STEIN ROE MUTUAL FUNDS
Photo of: abacus
ANNUAL REPORT
JUNE 30, 1998
STEIN ROE MONEY MARKET FUND
CASH RESERVES FUND
LOGO: STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(SM)
<PAGE>
Contents
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From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Q&A
Interview with the portfolio manager and
a summary of investment activity
Cash Reserves Fund............................................. 3
Portfolio of Investments.......................................... 6
A complete list of investments with market values
Financial Statements.............................................. 8
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 14
Financial Highlights.............................................. 17
Selected per-share data
Report of Independent Auditors.................................... 18
General Information............................................... 19
A guide to products and services
Must be preceded or accompanied by a prospectus.
<PAGE>
Photo of : Thomas W. Butch
From the President
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TO OUR SHAREHOLDERS
We are pleased to present this annual report for the Stein Roe Cash Reserves
Fund. In the following pages, we'll provide you with an overview of economic
events that occurred over the past fiscal year and explain how we positioned the
Fund in relation to those events.
ECONOMY REMAINS FAVORABLE TO BONDS
Many bond market observers have described the past year's economy as a
"Goldilocks" economy. And it's no wonder. Declining interest rates, low
inflation and a shrinking budget deficit have produced a favorable investment
environment for bonds.
This bond-friendly landscape has played a key role in the success of nearly
all types of bonds. The yield of the benchmark 30-year Treasury bond on June 30,
1998, fell to 5.62 percent -- a 30-year low -- compared with 6.78 percent one
year ago. In the past, bond funds have experienced their heaviest net inflows
during periods of falling interest rates, and 1997 proved no exception with net
inflow of $44.5 billion,* the highest rate since 1993. Through June of this
year, net inflows were $40 billion.*
ASIA: A MIXED BLESSING
The well-chronicled problems of many Asian economies were a major factor in
shaping investor psychology over the past year. For the bond market, concerns
about these struggling economies had two distinct and divergent effects.
First, Asia's woes caused investors both here and abroad to invest heavily in
U.S. Treasury bonds. This "flight to quality," or search for a relatively safer
investment, boosted prices as yields fell to 30-year lows. (Yields move in the
opposite direction of prices.) In addition, Asian uncertainty kept inflation at
bay, which has helped to sustain a generally positive domestic economic
environment.
Second, while Treasury securities rallied, corporate and high yield bonds
suffered somewhat over perceptions of Asia's possible impact on the earnings
potential of some companies that trade with that region. Concurrently,
oversupply in both of these markets has caused yield spreads to widen. As a
result, it was difficult for corporate and high yield bonds to keep pace with
Treasury securities. So it was no surprise that bond funds that emphasized
Treasury securities over this period delivered better relative performance than
funds with a higher concentration of corporate bonds or high yield bonds.
<PAGE>
Although many markets experienced volatility this fiscal year, moderate
economic growth and low inflation kept interest rates in check, providing for a
stable money market throughout the year.
THE ROAD AHEAD
For the foreseeable future, we believe that Asian turmoil could help keep
inflation muted and interest rates stable. Although the U.S. economy has been
remarkably strong, so far Federal Reserve Chairman Alan Greenspan has been
reluctant to raise rates. This is in part due to the drag the Asian crisis has
had on the U.S. economy. However, worries that a tighter labor market may
ignite inflation seem to be a significant concern and likely will remain a
focal point for evaluating the future direction of interest rates.
While there appears to be near-term uncertainty created largely by Asia, the
general U.S. economy appears to be in very good condition. Inflation is tame,
the economy continues to expand, and consumer confidence remains strong. All of
these factors could provide ongoing bond market support in the coming quarters.
THE BASICS
No one can predict what might happen to the markets in the future. But no matter
what direction you think the economy is heading, it's important to remember the
basics. 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 volatility. 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.
Sincerely,
Thomas W. Butch
President
July 31, 1998
*Bond fund net inflows are from the Investment Company Institute monthly and
annual statistical releases.
<PAGE>
Q&A
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AN INTERVIEW WITH JANE NAESETH, PORTFOLIO MANAGER OF STEIN ROE
CASH RESERVES FUND
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:
Oct. 2, 1976
TOTAL NET ASSETS:
$494.0 million
photo of : Jane Naeseth
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
A: The Fund's total return was 5.09 percent for the fiscal year ended June 30,
1998. The Fund's performance exceeded that of its Lipper peer group median but
fell below that of the 90-day Treasury Bill Index, which re turned 5.07 percent
and 5.16 percent, respectively, for the same time period.
Q: WHAT TRANSPIRED DURING THE YEAR?
A: It was a quiet year for money market trading because interest rates remained
static. At the time of this writing, short-term interest rates were at 5.50
percent and the long bond yield was at 5.60 percent, which gives an example of
how narrow the spread has been on the money market yield curve.
Q: WHY HAS THE FUND'S AVERAGE MATURITY DECREASED OVER THE YEAR FROM 44 DAYS ON
JUNE 30, 1997, TO 23 DAYS ON JUNE 30, 1998?
A: Although interest rates remained stable, we believed that, under normal
circumstances, some of the economic events of the past year should have caused
the Federal Reserve to increase interest rates. However, fears about the
continuing effects of the Asian crisis coupled with controlled inflation kept
the Federal Reserve from increasing rates throughout the year. While we remained
cautious, we thought fears about Asia would subside and that there would be a
rate increase, so we shortened our duration to match our cautious outlook.
Q: HOW DID YOU POSITION THE FUND WITHIN SECTORS DURING THE PERIOD?
A: We've been moving into domestic commercial paper throughout the year, as
reflected in the Portfolio's holdings. We've reduced our position in Yankee CDs,
believing it was in our best interest to limit foreign exposure. During the
first quarter of the fiscal year, our holdings in federal agency securities
matured. Although we would have liked to maintain exposure to that sector, we
found it was too expensive to make attractive new purchases. Since the beginning
of the fiscal year we believed that floaters looked attractive, but we had a
hard time finding any of these variable rate corporate notes to buy because, in
our opinion, they were also too expensive.
<PAGE>
Q: ALTHOUGH A FLAT YIELD CURVE RESTRICTS SOME VALUE TRADING, ISN'T STABILITY
GOOD FOR A MONEY MARKET FUND?
A: Yes. In circumstances such as we've seen this year, where both the stock and
bond markets are high and both markets are volatile, many investors shift assets
into money market funds for stability. Investors also use money market funds as
the cash basis of their investment portfolio. While money market funds have not
returned resounding rates, given the current interest rate environment, they
have provided decent returns for short-term, high-liquidity investing.
Q: WHAT'S YOUR INVESTMENT STRATEGY FOR THE REMAINDER OF 1998?
A: Part of our strategy will depend on what the Federal Reserve does with
interest rates. Until investors begin to believe that there will be a change in
interest rates, we expect yields to remain flat. Factors that may push rates up
include a recovery in Asia, increased inflation in the United States or
stronger-than-expected economic growth.
We plan to maintain a cautious duration and maturity range in the Fund until
we see changes in the economy that would allow for better relative value
positioning. Without finding value in the Japanese market, we're likely to
remain in U.S. commercial paper. We anticipate that letters of credit and Yankee
CDs -- foreign exposure bonds -- will remain unattractive for the next six
months.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. Holdings are disclosed as a percentage of SR&F
Cash Reserves Portfolio's net assets. 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 ended June 30, 1998, were 5.07
percent, 4.58 percent and 5.36 percent, respectively.
<PAGE>
Fund Highlights
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Cash Reserves Portfolio
SECURITIES TYPE BREAKDOWN
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PORTFOLIO PORTFOLIO
JUNE 30, 1998 JUNE 30, 1997
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Commercial Paper 89.9% 62.7%
Letter of Credit Commercial Paper 3.9 --
Yankee Certificates of Deposit 3.2 22.0
Corporate Notes 3.0 14.2
Federal Agencies -- 1.1
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Total 100.0% 100.0%
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MATURITY
PIE CHART:
As of June 30, 1998 As of June 30, 1997
GREATER THAN 59 DAYS 7.7% 15.3%
30-59 DAYS 11.0% 4.5%
15-29 DAYS 27.6% 29.0%
5-14 DAYS 32.3% 33.3%
0-4 DAYS 21.4% 17.9%
<PAGE>
SR&F Cash Reserves Portfolio
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Portfolio of Investments at June 30, 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
INTEREST MATURITY PRINCIPAL AMORTIZED
COMMERCIAL PAPER (93.2%) RATE RANGE(a) DATE RANGE AMOUNT COST
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHEMICALS - PLASTICS (3.9%)
Formosa Plastic (LOC ABN AMRO). 5.740% 8/25/98 $27,000 $ 26,771
CONSULTING SERVICES (3.9%)
CSC Enterprises (gtd. by Computer
Sciences)................... 5.701-5.719 7/9-7/21/98 26,900 26,839
ELECTRONICS (4.3%)
General Signal (b)............. 5.666-5.733 7/7-7/27/98 29,900 29,822
FINANCIAL SERVICES (67.5%)
BANKS (4.1%)
NBD Bank Canada............. 5.678 7/2/98 28,000 27,996
BUSINESS CREDIT INSTITUTIONS (16.7%)
Avon Capital (gtd. by Avon
Products) (b)............ 5.674-6.116 7/6-7/8/98 31,200 31,169
BAT Capital (gtd. by BAT
Industries).............. 5.757 7/1/98 30,000 30,000
Finova Capital.............. 5.611-5.683 7/7-7/9/98 30,880 30,850
Harley-Davidson Funding (gtd. by
Eaglemark Financial
Services) (b)............ 5.683 7/17/98 7,400 7,382
USAA Capital................ 5.690 7/29/98 15,000 14,935
-------
114,336
DIVERSIFIED FINANCIAL SERVICES (6.2%)
Associates Corp. of North America 6.339 7/1/98 12,992 12,992
Lehman Brothers Holdings.... 6.593 7/1/98 30,000 30,000
-------
42,992
MORTGAGE BANKING (4.1%)
Countrywide Home Loans (gtd. by
Countrywide Credit Industries) 5.760 8/27/98 28,650 28,398
OTHER FINANCIAL (36.4%)
Asset Securitization (b).... 5.652-5.666 7/6-7/22/98 32,000 31,946
Corporate Asset Funding (b). 5.650 7/2/98 15,000 14,998
CXC (b)..................... 5.673 7/24/98 25,000 24,912
International Securitization (b) 5.646 7/1/98 30,000 30,000
Old Line Funding (b)........ 5.709 7/23/98 32,000 31,891
Preferred Receivables Funding (b) 5.699 7/21/98 30,000 29,907
Receivables Capital (b)..... 5.668 7/10/98 25,735 25,699
Thames Asset Global
Securitization No. 1 (b). 5.760-5.783 9/2-9/8/98 30,800 30,485
Windmill Funding (b)........ 5.688 7/7/98 30,000 29,972
-------
249,810
-------
TOTAL FINANCIAL SERVICES.... 463,532
<PAGE>
<CAPTION>
SR&F Cash Reserves Portfolio CONTINUED
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INTEREST MATURITY PRINCIPAL AMORTIZED
RATE RANGE(a) DATE RANGE AMOUNT COST
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<S> <C> <C> <C> <C>
MEDICAL PRODUCTS (4.7%)
Baxter International........... 5.676 7/8/98 25,000 24,973
Baxter International (b)....... 5.719 7/29/98 7,000 6,970
-------
31,943
RETAIL - COSMETICS (4.2%)
Cosmair (gtd. by L'Oreal) (b).. 5.711-5.718 7/28/98 29,000 28,879
TELECOMMUNICATIONS (4.7%)
GTE ......................... 5.675-5.752 7/7-7/8/98 32,000 31,966
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TOTAL COMMERCIAL PAPER......... 639,752
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VARIABLE RATE NOTE (2.9%)
DIVERSIFIED FINANCIAL SERVICES (2.9%)
Morgan Stanley Dean Witter..... 5.859 11/16/98 20,000 20,000
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YANKEE CERTIFICATE OF DEPOSIT (3.2%)
BANKS (3.2%)
Canadian Imperial Bank......... 5.650 2/4/99 22,000 22,000
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TOTAL INVESTMENTS (99.3%) (C).. 681,752
OTHER ASSETS, LESS LIABILITIES (0.7%) 4,525
-------
TOTAL NET ASSETS (100.0%)...... $686,277
========
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NOTES TO PORTFOLIO OF INVESTMENTS
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(a)The interest rate is the effective rate at the date of purchase except for
variable rate notes, for which the interest rate represents the current rate
as of the most recent reset date.
(b)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 for public distribution. Any resale by the Fund must be in an exempt
transaction, normally to other institutional investors. At June 30, 1998, the
aggregate value of the Fund's private placement securities was $354,032,
which represented 51.6 percent of net assets. None of these securities were
deemed illiquid.
(c)At June 30, 1998, the cost of investments for financial reporting and income
tax purposes was identical.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
Cash Reserves Fund
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Statement of Assets and Liabilities
June 30, 1998
(All amounts in thousands, except per-share amount)
ASSETS
Investment in SR&F Cash Reserves Portfolio, at value.............. $482,615
Receivable for fund shares sold................................... 13,806
Cash.............................................................. 50
Other assets...................................................... 76
--------
Total assets................................................... 496,547
--------
LIABILITIES
Payable for fund shares redeemed.................................. 1,606
Dividends payable................................................. 504
Payable to investment adviser and transfer agent.................. 170
Other liabilities................................................. 313
--------
Total liabilities.............................................. 2,593
--------
Net assets..................................................... $493,954
========
ANALYSIS OF NET ASSETS
Paid-in capital................................................... $493,818
Accumulated net realized gains on investments..................... 136
--------
Net assets..................................................... $493,954
========
Shares outstanding (unlimited number authorized).................. 493,871
========
Net asset value per share......................................... $ 1.00
========
See accompanying Notes to Financial Statements.
<PAGE>
Cash Reserves Fund
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Statement of Operations
For the Year Ended June 30, 1998
(All amounts in thousands)
INVESTMENT INCOME
Interest......................................................... $18,806
Interest allocated from SR&F Cash Reserves Portfolio............. 9,105
-------
Total investment income....................................... 27,911
-------
EXPENSES
Administrative fees.............................................. 1,217
Management fees.................................................. 821
Transfer agent fees.............................................. 731
Expenses allocated from SR&F Cash Reserves Portfolio............. 408
Printing and postage............................................. 159
SEC and state registration fees.................................. 52
Accounting fees.................................................. 36
Trustees fees.................................................... 24
Audit and legal fees............................................. 14
Other............................................................ 185
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Total expenses................................................ 3,647
-------
Net investment income......................................... 24,264
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $24,264
=======
See accompanying Notes to Financial Statements.
<PAGE>
Cash Reserves Fund
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Statements of Changes in Net Assets
For the Years Ended June 30, 1998 and 1997
(All amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
OPERATIONS
Net investment income ................................... $ 24,264 $ 23,115
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ................ (24,264) (23,115)
--------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares ............................ 914,335 846,211
Value of distributions reinvested ....................... 21,185 19,881
Redemptions of fund shares .............................. (893,924) (890,574)
--------- ---------
Net increase (decrease) from share transactions ...... 41,596 (24,482)
--------- ---------
Net increase (decrease) in net assets ................ 41,596 (24,482)
TOTAL NET ASSETS
Beginning of period ..................................... 452,358 476,840
--------- ---------
End of period ........................................... $ 493,954 $ 452,358
========= =========
ANALYSES OF CHANGES IN SHARES OF
BENEFICIAL INTEREST
Subscriptions to fund shares ............................ 914,335 846,211
Issued in reinvestment of distributions ................. 21,185 19,881
Redemptions of fund shares .............................. (893,924) (890,574)
--------- ---------
Net increase (decrease) in fund shares ............... 41,596 (24,482)
Shares outstanding at beginning of period ............... 452,275 476,757
--------- ---------
Shares outstanding at end of period ..................... 493,871 452,275
========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
SR&F Cash Reserves Portfolio
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Statement of Assets and Liabilities
June 30, 1998
(All amounts in thousands)
ASSETS
Investments, at amortized cost.................................... $681,752
Cash.............................................................. 4,020
Interest receivable............................................... 660
Other assets...................................................... 5
--------
Total assets................................................... 686,437
--------
LIABILITIES
Payable to investment adviser..................................... 147
Other liabilities................................................. 13
--------
Total liabilities.............................................. 160
--------
Net assets applicable to investors' beneficial interest........ $686,277
========
See accompanying Notes to Financial Statements.
<PAGE>
SR&F Cash Reserves Portfolio
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Statement of Operations
For the Period Ended June 30, 1998 (a)
(All amounts in thousands)
INVESTMENT INCOME
Interest......................................................... $12,715
-------
EXPENSES
Management fees.................................................. 543
Accounting fees.................................................. 13
Other............................................................ 14
-------
Total expenses................................................ 570
-------
Net investment income......................................... 12,145
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $12,145
=======
(a) From commencement of operations on March 2, 1998.
See accompanying Notes to Financial Statements.
<PAGE>
SR&F Cash Reserves Portfolio
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Statement of Changes in Net Assets
For the Period Ended June 30, 1998 (a)
(All amounts in thousands)
OPERATIONS
Net investment income............................................ $ 12,145
---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions.................................................... 1,158,202
Withdrawals...................................................... (484,070)
---------
Net increase from transactions in investors' beneficial interest 674,132
---------
Net increase in net assets.................................... 686,277
TOTAL NET ASSETS
Beginning of period.............................................. --
---------
End of period.................................................... $ 686,277
=========
(a) From commencement of operations on March 2, 1998.
See accompanying Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
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(All amounts, except per-share amounts, in thousands)
NOTE 1. ORGANIZATION
Stein Roe Cash Reserves Fund (the "Fund") is a series of Stein Roe Income Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The Fund invests substantially all of its assets
in SR&F Cash Reserves Portfolio (the "Portfolio"), which seeks maximum income
consistent with capital preservation and maintenance of liquidity.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on March 2, 1998. At commencement,
Stein Roe Cash Reserves Fund and Colonial Money Market Fund (formerly Colonial
Government Money Market Fund) contributed $493,224 and $187,537, respectively,
in securities and other assets in exchange for beneficial ownership of the
Portfolio. The Portfolio allocates income, expenses and realized gains and
losses to each investor on a daily basis, based on their respective percentage
of ownership. At June 30, 1998, Stein Roe Cash Reserves Fund and Colonial Money
Market Fund owned 70.3 percent and 29.7 percent, 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 accom panying notes.
Actual results could differ from those estimates.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Interest income,
including discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
The Portfolio is permitted to invest in repurchase agreements involving
securities issued or guaranteed by the U.S. Government or by its agencies or
instrumen talities. The Portfolio requires issuers of repurchase agreements to
transfer the securities underlying those agreements to the Portfolio's custodian
at the time of origination.
<PAGE>
INVESTMENT VALUATIONS
The Portfolio utilizes the amortized cost method to value its investments. This
technique approximates market value and involves valuing a security initially at
cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium. In the event that a deviation of .50 of 1 percent or more
exists between the 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 are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
The Fund attempts to maintain a per-share net asset value of $1.00, which
management believes will be possible under most conditions.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elects to be
taxed as a "regulated investment company" and makes 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 their respective percentages of ownership.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly.
NOTE 3. PORTFOLIO COMPOSITION
Under normal market conditions, the Portfolio 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, consumer and business credit
institutions, and other financial services companies). At June 30, 1998, 67.5
percent of the Portfolio's net assets were invested in the financial services
industry.
See the portfolio of investments for additional information regarding
portfolio composition.
NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee to Stein Roe & Farnham Incorporated (the "Adviser"), an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for its
services as investment adviser and manager.
<PAGE>
The management fee for the Portfolio is computed at an annual rate of .25 of
1 percent of the first $500 million of average daily net assets, and .225 of 1
percent thereafter. Prior to March 2, 1998, the management fee for the Fund was
computed at an annual rate of .25 of 1 percent of average daily net assets. The
administrative fee for the Fund is computed at an annual rate of .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 thereafter.
The Adviser also provides certain fund accounting services. For the period
ended June 30, 1998, the Fund and Portfolio incurred fees of $36 and $13,
respectively.
Transfer agent fees are paid to SteinRoe Services Inc. (SSI), an indirect,
majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has entered
into an agreement with Colonial Investors Service Center, Inc., also an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, to act
as subtransfer agent for the Fund.
Certain officers and trustees of the Trust are also officers of the Adviser.
The compensation of trustees not affiliated with the Adviser for the Fund and
Portfolio for the period ended June 30, 1998, was $24 and $7, respectively. No
remuneration was paid to any other trustee or officer of the Trust.
<PAGE>
<TABLE>
Financial Highlights
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Cash Reserves Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income.......... 0.050 0.048 0.050 0.048 0.028
Distributions from net investment
income....................... (0.050) (0.048) (0.050) (0.048) (0.028)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Ratio of expenses to average
net assets 0.75% 0.77% 0.78% 0.76% 0.79%
Ratio of net investment income
to average
net assets..................... 4.98% 4.80% 4.98% 4.83% 2.77%
Total return...................... 5.09% 4.92% 5.07% 4.96% 2.81%
Net assets, end of period (000's). $493,954 $452,358 $476,840 $498,163 $554,713
<PAGE>
<CAPTION>
SR&F Cash Reserves Portfolio
PERIOD
ENDED
JUNE 30,
RATIOS TO AVERAGE NET ASSETS 1998 (a)
---------
<S> <C>
Ratio of net expenses to average net assets........................ 0.26%(b)
Ratio of net investment income to average net assets............... 5.45%(b)
(a)From commencement of operations on March 2, 1998.
(b)Annualized
</TABLE>
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of Stein Roe Income Trust
and SR&F Base Trust
Stein Roe Cash Reserves Fund
SR&F Cash Reserves Portfolio
We have audited the accompanying statement of assets and liabilities of Stein
Roe Cash Reserves Fund as of June 30, 1998, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods in the five years then ended. We have also audited the
accompanying statement of assets and liabilities of SR&F Cash Reserves
Portfolio, including the portfolio of investments, as of June 30, 1998, and the
related statement of operations, statement of changes in net assets, and
financial highlights for the period from March 2, 1998, to June 30, 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Stein
Roe Cash Reserves Fund and SR&F Cash Reserves Portfolio at June 30, 1998, the
results of their operations, the changes in their net assets and the financial
highlights for the periods referred to above, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
August 7, 1998
<PAGE>
To Contact Us. . .
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BY PHONE 800-338-2550
You can discuss your investment questions with a Stein Roe account
representative by calling us toll free. We'll be happy to answer questions about
your current account, or to provide you with information about opening a Stein
Roe account, including Stein Roe Traditional, Education and Roth IRAs. We're
available seven days a week, from 7 a.m. to 8 p.m. weekdays and from 9 a.m. to
2 p.m. Saturday and Sunday (Central time).
STEIN ROE'S FUNDS-ON-CALL 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 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 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, including the new Roth and Education IRA, call
us toll free at 800-338-2550.
BY MAIL OR E-MAIL
If you prefer to contact us by mail, please address all correspondence to:
P.O. Box 8900, Boston, MA 02205-8900.
To contact us by e-mail, send correspondence directly to
[email protected] or visit us at www.steinroe.com on the Internet.
IN PERSON
If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive, 32nd Floor. Our account
representatives can answer questions about your current Stein Roe 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>
Income Trust
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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
Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
OFFICERS
Thomas W. Butch, President
William D. Andrews, Executive Vice President
Loren A. Hanson, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Kevin M. Carome, Vice President,
Assistant Secretary
Michael T. Kennedy, Vice President
Stephen F. Lockman, Vice President
Lynn C. Maddox, Vice President
Jane M. Naeseth, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Heidi J. Walter, Vice President, Secretary
Janet B. Rysz, Assistant Secretary
Sharon R. Robertson, Controller
Scott E. Volk, Treasurer
Margaret O. Zwick, Assistant Treasurer
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 Cash Reserves 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 Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Growth Opportunities Fund
Stein Roe Special Fund
Stein Roe Large Company Focus 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, MA 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call: 1-800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd Floor.
Liberty Funds Distributor, Inc., Distributor
MM11A 8/98
