STEIN
ROE
MONEY MARKET FUNDS
Government Reserves Fund
Cash Reserves Fund
Semiannual Report
December 31, 1996
STEIN ROE MUTUAL FUNDS
Building wealth for generations(sm)
Photo of: woman and small child
<PAGE>
Contents
- ----------------------------------------------------------------------
From the President................................................ 1
Tim Armour's thoughts on the markets and investing
Q&A
Government Reserves Fund.......................................... 3
Cash Reserves Fund................................................ 6
Interviews with the portfolio manager and a summary
of investment activity over the past six months
Investments....................................................... 9
A complete list of investments with market values
Financial Statements.............................................. 12
Balance sheets, statements of operations
and changes in net assets
Notes to Financial Statements..................................... 15
Financial Highlights.............................................. 18
Selected per-share data
General Information............................................... 20
A guide to products and services
This report must be preceded or accompanied by a prospectus.
<PAGE>
From the President
- ----------------------------------------------------------------------------
To Our Shareholders
We're pleased to present this semiannual report for the Stein Roe money market
funds -- Stein Roe Cash Reserves Fund and Stein Roe Government Reserves Fund.
Mixed Signals
Once again, concern about the direction of interest rates was probably the
greatest single influence on money market fund performance over the past six
months. Despite the fact that most of the rise in interest rates actually took
place in the first quarter of 1996 -- with long-term rates rising quite
dramatically in February and March -- investors were never able to overcome
their uneasiness about which direction interest rates were actually headed.
Much of this anxiety was caused by a string of stronger-than-expected
economic reports, which raised fears that the economy was overheating. In
fact, many investors believed these reports signaled that the Federal Reserve
would have to raise short-term interest rates in order to stave off inflation.
In the end, however, the Federal Reserve decided to hold steady on interest
rates. And since then, slowing economic growth and falling commodities prices
have helped to ease inflation worries. Increasing crude oil inventories, for
example, have pushed crude and heating oil prices down from their October
highs, while good harvests both here and in Europe have kept grain prices low.
In fact, most economic signals now point to a slowdown, which should help
resolve many of the conflicts that plagued money market investors last year.
If we are indeed seeing a real moderation in economic activity, we think the
next move by the Federal Reserve may be a rate cut, probably some time this
summer.
Of course, lower interest rates may slow the growth of money market funds
somewhat during 1997. Nonetheless, we think concern about a possible stock
market correction could help to maintain -- or even increase -- the amount of
assets flowing into money market funds, particularly as investors seek a safe
haven for their investment dollars.
Photo of: Tim Armour, President
The Basics
Although no one can predict what might happen to the markets in the future, we
believe investors must understand the factors that move the markets, not just
to profit from them, but to gain the patience to ride out short-term
<PAGE>
volatility in their investments. As always, no matter what direction you think
the economy is heading, it's important to remember the basics. Think long term
and re-evaluate your investment portfolio from time to time to make sure it
continues to match your goals, risk tolerance and time horizon.
Please call us at 800-338-2550 with your comments and suggestions. As
always, we look forward to serving your investment needs.
Sincerely,
/s/ Timothy K. Armour
Timothy K. Armour
President
January 20, 1997
<PAGE>
Q&A
An Interview with Jane Naeseth, Portfolio Manager of Government Reserves Fund
and Cash Reserves Fund
Fund Data
- ------------------------------------------------------------------------------
Investment Objective:
Seeks maximum current income consistent with safety of capital and
maintenance of liquidity by investing in money market securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities, and
in repurchase agreements for U.S. government securities.
Fund Inception:
September 20, 1982
Total Net Assets:
$67.5 million
- ------------------------------------------------------------------------------
photo of: Jane Naeseth
Government Reserves Fund
Q: How did the Fund perform?
A: For the six months ended December 31, 1996, Government Reserves Fund posted
a 2.36 percent total return, slightly trailing the 2.39 percent median return
of its U.S. government money market fund peer group. Although yields stayed in
a fairly tight range throughout the second half of 1996, year-end buying
pressures helped lift the Fund's seven-day current yield from 4.50 percent on
June 30 to 4.70 percent on December 31.
Q: During the last six months, there have been conflicting reports
on the strength of the economy and speculation about how the Federal Reserve
would respond to these reports. How has this affected your investment
strategy?
A: Money market yields typically increase or decrease based on investors'
expectations of the next Federal Reserve interest rate move. As the second
half of the year began, a series of reports indicated that the economy was
growing too quickly. Investors viewed these reports as signals that the
Federal Reserve would act to rein in a potentially overheating economy by
raising rates sometime in the third quarter. In anticipation of the Federal
Reserve's September meeting, a rate increase of about a half point was
factored into market rates. We took advantage of these higher rates by holding
a large portion of the portfolio in shorter securities and purchasing one-year
notes when we could lock in higher yields.
Following its September meeting, it became clear that the Federal Reserve
would hold rates steady. As a result, the tightening move that had been
<PAGE>
factored into the market disappeared. Another series of conflicting economic
reports followed, and investors sensed correctly that the Federal Reserve
would take a "wait-and-see" attitude until the economy revealed its true
direction. As a result, yields remained in a narrow trading range. At year
end, however, rates started to drift slightly higher for purely technical
reasons. We made some portfolio adjustments to take advantage of these but,
for the most part, we maintained a neutral positioning while we waited for the
Federal Reserve's next interest rate move.
Q: What's your outlook for the next few months?
A: We believe greater importance will be attached to the economic reports
being released in the first quarter -- especially housing starts, employment
and gross national product -- as investors try to anticipate the Federal
Reserve's next interest rate move. One group of economists thinks the Federal
Reserve will raise short-term rates as inflation edges higher, while another
group believes a weakening economy may lead to a rate cut. We believe the
economic reports are still too conflicting to make an interest rate bet one
way or the other and, as a result, plan to maintain our neutral positioning.
We plan to focus on capturing the yield spreads that occur between the
different sectors in which we invest. We also may increase our holdings of
securities with longer maturities if we see that yields are holding steady or
declining. Given the current economic uncertainty, we believe the best
strategy is to maintain a shorter maturity profile.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL
SHARES. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. The Fund's Adviser
currently limits expenses to 0.70 percent of average net assets, subject to
termination upon 30 days' notice. Absent past limits, the Fund's seven-day
current yield would have been 4.53 percent and its total return would have
been less. An investment in the Fund is neither insured nor guaranteed by the
U.S. government, and there is no assurance that the Fund will be able to
maintain its stable net asset value of $1 per share. According to Lipper
Analytical Services, Inc., an independent monitor of mutual fund performance,
the median total returns for the Fund's U.S. government money market fund peer
group for the one-, five, and 10-year periods ending December 31, 1996, were
4.81 percent, 3.91 percent and 5.42 percent, respectively.
<PAGE>
<TABLE>
<CAPTION>
Fund Highlights
- ----------------------------------------------------------------------------------
Government Reserves Fund
SECURITIES TYPE BREAKDOWN
- ----------------------------------------------------------------------------------
PORTFOLIO PORTFOLIO
JUNE 30, 1996 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Federal Agency Discount Notes 23.1% 48.0%
Repurchase Agreements 54.3 28.1
Federal Agency Bonds 22.6 23.9
---------------------------------
Total 100.0% 100.0%
- ----------------------------------------------------------------------------------
MATURITY
Pie Charts:
<CAPTION>
As of As of
June 30, 1996 December 31, 1996
<S> <C> <C>
0-29 Days 77.3% 49.2%
30-375 Days 22.7% 50.8%
</TABLE>
<PAGE>
Q&A
Fund Data
- ------------------------------------------------------------------------------
Investment Objective:
Seeks maximum current income consistent with capital preservation and
maintenance of liquidity by investing in high-quality money market
securities, such as U.S. Treasuries, commercial paper, banker's acceptances
and certificates of deposit.
Fund Inception:
October 2, 1976
Total Net Assets:
$478.7 million
- ------------------------------------------------------------------------------
Cash Reserves Fund
Q: How did the Fund perform?
A: As of December 31, 1996, the Fund's seven-day current yield was 4.99
percent. The Fund finished the six-month period with a 2.44 percent total
return, topping the 2.42 percent median return for its money market fund peer
group.
Q: What factors drove performance?
A: It boiled down to uncertainty over the strength of the economy and the
Federal Reserve's next interest rate move. Short-term rates haven't changed
since the end of January 1996, when the Federal Reserve made the last of three
one-quarter point reductions designed to bring the economy to a "soft
landing." Since then, conflicting economic reports have had investors guessing
- -- sometimes incorrectly -- at what the Federal Reserve would do next.
The release of stronger-than- expected economic reports during the summer
and into the third quarter had many investors anticipating that the Federal
Reserve would raise rates a half point at its September meeting. The Federal
Reserve, however, chose to leave rates unchanged. As soon as investors heard
that news, they discounted the increase that previously had been priced into
yields. Since then, the markets have remained in a narrow trading range. With
mixed economic data, the Federal Reserve maintained a "wait-and-see" attitude
at its last two meetings of 1996. Most money managers, as a result, have
adopted the same sentiment.
Q: Doesn't year end usually bring a little life to the market?
A: Supply is usually plentiful at year end, as securities dealers try to
reduce their inventories to avoid the expense of carrying them into the new
year. To entice investors, dealers offer higher rates on these securities. We
typically take advantage of these short-lived buying opportunities to enhance
the portfolio's yield. In fact, these year-end pressures accounted for most of
the change in the Fund's yield from June 30 to December 31.
<PAGE>
We've also found that year end generally offers opportunities for higher
yields in certain foreign sectors. Throughout the year, letter of credit
commercial paper, which is backed by the full faith and credit of a foreign
bank, offers higher yields than the direct obligations of the bank. At year
end, however, a trading pattern emerges in which the direct obligations of
foreign banks -- certificates of deposit and banker's acceptances -- carry
higher yields than letter of credit commercial paper. There is little
difference in the credit quality of these securities, so we tend to shift
assets into banker's acceptances and certificates of deposit at year end to
pursue higher yield potential.
Q: How has the uncertainty over the economy and interest rates affected your
investment strategy?
A: We normally try to extend or shorten the Fund's average maturity according
to our outlook for interest rates. With no clear signals as to the economy's
true direction over the past six months, we've maintained a relatively neutral
maturity position of between 40 days and 60 days. When we saw opportunities to
lock in higher rates -- for example, just before the Federal Reserve's
September meeting -- we bought longer-maturity securities.
Q: Looking ahead, what are your plans for the Fund?
A: We believe the Federal Reserve will hold rates steady until there is a
clearer picture of the economy's direction. Yields most likely will remain in
a narrow band until the Federal Reserve's next rate move is factored into the
markets. We plan to purchase longer-maturity securities when we think they
offer attractive yields, but will not lengthen the Fund's average maturity
greatly.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. An investment in the Fund is neither insured
nor guaranteed by the U.S. government, and there is no assurance that the Fund
will be able to maintain its stable net asset value of $1 per share. According
to Lipper Analytical Services, Inc., an independent monitor of mutual fund
performance, the median total returns for the Fund's money market fund peer
group for the one-, five, and 10-year periods ending December 31, 1996, were
4.88 percent, 3.99 percent and 5.54 percent, respectively.
<PAGE>
<TABLE>
<CAPTION>
Fund Highlights
- ----------------------------------------------------------------------------------
Cash Reserves Fund
SECURITIES TYPE BREAKDOWN
- ----------------------------------------------------------------------------------
PORTFOLIO PORTFOLIO
JUNE 30, 1996 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper 77.6% 65.3%
Yankee Certificates of Deposit 7.4 16.1
Corporate Notes 8.4 8.4
Eurodollar Certificates of Deposit -- 5.0
Yankee Banker's Acceptances -- 4.2
Federal Agencies 5.3 1.0
Letter of Credit Commercial Paper 1.3 --
---------------------------------
Total 100.0% 100.0%
- ---------------------------------------------------------------------------------
MATURITY
Pie Charts:
<CAPTION>
As of As of
June 30, 1996 December 31, 1996
<S> <C> <C>
0-4 Days 13.2% 5.6%
5-14 Days 18.0% 38.2%
15-29 Days 46.4% 23.1%
30-59 Days 8.6% 16.2%
60-89 Days 4.2% 11.7%
90-375 Days 5.3% 1.0%
376+ Days 4.3% 4.2%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Government Reserves Fund
- ----------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
INTEREST MATURITY PRINCIPAL MARKET
RATE* DATE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (80.0%)
Federal Home Loan Bank........... 5.430% 1/10/97 $10,000 $10,000
Federal Home Loan Bank Callable Note 5.750 1/09/98 3,000 3,000
Federal Home Loan Mortgage
Corporation................... 5.317 1/14/97 6,000 5,989
Federal Home Loan Mortgage
Corporation................... 5.577 1/30/97 7,793 7,758
Federal Home Loan Mortgage
Corporation................... 5.578 1/31/97 12,425 12,368
Federal National Mortgage Association 5.290 2/18/97 10,000 9,930
Student Loan Marketing Association
Callable Note................. 5.750 1/08/98 5,000 5,000
------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Amortized Cost $54,045)....................................................... 54,045
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (31.3%)
BA Securities; 1/02/97
agreement collateralized by Federal
Home Discount Note,
due 12/11/97.................. 6.500 1/02/97 6,095 6,095
CIBC Wood Gundy Securities; 1/02/97
agreement collateralized by Federal
Farm Credit Bank Note, 5.220%
due 3/03/97................... 5.850 1/02/97 15,000 15,000
------
TOTAL REPURCHASE AGREEMENTS
(Amortized cost $21,095)....................................................... 21,095
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (111.3%)
(Amortized cost $75,140)....................................................... 75,140
OTHER ASSETS, LESS LIABILITIES (-11.3%)........................................... (7,625)
------
TOTAL NET ASSETS (100%)........................................................... $67,515
=========
- ----------------------------------------------------------------------------------------------
<FN>
* The interest rate is the effective rate at the date of purchase.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cash Reserves Fund
- ----------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
INTEREST MATURITY PRINCIPAL MARKET
RATE* DATE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (63.0%)
ELECTRONICS (4.2%)
**General Signal Corp. ........ 5.680-5.681% 1/22-1/23/97 $ 20,200 $ 20,132
FINANCIAL SERVICES (54.8%)
BANKING (7.5%)
Goldman Sachs Group, Ltd. .. 8.254 1/02/97 12,000 11,997
Sumitomo Bank Capital Markets Inc.
(gtd. by Sumitomo Bank Ltd.) 5.655 2/12/97 24,000 23,843
-------
35,840
BUSINESS CREDIT INSTITUTIONS (9.4%)
Finova Capital Corp. ....... 5.801 1/13/97 23,000 22,957
Whirlpool Financial Corp. .. 5.487-6.112 1/08-3/20/97 22,000 21,879
-------
44,836
INSURANCE (0.3%)
**ITT Hartford Group Inc. .. 6.158 1/08/97 1,545 1,544
LENDING INSTITUTIONS (1.0%)
Oak Funding Corp. .......... 5.854 1/13/97 4,800 4,791
MISCELLANEOUS FINANCIAL (36.6%)
Countrywide Home Loans
(gtd. by Countrywide Credit
Industries).............. 6.063 1/09/97 23,000 22,969
**Enterprise Funding Corp... 5.725 1/15/97 20,000 19,956
Heller Financial, Inc. ..... 5.682 1/22/97 24,000 23,921
**Old Line Funding Corp. ... 5.740 1/31/97 24,000 23,886
**Pooled Assets Receivable Capital 5.665 1/03/97 15,040 15,035
**Thames Asset Global
Securitization........... 5.577 1/06/97 12,646 12,637
**Tri-Lateral Capital USA Inc. 5.661 1/17/97 17,000 16,958
**Windmill Funding Corp. ... 5.506 1/16/97 20,000 19,954
**Working Capital Management 5.690 1/30/97 20,000 19,909
-------
175,225
-------
TOTAL FINANCIAL SERVICES.......................................................... 262,236
PAPER PRODUCTS (4.0%)
**Temple Inland Inc. .......... 5.821 1/14/97 19,000 18,960
-------
TOTAL COMMERCIAL PAPER
(Amortized cost $301,325)...................................................... 301,328
- ------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Cash Reserves Fund CONTINUED
- -------------------------------------------------------------------------------------------------
INTEREST MATURITY PRINCIPAL MARKET
RATE* DATE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE RATE NOTES (8.4%)
FINANCIAL SERVICES
**American Honda Finance Corp.
(gtd. by Honda Motor Co. Inc.) 5.565% 3/14/97 $ 20,000 $ 20,000
Morgan Stanley Group Inc. ..... 5.625 11/16/98 20,000 20,000
-------
TOTAL VARIABLE RATE NOTES
(Amortized cost $40,000)....................................................... 40,000
- ---------------------------------------------------------------------------------------------------
SOVEREIGN (2.5%)
**Venantius AB (gtd. by Kingdom
of Sweden)
(Amortized cost $12,036).... 5.514 3/04/97 12,150 12,036
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION (1.0%)
Federal Home Loan Banks
(Amortized cost $5,000)..... 5.750 1/09/98 5,000 5,000
- ---------------------------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT (25.2%)
FINANCIAL SERVICES
Bank of Tokyo/Mitsubishi....... 5.530 3/11/97 15,000 15,000
Dai-ichi Kangyo Bank........... 5.715-5.877 1/16-2/18/97 20,000 19,900
Fuji Bank Ltd.-Chicago......... 5.690 1/14/97 22,000 22,000
Industrial Bank of Japan....... 5.630 1/10/97 20,000 20,000
Norinchukin Bank............... 5.639 1/06/97 24,000 24,000
Sanwa Bank..................... 5.643 1/10/97 20,000 20,000
-------
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(Amortized cost $120,900)...................................................... 120,900
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(Amortized cost $479,264)...................................................... 479,264
OTHER ASSETS, LESS LIABILITIES (-0.1%)............................................ (593)
-------
TOTAL NET ASSETS (100.0%)......................................................... $478,671
==========
- ---------------------------------------------------------------------------------------------------
<FN>
*The interest rate is the effective rate at the date of purchase.
**Represents private placement securities exempt from registration by
Section 4(2) of the Securities Act of 1933. These securities generally are
issued to investors who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale by the Fund
must be in an exempt transaction, normally to other institutional investors.
At December 31, 1996, the aggregate value of the Fund's private placement
securities was $201,005, which represented 42.0 percent of net assets. None of
these are deemed to be illiquid securities.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
- ---------------------------------------------------------------------------------------
December 31, 1996
(All Amounts in Thousands, Except Per-Share Amounts)
(Unaudited)
GOVERNMENT CASH
RESERVES RESERVES
FUND FUND
----------- --------
<S> <C> <C>
ASSETS
Investments, at value (including $21,095 in
repurchase agreements for Government
Reserves)...................................... $75,140 $479,264
Accrued interest receivable....................... 543 583
Receivable for fund shares sold................... -- 4,701
Cash and other assets............................. 173 1,611
------- ---------
Total Assets................................... $75,856 $486,159
========= ==========
LIABILITIES
Payable for investments purchased................. $ 8,000 $ 5,000
Payable for fund shares redeemed.................. -- 1,763
Dividends payable................................. 66 282
Payable to investment adviser and transfer agent.. 25 278
Other liabilities................................. 250 165
------- ---------
Total Liabilities.............................. 8,341 7,488
------- ---------
CAPITAL
Paid-in-capital................................... 67,555 478,535
Accumulated net realized gains
(losses) on investments (40) 136
------- ---------
Total Capital (Net Assets)..................... 67,515 478,671
------- ---------
Total Liabilities and Capital.................. $75,856 $486,159
========= ==========
Shares Outstanding (Unlimited Number Authorized).. 67,554 478,305
========= ==========
Net Asset Value (Capital) Per Share............... $ 1.00 $ 1.00
========= ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
- -----------------------------------------------------------------------------------------
For The Six Months Ended
December 31, 1996
(All Amounts in Thousands)
(Unaudited)
GOVERNMENT CASH
RESERVES RESERVES
FUND FUND
----------- --------
<S> <C> <C>
INVESTMENT INCOME
Interest Income................................... $1,716 $13,595
EXPENSES
Management fees................................... 81 615
Administrative fees............................... 81 615
Transfer agent fees............................... 49 369
Printing and postage.............................. 18 132
Registration fees................................. 14 30
Accounting fees................................... 13 18
Legal and audit fees.............................. 11 11
Trustees' fees.................................... 9 12
Other expenses.................................... 15 93
------ -------
291 1,895
Reimbursement of expenses by investment adviser... (64) --
------ -------
Total Expenses................................. 227 1,895
------ -------
Net Investment Income.......................... 1,489 11,700
------ -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,489 $11,700
====== =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- ----------------------------------------------------------------------------------------
(ALL AMOUNTS IN THOUSANDS)
(Unaudited)
GOVERNMENT RESERVES FUND CASH RESERVES FUND
YEAR SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, DEC. 31, JUNE 30, DEC. 31,
1996 1996 1996 1996
------------------------- --------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income............... $ 4,210 $ 1,489 $ 24,237 $ 11,700
Net realized gains (losses) on investments 3 -- -- --
--------- --------- ---------- ----------
Net Increase in Net Assets Resulting
from Operations................ 4,213 1,489 24,237 11,700
--------- --------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (4,210) (1,489) (24,237) (11,700)
--------- --------- ---------- ----------
SHARE TRANSACTIONS
Subscriptions to fund shares........ 60,169 39,552 711,619 390,338
Investment income dividends reinvested 3,737 1,263 22,397 10,656
Redemptions of fund shares.......... (90,299) (40,228) (755,339) (399,163)
--------- --------- ---------- ----------
Net Increase (Decrease) from
share Transactions............. (26,393) 587 (21,323) 1,831
--------- --------- ---------- ----------
Net Increase (Decrease) in Net Assets (26,390) 587 (21,323) 1,831
TOTAL NET ASSETS
Beginning of period................. 93,318 66,928 498,163 476,840
--------- --------- ---------- ----------
End of period....................... $ 66,928 $ 67,515 $ 476,840 $ 478,671
========== ========== ========== ==========
ANALYSES OF CHANGES IN SHARES
OF BENEFICIAL INTEREST
Subscriptions to fund shares........ 60,169 39,552 711,619 390,338
Investment income dividends reinvested 3,737 1,263 22,397 10,656
--------- --------- ---------- ----------
63,906 40,815 734,016 400,994
Redemptions of fund shares (90,299) (40,228) (755,339) (399,446)
--------- --------- ---------- ----------
Net increase (decrease) in fund shares (26,393) 587 (21,323) 1,548
Shares outstanding at beginning of period 93,360 66,967 498,080 476,757
--------- --------- ---------- ----------
Shares outstanding at end of period. 66,967 67,554 476,757 478,305
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- ------------------------------------------------------------------------------
Note 1. Significant Accounting Policies
The following are the significant accounting policies of Stein Roe Government
Reserves Fund and Stein Roe Cash Reserves Fund (the "Funds"), each a series of
Stein Roe Income Trust (a Massachusetts business trust).
Investment Valuations
The Funds utilize the amortized cost method to value their investments, which
approximates market value. This technique involves valuing a security
initially at cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium. In the event that a deviation of .50 of 1
percent or more exists between a Fund's $1.00 per-share net asset value,
calculated at amortized cost, and the net asset value calculated by reference
to market quotations, the Board of Trustees would consider what action, if
any, should be taken. Other assets of the Funds are valued by a method that
the Board of Trustees believes represents a fair value.
Federal Income Taxes
No provision is made for federal income taxes since the Funds elect to be
taxed as "regulated investment companies" and make such distributions to their
shareholders as to be relieved of all federal income taxes under provisions of
current federal tax law.
Distributions to Shareholders
The Funds declare income dividends from net investment income daily and pay
these dividends monthly.
Other Information
Realized gains or losses from sales of securities are determined on the
specific identified cost basis.
The Funds attempt to maintain their net asset value per share at $1.00,
which they believe will be possible under most conditions.
The Funds require issuers of repurchase agreements to transfer the
securities underlying the agreements to the Funds' custodian at the time of
payment for the repurchase agreement. The Funds monitor the value of
securities underlying a repurchase agreement during the term of the agreement.
All amounts, except per-share amounts, are shown in thousands.
<PAGE>
Note 2. Portfolio Composition
Government Reserves Fund invests in U.S. government securities maturing in
thirteen months or less from the date of purchase, and repurchase agreements
collateralized by U.S. government securities, regardless of the maturities
of such securities. U.S. government securities include securities issued or
guaranteed by the U.S. government and its agencies or instrumentalities.
Cash Reserves Fund invests in U.S. dollar-denominated money market
instruments maturing in thirteen months or less from time of investment. Under
normal market conditions, the Fund will invest at least 25 percent of its
total assets in securities of issuers in the financial services industry
(which includes, but is not limited to, banks, personal credit and business
credit institutions, and other financial services institutions). At December
31, 1996, 88.4 percent of the Fund's total assets were invested in the
financial services industry. In addition, at December 31, 1996, 72.3 percent
of the Fund's investments were in instruments of entities located in the
United States and 25.2 percent were in instruments of Japanese entities.
Country determination is based on either the location of the issuer or, in the
case of those instruments that are guaranteed by another entity, the location
of the guarantor.
See each Fund's schedule of investments for additional information on
portfolio composition.
Note 3. Trustees' Fees and Transactions with Affiliates
The Funds pay monthly management and administrative fees to Stein Roe
&Farnham, an indirect, majority-owned subsidiary of Liberty Mutual Insurance
Company, for its services as investment adviser and manager. The
administrative fee for each Fund is .25 of 1 percent of the first $500 million
of average daily net assets, .20 of 1 percent of the next $500 million, and
.15 of 1 percent over $1 billion. The management fee is .25 of 1 percent of
average daily net assets.
The administrative agreements of the Funds provide that the Adviser will
reimburse each Fund to the extent that its annual expenses, excluding certain
expenses, exceed the applicable limits prescribed by any state in which each
Fund's shares are offered for sale.
In addition, the Adviser has agreed to reimburse Government Reserves Fund
to the extent that its expenses exceed .70 of 1 percent of average daily net
assets. This expense limitation expires October 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice.
The transfer agent fees of the Funds are paid to SteinRoe Services Inc.
(SSI), an indirect, majority-owned subsidiary of Liberty Mutual Insurance
Company. SSI entered into an agreement with Colonial Investors Service Center,
Inc., an indirect, majority-owned subsidiary of Liberty Mutual Insurance
Company, to act as a sub-transfer agent for the Funds.
<PAGE>
The Adviser also provides the Fund with certain Fund accounting services.
For the six months ended December 31, 1996, Government Reserves Fund and Cash
Reserves Fund incurred fees of $13 and $18, respectively.
Certain officers and trustees of the Trust are also officers of the
Adviser. The compensation of trustees not affiliated with the Adviser for
Government Reserves Fund and Cash Reserves Fund for the six months ended
December 31, 1996, was $9 and $12, respectively. No remuneration was paid to
any other trustee or officer of the Trust.
Note 4. Investment Transactions
Cost of investments of the Funds was the same for financial reporting purposes
and federal income tax purposes.
<PAGE>
<TABLE>
Financial Highlights (Unaudited)
Government Reserves Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
<CAPTION>
Years Ended June 30,
1988 1989 1990
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000
------- ------- -------
Net investment income 0.058 0.080 0.078
Distributions from net investment income (0.058) (0.080) (0.078)
------- ------- -------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000
======= ====== ======
Ratio of net expenses to average net assets (a) 0.87% 0.70% 0.70%
Ratio of net investment income to average net assets (b) 5.75% 8.02% 7.79%
Total return (b) 5.90% 8.27% 8.05%
Net assets, end of period $41,787 $50,185 $53,400
<CAPTION>
Years Ended June 30,
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000
-------- -------- --------
Net investment income 0.066 0.044 0.027
Distributions from net investment income (0.066) (0.044) (0.027)
------- -------- --------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000
======= ======= =======
Ratio of net expenses to average net assets (a) 0.70% 0.70% 0.70%
Ratio of net investment income to average net assets (b) 6.41% 4.27% 2.75%
Total return (b) 6.74% 4.45% 2.78%
Net assets, end of period $102,860 $132,982 $104,220
<CAPTION>
Six
Months
Ended
Years Ended June 30, Dec. 31,
1994 1995 1996 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- -------
Net investment income 0.027 0.047 0.050 0.024
Distributions from net investment income (0.027) (0.047) (0.050) (0.024)
-------- ------- ------- -------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======= ======
Ratio of net expenses to average net assets (a) 0.70% 0.70% 0.70% 0.70%*
Ratio of net investment income to average net assets (b) 2.71% 4.65% 4.94% 4.59%*
Total return (b) 2.74% 4.78% 5.01% 2.36%
Net assets, end of period $105,488 $93,318 $66,928 $67,515
<FN>
* Annualized
(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 0.93, 0.98, 0.83, 0.79, 0.76, 0.75, 0.75, 0.82 and 0.90 percent for
the years ended June 30, 1988 through 1996, and the six months ended
December 31, 1996, respectively.
(b) Computed giving effect to investment Adviser's expense limitation
undertaking.
</FN>
</TABLE>
<PAGE>
<TABLE>
Cash Reserves Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
<CAPTION>
Six
Year Months Years
Ended Ended Ended
Dec. 31, June 30, June 30,
1987 1988 1989
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000
-------- -------- --------
Net investment income 0.060 0.032 0.081
Distributions from net investment income (0.060) (0.032) (0.081)
-------- -------- --------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000
======== ======== ========
Ratio of expenses to average net assets 0.72% 0.70%* 0.75%
Ratio of net investment income to average net assets 6.02% 6.36%* 8.13%
Total return 6.15% 6.43%* 8.41%
Net assets, end of period $962,901 $930,074 $948,018
<CAPTION>
Years Ended June 30,
1990 1991 1992 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- --------
Net investment income 0.079 0.068 0.044 0.028
Distributions from net investment income (0.079) (0.068) (0.044) (0.028)
-------- -------- -------- --------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======== ========
Ratio of expenses to average net assets 0.76% 0.78% 0.78% 0.79%
Ratio of net investment income to average net assets 7.94% 6.81% 4.40% 2.81%
Total return 8.20% 6.98% 4.49% 2.83%
Net assets, end of period $949,803 $840,525 $711,087 $627,110
<CAPTION>
Six
Months
Ended
Years Ended June 30, Dec. 31,
1994 1995 1996 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $1.000
-------- -------- -------- --------
Net investment income 0.028 0.048 0.050 0.025
Distributions from net investment income (0.028) (0.048) (0.050) (0.025)
-------- -------- -------- --------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $1.000
======== ======== ======== ========
Ratio of expenses to average net assets 0.79% 0.76% 0.78% 0.77%*
Ratio of net investment income to average net assets 2.77% 4.83% 4.98% 4.75%*
Total return 2.81% 4.96% 5.07% 2.44%
Net assets, end of period $554,713 $498,163 $476,840 $478,671
<FN>
* Annualized
</FN>
</TABLE>
<PAGE>
A Guide to Stein Roe Services
- ------------------------------------------------------------------------------
We encourage you to take advantage of our free shareholder services. If you
would like additional information about how to establish or use a Stein Roe
service, just call us at 800-338-2550.
Purchases
In addition to sending us a check or wire to purchase additional fund shares,
you can take advantage of these convenient automatic services:
o AUTOMATIC INVESTMENT PLAN -- Make regular investments ($50 minimum) in
your Stein Roe account directly from your bank checking account. You
select monthly, quarterly, semiannual or annual purchases.
o SPECIAL INVESTMENTS -- Purchase shares by telephone and pay for them by
electronic transfer from your bank checking account.
Exchanges
o TELEPHONE EXCHANGE -- Call us to exchange $50 or more from your existing
account in one Stein Roe fund to an identically registered existing
account in another Stein Roe fund. You receive this service when you open
a Stein Roe fund account, unless you elect not to.*
o AUTOMATIC EXCHANGE -- Stein Roe will regularly exchange shares
from your account in one Stein Roe fund to your account in another. You
select twice-monthly, monthly, quarterly, semiannual or annual exchanges.
Redemptions
o TELEPHONE REDEMPTION BY CHECK -- Call to redeem $1,000 or more from your
account. A check will be sent to your registered address. You
automatically receive this service when you open a Stein Roe account,
unless you elect not to.
o TELEPHONE REDEMPTION BY WIRE -- Redeem shares by phone from your account
($1,000 minimum) and wire the proceeds to your bank checking account. A
small fee for wiring proceeds will be deducted from the amount wired.
o SPECIAL REDEMPTION OPTION -- If you do not want to pre-schedule your
redemptions, you can redeem shares by telephone ($50 minimum/ $100,000
maximum) and have the proceeds sent directly to your bank checking
account.
o AUTOMATIC REDEMPTION PLAN -- Redeem either a fixed dollar or
share amount, or a fixed percentage of your account automatically on a
schedule you establish. You select monthly, quarterly, semiannual or
annual withdrawals ($50 minimum/ $100,000 max imum), and the proceeds are
sent either to your bank checking account or to an address you specify.
o MONEY MARKET FUND CHECK
WRITING -- Write checks for $50 or more on your money market fund account.
*Stein Roe reserves the right to discontinue or modify the exchange privilege,
and certain restrictions apply. Please refer to your prospectus for details.
<PAGE>
Distributions
Most investors like to reinvest their dividends and capital gains distributions
and put them back to work. If, however, you do not want them reinvested,
consider these alternatives:
o DIVIDEND PURCHASE OPTION -- Use the distributions from one Stein Roe fund
account ($25 minimum) to automatically purchase shares in your account
with another Stein Roe fund.
o AUTOMATIC DIVIDEND DEPOSIT -- Instead of receiving your dividends by
check, your distributions are deposited automatically into your bank
checking account.
Recordkeeping
o SUMMARY OF INVESTMENTS -- Consolidates quarterly transaction and
investment infor mation for any or all of your household's Stein Roe
accounts on one easy-to-read statement. At year end, Stein Roe provides a
complete summary of all account activity for the year.
<PAGE>
Funds for Every Investment Objective
- -----------------------------------------------------------------------------
The Stein Roe family of mutual funds offers a variety of funds so you can
select the right fund, or combination of funds, to meet your investment
objectives. Call us at 800-338-2550 for a prospectus and more complete
information on any of the funds, including management fees and expenses.
Please read the prospectus carefully before you invest or send money.
Money Market Funds
Money market funds seek to provide income while preserving principal and
maintaining liquidity. These funds offer free check writing.
o GOVERNMENT RESERVES FUND -- Invests primarily in securities issued or
guaranteed by the U.S. government and its agencies and instrumentalities.*
o CASH RESERVES FUND -- Invests in high-quality, short-term money market
securities such as certificates of deposit, banker's acceptances and
commercial paper.*
Bond Funds
Bond funds seek high current income by investing pri marily in fixed income
securities.
o GOVERNMENT INCOME FUND -- Invests primarily in securities issued or
guaranteed by the U.S. government and its agencies.*
o INTERMEDIATE BOND FUND-- Invests primarily in marketable debt securities
with an average life of three to 10 years.
o INCOME FUND -- Pursues a higher level of current income by investing
primarily in medium- and lower-quality bonds.
o HIGH YIELD FUND -- Invests in high yield, high-risk, medium- and
lower-quality debt securities that may involve greater risk.
Tax-Exempt Funds
These funds help investors keep more of their earnings by investing in
instruments that earn income free from federal income tax. Income may be
subject to federal alternative minimum tax and state and local taxes; capital
gains are subject to state, local and federal taxes.
o MUNICIPAL MONEY MARKET FUND -- Seeks to provide the liquidity and
stability of a money market fund plus current tax-free income. Free
check writing available.*
o INTERMEDIATE MUNICIPALS FUND -- Seeks high current yield through
investments primarily in the three highest grades of intermediate-term
municipal securities.
*Money market mutual funds strive to maintain a $1 per share net asset value,
but there is no assurance that these funds will be able to maintain a stable
net asset value. The net asset value of a fund that invests in securities
issued or guaranteed by the U.S. government is not guaranteed.
<PAGE>
o MANAGED MUNICIPALS FUND -- Pursues high tax-free income by investing in a
quality-conscious portfolio of long-term municipal bonds.
o HIGH-YIELD MUNICIPALS FUND -- Seeks a higher level of tax-free income
from long-term municipal securities, primarily of medium or lower
quality.
Growth and Income Funds
These funds seek to provide a conservative investment that is well positioned
for long-term growth and current income. Each fund's approach is designed to
limit the effects of market volatility.
o BALANCED FUND+ -- Seeks long-term growth of capital and current income
consistent with reasonable investment risk by investing in equities, debt
securities and cash equivalents.
o GROWTH & INCOME FUND+ -- Pursues income and long-term capital growth by
investing primarily in large, well-established companies.
Growth Funds
Growth funds offer long-term capital appreciation potential by investing
primarily in various types of stocks.
o GROWTH STOCK FUND -- Pursues long-term capital appreciation from stocks
with strong growth potential.
o SPECIAL FUND -- Invests in securities believed to have limited downside
risk relative to their potential for above-average growth, including
securities of undervalued, under followed or out-of-favor companies.
o SPECIAL VENTURE FUND -- Seeks capital appreciation through equity
securities of entre preneurially managed companies.
o YOUNG INVESTOR FUND -- Invests in securities of companies that affect the
lives of children or teenagers.
o CAPITAL OPPORTUNITIES FUND+-- Takes a long-term approach to emerging
growth by selecting quality companies with the potential to generate high
levels of earnings growth over a three- to five-year period.
o INTERNATIONAL FUND -- Invests in a diversified portfolio of foreign
securities.
o EMERGING MARKETS FUND -- Seeks long-term capital appreciation through
emerging market investment opportunities.
+Balanced Fund was formerly Total Return Fund; its name and investment
objective were modified April 17, 1996. Growth &Income Fund was formerly Prime
Equities; its name and objective were modified on February 1, 1996. Total
return from inception for Capital Opportunities Fund is from the date its
current name and investment objective were established. Capital Opportunities
Fund closed to new investors on September 30, 1996, in accordance with
conditions set forth in the prospectus.
<PAGE>
To Contact Us. . .
- ------------------------------------------------------------------------------
By Phone 800-338-2550
You can discuss your investment questions with a Stein Roe account
representative by calling us toll free. We'll be happy to answer questions
about your current account, or to provide you with information about opening a
Stein Roe account, including Stein Roe IRAs. We're available seven days a
week, from 7 a.m. to 8 p.m. weekdays and from 8 a.m. to 5 p.m. Saturday and
Sunday (central time).
Stein Roe's Funds-on-Call(R)
24-Hour Service Line
Using a touch-tone phone, call our toll-free number, day or night, for your
current account balance, the latest Stein Roe Fund prices and yields and other
information. In addition, if you have a Personal Identification Number (PIN),
you may place orders for the following transactions 24 hours a day:
o Exchange shares between your
Stein Roe accounts;
o Purchase Fund shares by electronic transfer;
o Order additional account
statements and money market
fund checks;
o Redeem shares by check, wire or electronic transfer.
Retirement Plan Accounts
Call us for information about how we can assist you with your defined
contribution plan, including 401(k) plans. You can reach us toll free at
800-322-1130.
For information on IRA plans, call us toll free at 800-338-2550.
By Mail or E-Mail
If you prefer to contact us by mail, please address all correspondence
to: P.O. Box 8900, Boston,
MA 02205-8900.
To contact us by e-mail, send correspondence directly to comments
@steinroe.com or visit us at www.steinroe.com on the Internet.
In Person
If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive, 32nd Floor. Our account
representatives can answer questions about your current Fund investments or
provide you infor mation about any of the Stein Roe Funds and retirement
plans. Stop by weekdays between 8 a.m. and 5:15 p.m.
This report must be preceded or accompanied by a prospectus.
<PAGE>
Stein Roe Income Trust
- ------------------------------------------------------------------------------
Trustees
Timothy K. Armour
President, Mutual Fund Division and
Director, Stein Roe & Farnham Incorporated
Kenneth L. Block
Chairman Emeritus, A.T. Kearney, Inc.
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial Officer,
United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General Counsel,
Sara Lee Corporation
Francis W. Morley
Chairman, Employer Plan Administrators
and Consultants Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair
Capital Partners
Officers
Timothy K. Armour, President
Jilaine H. Bauer, Executive Vice President,
Secretary
Thomas W. Butch, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Ann H. Benjamin, Vice President
Philip J. Crosley, Vice President
Michael T. Kennedy, Vice President
Lynn C. Maddox, Vice President
Anne E. Marcel, Vice President
Jane M. Naeseth, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Cynthia A. Prah, Vice President
Thomas P. Sorbo, Vice President
Heidi J. Walter, Vice President
Stacy H. Winick, Vice President
Sharon R. Robertson, Controller
Margaret O. Zwick, Treasurer
Janet B. Rysz, Assistant Secretary
Agents and Advisers
Stein Roe & Farnham Incorporated
Investment Adviser
State Street Bank and Trust Company
Custodian
SteinRoe Services Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Trust
Ernst & Young LLP
Independent Auditors
<PAGE>
THE STEIN ROE MUTUAL FUNDS
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call: 1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd Floor.
Liberty Securities Corporation, Distributor
Member SIPC
MM12A
