STEIN ROE
INSTITUTIONAL FLOATING RATE INCOME FUND
ANNUAL REPORT
AUGUST 31, 1999
PICTURE OF LEGAL NOTES
LOGO STEIN ROE MUTAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(R)
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CONTENTS
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<S> <C>
FROM THE PRESIDENT............................................................................... 1
Tom Butch's thoughts on the bond market and investing
PERFORMANCE SUMMARY.............................................................................. 3
QUESTIONS & ANSWERS.............................................................................. 4
An interview with the Fund's Portfolio Managers - Brian W. Good and James R. Fellows
PORTFOLIO HIGHLIGHTS............................................................................. 5
PORTFOLIO OF INVESTMENTS......................................................................... 6
A complete list of investments with market values
FINANCIAL STATEMENTS............................................................................. 10
Statements of assets and liabilities, operations and changes in net assets
NOTES TO FINANCIAL STATEMENTS.................................................................... 17
FINANCIAL HIGHLIGHTS............................................................................. 20
Selected per-share data and ratios to average net assets
REPORT OF INDEPENDENT ACCOUNTANTS................................................................ 21
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MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
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FROM THE PRESIDENT
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TO OUR SHAREHOLDERS
I am pleased to present the inaugural annual report for Stein Roe Institutional
Floating Rate Income Fund. The Fund is designed for long-term investors who wish
to benefit from the income potential of senior bank loans.
Since the Fund began operating on Dec. 17, 1998, pension plans, endowments
and other institutions have invested more than $125 million, making it Stein
Roe's most popular new investment opportunity in several years. We believe that
such substantial cash flow in less than nine months is a testament to the
confidence that sophisticated investors have shown in the Fund's investment
strategy.
Institutional 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 - attempt to minimize fluctuations in net
asset value from changes in interest rates by acquiring interests in floating or
variable rate senior loans.*
STRONG PERFORMANCE DURING A DIFFICULT PERIOD FOR BONDS
Your Fund provided an outstanding total return of 5.94% with distributions
reinvested for the period from Dec. 17, 1998 through Aug. 31, 1999. These
initial results, while not necessarily an indicator of long-term performance,
outpaced the 4.45% average return of similarly managed funds, as measured by
Lipper Inc. and shown on page 3. Your Fund's fiscal 1999 results also were
higher than the returns of the overall bond market (see page 3).
Thus far, calendar 1999 has been the second worst year for fixed-income
securities on record**. The Lehman Brothers Aggregate Bond Index declined 1.84%
between Dec. 31, 1998 and Aug. 31, 1999 as fear of inflation drove up interest
rates. Meanwhile, the yield on 30-year Treasury bonds spiked upward from 5.02%
to 6.07% between Dec. 17, the date your Fund began operating, and Aug. 31, 1999.
Nevertheless, your Fund benefited from this negative environment because
higher rates increased the Fund's income potential without negatively affecting
principal. Unlike fixed-rate bonds that have a set coupon, the income from
senior floating-rate notes can rise and fall substantially as interest rates
move up or down. We believe this feature can potentially help preserve principal
in periods of interest rate volatility.
FUND DATA
INVESTMENT OBJECTIVE:
Stein Roe Institutional 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
NET ASSETS:
$127.2 million
NO SALES CHARGES, NAV REDEMPTION OPTION
Institutional 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. 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 at their current net asset value
(NAV) at the time the tender offer ends. (See page 18, Note 6 for more
information.) This feature is generally not available to 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 NAV tender offer policy will
be beneficial to shareholders.
A NEW CENTURY OF LOAN INVESTMENT OPPORTUNITIES
In the Question & Answer discussion that follows, Mr. Good and Mr. Fellows
present an overview of recent events during calendar 1999 that have affected the
corporate loan market. They also explain how they have positioned the Fund as we
enter the next millennium.
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
1
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FROM THE PRESIDENT CONTINUED
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and, to a lesser extent, finance borrowers' growth.*** History has shown that
interest income has been the overwhelming component of total return from
fixed-income securities, and we believe the superior income characteristics of
bank loan investments may reward patient shareholders.
I know you have many choices available to you as institutional investors.
I want to thank each of you for the confidence you have shown in Institutional
Floating Rate Income Fund and Stein Roe.
Sincerely,
/S/ Thomas W. Butch
Thomas W. Butch
President
September 20, 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.
**SOURCE: WALL STREET JOURNAL, 9/13/99. STATEMENT BASED ON THE
26-YEAR PERFORMANCE HISTORY OF THE LEHMAN BROTHERS AGGREGATE BOND INDEX. THE
INDEX'S LOWEST ANNUAL RETURN DURING THE PERIOD WAS FOR CALENDAR YEAR 1994.
***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 BORROWERS INVOLVED IN
THESE ACTIVITIES MAY BE HIGHLY LEVERAGED; AND 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).
2
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PERFORMANCE SUMMARY
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CUMULATIVE TOTAL RETURN
DEC. 17, 1998 TO AUG. 31, 1999
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STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND 5.94%
Lipper Loan Participation Fund Average (23 funds) 4.45%
Lehman Brothers Aggregate Bond Index -1.84%
GROWTH OF A $10,000 INVESTMENT
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December 17, 1998 to August 31, 1999
LIPPER LOAN
STEIN ROE INSTITUTIONAL PARTICIPATION FUND
FLOATING RATE INCOME FUND AVERAGE (23 FUNDS)
12/17/98 10000 10000
1/31/99 10067 10060
2/28/99 10155 10115
3/31/99 10241 10175
4/30/99 10317 10235
5/31/99 10394 10292
6/30/99 10471 10351
7/31/99 10542 10409
8/31/99 10594 10445
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. A FUND'S
PERFORMANCE, ESPECIALLY FOR SHORT TIME PERIODS, SHOULD NOT BE THE SOLE FACTOR
IN MAKING YOUR INVESTMENT DECISION.
TOTAL RETURN INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME AND
CAPITAL GAINS DISTRIBUTIONS, IF ANY. THE ABOVE ILLUSTRATION ASSUMES A $10,000
INVESTMENT IN THE FUND ON DEC. 17, 1998. INDEX AND LIPPER CATEGORY PERFORMANCE
IS FROM 12/31/98. THE INDEX SHOWN ABOVE IS AN UNMANAGED GROUP OF FIXED-INCOME
SECURITIES THAT IS A BROAD MEASURE OF BOND MARKET PERFORMANCE AND DIFFERS
FROM THE COMPOSITION OF ANY STEIN ROE FUND; IT IS NOT AVAILABLE FOR DIRECT
INVESTMENT. SOURCE: LIPPER INC, A MONITOR OF MUTUAL FUND PERFORMANCE.
3
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QUESTIONS & ANSWERS
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AN INTERVIEW WITH BRIAN W. GOOD AND JAMES R. FELLOWS, PORTFOLIO MANAGERS OF
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND
MR. GOOD AND MR. FELLOWS HAVE MORE THAN 20 YEARS OF COMBINED EXPERIENCE MANAGING
BANK LOAN INVESTMENTS FOR MUTUAL FUND INVESTORS. THEY BOTH JOINED STEIN ROE IN
APRIL 1998 AND HAVE WORKED TOGETHER SINCE 1989.
Q: HOW DID THE FUND PERFORM DURING ITS INAUGURAL FISCAL YEAR?
GOOD: The Fund provided a total return of 5.94% with distributions reinvested
for the period from Dec. 17, 1998 through Aug. 31, 1999. We are pleased to
report that the Fund outperformed the return of the average fund in the Lipper
Loan Participation Fund category (as shown on page 3) for the period, according
to Lipper Inc.
Q: TO WHAT DO YOU ATTRIBUTE THE FUND'S STRONG RESULTS?
FELLOWS: One factor that contributed to the Fund's results was our disciplined
investment strategy. We focus on capital preservation through the management of
credit risk by stressing fundamental credit analysis, portfolio diversification
and relative value analysis. This selective approach helped us achieve the
Fund's objective amid a difficult bond market.
GOOD: Unlike fixed-income securities, the Fund benefited from rising interest
rates in fiscal 1999. The Federal Reserve Board raised its target for short-term
interest rates twice--once in June and again in August--to 5.25% to keep
inflation in check. As rates rose, interest payable to the Fund from its
investments in senior loans also increased, increasing the Fund's income
potential and returns.
Q: CAN YOU DESCRIBE THE LENDING ENVIRONMENT IN FISCAL 1999?
FELLOWS: We experienced a robust lending environment in 1999 due to the
fundamentally strong U.S. economy. The below investment grade sector of the
lending market continues to be the catalyst to overall growth, with merger and
acquisition activity generating new loan volume. Below investment grade lending
increased 64.4% to $87.8 billion in the second quarter of 1999, following $53.4
billion of new loan volume in the first quarter of 1999. This abundant supply
presented us with ample opportunity to further diversify the Fund's holdings
while allowing us to be selective.
Q: IN GENERAL, HAS THERE BEEN ANY CHANGE IN THE CREDIT QUALITY OF BORROWERS OR
THE RATE OF DEFAULTS?
GOOD: The portfolio's credit quality has remained relatively stable, but the
domestic default rate has risen. We think this is primarily the result of the
stresses placed upon many commodity-related industries up until recently and
changes occurring in the long-term health care industry.
Because we typically avoid commodity-sensitive industries like oil and gas
and maintain a very selective exposure to health care - mostly medical devices
and equipment, not long-term care - the Fund has not been directly affected by
the recent rise in defaults. Therefore, portfolio credit quality has remained
stable.
Q: YOU SAID EARLIER THAT YOU INVEST THE FUND'S ASSETS IN MANY INDUSTRIES. CAN
YOU ELABORATE?
FELLOWS: Broad portfolio diversification by both issuer and industry is critical
to effectively managing overall credit risk. As of August 31, 1999, the Fund had
invested in 69 different issues in 23 industries.
We try to invest in many sectors to both capture the senior loan market's
vast opportunities for high current income and reduce concentration risk. We
typically look for borrowers that have minimal correlation to each other and
that will perform differently in various economic environments.
Q: WHAT INDUSTRIES HAS THIS APPROACH LED YOU TO INVEST IN?
GOOD: Among the 23 industries represented in the portfolio as of August 31,
1999, the telecommunications industry (12.9% of net assets) has presented us
with many attractive investment opportunities. Ongoing consolidation of
telecommunications, wireless communications, cable television and media
broadcasting companies should improve the credit profiles of select companies
that are of strategic importance to better capitalized, globally diverse
operators.
We've also seen a lot of opportunities in the automotive industry (9.4% of
net assets). Global consolidation of the larger original equipment manufacturers
has resulted in a number of mergers and acquisitions that proved to be
attractive investment candidates for the Fund.
Q: WHAT'S YOUR INVESTMENT OUTLOOK FOR FISCAL 2000?
FELLOWS: Our outlook for the senior loan market is very favorable. We think
we'll continue to see good quality transactions syndicated into the marketplace
driven by a robust mergers and acquisitions market. This should provide us
favorable opportunities going forward.
We will continue to be very diligent in avoiding potential credit problems
should the economy slow. To some extent, we've already seen default rates
increase, so we want to
4
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QUESTIONS & ANSWERS CONTINUED
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be highly selective and cautious in our investment approach to help avoid any
potential pitfalls.
Senior loans have increasingly been viewed as a source for consistent
return potential, as an inflation hedge (due to their floating rate nature) and
as an investment with the potential to be less volatile than many traditional
asset classes. In the coming months, we believe more institutional investors may
increase their portfolio allocations toward floating rate senior debt because of
the attractive features and potential benefits of this asset class.
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 DISTRIBUTIONS.
PORTFOLIO HOLDINGS ARE AS OF 8/31/99 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 BORROWERS INVOLVED IN
THESE ACTIVITIES MAY BE HIGHLY LEVERAGED, AND 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
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SECURITIES TYPE BREAKDOWN
As of Aug 31, 1999
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Telecommunications 12.9% Real Estate & Insurance 4.1%
Automotive 9.4 Broadcasting 3.9
Health & Education 8.2 Transportation 3.7
Retail & Grocery Stores 8.2 Chemicals 3.5
Electronics 7.0 Ecological 2.7
Cash Equivalents and Other 6.6 Aerospace/Defense 2.3
Diversified Manufacturing 6.3 Containers 2.1
Hotels/Leisure/Entertainment 6.0 Consumer Products & Services 1.8
Printing and Publishing 5.4 Mining 1.6
Diversified Services 4.3
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Total................................100%
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PORTFOLIO QUALITY
As of Aug. 31, 1999
CHART DATA
Non-rated 13.1%
Caa1 0.9%
B3/B- 3.1%
B2/B 10.5%
B1/B+ 29.3%
Ba/BB- 29.2%
Ba2/BB 4.2%
Ba1/BB+ 3.1%
Cash Equivalents 6.6%
Portfolio quality based on information from Moody's Investors
Service and Standard & Poor's.
5
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STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
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PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1999
(All amounts in thousands)
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LOAN MATURITY PRINCIPAL MARKET
VARIABLE RATE SENIOR LOAN INTERESTS (A)(B) TYPE DATE AMOUNT VALUE
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<S> <C> <C> <C> <C>
AEROSPACE/DEFENSE (2.3%)
Decrane Aircraft Holdings........................................... Term B 09/30/05 $ 1,990 $ 2,002
Decrane Aircraft Holdings........................................... Term C 04/30/06 998 1,002
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3,004
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AUTOMOTIVE (9.4%)
American Bumper..................................................... Term B 05/30/06 2,000 2,006
Blackstone Capital Co............................................... Term 11/28/00 1,514 1,511
Blackstone Wasserstein Holdings..................................... Term 11/28/00 1,486 1,483
J.L. French Automotive.............................................. Term B 10/08/05 1,579 1,590
Key Plastics, Inc. ................................................. Term B 12/31/05 1,496 1,498
Stoneridge, Inc..................................................... Term B 12/30/05 1,990 2,003
Venture Holdings Trust.............................................. Term B 06/20/05 2,000 1,999
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12,090
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BROADCASTING (3.9%)
Comcorp Broadcasting, Inc........................................... Term B 06/30/07 1,500 1,500
RCN Corp. .......................................................... Term B 04/29/07 2,000 2,006
White Knight Broadcasting........................................... Term B 06/30/07 1,500 1,500
----------
5,006
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BUILDING & REAL ESTATE (2.6%)
Juno Lighting....................................................... Term B 05/01/06 1,400 1,400
Pebble Beach Co. ................................................... Term B 06/30/06 945 946
Prison Realty Trust................................................. Term C 12/31/02 1,000 1,001
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3,347
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CARGO TRANSPORT (1.7%)
Evergreen International Aviation.................................... Term B-1 05/19/03 1,000 1,000
Gemini Air.......................................................... Term A 12/31/02 1,000 999
Transportation Technology........................................... Term B 04/29/05 200 201
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2,200
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CHEMICALS, PLASTICS AND RUBBER (3.5%)
Huntsman Chemicals.................................................. Term B 06/30/07 500 501
Huntsman Chemicals.................................................. Term C 06/30/08 500 501
Lyondell Petrochemical Co........................................... Term E 05/20/06 3,491 3,515
----------
4,517
----------
CONTAINERS, PACKAGING AND GLASS (2.1%)
Stone Container .................................................... Term E 10/01/03 2,726 2,732
----------
DIVERSIFIED MANUFACTURING (6.3%)
Freedom Forge Corp. ................................................ Term 12/31/04 1,098 1,099
General Cable Corp. ................................................ Term B 05/30/06 1,000 1,004
SPX Corp. .......................................................... Term A 10/06/04 1,979 1,981
Superior Telecom, Inc. ............................................. Term B 11/27/05 1,967 1,982
Thermadyne Holdings Corp. .......................................... Term B 05/22/06 995 997
Thermadyne Holdings Corp. .......................................... Term C 05/22/05 995 997
----------
8,060
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DIVERSIFIED SERVICES (4.3%)
Building One Service Corp. ......................................... Term A 04/30/04 1,995 1,993
Concentra Managed Care.............................................. Term B 06/30/06 667 671
Concentra Managed Care.............................................. Term C 06/30/07 333 336
Enterprise Profit Solutions......................................... Term A 09/01/01 979 982
URS Corp. .......................................................... Term B 06/18/06 750 751
URS Corp............................................................ Term C 06/18/07 750 751
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5,484
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6
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LOAN MATURITY PRINCIPAL MARKET
TYPE DATE AMOUNT VALUE
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ECOLOGICAL (2.7%)
Allied Waste ....................................................... Term B 07/21/06 $ 682 $ 677
Allied Waste Term C 07/21/07 818 812
Environmental Systems Products Holdings Term B 09/30/05 1,990 2,000
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3,489
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ELECTRONICS (7.0%)
Bridge Information Systems.......................................... Revolver 05/29/03 1,932 1,927
Bridge Information Systems.......................................... Term B 05/29/05 1,000 1,001
Integrated Circuit Systems.......................................... Term B 06/30/07 3,000 2,993
Intersil Corp....................................................... Term 06/30/05 1,000 1,004
Knowles Electronics, Inc. .......................................... Term B 06/29/07 1,000 1,000
Semiconductor Components............................................ Term B 07/31/06 481 483
Semiconductor Components............................................ Term C 07/31/07 519 520
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8,928
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GROCERY (2.0%)
Big V Supermarkets.................................................. Term B 08/10/03 2,488 2,501
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HEALTH, EDUCATION AND CHILDCARE (8.2%)
Alliance Imaging, Inc. ............................................. Term D 12/18/04 2,000 2,003
Columbia-Healthone LLC.............................................. Term B 07/21/05 1,993 1,998
Dade Behring........................................................ Term B 06/30/07 500 502
Dade Behring........................................................ Term C 06/30/06 500 502
King Pharmaceutical, Inc. .......................................... Term B 12/18/06 1,990 2,006
Quest Diagnostics................................................... Term B 03/22/06 520 522
Quest Diagnostics................................................... Term C 03/22/07 480 482
Stryker Corp. ...................................................... Term B 12/04/05 805 806
Stryker Corp. ...................................................... Term C 12/04/06 1,683 1,686
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10,507
----------
HOME AND OFFICE FURNITURE (0.3%)
Simmons Co. ........................................................ Term B 09/30/05 424 425
----------
HOTELS (3.1%)
Starwood Hotels and Resorts......................................... Bridge 02/23/03 3,000 3,002
Wyndham International............................................... Term B 03/31/03 1,000 1,000
----------
4,002
----------
INSURANCE (1.5%)
Willis Corroon Group PLC............................................ Term C 11/19/06 970 974
Willis Corroon Group PLC............................................ Term D 11/19/07 970 974
----------
1,948
----------
LEISURE/AMUSEMENT/MOTION PICTURE/ENTERTAINMENT (2.9%)
AMF Bowling Group................................................... Term A 03/31/01 129 122
AMF Bowling Group................................................... Axel A 03/31/03 1,283 1,258
AMF Bowling Group................................................... Axel B 03/31/04 633 623
United Artists Theatre Co. ......................................... Term B 04/21/06 829 718
United Artists Theatre Co. ......................................... Term C 04/21/07 1,143 991
----------
3,712
----------
MINING/STEEL/IRON/METALS (1.6%)
Ispat Inland, Inc................................................... Term B 07/16/05 995 989
Ispat Inland, Inc................................................... Term C 07/16/06 995 989
----------
1,978
----------
7
<PAGE>
LOAN MATURITY PRINCIPAL MARKET
TYPE DATE AMOUNT VALUE
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PERSONAL/FOOD/MISCELLANEOUS SERVICES (1.5%)
American Safety Razor............................................... Term B 01/31/05 $ 475 $ 476
Rent-A-Center, Inc.................................................. Term B 01/31/06 655 654
Rent-A-Center, Inc.................................................. Term C 01/31/07 800 800
----------
1,930
----------
PERSONAL TRANSPORTATION (2.0%)
Avis Rent-A-Car..................................................... Term B 06/08/06 500 498
Avis Rent-A-Car..................................................... Term C 06/08/07 500 498
Motor Coach Industries.............................................. Term B 06/16/06 1,500 1,502
----------
2,498
----------
PRINTING, PUBLISHING AND BROADCASTING (5.4%)
American Media, Inc................................................. Term B 04/01/07 3,000 3,005
Bear Island Paper................................................... Term 12/31/05 985 985
DIMAC Corp. ........................................................ Term B 06/30/06 571 556
DIMAC Corp. ........................................................ Term C 12/30/06 429 417
PEI Holdings, Inc. ................................................. Term B 02/26/06 2,000 2,013
----------
6,976
----------
RETAIL STORES (6.2%)
Duane Reade......................................................... Term C 02/15/06 2,985 2,983
Pantry, Inc......................................................... Term B 01/22/06 1,990 2,000
Quality Stores...................................................... Term B 04/30/06 2,989 2,992
----------
7,975
----------
TELECOMMUNICATIONS (12.9%)
Alec Acquisition Corp............................................... Term B 11/04/07 1,579 1,585
Alec Acquisition Corp............................................... Term C 05/14/08 1,421 1,426
American Wireless Corp. ............................................ Term B 06/04/07 499 496
American Wireless Corp. ............................................ Term C 12/04/07 499 496
Centennial Cellular................................................. Term B 05/31/07 993 1,000
Centennial Cellular................................................. Term C 11/30/07 993 1,000
Dobson Communications Corp. ........................................ Term B 12/31/08 1,000 1,005
Dobson Communications Corp. ........................................ Term C 12/31/08 1,000 1,005
ICG Communications, Inc. ........................................... Term B 02/28/06 1,000 1,002
KMC Telecom, Inc.................................................... Term 06/09/07 2,000 2,004
Nextel Partners, Inc................................................ Term 01/30/08 2,500 2,519
Omnipoint Corp...................................................... Term A 02/23/06 2,208 2,205
Omnipoint Corp...................................................... Term B 02/23/06 786 785
----------
16,528
----------
8
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STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY (LLC)
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MARKET
VALUE
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TOTAL LONG TERM INVESTMENTS (93.4%)
(Cost $119,560)..................................................... $119,837
----------
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SHORT TERM INVESTMENTS (6.1%)
American Home Products ($2,500,000 par, 5.53%, maturing 09/01/99)... 2,500
Baxter International ($3,000,000 par, 5.60%, maturing 09/01/99)..... 3,000
Baxter International ($300,000 par, 5.65%, maturing 09/01/99)....... 300
Dow Chemical ($2,000,000 par, 5.52%, maturing 09/01/99)............. 2,000
----------
7,800
----------
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TOTAL SHORT-TERM INVESTMENTS
(Cost $7,800)....................................................... 7,800
----------
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TOTAL INVESTMENTS (99.5%)
(Cost $127,360)(c).................................................. 127,637
OTHER ASSETS, LESS LIABILITIES (0.5%)............................... 656
----------
NET ASSETS (100%) .................................................. $128,293
==========
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</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
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(a)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 economic maturity of Senior Loans held in the portfolio may be
substantially less than the stated maturities shown. Although the Advisor is
unable to accurately estimate the economic maturity of individual Senior
Loans, based on historical experience, the Advisor believes that the economic
maturity of the Senior Loans held in its portfolio will be approximately
18-24 months.
(b)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.
(c)At August 31, 1999, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$277, consisting of gross unrealized appreciation of $659 and gross
unrealized depreciation of $382.
See accompanying Notes to Financial Statements.
9
<PAGE>
<TABLE>
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
(All amounts in thousands)
ASSETS
<S> <C>
Investments, at market value (cost $127,360)................................. $127,637
Interest and fees receivable................................................. 953
Receivable for investments sold.............................................. 34
Cash......................................................................... 11
-----------
Total Assets.............................................................. 128,635
-----------
LIABILITIES
Deferred facility fees....................................................... 263
Payable to Advisor........................................................... 59
Other liabilities............................................................ 20
-----------
Total Liabilities......................................................... 342
-----------
Net assets applicable to investors' beneficial interest................... $128,293
===========
See accompanying Notes to Financial Statements.
10
<PAGE>
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED AUGUST 31, 1999*
(All amounts in thousands)
INVESTMENT INCOME
Interest..................................................................... $ 4,691
Fee income................................................................... 102
Other income................................................................. 21
---------
Total investment income................................................... 4,814
---------
EXPENSES
Management fees.............................................................. 441
Audit & legal fees........................................................... 17
Accounting fees.............................................................. 18
Transfer agent fees.......................................................... 4
Custodian & other fees....................................................... 60
---------
Total expenses............................................................ 540
---------
Net investment income.................................................... 4,274
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments............................................. 38
Net change in unrealized appreciation or depreciation on investments......... 277
---------
Net gain on investments................................................... 315
---------
Net increase in net assets resulting from operations...................... $ 4,589
=========
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
11
<PAGE>
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED AUGUST 31, 1999*
(All amounts in thousands)
OPERATIONS
Net investment income........................................................ $4,274
Net realized gain on investments............................................. 38
Net change in unrealized appreciation or depreciation on investments......... 277
-----------
Net increase in net assets resulting from operations...................... 4,589
-----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions................................................................ 124,223
Withdrawals.................................................................. (519)
-----------
Net increase from transactions in investors' beneficial interest............. 123,704
-----------
Net increase in net assets................................................... 128,293
NET ASSETS
Beginning of period.......................................................... --
-----------
End of period................................................................ $128,293
===========
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
12
<PAGE>
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED AUGUST 31, 1999*
(All amounts in thousands)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Proceeds from capital contributions.......................................... $124,223
Payments for capital withdrawals............................................. (519)
-----------
123,704
-----------
CASH PROVIDED (USED) BY OPERATIONS
Purchases of loan interests.................................................. (132,362)
Proceeds from sales of loan interests........................................ 12,840
Net purchases of short-term portfolio securities............................. (7,800)
Interest, fees and other income received..................................... 4,814
Operating expenses paid...................................................... (540)
Net change in receivables/payables related
to operations............................................................. (645)
-----------
(123,693)
-----------
Net increase (decrease) in cash.............................................. 11
Cash, beginning of period.................................................... --
-----------
Cash, end of period.......................................................... $ 11
===========
* From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements
13
<PAGE>
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
(All amounts in thousands, except per-share data)
ASSETS
Investment in Stein Roe Floating Rate LLC, at value........................... $127,448
Expense reimbursement due from Advisor........................................ 99
-----------
Total Assets............................................................... 127,547
-----------
LIABILITIES
Distributions payable to shareholders......................................... 307
Payable to Advisor............................................................ 31
Other liabilities............................................................. 14
-----------
Total Liabilities.......................................................... 352
-----------
Net Assets................................................................. $127,195
===========
ANALYSIS OF NET ASSETS
Paid-in capital............................................................... $126,887
Overdistributed net investment income......................................... (6)
Net realized gain on investments.............................................. 38
Net unrealized appreciation on investments.................................... 276
-----------
Net Assets................................................................. $127,195
===========
Shares outstanding (unlimited number authorized).............................. 12,626
===========
Net asset value per share..................................................... $ 10.07
===========
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE>
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED AUGUST 31, 1999*
(All amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest allocated from Stein Roe Floating Rate LLC............................................................ $ 4,677
Fees allocated from Stein Roe Floating Rate LLC................................................................ 102
---------
Total investment income allocated from Stein Roe Floating Rate LLC.......................................... 4,779
---------
EXPENSES
Administrative fees........................................................................ $ 135
Expenses allocated from Stein Roe Floating Rate LLC........................................ 536
SEC and state registration fees............................................................ 56
Accounting fees............................................................................ 18
Transfer agent fees........................................................................ 29
Audit & legal fees......................................................................... 26
Trustees fees.............................................................................. 8
Organization expenses...................................................................... 152
Custodian & other fees..................................................................... 2
---------
Total expenses.......................................................................... 962
Expense reimbursement from Advisor...................................................... (474)
---------
Net expenses.............................................................................................. 488
---------
Net investment income........................................................................................ 4,291
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM STEIN ROE FLOATING RATE LLC
Net realized gain on investments........................................................... 38
Net change in unrealized appreciation or depreciation on investments....................... 276
---------
Net gain on investments...................................................................................... 314
---------
Net increase in net assets resulting from operations............................................................ $ 4,605
=========
</TABLE>
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
15
<PAGE>
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED AUGUST 31, 1999*
(All amounts in thousands)
<TABLE>
<CAPTION>
OPERATIONS
<S> <C>
Net investment income............................................................................................. $ 4,291
Net realized gain on investments allocated from Stein Roe Floating Rate LLC....................................... 38
Change in unrealized appreciation or depreciation on investments allocated from Stein Roe Floating Rate LLC....... 276
----------
Net increase in net assets resulting from operations........................................................... 4,605
----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income.......................................................................... (4,291)
In excess of net investment income................................................................................ (6)
----------
(4,297)
----------
SHARE TRANSACTIONS
Subscriptions to fund shares...................................................................................... 123,262
Value of distributions reinvested................................................................................. 3,825
Redemptions of fund shares........................................................................................ (200)
----------
Net increase from share transactions........................................................................... 126,887
----------
Net increase in net assets..................................................................................... 127,195
NET ASSETS
Beginning of period............................................................................................... --
----------
End of period..................................................................................................... $127,195
==========
Overdistributed net investment income at end of period............................................................ $ (6)
==========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares...................................................................................... 12,267
Issued in reinvestment of distributions........................................................................... 379
Redemptions of fund shares........................................................................................ (20)
----------
Net increase in fund shares.................................................................................... 12,626
Shares outstanding at beginning of period......................................................................... --
----------
Shares outstanding at end of period............................................................................... 12,626
==========
*From commencement of operations on December 17, 1998.
See accompanying Notes to Financial Statements.
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(ALL AMOUNTS IN THOUSANDS)
NOTE 1. ORGANIZATION
Stein Roe Institutional 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 December 17, 1998. At commencement, the Fund contributed $100 in cash
in exchange for beneficial ownership of the Portfolio. At December 17, 1998,
Stein Roe Floating Rate Income Fund also contributed cash of $100. 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 August 31, 1999, Stein Roe Institutional Floating Rate Income Fund
and Stein Roe Floating Rate Income Fund owned 99.3% and 0.7%, respectively, of
the Portfolio.
- --------------------------------------------------------------------------------
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Fund and
Portfolio. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
SECURITY VALUATIONS
All securities are valued as of August 31, 1999. The value of the Portfolio is
determined in accordance with guidelines established, and periodically reviewed,
by the Board of Trustees. Senior Loans are generally valued using market prices
or quotations provided by banks, dealers or pricing services with respect to
secondary market transactions. In the absence of actual market values, Senior
Loans will be valued by Stein Roe & Farnham Incorporated (the "Advisor"), an
indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), on behalf of the Porfolio at fair value, which is intended to
approximate market value. In determining fair value, the Advisor will 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
based on methods approved by the Internal Revenue Service.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared by the Fund and recorded each
business day and are paid monthly. Capital gains distributions, if any, are
declared and paid annually. Dividends and distributions are recorded on the
ex-dividend date. Dividends are determined in accordance with income tax
principles, which may treat certain transactions differently than generally
accepted accounting principles. Distributions in excess of tax basis earnings
are reported in the financial statements as a return of capital. Permanent
differences in the recognition or classification of income between the financial
statements and tax earnings are reclassified to paid-in capital.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee to the Advisor and the Fund pays a
monthly administrative fee to the Advisor, for its services as investment
advisor and manager, respectively.
The management fee for the Portfolio is computed at an annual rate of 0.45%
on the Portfolio's average daily net assets. The administrative fee for the Fund
is computed at an annual rate of 0.20% of the Fund's average daily net assets.
The Advisor has agreed to reimburse the Fund to the extent that its annual
expenses, including expenses allocated from the Portfolio, exceed 0.75% of
average daily net assets. Through August 3, 1999, the management fee for the
Portfolio was 0.85% of the Portfolio's average net assets. For the Fund, the
administrative fee was 0.25% annually and the expense limit was 0.90% annually
of average daily net assets.
The Advisor also provides fund accounting services.
Transfer agent fees are paid to Liberty Funds Services, Inc., a direct,
wholly-owned subsidiary of Liberty Financial Companies, Inc.
Certain officers and trustees of the Fund and the Portfolio are also
officers of the Advisor. The compensation of trustees not affiliated with the
Fund and the Portfolio for the period ended August 31, 1999, was $10 and $9,
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 August 31, 1999 were $132,362 and
$12,840, respectively.
- --------------------------------------------------------------------------------
NOTE 6. TENDER OF SHARES
The Board of Trustees has adopted a policy of making tender offers on a
quarterly basis. The Board has designated the 15th day of March, June, September
and December, each year, or the next business day if the 15th is not a business
day as the Repurchase Request Deadline. Tender offers are made for a portion of
the Fund's then outstanding shares at the net asset value of the shares as of
the Repurchase Pricing Date. The tender offer amount, which is determined by the
Board of Trustees, will be at least 5% and no more than 25% of the total number
of shares outstanding on the Repurchase Request Deadline. During the period
ended August 31, 1999, there was one tender offer in June. The Fund offered to
repurchase 5.0% of its shares and 0.2% of shares outstanding were tendered.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
NOTE 7. SENIOR LOAN PARTICIPATION COMMITMENTS
The Portfolio invests primarily in participations and assignments, 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. If the lead
lender in a typical lending syndicate becomes insolvent, enters FDIC
receivership or, if not FDIC insured, enters into bankruptcy, the Portfolio may
incur certain costs and delays in receiving payment or may suffer a loss of
principal and/or interest. 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 August 31, 1999, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
PRINCIPAL
SELLING PARTICIPANT AMOUNT VALUE
- --------------- ------- ------
Goldman Sachs Credit Partners LP $5,389 $5,370
The ability of borrowers to meet their obligations may be affected by
economic developments in a specific industry.
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS
Based on the recommendation of the Audit Committee of the Stein Roe
Institutional Floating Rate Fund and the Stein Roe Floating Rate Limited
Liability Company on June 18, 1999, the Board of Trustees determined not to
retain Ernst & Young LLP (E&Y) as the independent accountants of the Fund and
the Portfolio, and voted to appoint PricewaterhouseCoopers LLP for the fiscal
year ended August 31, 1999. During the most recent fiscal year, E&Y's audit
report contained no adverse opinion or disclaimer of opinion; nor was its report
qualified or modified as to uncertainty, audit scope, or accounting principle.
Further, in connection with its audit through June 18, 1999, there were no
disagreements between the Fund, the Portfolio and E&Y on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which if not resolved to the satisfaction of E&Y would have
caused it to make reference to the disagreements in its report on the financial
statements for such period.
19
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND
Selected per-share data (for a share outstanding throughout the period), ratios
and supplemental data.
<TABLE>
<CAPTION>
PERIOD
ENDED
AUGUST 31,
1999*
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................................................................... $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.51
Net realized and unrealized gain on investments allocated from Stein Roe Floating Rate LLC 0.07
----------
Total from investment operations 0.58
----------
DISTRIBUTIONS
Net investment income (0.51)
In excess of net investment income (a)
----------
Total distributions (0.51)
----------
NET ASSET VALUE, END OF PERIOD $ 10.07
==========
Ratio of net expenses to average net assets (b)(c)(d) 0.87%
Ratio of net investment income to average net assets (c)(d) 7.68%
Total return (e)(f) 5.94%
Net assets, end of period (000's) $127,195
</TABLE>
*From commencement of operations on December 17, 1998.
(a)Rounds to less than $0.01.
(b)If the Fund had paid all of its expenses and there had been no reimbursement
of expenses by the Advisor, this ratio would have been 1.72%.
(c)Computed giving effect to the Advisor's expense limitation undertaking.
(d)Annualized.
(e)Not annualized.
(f)Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
- --------------------------------------------------------------------------------
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
PERIOD
ENDED
AUGUST 31,
RATIOS TO AVERAGE NET ASSETS 1999*
- -------------------------------- --------------
Expenses .......................................... 0.96%(a)
Net investment income.............................. 7.59%(a)
Portfolio turnover................................. 17%
*From commencement of operations on December 17, 1998.
(a) Annualized.
See accompanying Notes to Financial Statements.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Trustees and the Shareholders of
Stein Roe Institutional Floating Rate Income Fund
Stein Roe Floating Rate Limited Liability Company
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolio, and the related statements of operations, cash flows,
and changes in net assets, and the financial highlights present fairly, in all
material respects, the financial positions of Stein Roe Institutional Floating
Rate Income Fund (the "Fund") and Stein Roe Floating Rate Limited Liability
Company (the "Portfolio") at August 31, 1999, the results of their operations,
the changes in their net assets and their financial highlights, and the
Portfolio's cash flows for the period from December 17, 1998 (commencement of
operations) to August 31, 1999, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's and
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at August 31, 1999 by correspondence with
the custodian and selling or agent banks, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 22, 1999
21
<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.
22
<PAGE>
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND
- -------------------------------------------------------------------------------
TRUSTEES
THOMAS W. BUTCH
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
VICE PRESIDENT-CORPORATE DEVELOPMENT, GENERAL
COUNSEL AND SECRETARY, KELLOGG CO.
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
KEVIN M. CAROME, EXECUTIVE VICE PRESIDENT,
ASSISTANT SECRETARY
GARY A. ANETSBERGER, SENIOR VICE PRESIDENT, TREASURER
J. KEVIN CONNAUGHTON, VICE PRESIDENT
TIMOTHY J. JACOBY, VICE PRESIDENT
GAIL D. KNUDSEN, VICE PRESIDENT
BRIAN W. GOOD, VICE PRESIDENT
JAMES R. FELLOWS, VICE PRESIDENT
NICOLETTE D. PARRISH, VICE PRESIDENT, ASSISTANT SECRETARY
HEIDI J. WALTER, VICE PRESIDENT, SECRETARY
JANET B. RYSZ, ASSISTANT SECRETARY
AGENTS AND ADVISORS
STEIN ROE & FARNHAM INCORPORATED
INVESTMENT ADVISOR
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
LIBERTY FUNDS SERVICES INC.
TRANSFER AGENT
BELL, BOYD & LLOYD
LEGAL COUNSEL TO THE FUND
PRICEWATERHOUSECOOPERS LLP
INDEPENDENT ACCOUNTANTS
23
<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
Disciplined Stock Fund
Growth Stock Fund
Growth Investor Fund
Young Investor Fund
Large Company Focus Fund
Midcap Growth Fund
Capital Opportunities Fund
International Fund Small
Company Growth Fund
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
Liberty Funds Distributor, Inc.
IFR11A 10/99
