F High Yield Portfolio Continued
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Par Value
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TELECOMMUNICATION-(continued)
Primus Telecommunications Group,
Inc., 12.750% 10/15/09.......................... $1,000 $ 800
Rhythms NetConnections, Inc., 12.750% 4/15/09........ 1,500 1,050
Versatel Telecom International BV,
11.875% 7/15/09................................. 1,000 970
--------
13,705
TRANSPORTATION SERVICES - 1.7%
RailWorks Corp., 11.500% 4/15/09..................... 1,500 1,440
TOTAL CORPORATE FIXED INCOME BONDS & NOTES
(cost of $83,091).................................... 75,772
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COMMON STOCKS - 1.0% Shares
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MANUFACTURING-0.7%
COMMUNICATIONS EQUIPMENT
RCN Corp............................................. 23 581
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.3%
COMMUNICATIONS
Tele1 Europe Holding AB ADR.......................... 18 212
Viatel, Inc.......................................... 4 115
--------
327
TOTAL COMMON STOCKS
(cost of $642)...................................... 908
--------
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WARRANTS - 1.8%
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INTERNET SERVICES - 0.5%
Concentric Network 12/15/07.......................... 1 470
OIL & GAS - 0.1%
Key Energy Services 01/15/09......................... 2 90
TELECOMMUNICATIONS - 0.5%
MetroNet Communications Corp., 08/15/07 (a).......... 1 90
MGC Communications 10/01/04.......................... 1 300
--------
390
TELEPHONE - 0.7%
Allegiance Telecom, Inc. 02/03/08................... 2 255
Carrier One International 02/15/09.................. 1 330
Knology Holdings, Inc. 10/15/07.................... 2 9
--------
594
TOTAL WARRANTS
(cost of $20)........................................ 1,544
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7
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SR&F High Yield Portfolio Continued
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SHORT-TERM OBLIGATIONS - 12.7% Par Value
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COMMERCIAL PAPER
Associates First Capital, 6.950% 7/3/00 (c).......... $4,000 $ 3,998
Eaton Corp., 7.050% 7/5/00 (c)....................... 2,975 2,973
Target Corp., 7.100% 7/5/00 (c)...................... 4,000 3,996
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TOTAL SHORT TERM OBLIGATIONS
(cost of 10,967)..................................... 10,967
--------
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TOTAL INVESTMENTS
(cost of $94,720) (d)................................ 89,191
OTHER ASSETS, LESS LIABILITIES - (3.0)%.............. (2,600)
--------
NET ASSETS 100.0%.................................... $86,591
========
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NOTES TO PORTFOLIO OF INVESTMENTS
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(a) Represents private placement securities issued under Rule 144A, which
are exempt from the registration 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, 2000, the aggregate amortized cost of the
Portfolio's private placement securities was $14,706 which represented
17.0% of net assets.
(b) Zero coupon bond.
(c) Rate represents yield at time of purchase.
(d) At June 30, 2000, the cost of investments for federal tax purposes is
$94,722.
See accompanying Notes to Financial Statements.
8
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SR&F High Yield Portfolio
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 2000
(All amounts in thousands)
ASSETS
Investments, at market value (cost of $94,720)............ $89,191
Receivable for investments sold........................... 1,001
Interest receivable....................................... 948
Cash...................................................... 2
---------
Total assets........................................... 91,142
---------
LIABILITIES
Payable for investments purchased......................... 4,496
Accrued:
Management fee......................................... 31
Bookkeeping fee........................................ 1
Transfer agent fee..................................... 1
Other..................................................... 22
---------
Total liabilities...................................... 4,551
---------
Net assets applicable to
investors' beneficial interest....................... $86,591
=========
See accompanying Notes to Financial Statements.
9
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SR&F High Yield Portfolio
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Statement of Operations
For the Year Ended June 30, 2000
(All amounts in thousands)
INVESTMENT INCOME
Interest income.......................................... $ 9,822
Dividend income.......................................... 57
---------
Total income.......................................... 9,879
EXPENSES
Management fees.......................................... 424
Transfer agent fees...................................... 6
Bookkeeping fees......................................... 25
Trustees' fees........................................... 14
Custodian fees........................................... 1
Audit fees............................................... 17
Legal fees............................................... 1
Other.................................................... 8
---------
Total expenses........................................ 496
---------
Net investment income................................. 9,383
---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments......................... (5,197)
Net change in unrealized
appreciation/depreciation on investments............ (3,682)
---------
Net loss on investments............................... (8,879)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ 504
=========
See accompanying Notes to Financial Statements.
10
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SR&F High Yield Portfolio
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Statement of Changes in Net Assets
(All amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
2000 1999
------------ -----------
OPERATIONS
<S> <C> <C>
Net investment income.......................................................................... $ 9,383 $ 7,208
Net realized loss on investments............................................................... (5,197) (632)
Net change in unrealized appreciation/depreciation on investments.............................. (3,682) (2,238)
------------ ------------
Net increase in net assets resulting from operations........................................ 504 4,338
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions.................................................................................. 64,109 51,100
Withdrawals.................................................................................... (66,345) (45,602)
------------ ------------
Net increase (decrease) from transactions in investors' beneficial interest................. (2,236) 5,498
------------ ------------
Net increase (decrease) in net assets....................................................... (1,732) 9,836
NET ASSETS
Beginning of period............................................................................ 88,323 78,487
------------ ------------
End of period.................................................................................. $ 86,591 $ 88,323
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE>
Stein Roe Institutional Client High Yield Fund
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Statement of Assets and Liabilities
June 30, 2000
(All amounts in thousands, except per-share data)
ASSETS
Investment in Portfolio, at value...................... $51,220
Expense reimbursement due from Advisor................. 83
---------
Total assets........................................ 51,303
---------
LIABILITIES
Dividends payable...................................... 141
Accrued:
Administration fee.................................. 6
Bookkeeping fee..................................... 2
Transfer agent fee.................................. 2
Other.................................................. 21
---------
Total liabilities................................... 172
---------
Net assets.......................................... $51,131
=========
ANALYSIS OF NET ASSETS
Paid-in capital........................................ $58,118
Overdistributed net investment income.................. (152)
Accumulated net realized losses on
investments allocated from Portfolio.............. (3,277)
Net unrealized depreciation on investments
allocated from Portfolio.......................... (3,558)
---------
Net assets.......................................... $51,131
=========
Shares outstanding (unlimited
number authorized)................................ 5,822
=========
Net asset value per share.............................. $ 8.78
=========
See accompanying Notes to Financial Statements.
12
<PAGE>
Stein Roe Institutional Client High Yield Fund
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Statement of Operations
For the Year Ended June 30, 2000
(All amounts in thousands)
INVESTMENT INCOME
Interest income allocated from Portfolio................ $ 6,319
Dividend income allocated from Portfolio................ 18
---------
6,337
EXPENSES
Expenses allocated from Portfolio....................... 319
Administrative fees..................................... 81
Bookkeeping fees........................................ 25
Transfer agent fees..................................... 27
Registration fees....................................... 33
Trustees' fees.......................................... 12
Custodian fees.......................................... 2
Report to shareholders.................................. 12
Audit fees.............................................. 10
Other................................................... 9
---------
Total expenses....................................... 530
Reimbursement of expenses
by investment Advisor.............................. (258)
---------
Net expenses......................................... 272
---------
Net investment income................................ 6,065
---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments
allocated from Portfolio........................... (3,276)
Net change in unrealized
appreciation/depreciation
allocated from Portfolio........................... (2,517)
---------
Net Loss............................................. (5,793)
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......................... $ 272
=========
See accompanying Notes to Financial Statements.
13
<PAGE>
Stein Roe Institutional Client High Yield Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
(All amounts in thousands)
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
----------- ------------
OPERATIONS
<S> <C> <C>
Net investment income...................................................... $ 6,065 $ 3,943
Net realized gain (loss) on investments allocated from Portfolio........... (3,277) 176
Net change in unrealized appreciation/depreciation on investments
allocated from Portfolio.............................................. (2,517) (1,277)
----------- -----------
Net increase in net assets resulting from operations.................... 271 2,842
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income....................................... (6,196) (3,964)
Distributions in excess from net investment income......................... (91) --
Distributions from net capital gains....................................... (177) (1,401)
----------- -----------
Total Distributions to Shareholders..................................... (6,464) (5,365)
----------- -----------
SHARE TRANSACTIONS
Subscriptions to fund shares............................................... 799 17,483
Value of distributions reinvested.......................................... 6,323 5,278
Redemptions of fund shares................................................. (5,193) --
----------- -----------
Net increase from Share Transactions.................................... 1,929 22,761
----------- -----------
Net increase (decrease) in Net Assets................................... (4,264) 20,238
TOTAL NET ASSETS
Beginning of period........................................................ 55,395 35,157
----------- -----------
End of period.............................................................. $51,131 $55,395
=========== ===========
Undistributed (overdistributed) net investment income...................... (152) 70
----------- -----------
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares............................................... 88 1,791
Issued in reinvestment of distributions.................................... 678 535
Redemptions of fund shares................................................. (570) --
----------- -----------
Net increase in fund shares................................................ 196 2,326
Shares outstanding at beginning of period.................................. 5,626 3,300
----------- -----------
Shares outstanding at end of period........................................ 5,822 5,626
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Stein Roe Institutional Client High Yield Fund (the "Fund") is a series of
Liberty-Stein Roe Fund Trust, formerly Stein Roe Trust (the "Trust"), an
open-end management investment company organized as a Massachusetts business
trust. The Fund invests substantially all of its assets in SR&F High Yield
Portfolio (the "Portfolio"), which seeks a high level of current income and
capital growth by investing primarily in high yield, high-risk, medium- and
lower-quality debt securities.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on November 1, 1996. The Portfolio
allocates income, expenses, realized and unrealized gains and losses to each
investor on a daily basis, based on methods approved by the Internal Revenue
Service. At June 30, 2000, Stein Roe Institutional Client High Yield Fund owned
60.3% of the SR&F High Yield Portfolio.
--------------------------------------------------------------------------------
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Fund and the
Portfolio. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Interest income,
including discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
Securities purchased on a when-issued or delayed delivery basis may be
settled a month or more after the transaction date. The values of such
securities are subject to market fluctuations during this period. There were no
when-issued or delayed delivery purchase commitments as of June 30, 2000.
SECURITY VALUATIONS
Long-term debt securities are valued using market quotations if readily
available at the time of valuation. If market quotations are not readily
available, they are valued at a fair value using a procedure determined in good
faith by the Board of Trustees, which has authorized the use of market
valuations provided by a pricing service.
Equity securities traded on national securities exchanges are valued at the
last reported sales price or, if there are no sales, at the latest bid
quotation. Each over-the-counter security for which the last sale price is
available from NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are valued at the latest
bid quotation.
Short-term debt securities with remaining maturities of 60 days or less are
valued at their amortized cost. Those with remaining maturities of more than 60
days for which market quotations are not readily available are valued by use of
a matrix, prepared by the Advisor, based on quotations for comparable
securities. Other assets are valued by a method that the Board of Trustees
believes represents a fair value.
FEDERAL INCOME TAXES
No provision is made for federal income taxes, since (a) the Fund elects to be
taxed as a "regulated investment company" and makes such distributions to its
shareholders as to be relieved of all federal income tax under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on methods approved by the Internal Revenue Service.
The Fund intends to utilize provisions of the federal income tax law that
allows it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized gains.
At June 30, 2000, the Fund had capital loss carryforwards totaling
$1,360,597 and expiring in 2008.
DISTRIBUTIONS TO FUND SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly.
Capital gains distributions, if any, are distributed annually. Distributions in
excess of tax basis earnings are reported in the financial statements as a
return of capital. Permanent differences in the recognition or classification of
income between the financial statements and tax earnings are reclassified to
paid-in capital.
15
<PAGE>
Notes to Financial Statements Continued
--------------------------------------------------------------------------------
NOTE 3. PORTFOLIO COMPOSITION
The Portfolio invests primarily in high yield, high-risk medium- and
lower-quality debt securities. See the Portfolio's Portfolio of Investments for
information regarding individual securities.
--------------------------------------------------------------------------------
NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
MANAGEMENT & ADMINISTRATION FEES
The Fund and Portfolio pay a monthly management fee and the Fund pays a monthly
administrative fee 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 the Portfolio is computed at an annual rate of 0.50%
of the first $500 million of average daily net assets, and 0.475% thereafter.
The administrative fee for the Fund is computed at an annual rate of 0.15% of
the first $500 million of average daily net assets, and 0.125% thereafter.
BOOKKEEPING FEE
The Advisor provides bookkeeping and pricing services to the Fund and Portfolio
for a monthly fee equal to $25 annually plus 0.0025% annually of the Fund and
Portfolio's average daily net assets over $50 million.
EXPENSE LIMIT
The Advisor has agreed to reimburse the Fund to the extent that annual expenses
exceed 0.50% of average daily net assets. This commitment expires January 31,
2001, subject to earlier termination by the Advisor on 30 days' notice to the
Fund.
TRANSFER AGENT FEE
Transfer agent fees of the Fund 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 Distributor, Inc., also an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, to act
as subtransfer agent for the Fund. The Transfer Agent provides shareholder
services for a monthly fee equal to 0.05% annually of the Fund's average net
assets and receives reimbursement for certain out-of-pocket expenses.
OTHER
Certain officers and trustees of the Trust are also officers of the Advisor.
Compensation is paid to trustees not affiliated with the Advisor. No
remuneration was paid to any other trustee or officer of the Trust who is
affiliated with the Advisor.
--------------------------------------------------------------------------------
NOTE 5. LINE OF CREDIT
The Liberty-Stein Roe Municipals Trust (excluding the Stein-Roe High Yield
Municipals Fund and Stein-Roe Municipal Money Fund), the Liberty Stein-Roe
Investment Trust and the SR&F Base Trust (collectively, the "Trusts"),
participate in unsecured line of credit agreements provided by the custodian
bank consisting of two components. The committed line of credit entitles the
Trusts to borrow from the custodian at any time upon notice from the Trusts. The
uncommitted line of credit permits the Trusts to borrow from the custodian at
the custodian's sole discretion. The aggregate borrowings available to the
Trusts for the committed and uncommitted lines of credit are $200 million and
$100 million, respectively. Borrowings may be made to temporarily finance the
repurchase of Fund shares. Interest is charged to each Trust and, ultimately,
the Fund based on its borrowings at a rate equal to the Federal Funds Rate plus
5% per year. In addition, a commitment fell of 0.10% per annum on each Fund's
borrowings shall be paid quarterly by the Fund based on the relative asset size
of the Fund. For the year ended June 30, 2000, the Trusts had no borrowngs under
the agreement.
--------------------------------------------------------------------------------
NOTE 6. INVESTMENT TRANSACTIONS
The Portfolio's aggregate cost of purchases and proceeds from sales (other than
short-term obligations for the year ended June 30, 2000, were $114,685 and
$116,332, respectively.
Unrealized appreciation (depreciation) at June 30, 2000 for both financial
statement and federal income tax purposes for the Portfolio was:
Gross unrealized appreciation.............. $ 3,742
Gross unrealized depreciation.............. (9,273)
-------
Net unrealized depreciation............ $(5,531)
=======
16
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
Stein Roe Institutional Client High Yield Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 1998 1997(a)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 9.85 $ 10.65 $ 10.21 $ 10.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................... 1.04 0.87 0.88 0.33
Net realized and unrealized gain (loss).................. (1.00) (0.49) 0.58 0.21
------------ ------------ ------------ ------------
Total from investment operations....................... 0.04 0.38 1.46 0.54
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net investment income.................................... (1.06) (0.87) (0.88) (0.33)
In excess of net investment income....................... (0.02) -- -- --
Net realized gains....................................... (0.03) (0.31) (0.14) --
------------ ------------ ------------ ------------
Total distributions.................................... (1.11) (1.18) (1.02) (0.33)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.............................. $ 8.78 $ 9.85 $ 10.65 $ 10.21
============ ============ ============ ============
Ratio of net expenses to average net assets (b.............. 0.50%(b) 0.50% 0.50% 0.50%(d)
Ratio of net investment income to average net assets (c).... 11.15%(b) 8.72% 8.31% 8.76%(d)
Total return (c)............................................ 0.37%(b) 4.20% 14.88% 5.48%
Net assets, end of period (000's)........................... $51,130 $55,395 $35,157 $25,674
</TABLE>
(a) From commencement of operations on February 14, 1997.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement by the Advisor, this ratio would have been 0.97%, 0.97%
and 1.28% for the years ended June 30, 2000, 1999 and 1998,
respectively and 2.59% for the period ended June 30, 1997
(c) Computed giving effect to the Advisor's expense limitation
undertaking.
(d) Annualized.
--------------------------------------------------------------------------------
SR&F High Yield Portfolio
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
SELECT RATIOS 2000 1999 1998 1997 (A)
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Ratio of net expenses to average net assets................... 0.59% 0.57% 0.65% 0.89%(b)
Ratio of net investment income to average net assets.......... 11.06% 8.27% 8.13% 8.24%(b)
Portfolio turnover rate....................................... 144% 296% 426% 168%(c)
</TABLE>
(a) From commencement of operations on November 1, 1996.
(b) Annualized.
(c) Not annualized.
17
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders, Holders of Investors' Beneficial Interests and Board of
Trustees of Liberty-Stein Roe Funds Trust and SR&F Base Trust
Stein Roe Institutional Client High Yield Fund
SR&F High Yield Portfolio
We have audited the accompanying statement of assets and liabilities of Stein
Roe Institutional Client High Yield Fund (a series of Liberty-Stein Roe Funds
Trust, formerly, Stein Roe Trust), and the accompanying statement of assets and
liabilities, including the portfolio of investments, of SR&F High Yield
Portfolio (a series of SR&F Base Trust) as of June 30, 2000, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2000, by correspondence with the
custodian and brokers or by other appropriate auditing procedures when replies
from a broker were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned series of Liberty-Stein Roe Funds Trust and SR&F Base Trust at
June 30, 2000, the results of their operations, the changes in their net assets,
and their financial highlights for the periods indicated therein, in conformity
with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
August 18, 2000
18
<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 Monday through Friday, from 8 a.m. to 8 p.m. ET, and Saturdays and
Sundays from 10 a.m. to 2 p.m. ET.
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 email, send
correspondence directly to: [email protected] or visit us at
www.steinroe.com on the Internet.
ADDITIONAL REPORTS
The Funds mail one shareholder report to each shareholder address. If you would
like more than one report, please call 800-338-2550 and additional reports will
be sent to you.
Must be preceded or accompanied by a prospectus.
19
<PAGE>
Liberty-Stein Roe Funds Institutional Trust
--------------------------------------------------------------------------------
TRUSTEES
John A. Bacon, Jr.
Private Investor
William W. Boyd
Chairman and Director, Sterling Plumbing Group Inc.
Lindsay Cook
Executive Vice President, Liberty Financial Companies, Inc.
Douglas A. Hacker
Executive Vice President and Chief Financial Officer, United Airlines
Janet Langford Kelly
Executive Vice President, Secretary and General Counsel, Kellogg Company
Charles R. Nelson
Van Voorhis Professor of Political Economy, University of Washington
Thomas C. Theobald
Managing Director, William Blair Capital Partners
OFFICERS
Stephen E. Gibson, President
William D. Andrews, Executive Vice President
Kevin M. Carome, Executive Vice President
Loren A. Hansen, Executive Vice President
Joseph Palombo, Executive Vice President
Nancy L. Conlin, Senior Vice President, Secretary
Pamela McGrath, Senior Vice President, Treasurer
J. Kevin Connaughton, Controller
AGENTS AND ADVISORS
Stein Roe & Farnham Incorporated
Investment Advisor
State Street Bank and Trust Company
Custodian
Stein Roe Services, Inc.
Transfer Agent
Bell, Boyd & Lloyd, LLC
Legal Counsel to the Trust
Ernst & Young LLP
Independent Auditors
20
<PAGE>
Stein Roe & Farnham
One South Wacker Drive
Chicago, IL 60606-1130
www.steinroe.com
Liberty Funds Distributor, Inc. 8/00
S19-02/460C-0700 (8/00) 00/1454
