Stein Roe
Floating Rate
Income Fund
Semiannual Report
Feb. 28, 1999
Photo of: Bonds
LOGO:
Stein Roe Mutual Funds
Sensible Risks. Intelligent Investments.(R)
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Contents
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From the President.................................................... 1
Tom Butch's thoughts on the bond market and investing
Questions & Answers................................................... 3
An interview with the Fund's Portfolio Managers - Brian W. Good
and James R. Fellows
Portfolio of Investments.............................................. 5
A complete list of investments with market values
Financial Statements.................................................. 8
Statements of assets and liabilities, operations and
changes in net assets
Notes to Financial Statements......................................... 15
Financial Highlights.................................................. 17
Selected per-share data
Must be preceded or accompanied by a prospectus.
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From the President
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Fund Data
Investment Objective:
Stein Roe Floating Rate Income Fund seeks high current income consistent with
preservation of capital by investing primarily in senior secured floating or
variable rate bank loans made to U.S. corporations, partnerships and other
borrowers.
Fund Inception:
Dec. 17, 1998
To Our Shareholders
I am very pleased to present the inaugural semiannual report for Stein Roe
Floating Rate Income Fund, a fund designed for long-term investors who wish to
benefit from the income potential of senior bank loans. This Fund represents
Stein Roe's first investment vehicle of its kind.
Floating Rate Income Fund seeks a high level of current income, consistent
with preservation of capital. The Fund's portfolio managers - Brian W. Good and
James R. Fellows - have extensive experience managing floating rate loan funds.
They invest with a goal of minimizing net asset value from changes in interest
rates by acquiring interests in floating or variable rate senior loans.*
Treasury Prices Reach Record, Then Drop
Your Fund began operations during an auspicious period for fixed-income
securities.
In calendar 1998, high-quality bond prices reached record levels while
non-investment grade debt prices were volatile. Just prior to the Fund's
inception, 30-year U.S. Treasury bond yields dropped to 4.71% in October, the
lowest level in a generation, as investors sought a safe haven from short-term
stock market turmoil and emerging market debt defaults. This past autumn the
Federal Reserve Board reduced short-term interest rates by 0.75% to 4.75% to
maintain domestic economic growth.
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Your Fund began operations during an auspicious period for
fixed-income securities.
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In early 1999, however, Treasury prices weakened as Asian economies showed
signs of stabilizing and U.S. government reports indicated that the pace of U.S.
GDP growth had accelerated to 6.1% in the fourth quarter of 1998. This ignited
fears of inflation, and drove down Treasury prices (yields, which move in the
opposite direction, reached a seven-month high of 5.70% on March 4, 1999).
Prices of non-investment grade bank loans remained strong, however, as investors
appeared to remain confident that the healthy U.S. economy would boost corporate
profits, allowing most debtors to meet their loan obligations.
Floating Rate Income Fund provided a total return of 1.74% with
distributions reinvested for its initial fiscal period - Dec. 17, 1998 to Feb.
28, 1999. Your Fund's results outpaced the average 1.15% total return of the 18
funds in the Lipper Loan Participation Fund category for the Fund's initial
fiscal period.
No Sales Charges, NAV Redemption Option
Floating Rate Income Fund is an interval fund. Its shares are offered
continuously and are not traded on a stock exchange. Investors can purchase Fund
shares directly from Stein Roe without any sales charge or brokerage commission.
(Other fees and expenses apply. See your prospectus for details.) However, the
Fund does not provide daily redemption availability and shares should be
considered illiquid.
To accommodate investors' liquidity needs, the Fund will make quarterly
tender (redemption) offers to repurchase shares. This feature is generally not
available to closed-end funds that trade on an exchange, as share prices for
such funds are determined by supply and demand among investors. Since most
exchange-traded funds have historically sold at a discount to their net asset
values, we think this tender offer policy will be beneficial to shareholders.
A Look Ahead
On the pages that follow, Mr. Good and Mr. Fellows present an overview of recent
events that have affected the corporate loan market. We also explain how we have
positioned the Fund for the balance of fiscal 1999.
We anticipate that many of the loans that will be represented in the
Fund's portfolio in the coming months will help finance corporate leveraged
buyouts, mergers, acquisitions, recapitalizations, corporate stock buybacks and,
to a lesser extent, finance borrowers' growth.**
Corporate Bonds and Your Portfolio
Since America's economy appears healthy, we believe a corporate bank loan fund
currently offers investors three distinct advantages:
o Higher income potential than comparable maturity U.S. government
securities. U.S. government securities are
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From the President
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backed by the full faith and credit of the U.S. government.
Shares of mutual funds are not.
o A diversification opportunity for investors whose asset mix may have shifted
toward equities in recent years.
o Greater diversification than owning individual corporate bonds. (Senior loans
made in connection with recapitalizations, acquisitions, leveraged buyouts and
refinancings are subject to greater credit risks than other senior loans and
they are also subject to a greater degree of volatility.)
Finally, I want to personally thank you for becoming Floating Rate Income
Fund's charter shareholders as Stein Roe marks its 50th anniversary of serving
mutual fund and institutional investors. We look forward to serving your
investment needs in the new millennium.
Sincerely,
/s/ Thomas W. Butch
Thomas W. Butch
President
March 17, 1999
*While the Fund expects to maintain a relatively stable net asset value, its net
asset value will fluctuate. The Fund's NAV may fluctuate with changes in the
perceived credit quality of loans in the portfolio. Changes that may affect
credit quality include a sudden or extreme increase in prevailing interest
rates, a default in a loan the Portfolio owns, or a substantial deterioration in
a borrower's creditworthiness.
**Proceeds of the senior loans in which the Fund will acquire interests will
primarily be used to finance leveraged buyouts, recapitalizations, mergers and
acquisitions, among other uses. As a result, many of the borrowing institutions
involved in these activities may be highly leveraged; therefore an increase in
interest rates may impair their ability to meet their obligations under the loan
agreement (or other business obligations). While such loans make up the bulk of
the portfolio, the Fund may invest in other securities (see the prospectus for a
complete description of what the Fund may invest in).
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Questions & Answers with Brian W. Good and James R. Fellows
Portfolio Managers of the Stein Roe Floating Rate Income Fund
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Mr. Good and Mr. Fellows have more than 20 years of combined experience managing
bank loan investments for mutual fund investors. They joined Stein Roe in April
1998 and have worked together since 1989.
Q: The Fund began operating on Dec. 17, 1998. How have you organized its
portfolio to take advantage of the income and total return opportunities
currently available from bank loan investments?
Good: The Fund invests in a broad mix of higher-yielding senior loans of
companies that meet our investment criteria. When analyzing a potential
investment, we scrutinize the company's cash flow, asset base and management
team. We pay particular attention to a company's performance during the most
recent downturn in its industry.
Fellows: We focus on companies that provide basic goods and services to the
domestic economy, and try to avoid "boom and bust" type industries such as oil
and gas and real estate. Companies in these industries are generally more
susceptible to unfavorable economic conditions that could jeopardize their
ability to repay loans. As more people and institutions invest in the Fund, we
expect to further diversify its holdings.
Q: How did the Fund perform from Dec. 17, 1998 through Feb. 28, 1999?
Good: For this brief two-and-a half month period, the Fund's total return was
1.74% with distributions reinvested. This compared favorably with the 1.15%
average return of the fund's peers in the Lipper Loan Participation Fund
category. While we are pleased with these initial positive results during a
period of heightened interest rate volatility, you should keep in mind that the
Fund's performance should be judged over a much longer period.*
Q: Can you elaborate on the current dynamics of the senior loan market?
Good: For the past several years, the senior loan market has been experiencing
rapid growth in both the non-investment grade - where the Fund focuses its
purchases -- and investment grade categories. In fact, in 1998, non-investment
grade lending increased by 40% over the prior year, resulting in a wide range of
investment opportunities. The ever-increasing supply of loans is bringing
greater competition to the marketplace, and allowing this investment class
greater recognition. Non-investment grade loans have more risks than
higher-quality loans. The ample supply has provided us with an opportunity to be
highly selective.
Fellows: Another recent positive development is that financial institutions
have become more selective in making loans, in our view. Loan officers have
become more cautious in lending money and have demanded higher credit standards,
better capital structures and more collateral from borrowers. In addition,
during the brief time that the Fund has been in operation, U.S. economic growth
has been strong. Growing corporate profits have helped many companies meet their
senior loan obligations.
Q: Where do you think you may find the best loan investments in the
months ahead?
Fellows: Telecommunications and technology are two industries that we believe
will grow in the marketplace and support strong performance going forward. The
deregulation of the telecommunications industry has allowed for tremendous
technological advances and investment opportunities. This in turn has created a
greater breadth of credits in this sector and the new services are increasing in
demand with consumers, allowing the borrowing companies to warrant a greater
credit quality.
Q: How is the Fund positioned against potential changes in interest rates and
domestic economic growth for the rest of fiscal 1999?
Good: The value of floating rate loans is generally not affected by changes in
interest rates. That's because loan rates reset regularly to maintain a fixed
spread over widely-accepted base rates such as the U.S. Prime Rate (the rate
banks charge their best commercial customers) or LIBOR. Most of our holdings
have maturities in the five-to-seven-year range.
Fellows: Loans we consider for purchase are put through a series of credit
quality tests, to determine if borrowers can meet their obligations during an
economic slowdown. Also, our investments are secured by the assets of the
borrower. Our holdings are generally the most senior obligations in a company's
capital structure.**
Good: There have been no defaults in loans held by the Fund to date, but
if the economy slows, the probability of that happening increases. As we further
diversify the Fund, we believe we will have a substantial cushion if a credit
problem affects one loan or one industry. We have more than a decade of
experience managing this type of Fund and we've
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experienced a variety of economic situations including the credit crunch
of the early 1990s. What we've learned about credit risk over the years gives us
confidence in our ability to manage the portfolio for income and total return.
*Past performance is no guarantee of future results. Share price and investments
return will vary, so you may have gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of distributions.
Portfolio holdings are as of 2/28/99 and are subject to change. Investing in
high yield bank loans involves greater risk than investing in high-quality fixed
income securities. This Fund is intended solely for long-term investors. The
ability to redeem shares is limited. See the Fund's prospectus for details.
**Proceeds of the senior loans in which the Fund will acquire interests will
primarily be used to finance leveraged buyouts, recapitalizations, mergers and
acquisitions, among other uses. As a result, many of the borrowing institutions
involved in these activities may be highly leveraged; therefore an increase in
interest rates may impair their ability to meet their obligations under the loan
agreement (or other business obligations). While such loans make up the bulk of
the portfolio, the Fund may invest in other securities (see the prospectus for a
complete description of what the Fund may invest in).
Portfolio Highlights
Securities Type Breakdown*
As of Feb. 28, 1999
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Telecommunications 18.4% Buildings/Real Estate 3.9%
Health Care 11.6 Insurance 3.9
Grocers/Retail Stores 8.7 Ecological 3.9
Manufacturing 7.8 Leisure/Entertainment 3.8
Publishing 7.7 Electronics 3.7
Packaging 5.5 Mining/Steel 3.7
Equipment, Rental & Leasing 4.8 Personal Services 2.9
Aerospace 3.9 Chemicals 1.9
Automotive 3.9
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Total 100%
*Based on total long term investments.
Portfolio Quality
As of Feb. 28, 1999
Pie Chart:
Non-rated 12.6%
Ba 44.0%
B 43.4%
Note: Ratings based on Moody's Investors Service quality categories.
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Stein Roe Floating Rate Limited Liability Company
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Portfolio of Investments at February 28, 1999
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
Bank Loan Ratings
Moody's (a) Principal Market
Variable Rate Senior Loan Interests (91.3%)(b)(c) (Unaudited) Amount Value
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<S> <C> <C> <C>
Aerospace/Defense (3.6%)
Decrane Aircraft Holdings ................................................. B1 $ 2,000 $ 2,013
-----------
Automotive ( 3.5%)
Stoneridge, Inc. .......................................................... Ba3 2,000 2,008
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Building & Real Estate (3.5%)
Panolam Industries LTD (U.S.) ............................................. B1 1,000 1,003
Panolam Industries LTD (Canadian) ......................................... B1 1,000 1,002
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2,005
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Chemicals, Plastics and Rubber (1.7%)
Lyondell Petrochemical Co. ................................................ Ba2 385 375
Lyondell Petrochemical Co. ................................................ Ba2 615 600
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975
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Containers, Packaging and Glass (5.0%)
Stone Container ........................................................... Ba3 2,859 2,863
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Diversified Manufacturing (3.5%)
Thermadyne Holdings Corp. ................................................. B1 1,000 1,004
Thermadyne Holdings Corp. ................................................. B1 1,000 1,004
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2,008
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Ecological (3.5%)
Environmental Systems Products Holdings ................................... B1 2,000 2,008
-----------
Electronics (3.4%)
Bridge Information Systems ................................................ B1 1,932 1,906
-----------
Equipment, Rental & Leasing (4.4%)
Nationsrent, Inc. ......................................................... Ba3 2,500 2,512
-----------
Grocery (4.4%)
Big V Supermarket ......................................................... NR 2,500 2,519
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Health, Education and Childcare (10.6%)
Dade International ........................................................ Ba3 912 913
Dade International ........................................................ Ba3 558 559
King Pharmaceutical, Inc. ................................................. B2 2,000 2,022
Stryker Corp. ............................................................. Ba2 809 813
Stryker Corp. ............................................................. Ba2 1,691 1,703
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6,010
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Insurance (3.6%)
Willis Corroon Group PLC LN ............................................... Ba2 1,000 1,008
Willis Corroon Group PLC LN ............................................... Ba2 1,000 1,008
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2,016
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Stein Roe Floating Rate Limited Liability Company continued
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<CAPTION>
Bank Loan Ratings
Moody's (a) Principal Market
(Unaudited) Amount Value
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<S> <C> <C> <C>
Leisure/Amusement/Motion Picture/Entertainment (3.5%)
United Artists Theatre Company ............................................ B1 $ 839 $ 841
United Artists Theatre Company ............................................ B1 1,151 1,155
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1,996
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Manufacturing/Machinery (3.6%)
Superior Telecom, Inc. .................................................... Ba3 2,000 2,014
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Mining/Steel/Iron/Metals (3.4%)
Ispat Inland, Inc. ........................................................ Ba3 1,000 955
Ispat Inland, Inc. ........................................................ Ba3 1,000 955
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1,910
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Personal/Food/Misc. Services (2.7%)
Rent-A-Center, Inc. ....................................................... Ba3 675 677
Rent-A-Center, Inc. ....................................................... Ba3 825 828
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1,505
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Printing, Publishing and Broadcasting (7.0%)
Bear Island Paper ......................................................... Ba3 990 990
Bresnan Communications, Inc. .............................................. Ba3 2,000 2,011
DIMAC Corp. ............................................................... B1 571 572
DIMAC Corp. ............................................................... B1 429 429
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4,002
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Retail Stores (3.6%)
Pantry, Inc. .............................................................. B1 2,000 2,012
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Telecommunications (16.8%)
American Wireless Corp. ................................................... B2 500 500
American Wireless Corp. ................................................... B2 500 499
Centennial Cellular ....................................................... B2 1,000 1,009
Centennial Cellular ....................................................... B2 1,000 1,009
Dobson Communications Corp. ............................................... NR 1,000 1,006
Dobson Communications Corp. ............................................... NR 1,000 1,006
KMC Telecom, Inc. ......................................................... NR 2,000 2,010
Nextel Partners, Inc. ..................................................... B2 2,500 2,523
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9,562
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Stein Roe Floating Rate Limited Liability Company continued
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<CAPTION>
Principal Market
Amount Value
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<S> <C> <C> <C>
Total Long Term Investments (91.3%)
(Cost $51,614) ............................................................ $51,844
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Short Term Loan Participants (8.5%)
Praxair ($4,850 par, maturing 3/01/99, yielding 5.0%) ..................... 4,850
-----------
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Total Short-Term Investments
(Cost $4,850).............................................................. 4,850
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Total Investments (99.8%)
(Cost $56,464)............................................................. 56,694
Other Assets, Less Liabilities (0.2%) ..................................... 80
-----------
Net Assets (100%) ......................................................... $56,774
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Notes to Portfolio of Investments
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NR = Not Rated
(a)Bank loans rated below Baa by Moody's Investor Services, Inc. are considered
to be below investment grade.
(b)Senior Loans in the Portfolio generally are subject to mandatory and/or
optional prepayment. Because of these mandatory prepayment conditions and
because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Portfolio may occur. As a result,
the actual remaining maturity of Senior Loans held in the Portfolio may be
substantially less than the stated maturities shown. Although the Portfolio
is unable to accurately estimate the actual remaining maturity of individual
Senior Loans, the Portfolio estimates that the actual average maturity of the
Senior Loans held will be approximately 18-24 months.
(c)Senior Loans in which the Portfolio invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus
a premium. These base lending rates are generally (i) the prime rate offered
by one or more major United States banks, (ii) the lending rate offered by
one or more European banks, such as the London Inter-Bank Offered Rate
(`LIBOR') and (iii) the certificate of deposit rate. Senior loans are
generally considered to be restricted in that the Portfolio ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
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Stein Roe Floating Rate Income Fund
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Statement of Assets and Liabilities
February 28, 1999
(All amounts in thousands, except per-share data)
(Unaudited)
Assets
Investment in SR Floating Rate LLC Portfolio, at value .............. $248
Prepaid expenses .................................................... 37
----
Total Assets ..................................................... 285
----
Liabilities
Distributions payable to shareholders ............................... (a)
Payable to Investment Adviser ....................................... 28
Other liabilities ................................................... 4
----
Total Liabilities ................................................ 32
----
Net Assets ...................................................... $253
====
Analysis of Net Assets
Paid-in capital ..................................................... $252
Net unrealized appreciation on investments .......................... 1
Undistributed net investment income ................................. --
----
Net assets ....................................................... $253
====
Shares outstanding (unlimited number authorized) .................... 25
====
Net asset value per share ........................................... $10.05
======
(a) Rounds to less than a thousand.
See accompanying Notes to Financial Statements.
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Stein Roe Floating Rate Income Fund
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Statement of Operations
For the Period Ended February 28, 1999*
(All amounts in thousands)
(Unaudited)
Investment Income
Interest allocated from SR Floating Rate LLC .......................... $ 2
Fees allocated from SR Floating Rate LLC .............................. (a)
-----
Total investment income ............................................ 2
-----
Expenses
Organization Costs .................................................... 112
Expenses allocated from SR Floating Rate LLC .......................... (a)
SEC and state registration fees ....................................... 11
Accounting fees ....................................................... 4
Audit & legal fees .................................................... 3
Printing and postage .................................................. 1
Custodian & other fees ................................................ 1
-----
Total Expenses ..................................................... 132
-----
Expense reimbursement from Adviser ................................ (132)
-----
Net Expenses .................................................... (a)
-----
Net Investment Income .............................................. 2
-----
Realized and Unrealized Gains (Losses) on Investments
Net realized gain (loss) on investments allocated from
SR Floating Rate LLC Portfolio ..................................... --
Net change in unrealized appreciation or depreciation on investments .. 1
-----
Net gain on investments ............................................ 1
-----
Net increase in net assets resulting from operations ............... $ 3
=====
*From commencement of operations on December 17, 1998.
(a) Rounds to less than a thousand.
See accompanying Notes to Financial Statements.
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Stein Roe Floating Rate Income Fund
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Statements of Changes in Net Assets
For the Period Ended February 28, 1999*
(All amounts in thousands)
(Unaudited)
1999*
-----
Operations
Net investment income ................................................ $ 2
Net realized gain (loss) on investments .............................. --
Change in unrealized appreciation or depreciation from investments ... 1
-----
Net increase in net assets resulting from operations .............. 3
-----
Distributions to Shareholders
Distributions from net investment income ............................. (2)
-----
Share Transactions
Subscription to fund shares .......................................... 251
Value of distributions reinvested .................................... 1
-----
Net increase from share transactions .............................. 252
-----
Net increase in net assets ........................................ 253
Total Net Assets
Beginning of period .................................................. --
-----
End of period ........................................................ $ 253
-----
Undistributed Net Investment Income
at End of Period .................................................. $--
=====
Analyses of Changes in Shares of
Beneficial Interest
Subscriptions to fund shares ......................................... 25
Issued in reinvestment of distributions .............................. (a)
-----
Net increase in fund shares ....................................... 25
Shares outstanding at beginning of period ............................ --
-----
Shares outstanding at end of period .................................. 25
=====
*From commencement of operations on December 17, 1998.
(a) Rounds to less than a thousand.
See accompanying Notes to Financial Statements.
10
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Stein Roe Floating Rate Limited Liability Company
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Statement of Assets and Liabilities
February 28, 1999
(All amounts in thousands)
(Unaudited)
Assets
Investments, at market value (cost $56,464) ........................ $56,694
Interest and fees receivable ....................................... 269
Cash ............................................................... 26
Prepaid expenses ................................................... 5
-------
Total assets .................................................... 56,994
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Liabilities
Deferred facility fees ............................................. 178
Payable to investment adviser ...................................... 36
Other liabilities .................................................. 6
-------
Total liabilities ............................................... 220
-------
Net assets applicable to investors' beneficial interest ........ $56,774
=======
See accompanying Notes to Financial Statements.
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Stein Roe Floating Rate Limited Liability Company
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Statement of Operations
For the Period Ended February 28, 1999*
(All amounts in thousands)
(Unaudited)
Investment Income
Interest ............................................................... $476
Fees ................................................................... 7
----
Total investment income ............................................. 483
----
Expenses
Management fees ........................................................ 54
Audit & legal fees ..................................................... 5
Accounting fees ........................................................ 4
Transfer agent fees .................................................... 1
Custodian & other fees ................................................. 1
----
Total expenses ...................................................... 65
----
Net investment income .............................................. 418
----
Realized and Unrealized Gains (Losses) on Investments
Net realized gain (loss) on investments ................................ --
Net change in unrealized appreciation or depreciation on investments ... 230
----
Net gains on investments ............................................ 230
----
Net increase in net assets resulting from operations ................ $648
====
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
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Stein Roe Floating Rate Limited Liability Company
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Statements of Changes in Net Assets
For the Period Ended February 28, 1999*
(All amounts in thousands)
(Unaudited)
1999*
--------
Operations
Net investment income ............................................. $ 418
Net realized gain (loss) on investments ........................... --
Net change in unrealized appreciation or depreciation
from investments .................................................. 230
--------
Net increase in net assets resulting from operations ........... 648
--------
Transactions in Investors' Beneficial Interest
Contributions ..................................................... 56,138
Withdrawals ....................................................... (12)
--------
Net increase from transactions in investors' beneficial interest .. 56,126
--------
Net increase in net assets ........................................ 56,774
Total Net Assets
Beginning of period ............................................... --
--------
End of period ..................................................... $ 56,774
========
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
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Stein Roe Floating Rate Limited Liability Company
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Statements of Cash Flow
For the Period Ended February 28, 1999*
(All amounts in thousands)
(Unaudited)
Net increase in net assets resulting from operations ............ $ 648
--------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in investments at value ............................. (56,694)
Increase in interest and fees receivables .................... (269)
Increase in deferred facility fees ........................... 178
Increase in investment advisory fees payable ................. 36
Increase in accrued expenses ................................. 1
--------
Total Adjustments ........................................ (56,748)
--------
Net Cash Used for Operating Activities .......................... (56,100)
--------
Cash Flows from Financing Activities:
Proceeds from contributions .................................. 56,138
Payments on withdrawals ...................................... (12)
--------
Net Cash Provided by Financing Activities ................. 56,126
--------
Net Increase in Cash ............................................ 26
Cash at Beginning of the Period ................................. --
--------
Cash at End of the Period ....................................... $ 26
========
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
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Notes to Financial Statements
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(All amounts in thousands)
(Unaudited)
Note 1. Organization
Stein Roe Floating Rate Income Fund (the "Fund") is a non-diversified,
closed-end management investment company organized as a Massachusetts business
trust. The Fund invests all of its investable assets in Stein Roe Floating Rate
Limited Liability Company (the "Portfolio"), which seeks to provide a high-level
of current income, consistent with preservation of capital.
The Portfolio is a non-diversified, closed-end management investment company
organized as a Delaware limited liability company. The Portfolio commenced
operations on December 17, 1998. At commencement, the Fund contributed $100,000
in cash in exchange for beneficial ownership of the Portfolio. At December 17,
1998, Stein Roe Institutional Floating Rate Fund contributed cash of $100,000.
The portfolio allocates income, expenses, and realized and unrealized gains and
losses to each investor on a daily basis, based on their respective percentage
of ownership. At February 28, 1999, the Fund and Stein Roe Institutional
Floating Rate Fund owned 0.4% and 99.6%, respectively, of the 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.
Valuations
All assets of the Fund are valued as of February 26, 1999, the last
business day of the period. The value of the Portfolio is determined in
accordance with guidelines established, and periodically reviewed, by the Board
of Trustees. Senior Loans will be valued by Stein Roe & Farnham Incorporated
(the Adviser), on behalf of the Portfolio at fair value, which is intended to
approximate market value. The value of Senior Loans are generally valued using
market values provided by banks, dealers or pricing services with respect to
secondary market transactions. In determining fair value, the Adviser may also
consider on an ongoing basis, among other factors, (i) the creditworthiness of
the Borrower; (ii) the current interest rate, the interest rate redetermination
period, and maturity of such Senior Loan interests; and (iii) recent prices in
the market for instruments of similar quality, rate and interest rate
redetermination period and maturity. Because of uncertainty inherent in the
valuation process, the estimated value of a Senior Loan interest may differ
significantly from the value that would have been used had there been market
activity for that Senior Loan interest. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
Investment Transactions and Investment Income
Investment transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Facility fees received are treated as market
discounts. Market premiums and discounts are amortized over the estimated life
of each applicable security. Realized gains and losses from investment
transactions are reported on an identified cost basis.
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 make distributions to its
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
(the Fund and Stein Roe Institutional Floating Rate Fund) based on their
respective percentage of ownership.
Distributions to Shareholders
Income dividends are declared and recorded each business day and are paid
monthly. Capital gains, if any, are declared and paid annually, which are
recorded on the ex-dividend date. Dividends are determined in accordance with
income tax principles, which may treat certain transactions differently from
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.
15
<PAGE>
Note 3. Trustees' Fees and Transactions with Affiliates
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee to the Adviser for its services as investment adviser and
administrator.
The management fee for the Portfolio is computed at an annual rate of .85 of
1 percent. The administrative fee for the Fund is computed at an annual rate of
.25 of 1 percent. The Adviser has agreed to reimburse the Fund to the extent
that it's annual expenses exceeded 1.30 percent of average daily net assets.
The Adviser also provides fund accounting services. For the period ended
February 28, 1999, the Fund and Portfolio incurred charges of $4 and $4,
respectively.
Transfer agent fees are paid to SteinRoe Services, Inc. (SSI), a direct,
wholly-owned subsidiary of Liberty. SSI has entered into an agreement with
Liberty Funds Services, Inc., an indirect, wholly-owned subsidiary of Liberty to
act as subtransfer agent for the Fund.
Certain officers and trustees of the Fund are also officers of the Adviser.
The compensation of trustees not affiliated with the Adviser for the Fund and
the Portfolio for the period ended February 28, 1999, was $1 and $1,
respectively. No remuneration was paid to any other trustee or officer of the
Fund.
Note 5. Investment Transactions
The Portfolio's aggregate cost of purchases and proceeds from sales other than
short-term obligations for the period ended February 28, 1999 were $51,609 and
$0, respectively.
Note 6. Tender of Shares
The Board of Trustees currently intends, each calendar quarter beginning with
the second quarter of 1999, to consider making tender offers of the Fund for a
portion of its then outstanding common shares at the net asset value of the
common shares at that time. The tender offer amount will be at least 5% and no
more than 25% of the total number of shares outstanding. During the period ended
February 28, 1999, there were no tender offers.
Note 7. Senior Loan Participation Commitments
The Portfolio invests primarily in participations, assignment, or acts as a
party to the primary lending syndicate of a Variable Rate Senior Loan interest
to United States corporations, partnerships, and other entities. When the
Portfolio purchases a participation of a Senior Loan interest, the Portfolio
typically enters into a contractual agreement with the lender or other third
party selling the participation, but not with the borrower directly. As such,
the Portfolio assumes the credit risk of the borrower, selling participant or
other persons interpositioned between the Portfolio and the Borrower.
At February 28, 1999, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Portfolio on a
participation basis.
Principal
Amount Value
Selling Participant (000) (000)
- --------------- ------- ------
Goldman Sachs Credit Partners LP $5,432 $5,397
16
<PAGE>
Stein Roe Floating Rate Income Fund
- --------------------------------------------------------------------------------
Financial Highlights
Selected per-share data (for a share outstanding throughout the period), ratios
and supplemental data.
Period Ended
February 28,
1999*
--------------
Net Asset Value, Beginning of Period .......................... $10.00
------
Income From Investment Operations
Net investment income ...................................... 0.10
Net realized and unrealized gains on investments ........... 0.05
------
Total from investment operations ........................ 0.15
------
Distributions
Net investment income ...................................... (0.10)
------
Total distributions ..................................... (0.10)
------
Net Asset Value, End of Period ................................ $10.05
======
Ratio of net expenses to average net assets (a) ............... 1.30%(c)
Ratio of net investment income to average net assets (b) 5.80%(c)
Total return 1.74%
Net assets, end of period (000's) $ 253
* From commencement of operations on December 17, 1998
(a)If the Fund had paid all of its expenses and there had been no reimbursement
of expenses by the investment adviser, this ratio would have been 4.44%.
(b)Computed giving effect to the investment adviser's expense limitation
undertaking.
(c)Annualized.
- --------------------------------------------------------------------------------
Stein Roe Floating Rate Limited Liability Company Portfolio
Period
Ended
February 28,
Ratios To Average Net Assets 1999*
- -------------------------------- --------------
Expenses 1.01%(a)
Net investment income 7.45%(a)
Portfolio turnover 0%
*From commencement of operations on December 17, 1998.
(a) Annualized.
See accompanying Notes to Financial Statements.
17
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Senior Secured Floating Rate Loans
Senior secured floating rate loans are commercial loans made by groups of large
domestic banks - referred to as syndicates - to corporations. They provide
investors with a senior claim on a borrower's assets and are backed by
collateral pledged to secure repayment of the loan.
London Interbank Offered Rate (LIBOR)
The rate that most creditworthy international banks dealing in Eurodollars
charge each other for loans. The LIBOR rate is usually the base for other large
Eurodollar loans to less creditworthy corporate and government borrowers.
Floating Rate Loans
Floating rate loans pay interest at a variable rate that adjusts up and down
with interest rate changes. Interest on loans invested in by this Fund carry
rates that are normally reset every three to six months, at a margin over LIBOR.
Non-Investment Grade Loans
Loans made to borrowers with corporate credit ratings of less than BBB or Baa.
Like junk bonds, non-investment grade loans offer investors higher-than-average
income potential to compensate for the risks associated with their lower credit
quality and greater likelihood of default.
18
<PAGE>
Stein Roe Floating Rate Income Fund
- --------------------------------------------------------------------------------
Trustees
John A. Bacon, Jr.
Private Investor
President, Mutual Fund Division and Director,
Stein Roe & Farnham Incorporated
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial Officer,
United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
Officers
Thomas W. Butch, President
William D. Andrews, Executive Vice President
Loren A. Hansen, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer, Controller
Kevin M. Carome, Vice President,
Assistant Secretary
J. Kevin Connaugton, Vice President
James Fellows, Vice President
Brian Good, Vice President
Brian Pollard, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Timothy Jacoby, Vice President
Gail D. Knudsen, Vice President
Sharlene Thomas, Vice President
Heidi J. Walter, Vice President, Secretary
Janet B. Rysz, Assistant Secretary
Scott E. Volk, Treasurer
Agents and Advisers
Stein Roe & Farnham Incorporated
Investment Adviser
State Street Bank and Trust Company
Custodian
Liberty Funds Services, Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Fund
Ernst & Young LLP
Independent Auditors
19
<PAGE>
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
Growth Stock Fund
Growth Investor Fund
Young Investor Fund
Growth Opportunities Fund
Special Fund
Large Company Focus Fund
Special Venture Fund
Capital Opportunities Fund
International Fund
Small Company Growth 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, 32nd Floor.
Liberty Funds Distributor, Inc.
TE11A 4/99
