Stein Roe Bond Funds
Semiannual Report
Dec. 31, 1998
Photo of: various bonds
Stein Roe Fixed Income Funds
Taxable Bond Funds
Intermediate Bond Fund
Income Fund
High Yield Fund
LOGO: Stein Roe Mutual Funds
Sensible Risks. Intelligent Investments.(sm)
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Stein Roe Fixed Income Funds
Taxable Bond Funds
Intermediate Bond Fund
Income Fund
High Yield Fund
Contents
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From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Fund Performance.................................................. 3
How the Stein Roe bond funds have done over time
Questions &Answers
Interviews with the portfolio managers and a summary
of investment activity over the past six months
Intermediate Bond Fund......................................... 6
Income Fund.................................................... 9
High Yield Fund................................................ 11
Portfolios of Investments......................................... 16
A complete list of investments with market values
Financial Statements.............................................. 30
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 40
Financial Highlights.............................................. 45
Selected per-share data
General Information............................................... 51
A guide to Stein Roe services
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From the President
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Photo of: Thomas W. Butch
To Our Shareholders
The second half of calendar year 1998 was a challenging period for corporate
bonds, the predominant securities in each of Stein Roe's three taxable bond
funds -- Stein Roe Intermediate Bond Fund, Stein Roe Income Fund, and Stein Roe
High Yield Fund.
Since my last report to you, taxable fixed-income securities have provided
mixed results. High yield bonds faced high levels of price volatility.
Preserving capital has been difficult, especially for bonds tied to overseas
businesses.
The returns of Stein Roe's three taxable bond funds for the six-month and
longer-term periods ended Dec. 31, 1998, are shown on page 3.
On the pages that follow, each Fund's portfolio manager presents an overview
of events since June that affected the corporate and Treasury bond markets. They
also explain how they have positioned each Fund for the balance of fiscal 1999.
Credit, Refinancing Concerns Rose
For high yield, higher-risk bonds which make up most of Stein Roe High Yield
Fund and also are included in the portfolios of Stein Roe Income Fund and Stein
Roe Intermediate Bond Fund, this past summer was an unusually difficult time.
August was the worst month for high yield bond performance in 12 years, as
measured by the unmanaged Merrill Lynch High-Yield Master II Index. Prices of
lower-rated bonds declined sharply amid concerns about the effects of global
recession and political instability on corporate profits. Investment-grade
corporate bonds were also weak.
The picture for Treasury bonds was considerably brighter. This past autumn
the Federal Reserve Board reduced short-term interest rates by 0.75% to 4.75% to
maintain domestic economic growth in the wake of continued turmoil in Japan and
emerging markets such as Brazil. This easing of short-term rates led to declines
in long-term interest rates, and higher Treasury bond prices. Thirty-year U.S.
Treasury bond yields, which move in the opposite direction of price, reached a
low of 4.71% on October 5 and ended calendar 1998 at 5.09%. Investors flocked to
the safety of U.S. government debt as global credit concerns mounted and equity
markets weakened.
While high-quality corporate bonds performed better than high yield corporate
bonds, the difference in yield, or "spreads", between higher-rated corporate
bonds and Treasuries, grew to the widest level in 10 years.* Spreads between
Treasuries and mortgage-backed securities rose to their widest level since 1986*
as investors worried that many homeowners would take advantage of lower interest
rates to refinance their mortgages.
*Source: Bloomberg Business News.
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(This phenomenon, known as prepayment risk, can negatively affect the
performance of mortgage securities.)
Investor demand for investment-grade bonds rebounded toward the end of the
year as the U.S. stock market recovered from a 19.5% summer correction.
A Positive Economic Climate
The widening of yields between high-quality and higher-risk securities may
create the opportunity for renewed investor interest in higher- risk corporate
bonds and mortgage-backed securities. Continued sales and cash flow growth has
helped many companies meet their obligations and maintain their credit ratings.
Consumer inflation is negligible. Current high yield bond default rates (about
3%) are still well below their historical averages, according to Merrill Lynch.
As of Dec. 31, 1998, the difference in yield between investment-grade
corporate debt and 10-year Treasuries was about 1.6 percentage points,
two-thirds greater than a year earlier.** For lower-rated, higher-risk bonds,
the potential income advantage was as much as 6 percentage points, double a year
earlier.** This extra income can compensate investors for the additional credit
risks associated with high yield corporate debt. Corporate Bonds and Your
Portfolio Since America's economy appears healthy, we believe a corporate bond
fund currently can offer investors three distinct advantages:
o Higher income potential than comparable maturity U.S. government
securities; and
o A diversification opportunity for investors whose asset mix may have
substantially shifted toward equities in recent years; and,
o Greater diversification than owning individual corporate bonds.
We urge you to review the role your bond fund plays in your portfolio and, if
appropriate, consider increasing your financial commitment to this asset class.
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 corporate securities may reward patient mutual fund
shareholders.
On behalf of Stein Roe, I want to personally thank you for your continued
confidence in our organization, which this year marks its 50th anniversary of
serving mutual fund investors.
Sincerely,
Thomas W. Butch
President
January 11, 1999
**Source: Merrill Lynch & Co., Inc.
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Fund Performance
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Among the ways to evaluate a fund's historical performance is to look at the
cumulative return percentage, the average annual total return percentage or the
growth of a hypothetical $10,000 investment. Below we compare the returns of
each of the Stein Roe bond funds with each fund's unmanaged benchmark and its
peer group.
Each performance figure includes changes in a fund's share price,
reinvestment of dividends (net investment income) and capital gains, if any (the
taxable profits a fund earns when it sells bonds that have grown in value).
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Cumulative Six-Month and Average Annual Total Returns
Periods Ended December 31, 1998
6 MONTHS 1 YEAR 5 YEARS 10 YEARS
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Stein Roe Intermediate Bond Fund 2.32% 6.42% 6.72% 8.49%
Lehman Bothers Intermediate
Government/Corporate Bond Index 4.80% 8.44% 6.60% 8.52%
Lipper Investment Grade
Debt Fund Average 3.52% 7.21% 6.35% 8.28%
Number of Funds in Peer Group 249 234 165 25
Stein Roe Income Fund 0.61% 4.00% 6.59% 8.53%
Lehman Bothers Intermediate
Corporate Bond Index 4.42% 8.29% 7.16% 9.19%
Lipper Corporate BBB Rated
Debt Fund Average 2.52% 6.25% 6.98% 9.16%
Number of Funds in Peer Group 123 99 39 19
LIFE
6 MONTHS 1 YEAR OF FUND
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Stein Roe High Yield Fund -2.11% 4.32% 10.50%
Merrill Lynch High-Yield Master II Index -1.55% 3.66% 8.87%
Lipper High Current Yield Fund Average -4.73% -0.44% 6.77%
Number of Funds in Peer Group 286 246 171
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Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. An
expense limitation of 1.00% is currently in effect for High Yield Fund, which
began operating on Nov. 1, 1996. Returns would have been lower without the
limitation. Total return includes changes in share price and reinvestment of
income and capital gains distributions. Each index shown above is an unmanaged
group of fixed-income securities that differs from the composition of each Stein
Roe fund; they are not available for direct investment. Source of Lipper data:
Lipper, Inc., a monitor of mutual fund performance.
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Investment Comparisons
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Comparison of change in value of a $10,000 investment for the years ended
Dec. 31.
Intermediate Bond Fund
Line Chart:
Intermediate Bond Fund Lehman Brothers Intermediate/
Corporate Bond Index
10000 10000
12/31/89 11260 11022
12/31/90 12058 11884
12/31/91 13879 13134
12/31/92 14946 14864
12/31/93 16317 16423
12/31/94 15901 16382
12/31/95 18579 18081
12/31/96 19418 18987
12/31/97 21222 20357
12/31/98 22586 22096
Income Fund
Line Chart:
Income Fund Lehman Brothers Intermediate
Corporate Bond Index
10000 10000
12/31/89 11097 11069
12/31/90 11375 11976
12/31/91 12437 13228
12/31/92 14332 15134
12/31/93 16431 16989
12/31/94 16318 16893
12/31/95 18405 19070
12/31/96 19461 20088
12/31/97 21464 21721
12/31/98 22664 23687
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Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. These graphs compare the performance of the
Stein Roe funds to the Lehman Brothers Intermediate Government/Corporate Bond
Index and the Lehman Brothers Intermediate Corporate Bond Index, each an
unmanaged group of fixed income securities that differs from the composition of
each Stein Roe fund; they are not available for direct investment. Each
illustration assumes a $10,000 investment on Dec. 31, 1988.
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Investment Comparisons
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Comparison of change in value of a $10,000 investment since inception.
High Yield Fund
Line Chart:
High Yield Fund Merrill Lynch High Yield
Master II Index
10000 10000
12/31/96 10271 10077
3/31/97 10423 10160
6/30/97 11088 10642
9/30/97 11656 11059
12/31/97 11899 11344
3/31/98 12649 11660
6/30/98 12683 11854
9/30/98 11874 11430
12/31/98 12413 11785
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Intermediate Bond Fund
Marking 20 Years of Attractive Income Potential
Annual Income from a $100,000 Investment
Years ended Dec. 31, 1979 through Dec. 31, 1998
Intermediate Bond Fund
Total Income = $457,435
Bar Chart:
12/79 9684
12/80 11409
12/81 14157
12/82 15552
12/83 15563
12/84 14736
12/85 17994
12/86 18882
12/87 22512
12/88 21191
12/89 23887
12/90 25834
12/91 26467
12/92 28742
12/93 26730
12/94 26816
12/95 30728
12/96 33982
12/97 34965
12/98 37595
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 and income performance includes changes in share price and
reinvestment of income and capital gains distributions. The Merrill Lynch High
Yield Master II Index is an unmanaged group of high yield bonds that differs
from the composition of the Fund; it is not available for direct investment. The
Intermediate Bond Fund illustration shows the amount of distributions for each
12-month period ended Dec. 31. It assumes an initial investment of $100,000 on
Dec. 5, 1978, and continuous reinvestment of dividends and capital gains.
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Questions & Answers
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An Interview with Mike Kennedy, Portfolio Manager of Stein Roe Intermediate Bond
Fund and SR&F Intermediate Bond Portfolio
Photo of: Mike Kennedy
Fund Data
Investment Objective:
Seeks high current income consistent with capital preservation by investing
primarily in a diversified portfolio of marketable debt securities. The
dollar-weighted average life of its portfolio is expected to be between three
and 10 years.
Fund Inception:
Dec. 5, 1978
Total Net Assets:
$455.5 million
Q: How did the Fund perform for the first half of fiscal 1999?
A: Intermediate Bond Fund returned 2.32% for the six-month period ended
Dec. 31, 1998. The Fund underperformed the 3.52% average return of funds in the
Lipper investment grade debt fund category. At Dec. 31, 1998, the Fund's 30-day
SEC yield was 6.18%.
Q: How did corporate bonds behave between June and December compared to other
types of fixed-income investments?
A: This past summer was difficult for corporate bonds. Global financial
problems, including Russia's default on its debt and sluggish earnings in some
sectors, caused investors to avoid anything but high quality Treasury bonds. The
corporate bond market became less liquid and corporate bond prices declined
sharply, especially for medium-grade securities.
The difference in performance of Treasury bonds and corporate bonds was the
most significant we've seen in years. For example, a 10-year Ford Motor Company
bond under-performed U.S. Treasury bonds by between two and three percentage
points in the third quarter of calendar year 1998, a large difference
considering that the auto maker has an A credit rating from Standard & Poor's.
This past October the trend reversed. Prices of the higher quality corporate
bonds bounced back as the Federal Reserve's decision to reduce interest rates by
75 basis points (0.75%) generated renewed investor confidence in the U.S.
economy. Lower-quality, non-investment grade bonds still lagged. The Fund's
strong positioning in corporate bonds helped it perform well between October and
December.
Q: How have you adjusted the portfolio's allocation among corporate, mortgage
and Treasury bonds since June?
A: Compared with the Fund's peers and its benchmark, we maintained an overweight
position in corporate bonds and an underweight position in Treasuries between
June and December. Although this hurt the Fund's results when Treasury prices
surged this past summer in the wake of a global stock market correction, our
positioning enhanced both income and total return as investor demand for
corporate bonds increased in the fourth quarter.
Compared with June, we now have an increased weighting in mortgage
securities. Prices of commercial mortgages, which generally do not have the same
refinancing risks as residential mortgages, fell sharply when certain hedge
funds were forced to sell a large amount of bonds to raise cash to pay off
creditors. Their selling of commercial mortgage-backed securities rated AAA
created a supply/demand imbalance. The Fund capitalized on this development and
added mortgages to the portfolio at what we saw as discount prices.
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The difference in performance of Treasury bonds and corporate bonds
was the most significant we've seen in years.
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Q: Did the Fund maintain any emerging markets exposure during the period?
A: We held about 4% of the Fund's assets in emerging market debt -- balanced
between large Asian companies and Latin American structured bonds with strong
assets. An example of a Latin American structured bond is PDVSA (0.5 % of net
assets), a Venezuelan oil company. The company puts a certain amount of oil into
a Trust and when the oil is sold, the Trust pays off the bondholders. These
bonds offer investors a more reliable cash flow for debt payments than bonds
issued directly by the company. Because these bonds are secured by oil, they are
rated single-A by Standard & Poor's -- significantly higher than the corporate
rating of PDVSA. However, this past summer, with oil prices in decline and the
Venezuelan economy in recession, these bonds did not do well and negatively
affected the Fund's performance. However, we believe these types of bonds still
offer the Fund favorable income and total return potential.
Q: What's your outlook for fixed-income markets in calendar year 1999?
A: We continue to maintain a stronger-than-average position in corporate bonds
and favor mortgage bonds over Treasuries. We believe these bonds have the
potential to do well for the balance of fiscal 1999, given our outlook for
continued economic growth and stable interest rates.
Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions, if any. Portfolio holdings are disclosed as a percentage of
the SR&F Intermediate Bond Portfolio's total net assets. Portfolio holdings are
as of 12/31/98 and are subject to change. Investing in high yield bonds involves
greater credit risk than investing in higher-quality bonds.
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Fund Highlights
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SR&F Intermediate Bond Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
DEC. 31, 1998 JUNE 30, 1998
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Corporate Bonds 72.2% 69.7%
Mortgage-Backed Securities 16.8 13.3
Asset-Backed Securities 3.2 3.3
Foreign Sovereign 3.2 4.4
U.S. Treasury Securities 1.7 4.6
Cash and Equivalents 2.9 4.7
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Total 100.0% 100.0%
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Average Life
Pie Charts:
As of Dec. 31, 1998 As of June 30, 1998
Greater than 20 years 3.1% 5.6%
10-20 Years 7.5% 3.8%
5-10 Years 51.3% 50.2%
1-5 Years 35.4% 34.4%
Less than 1 Year 2.7% 6.0%
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Portfolio Quality
Pie Charts:
As of Dec. 31, 1998 As of June 30, 1998
Treasury/AAA/Agency 20.4% 23.7%
AA 12.1% 9.1%
A 28.0% 30.9%
BBB 24.7% 23.7%
BB and Below/Not Rated 14.8% 12.6%
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Questions & Answers
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An Interview with Steve Lockman, Portfolio Manager of Stein Roe Income Fund and
of SR&F Income Portfolio
Photo of: Steve Lockman
Fund Data
Investment Objective:
Seeks high current income by investing principally in medium-quality debt
securities. The Fund also may invest in higher-quality securities and, to a
lesser extent, lower-quality securities which may involve greater credit and
other risks.
Fund Inception:
March 5, 1986
Total Net Assets:
$363.0 million
Q: How did the Fund perform?
A: For the six-month period ended Dec. 31, 1998, Income Fund provided a positive
return of 0.61%. This was less than the average income fund, which returned
2.52%, according to Lipper, Inc. As of Dec. 31, 1998, the Fund's 30-day SEC
yield was 6.74%.
Q: What affected the Fund's results?
A: Compared to the Fund's peer group, we invested in shorter duration and in
lower-quality bonds, during a period in which longer duration and higher-quality
holdings provided higher returns. Our strategy is to shift the Fund's assets
into credit-quality sectors where we foresee the greatest performance potential.
We did not believe making interest rate-movement bets in longer-duration
securities was prudent. Rather, we think it is a better long-term strategy to
invest the Fund's assets in the sectors we believe will provide the greatest
income. Because of this, the Fund was invested more heavily than its peers* in
mid- and lower-quality bonds (*Source: Morningstar).
Global economic and market turmoil reduced demand for medium-quality bonds and
prices in that area faltered. This past summer investors attempted to minimize
credit risk by focusing on bonds rated AAA, the highest quality available.
Q: What happened in the high yield market?
A: During the first half of the six-month period ended Dec. 31, 1998, the high
yield market suffered from a lack of liquidity. Russia's default on its debt,
low commodity prices, a potential currency devaluation in Brazil and Asia's
recession generated fears about the ability of emerging market nations to meet
their financial obligations. In fact, this past August was the worst month of
performance for the high yield market in 12 years.
Historically, high yield bonds have performed relatively well during periods
of volatility in the U.S. equity markets.* However, this was not the case this
past summer, when the U.S. stock market dropped 19.5% and many high yield bonds
plunged by an even larger percentage. Investors sold high yield U.S. bonds out
of concern that reduced demand for goods and services from global customers
would impair U.S. corporate earnings. Institutional investors looking to sell
their bond holdings found few buyers for bonds of companies in cyclical and
commodity industries such as steel and other metals, paper and mining.
Q: What affect will the European union and the new currency have on the markets
in 1999?
A: The emergence of the Euro as the new common currency for 11 European nations
reduces currency risk for many multinational companies that issue high yield
bonds, and may generate more merger and acquisition activity in Europe. This
could also be positive for high yield bonds because as stronger companies buy
weaker ones, rating agencies may upgrade the credit ratings of certain issuers,
leading to high bond prices.
*Source: First Boston High Yield Research, based on data from 1982 to 1997.
Q: What are some of the risks of investing in Euro-denominated high yield bonds?
A: There are different liquidity measures for European bonds. Each country in
Euroland has different accounting practices and separate political systems that
are still not as free-market oriented as the U.S. Nevertheless, we think our
research can uncover potentially rewarding opportunities.
Q: What is your outlook for the balance of 1999?
A: We expect that a slower economy and low inflation will support bond prices.
We are optimistic that low U.S. Treasury rates will prompt investors to turn to
higher-yielding alternatives. We plan to maintain a neutral-to-above-neutral
duration. We also intend to retain a modest cash position so we are in a
position to take advantage of any market weakness.
Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions, if any. Portfolio holdings are as of 12/31/98 and are
subject to change.
Investing in high yield bonds involves greater credit risk than investing in
higher-quality bonds.
Foreign investments involve market, political, accounting and currency risks not
associated with other investments.
Emerging markets investments involve market, political and currency risks not
associated with investments in more developed markets.
<PAGE>
Questions & Answers
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An Interview with Steve Lockman, Portfolio Manager
of Stein Roe High Yield Fund and SR&F High Yield Portfolio
Fund Data
Investment Objective:
Seeks high current income and capital appreciation by investing principally
in high yield, high-risk, medium- and lower-quality debt securities.
Fund Inception:
Nov. 1, 1996
Total Net Assets:
$37.4 million
Q: How did the Fund perform for the first half of fiscal 1999?
A: High Yield Fund faced a challenging environment marked by unusually high
levels of volatility, especially in higher-risk bonds affected by developments
overseas. For the six-month period ended Dec. 31, 1998, the Fund posted a total
return of -2.11%. We preserved capital to a greater extent than the average fund
in the Lipper high current yield fund category, which returned -4.73% for the
same period. The Fund's SECyield as of Dec. 31, 1998, was 8.87%.
Q: What factors affected the Fund's total return?
A: To maximize high income potential, the Fund had a modest position in
higher-risk debt issued in emerging markets. While all types of high yield
securities declined substantially in value this past summer after Russia
defaulted on its obligations, emerging market debt suffered the most. We
outperformed the average of our peers for the six-month period because the
Fund's exposure to this high-risk category was lower than most comparable mutual
funds.
The Fund's performance benefited from the fact that among domestic corporate
bonds, we steered away from companies affected by Asian economic turmoil. We
were also underweighted in industries whose cash flow was dependent on commodity
prices and the overall health of the U.S. economy. Our positioning in
non-cyclical businesses helped preserve principal as the high yield market began
to recover this past autumn.
Q: What happened in the market?
A: At the beginning of the period, the high yield market performed well,
reflecting favorable equity markets in July and early August. Then in
mid-August, international economic troubles began to affect the performance of
U.S. companies, affecting the U.S. equity and high yield bond markets. Quite a
change took place. The result was one of the largest months of declines that the
high yield market has seen in years. Performance continued to decline in
September.
Q: How did you adjust the portfolio in response to market activity?
A: When high yield bonds underperformed Treasuries in August, we adopted a more
conservative investment approach. We upgraded the quality of the portfolio by
selling zero coupon and lower-rated securities and moved into higher-quality
securities and cash. By doing this, we avoided poor performance and defaults in
several issues. By October, market circumstances caused many investors to fear
high default rates. But we did not believe market conditions would fall to such
depths. Interest rates had declined, corporate earnings were stronger than
expected and the economy appeared to be stabilizing. We believed a turnaround in
the high yield market was more likely, so we then increased our investments in
high yield bonds, reducing our cash position. This worked well. The market took
off in November and December as institutional investors displayed renewed
confidence in higher risk debt.
Q: Did you make any other changes to the portfolio's composition?
A: We increased our position in bonds rated BBB this past summer when we
believed they were priced at attractive levels.
Q: How important is the telecommunications sector for the high yield market?
A: Telecommunications and Internet companies continue to be among the largest
issuers in the high yield market. Although we invest aggressively in these
areas, we maintain a slightly underweight position compared to the Merrill Lynch
High Yield Master II Index because of the ever-present volatility in the sector.
In that area, we've concentrated on owning companies that have relatively strong
stocks as a way to ensure that we were getting quality companies in industries
where many offerings are small or overvalued. We stick with companies that have
experienced management, raise a substantial amount of capital through equity
rather than debt offerings and are capable of accommodating expansion.
Q: Was it difficult to buy and sell bonds given the volatility this summer?
A: Lack of liquidity did affect how bonds traded throughout the past six months.
Investor dollars flowed out of the high yield market rapidly in August and
September. We spent a lot of time focusing on trades that would allow us to
maximize total return by taking advantage of price movement. It did not take a
lot to move these bonds based on supply and demand because that relationship was
already so tight. We are concerned that liquidity will continue to be a problem
with many issues. Consequently, we carefully examine investor demand for any
bond issued by a smaller, less liquid issuer. Most of the bonds in the portfolio
are of larger, more liquid issuers.
Q: What do you expect going forward?
A: We intend to invest in bonds issued by relatively solid companies with steady
cash flows. If the economy slows, these companies have better prospects for
meeting their debt obligations than companies with weak cash flows. We plan to
maintain a lower-than-average percentage of holdings in telecommunications
because the sector remains volatile, and in metals and mining bonds because of
low commodity prices. We think the potential return on these investments has
been increasing, but they are still not at levels attractive enough for us to
purchase. First quarter 1999 earnings reports could provide substantial guidance
for the market. With yields now several hundred percentage points more than
comparable maturity Treasuries -- the highest income advantage since the early
1990s -- we believe the potential rewards of the high-risk debt market remain
compelling for income-oriented investors who can carefully navigate the
potential pitfalls of the U.S. economy.
Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions, if any. Portfolio holdings are as of 12/31/98 and are
subject to change. Investing in high yield bonds involves greater credit risks
than investing in higher-quality bonds. The Merrill Lynch High Yield Master II
Index is an unmanaged group of bonds that differs from the composition of any
Stein Roe fund; it is not available for direct investment. The Adviser currently
limits expenses to 1.00% of average net assets, subject to termination upon 30
days' notice to the Fund. Absent this limit, the Fund's total return would have
been less.
Investing in high yield bonds involves greater credit and other risks not
associated with investing in higher-quality securities.
Foreign investments involve market, political, accounting and currency risks not
associated with other investments.
Emerging markets investments involve market, political and currency risks not
associated with investments in more developed markets.
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We believe the potential rewards of the high-risk debt market remain
compelling for income-oriented investors who can carefully
navigate the potential pitfalls of the U.S. economy.
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<PAGE>
Fund Highlights
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SR&F Income Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
DEC. 31, 1998 JUNE 30, 1998
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Financial 29.2% 28.1%
Consumer Cyclical 16.4 10.7
Media/Communications 14.6 9.2
Utilities 10.1 8.6
Industrial 7.6 11.5
Consumer Non-cyclical 6.4 9.3
Foreign Sovereign 5.9 9.1
Energy 4.1 5.9
Basic Materials 2.6 --
Technology 2.4 3.2
U.S. Treasuries 0.7 4.4
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Total 100.0% 100.0%
================================================================================
Maturity
Pie Charts:
As of Dec. 31, 1998 As of June 30, 1998
Greater than 20 Years 7.7% 7.9%
10-20 Years 10.3% 6.7%
5-10 Years 56.3% 57.1%
1-5 Years 24.4% 25.7%
Less than 1 Year 1.3% 2.6%
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Portfolio Quality
Pie Charts:
As of Dec. 31, 1998 As of June 30, 1998
Treasury/AAA/Agency 1.3% 4.5%
AA 4.1% 4.6%
A 26.2% 23.1%
BBB 38.1% 33.9%
BB 20.2% 20.4%
B 7.5% 10.2%
CCC and Below/Not Rated 2.6% 3.3%
<PAGE>
Fund Highlights
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SR&F High Yield Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
DEC. 31, 1998 JUNE 30, 1998
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Media/Communications 29.5% 20.3%
Consumer Cyclical 24.8 14.6
Consumer Non-cyclical 12.3 21.6
Industrial 12.1 18.0
Technology 7.9 11.7
Utilities 7.3 8.9
Energy 3.1 1.5
Financial 3.0 3.4
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Total 100.0% 100.0%
================================================================================
Maturity
Pie Charts:
As of Dec. 31, 1998 As of June 30, 1998
10-15 Years 3.8% 7.8%
5-10 Years 93.1% 88.4%
1-5 Years 0% 1.1%
Less than 1 Year 3.1% 2.7%
- --------------------------------------------------------------------------------
Portfolio Quality
As of Dec. 31, 1998 As of June 30, 1998
AAA 3.1% 0%
BB 15.1% 10.5%
B 72.8% 70.4%
CCC and Below/Not Rated 9.0% 19.1%
<PAGE>
<TABLE>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at December 31, 1998
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
Principal Market
Long-Term Obligations (96.3%) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations (1.7%)
U.S. Treasury Notes
5.625% 11/30/00 ......................................... $ 5,000 $ 5,094
5.250% 8/15/03 .......................................... 1,600 1,641
4.750% 11/15/08 ......................................... 1,250 1,259
-------
7,994
U.S. Government Agency Mortgage-Backed Securities (7.9%)
FHLMC Gold
12.000% 7/1/20 .......................................... 2,212 2,525
FHLMC Remic Trust
9.500% 4/15/19 Series 11 Class C ........................ 66 67
FNMA
8.500% 4/1/01 ........................................... 1 1
8.500% 5/1/03 ........................................... 7 7
8.500% 9/1/03 ........................................... 56 57
8.500% 11/1/03 .......................................... 86 89
6.000% 4/1/09 ........................................... 2,348 2,357
11.250% 11/1/13 (FHA/VA guaranteed) ..................... 82 92
6.000% 1/15/14 .......................................... 13,534 13,560
6.000% 1/1/24 ........................................... 760 753
6.000% 3/1/24 ........................................... 2,148 2,121
6.500% 10/1/28 .......................................... 6,983 7,029
FNMA Remic Trusts
9.250% 3/25/18 Series 1988-4 Class Z .................... 2,167 2,306
GNMA
8.000% 1/15/08 .......................................... 285 295
8.000% 2/15/08 .......................................... 222 230
8.000% 5/15/08 .......................................... 324 336
8.000% 6/15/08 .......................................... 1,685 1,744
8.000% 7/15/08 .......................................... 612 633
9.000% 6/15/16 .......................................... 94 101
9.000% 8/15/16 .......................................... 57 61
9.000% 10/15/16 ......................................... 127 137
6.625% 7/20/25 ARM ...................................... 2,073 2,096
-------
36,597
Airlines (0.8%)
United Airlines Series 1991-A1 9.200% 3/22/08 .............. 3,039 3,510
Asset-Backed Obligations (3.2%)
ContiMortgage Home Equity Loan Trust
7.420% 3/15/28 Series 1997-1 Class M1 ................... 750 774
7.670% 3/15/28 Series 1997-1 Class M2 ................... 2,875 2,882
First Boston Mortgage Securities Series 1993-H1 Class A-IO
(Effective Yield 12.820%) 9/28/13 ....................... 9,653 377
Green Tree Home Improvement Loan Trust
Series 1994-A Class A
7.050% 3/15/14 .......................................... 1,179 1,213
Green Tree Recreational, Equipment & Consumer Trust
Series 1998-C Class A6 6.700% 2/15/14 ................... 4,500 4,499
IMC Home Equity Loan Trust Series 1997-3 Class M2
7.550% 8/20/28 .......................................... 5,000 5,032
-------
14,777
<PAGE>
<CAPTION>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Automotive (1.6%)
Federal-Mogul 7.500% 7/1/04 ................................ $ 5,000 $ 5,066
Toyota Motor Credit 5.625% 11/13/03 ........................ 2,250 2,234
-------
7,300
Banking (4.7%)
Bank One Texas 6.250% 2/15/08 .............................. 5,000 5,185
BankBoston 6.375% 4/15/08 .................................. 8,000 8,034
Merita Bank Limited 7.150% 12/29/49 ........................ 4,500 4,432
Riggs Capital Trust 8.625% 12/31/26 (a) .................... 4,000 4,123
-------
21,774
Building and Construction (2.4%)
Hanson Overseas (Yankee Issue) 7.375% 1/15/03 .............. 6,000 6,340
Kaufman & Broad Home 7.750% 10/15/04 ....................... 2,000 1,985
PYCSA Panama 10.280% 12/15/12 (a) .......................... 3,250 2,671
-------
10,996
Cable and Media (3.3%)
Groupe Videotron (Yankee Issue) 10.625% 2/15/05 ............ 3,000 3,220
News America Holdings 8.625% 2/1/03 ........................ 5,000 5,462
Paramount Communications 7.500% 1/15/02 .................... 3,000 3,131
Rogers Cablesystems (Yankee Issue) 9.625% 8/1/02 ........... 3,000 3,225
-------
15,038
Chemicals (1.3%)
BOC Group 5.875% 1/29/01 ................................... 6,100 6,201
Electronics (1.4%)
Pan Pacific Industrial Investment (Yankee Issue)
Zero Coupon (Yield to Maturity 8.834%) 4/28/07 (a) ...... 10,000 3,909
Sony 6.125% 3/4/03 ......................................... 2,500 2,567
-------
6,476
Financial (16.4%)
Amvescap 6.600% 5/15/05 (a) ................................ 7,500 5,017
Associates Corp. of North America
6.250% 11/1/08 .......................................... 5,000 5,162
6.950% 11/1/18 .......................................... 5,000 5,312
Bistro Trust 9.500% 12/31/02 (a) ........................... 3,000 3,011
Cigna CBO Series 1996-1 Class A-2 6.460%11/15/08 (a) ...... 5,000 5,602
First Industrial L.P.
7.500% 12/1/17 .......................................... 6,000 5,498
7.600% 7/15/28 .......................................... 1,250 1,124
Household Finance 5.875% 11/1/02 ........................... 9,000 8,996
Merrill Lynch
6.550% 8/1/04 ........................................... 6,000 6,225
6.875% 11/15/18 ......................................... 3,000 3,094
Norwest Finance 5.375% 9/30/03 ............................. 5,000 4,955
PaineWebber Group 6.450% 12/1/03 ........................... 6,000 5,989
Salomon (Traveler's Group ) 6.750% 1/15/06 ................. 2,000 2,078
TPSA Finance 7.750% 12/10/08 (a) ........................... 6,000 5,963
Transamerica Finance Series E 6.125% 11/1/01 ............... 7,000 7,050
-------
75,076
Foreign Sovereign Regional Bonds (3.2%)
People's Republic of China 7.300% 12/15/08 ................. 4,750 4,696
Corporacion Andina de Fomento (Yankee Issue) 7.375% 7/21/00 6,000 6,028
Financiera Energetica 9.000% 11/8/99 (a) ................... 4,250 4,250
-------
14,974
<PAGE>
<CAPTION>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Health Service and Equipment (1.5%)
Tenet Healthcare 7.875% 1/15/03 ............................ $ 4,000 $ 4,045
Healthsouth 6.875% 6/15/05 (a) ............................. 3,000 2,967
-------
7,012
Hotels and Entertainment (2.9%)
MGM Grand 6.950% 2/1/05 .................................... 5,000 4,799
Prime Hospitality 9.250% 1/15/06 ........................... 2,500 2,600
Rank Group Finance (Yankee Issue) 6.750% 11/30/04
6.750% 11/30/04 ......................................... 2,400 2,324
6.375% 1/15/08 .......................................... 4,250 3,822
-------
13,545
Industrial (2.0%)
Cendant 7.750% 12/1/03 ..................................... 3,000 3,033
Lubrizol 5.875% 12/1/08 .................................... 3,000 2,987
Martin Marietta Material 5.875% 12/1/08 (a) ................ 3,400 3,378
-------
9,398
Insurance (3.2%)
Prudential Insurance 7.650% 7/1/07 (a) ..................... 7,250 7,980
Zurich Capital Trust 8.376% 6/1/37 (a) ..................... 6,000 6,880
-------
14,860
Manufacturing (3.9%)
Owens-Illinois 7.850% 5/15/04 .............................. 4,000 4,139
Tyco International Group (Yankee Issue) 6.375% 6/15/05 ..... 6,000 6,156
USX
7.200% 2/15/04 .......................................... 6,800 7,006
6.850% 3/1/08 ........................................... 500 504
-------
17,805
Mining and Agriculture (0.9%)
Freeport-McMoran Copper & Gold 7.500% 11/15/06 ............. 2,700 1,815
PT Alatief Freeport (Yankee Issue) 9.750% 4/15/01 .......... 3,500 2,450
-------
4,265
Mortgage-Backed Securities (8.9%)
American Mortgage Trust Series 1993-3 Class 3B
8.190% 9/27/22 .......................................... 2,789 2,766
First Union-Lehman Brothers Commercial Mortgage
Series 1997-C2 Class A3 6.650% 12/18/07 ................. 7,000 7,322
Kidder Peabody Acceptance Series 1994-C3 Class A2
8.500% 4/1/07 ........................................... 3,500 3,942
Lehman Brothers Commercial Conduit Mortgage Trust
Series 1998-C4 Class A1B 6.210% 10/15/08 ................ 10,000 10,169
Merrill Lynch Mortgage Investors Series 1995-C3 Class A3
7.088% 12/26/25 ......................................... 4,000 4,213
Merrill Lynch Trust Series 20 Class D 8.000% 12/20/18 ...... 1,994 2,037
Nomura Asset Securities Series 1996-MD5 Class A-1B
7.120% 4/13/36 .......................................... 3,000 3,193
Resolution Trust Series 1992-C5 Class C
8.850% 5/25/22 .......................................... 1,817 1,863
Structured Assets Securities
6.525% 2/25/28 Series 1996-CFL Class C .................. 3,684 3,703
Zero Coupon (Yield to Maturity 9.806%) 2/25/28
Series 1996-CFL Class X1-IO ........................... 38,094 2,095
-------
41,303
<PAGE>
<CAPTION>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas and Oil (4.9%)
Gulf Canada Resources (Yankee Issue) 8.250% 3/15/17 .... $ 3,000 $ 2,802
Newfield Exploration 7.450% 10/15/07 (a) ............... 1,500 1,480
Northwest Pipeline 6.625% 12/1/07 ...................... 6,000 6,188
PDVSA Finance Limited Series 1998-1D
7.400% 8/15/16 (a) ................................... 2,500 2,095
Petroleos Mexicanos 11.137% 7/15/05 .................... 4,000 3,680
YPF Sociedad Anonima (Yankee Issue)
7.500% 10/26/02 ..................................... 3,382 3,400
7.250% 3/15/03 ...................................... 1,000 933
10.000% 11/02/28 .................................... 2,000 2,050
--------
22,628
Real Estate Investment Trust (4.5%)
Dynex Capital 7.875% 7/15/02 ........................... 3,250 2,438
Federal Realty Investment Trust
6.625% 12/1/05 ...................................... 2,750 2,649
7.480% 8/15/26 ...................................... 3,500 3,492
Health Care Properties 6.875% 6/8/05 ................... 5,000 4,847
Meditrust 7.820% 9/10/26 ............................... 4,200 4,006
Storage USA 7.125% 11/1/03 ............................. 3,250 3,221
--------
20,653
Retail (3.2%)
Tommy Hilfiger USA 6.850% 6/1/08 ....................... 6,750 6,698
Price/Costco 7.125% 6/15/05 ............................ 1,650 1,763
Rite Aid 7.625% 4/15/05 ................................ 6,000 6,477
--------
14,938
Sanitary Services (0.4%)
Allied Waste 7.625% 1/1/06 (a) ......................... 1,800 1,818
Savings and Loans (0.7%)
GS Escrow 7.000% 8/1/03 (a) ............................ 3,000 2,974
Telecommunications (5.6%)
Cable & Wireless Communications (Yankee Issue)
6.625% 3/6/05 ........................................ 3,250 3,312
CSC Holdings 7.875% 2/15/18 ............................ 4,250 4,328
GTE Hawaiian Telephone Series A 7.000% 2/1/06 .......... 5,500 5,898
Sprint Capital 6.875% 11/15/28 ......................... 6,500 6,758
Telephone & Data Systems 7.000% 8/1/06 ................. 5,000 5,251
--------
25,547
Transportation (0.7%)
Federal Express Pass-Through Certificates
Series A1 7.530% 9/23/06 ............................. 3,150 3,355
Utilities (5.1%)
Calenergy 7.520% 9/15/08 ............................... 5,000 5,321
Midamerican Energy 6.500% 12/15/01 ..................... 1,225 1,253
National Rural Utilities
6.000% 1/15/04 ...................................... 6,200 6,350
6.375% 10/15/04 ..................................... 2,500 2,601
Oglethorpe Power 6.974% 6/30/11 (a) .................... 3,883 4,044
Public Service Company of New Mexico
Series A 7.100% 8/1/05 .............................. 2,500 2,534
Series B 7.500% 8/1/18 .............................. 1,500 1,509
--------
23,612
--------
Total Long-Term Obligations
(Cost $441,982) ..................................... $444,426
--------
<PAGE>
<CAPTION>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Number of Market
Equity-Related Securities (0.8%) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock (0.8%)
Financial (0.8%)
Pinto Totta International Finance 7.770% (gtd. by Banco
Pinto & Sotto Mayor) (a) (Cost $4,014)........... 4,000 $ 3,711
---------
- --------------------------------------------------------------------------------
Principal
Short-Term Obligation (2.3%) Amount
- --------------------------------------------------------------------------------
Commercial Paper (2.3%)
Associates Corp. of North America 5.080% 1/4/99
(Amortized cost $10,780)......................... $10,780 $ 10,780
--------
- --------------------------------------------------------------------------------
Total Investments (99.4%)
(Cost $456,776) (b).............................. 458,917
Other Assets, Less Liabilities (0.6%)................ 2,906
---------
Total Net Assets (100.0%)............................ $ 461,823
=========
</TABLE>
================================================================================
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a)Represents private placement securities issued under Rule 144A, which are
exempt from the registration requirements of the Securities Act of 1933.
These securities generally are issued to qualified institutional buyers, such
as the Portfolio, and any resale must be in an exempt transaction, normally
to other qualified institutional investors. At December 31, 1998, the
aggregate value of the Portfolio's private placement securities was $71,873
(aggregate cost $71,283) which represented 15.6% of net assets.
(b)At December 31, 1998, the cost of investments for federal income tax purposes
was $456,480. Unrealized appreciation was $2,437, consisting of gross
unrealized appreciation of $9,722 and unrealized depreciation of $7,285.
(c)The following futures contracts were open at December 31, 1998:
Number of Contract Unrealized
Type Position Contracts Value Expiration Loss
----------- ---------- ---------- ---------- ---------- ----------
U.S. T-Bond Short 40 $ 5,111 3/99 $113
U.S. T-Note Short 297 35,389 3/99 365
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
SR&F Income Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at December 31, 1998
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
Principal Market
Long-Term Obligations (96.7%) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations (0.7%)
U.S. Treasury Bonds 6.125% 11/15/27 ........................ $ 1,050 $ 1,176
U.S. Treasury Notes 4.750% 11/15/08 ........................ 1,250 1,259
-------
2,435
Aerospace and Military Technology (0.8%)
Derlan Manufacturing (Yankee Issue) 10.000% 1/15/07 ........ 1,750 1,400
L-3 Communications Series B 10.375% 5/1/07 ................. 1,500 1,650
-------
3,050
Airlines (1.1%)
American Airlines Pass-Through Certificates
Series 1991-A 9.710% 1/2/07 ............................. 2,650 3,123
Continental Airlines Pass-Through Certificates
Series 1997-CI 7.420% 4/1/07 ............................ 982 991
-------
4,114
Automotive (1.9%)
Federal-Mogul 7.500% 7/1/04 ................................ 5,000 5,066
General Motors 6.750% 5/1/28 ............................... 2,000 2,087
-------
7,153
Banking (6.7%)
Banco del Estado 8.390% 8/1/01 (a) ......................... 3,000 3,201
Banesto Delaware 8.250% 7/28/02
(gtd. by Banco Espanol de Credito) ...................... 2,000 2,100
BBV International Finance (Cayman Islands)
(Yankee Issue) 6.875% 10/27/05 .......................... 6,000 6,523
BCH Cayman Islands 7.700% 7/15/06
(gtd. by Banco Central Hispanoamericano,
Yankee Issue) ............................................ 5,000 5,396
Merita Bank 7.150% 9/11/49 ................................. 3,000 2,955
Swiss Bank 7.375% 7/15/15 .................................. 4,000 4,272
-------
24,447
Building and Construction (3.6%)
Beazer Homes USA 8.875% 4/1/08 ............................. 3,000 2,873
Building Materials 7.750% 7/15/05 .......................... 3,000 2,955
Kaufman & Broad Home 7.750% 10/15/04 ....................... 2,000 1,985
Martin Marietta Materials 5.875% 12/1/08 (a) ............... 2,600 2,583
PYCSA Panama 10.280% 12/15/12 (a) .......................... 3,250 2,671
-------
13,067
Business Services (3.9%)
Cendant 7.750% 12/1/03 ..................................... 2,000 2,022
Iron Mountain 10.125% 10/1/06 .............................. 2,000 2,160
Lamar Advertising 9.625% 12/1/06 ........................... 1,850 2,003
Rental Services 9.000% 5/15/08 ............................. 2,000 1,940
Tyco International Group (Yankee Issue) 6.375% 6/15/05 ..... 6,000 6,156
-------
14,281
Cable and Media (9.0%)
British Sky Broadcasting (Yankee Issue) 7.300% 10/15/06 .... 2,000 2,145
Century Communications 9.750% 2/15/02 ...................... 1,850 1,998
Continental Cablevision 8.875% 9/15/05 ..................... 3,500 3,998
Groupe Videotron (Yankee Issue) 10.625% 2/15/05 ............ 3,000 3,220
JCAC 10.125% 6/15/06 ....................................... 1,500 1,658
<PAGE>
<CAPTION>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Cable and Media (Continued)
News America Holdings 8.625% 2/1/03 ...................... $ 4,000 $ 4,369
Rogers Cablesystems (Yankee Issue) 9.625% 8/1/02 ......... 3,000 3,225
Rogers Cantel (Yankee Issue) 9.375% 6/1/08 ............... 3,000 3,165
Time Warner Entertainment
9.625% 5/1/02 ......................................... 3,000 3,359
8.875% 10/1/12 ........................................ 3,000 3,715
Young Broadcasting 11.750% 11/15/04 ...................... 1,940 2,076
-------
32,928
Chemicals (0.5%)
Lubrizol 5.875% 12/1/08 .................................. 2,000 1,991
Containers (2.7%)
BWAY Series B 10.200% 4/15/07 ............................ 1,900 1,995
Coca-Cola Bottling Series A 8.560% 2/26/02 ............... 2,000 2,150
Comtel Brasileria (Yankee Issue) 10.750% 9/26/04 (a) ..... 2,000 1,560
Owens-Illinois 8.100% 5/15/07 ............................ 4,000 4,241
-------
9,946
Electronics (0.3%)
Ametek 7.200% 7/15/08 (a) ................................ 1,000 1,020
Energy (0.6 %)
PDVSA Finance Series 1998-1D 7.400% 8/15/16 (a) .......... 2,500 2,095
Financial (14.8%)
Amvescap (Yankee Issue) 6.600% 5/15/05 ................... 5,000 5,017
Associates Corp. of North America 6.950% 11/1/18 ......... 2,750 2,922
Bistro Trust 1997-1000 9.500% 12/31/02 (a) ............... 3,000 3,011
Credit Suisse (London) 7.900% 5/1/07 (a) ................. 6,000 5,982
First Industrial L.P.
7.500% 12/1/17 ........................................ 6,000 5,498
7.600% 7/15/28 ........................................ 1,250 1,124
Goldman Sachs Group 7.125% 3/1/03 (a) .................... 6,000 6,257
Merrill Lynch 6.875% 11/15/18 ............................ 3,000 3,094
Omega Healthcare Investors 6.950% 6/15/02 ................ 4,000 3,955
Prudential Insurance
7.125% 7/1/07 (a) ..................................... 4,000 4,265
7.650% 7/1/07 (a) ..................................... 3,000 3,302
Rank Group Finance (Yankee Issue)
6.750% 11/30/04 ....................................... 3,000 2,905
6.375% 1/15/08 ........................................ 3,250 2,922
TPSA Finance 7.750% 12/10/08 (a) ......................... 4,000 3,975
-------
54,229
Food and Beverage (2.8%)
Panamerican Beverages 7.250% 7/1/09 ...................... 5,000 4,683
Pepsi-Gemex (Yankee Issue) Series B 9.750% 3/30/04 ....... 1,500 1,448
Stater Brothers Holdings 11.000% 3/1/01 .................. 4,000 4,160
-------
10,291
Foreign Sovereign Regional Bonds (7.9%)
People's Republic of China 7.300% 12/15/08 ............... 4,250 4,202
Corporacion Andina de Fomento (Yankee Issue)
7.375% 7/21/00 ........................................ 3,000 3,014
7.100% 2/1/03 ......................................... 2,500 2,461
Export-Import Bank of Korea 6.375% 2/15/06 ............... 3,000 2,510
<PAGE>
<CAPTION>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Sovereign Regional Bonds (Continued)
Financiera Energetica Nacional 9.375% 6/15/06 (a) ........ $ 6,000 $ 5,041
Republic of Colombia (Yankee Issue) 8.750% 10/6/99 ....... 2,500 2,513
Republic of Panama 7.875% 2/13/02 (a) .................... 2,000 1,915
Sultan of Oman 7.125% 3/20/02 (a) ........................ 5,000 5,206
United Mexican States 9.750% 2/6/01 ...................... 2,000 2,040
-------
28,902
Forestry and Related Products (0.6%)
Celulosa Arauco y Constitucion (Yankee Issue)
6.950% 9/15/05 ......................................... 2,500 2,171
Hospitals and Nursing Homes (2.4%)
Healthsouth 6.875% 6/15/05 ............................... 3,000 2,967
Tenet Healthcare 8.625% 12/1/03 .......................... 2,000 2,087
Universal Health Services 8.750% 8/15/05 ................. 2,800 2,940
Universal Hospital Services 10.250% 3/1/08 ............... 1,000 890
-------
8,884
Hotels and Entertainment (5.8%)
Choice Hotels 7.125% 5/1/08 .............................. 1,800 1,795
Hyatt Equities 7.000% 5/15/02 (a) ........................ 5,000 5,147
MGM Grand 6.950% 2/1/05 .................................. 5,000 4,799
Marriot International 6.875% 11/15/05 (a) ................ 5,000 5,016
Premier Parks 9.750% 1/15/07 ............................. 750 814
Prime Hospitality
9.250% 1/15/06 ........................................ 1,100 1,144
9.750% 4/1/07 Series B ................................ 2,500 2,550
-------
21,265
Internet Services (1.1%)
Computer Associates International 6.375% 4/15/05 ......... 4,000 3,958
Machinery, Metals and Fabricated Metal Products (2.7%)
AGCO 8.500% 3/15/06 ...................................... 3,000 2,880
Cincinnati Milacron 8.375% 3/15/04 ....................... 2,000 2,082
USX 6.850% 3/1/08 ........................................ 5,000 5,046
-------
10,008
Mining and Agriculture (0.6%)
PT Alatief Freeport Financial (Yankee Issue)
9.750% 4/15/01 ......................................... 3,000 2,100
Mortgage-Backed Security (0.1%)
Resolution Trust Series 1992-C1 Class A1
8.800% 8/25/23 ......................................... 57 59
Natural Gas and Oil (3.4%)
Colorado Interstate Gas 10.000% 6/15/05 .................. 1,500 1,814
Husky Oil 8.900% 8/15/28 (a) ............................. 3,000 2,955
Lyondell Petroleum 9.750% 9/4/03 (a) ..................... 2,000 2,112
Newfield Exploration 7.450% 10/15/07 ..................... 1,500 1,480
YPF Sociedad Anonima (Yankee Issue) 7.500% 10/26/02 ...... 4,232 4,255
-------
12,616
Real Estate Investment Trusts (5.6%)
American Health Properties 7.050% 1/15/02 ................ 3,000 2,932
Carramerica Realty 7.200% 7/1/04 ......................... 3,000 2,933
Health Care Property Investors 6.500% 2/15/06 ............ 3,500 3,262
Meditrust 7.375% 7/15/00 ................................. 2,000 1,965
Property Trust of America 6.875% 2/15/08 ................. 2,000 1,973
Storage USA 7.125% 11/01/03 .............................. 3,000 2,974
<PAGE>
<CAPTION>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Investment Trusts (Continued)
Trinet Corporate Realty Trust 7.300% 5/15/01 ......... $ 4,500 $ 4,519
--------
20,558
Retail (0.5%)
MTS 9.375% 5/1/05 .................................... 2,000 1,950
Sanitary Services (0.5%)
Allied Waste 7.625% 1/1/06 (a) ....................... 1,800 1,818
Services (1.3%)
ARA Services 10.625% 8/1/00 .......................... 1,600 1,676
Aramark Services 8.150% 5/1/05 ....................... 2,000 2,160
Dyncorp 9.500% 3/1/07 ................................ 1,000 990
--------
4,826
Special Purpose (0.8%)
GS Escrow 7.125% 8/1/05 (a) .......................... 3,000 2,959
Telecommunications (7.6%)
Cable & Wireless Communications (Yankee Issue)
6.625% 3/6/05 ...................................... 2,750 2,802
CSC Holdings 7.875% 2/15/18 .......................... 6,250 6,364
GTE Hawaiian Telephone Series A 7.000% 2/1/06 ........ 4,500 4,826
Sprint Capital 6.875% 11/15/28 ....................... 6,000 6,238
Telephone & Data Systems 7.000% 8/1/06 ............... 5,000 5,251
WorldCom (MCI WorldCom) 9.375% 1/15/04 ............... 2,000 2,075
--------
27,556
Textile and Apparel (1.8%)
Tommy Hilfiger USA 6.850% 6/1/08 ..................... 6,750 6,698
Tobacco Products (0.5%)
Standard Commercial Tobacco 8.875% 8/1/05 ............ 2,000 1,960
Utilities (4.1%)
AES 8.375% 8/15/07 ................................... 2,000 2,010
Calenergy 7.520% 9/15/08 ............................. 3,000 3,192
Kentucky Power 8.900% 5/21/01 ........................ 2,000 2,147
National Power 9.000% 7/5/02 (a) ..................... 1,500 1,347
Public Service Co. of New Mexico
7.100% 8/1/05 ..................................... 2,500 2,534
7.500% 8/1/18 ..................................... 1,500 1,509
Texas Utilities 9.750% 5/1/21 ........................ 2,000 2,212
--------
14,951
--------
Total Long-Term Obligations
(Cost $354,774) ...................................... 354,286
--------
<CAPTION>
================================================================================
Number of
Preferred Stock (0.8%) Units
- --------------------------------------------------------------------------------
<S> <C> <C>
Financial (0.8%)
Pinto Totta International Finance 7.770%
(gtd. By Banco Pinto Totto Mayor) (a) (Cost $3,010) 3 2,783
--------
================================================================================
<PAGE>
<CAPTION>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Short-Term Obligation (0.6%) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (0.6%)
Associates Corp. of North America 5.080% 1/4/99
(Amortized Cost $2,149)........................... $ 2,150 $ 2,149
---------
- --------------------------------------------------------------------------------
Total Investments (98.1%)
(Cost $359,933) (b)............................... 359,218
Other Assets, Less Liabilities (1.9%)................ 7,116
---------
Total Net Assets (100.0%)............................ $ 366,334
=========
================================================================================
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a)Represents private placement securities issued under Rule 144A, which are
exempt from the registration requirements of the Securities Act of 1933.
These securities generally are issued to qualified institutional buyers, such
as the Portfolio, and any resale by the Portfolio must be in an exempt
transaction, normally to other qualified institutional investors. At December
31, 1998, the aggregate value of the Portfolio's private placement securities
was $76,221 (aggregate cost $72,346) which represented 20.8% of net assets.
(b)At December 31, 1998, the cost of investments for federal income tax purposes
was $360,055. Net unrealized depreciation was $837, consisting of gross
unrealized appreciation of $7,862 and gross unrealized depreciation of
$8,699.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F High Yield Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at December 31, 1998
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
Principal Market
Long-Term Obligations (94.2%) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Aerospace and Military Technology (7.7%)
BE Aerospace 9.500% 11/1/08 (a) ............................ $ 750 $ 786
Derlan Manufacturing (Yankee Issue) 10.000% 1/15/07 ........ 1,000 800
Dyncorp 9.500% 3/1/07 ...................................... 500 495
L-3 Communications
10.375% 5/1/07 Series B ................................. 500 550
8.000% 8/1/08 (a) ....................................... 1,000 1,008
Newport News Shipbuilding 9.250% 12/1/06 ................... 1,195 1,264
United Defense Industries 8.875% 11/15/07 .................. 1,500 1,515
------
6,418
Automotive (1.6%)
Hayes Wheels International Series B 9.125% 7/15/07 ......... 500 520
Penda Series B 10.750% 3/1/04 .............................. 800 792
------
1,312
Building and Construction (2.6%)
Beazer Homes USA 8.875% 4/1/08 ............................. 1,000 957
PYCSA Panama 10.280% 12/15/12 (a) .......................... 1,500 1,233
------
2,190
Business Services (3.2%)
Outdoor Systems 8.875% 6/15/07 ............................. 750 803
Penhall Acquisition 12.000% 08/1/06 (a) .................... 1,000 940
Rental Service 9.000% 5/15/08 .............................. 1,000 970
------
2,713
Cable and Media (6.5%)
Adelphia Communications 8.3750% 02/1/08 (a) ................ 1,500 1,552
Chancellor Media 8.000% 11/1/08 (a) ........................ 1,500 1,530
Garden State Newspapers 8.750% 10/1/09 ..................... 1,000 1,000
Perry-Judd 10.625% 12/15/07 ................................ 1,000 1,047
Young Broadcasting 10.125% 2/15/05 ......................... 250 263
------
5,392
Chemicals (1.2%)
Biovail Corporation International 10.875% 11/15/05 (a) ..... 1,000 1,010
Coal Mining (1.8%)
AEI Resources 11.500% 12/15/06 (a) ......................... 1,500 1,485
Computer Equipment (1.8%)
Axia 10.750% 07/15/08 ...................................... 1,500 1,519
Containers (0.4%)
BWAY Series B 10.250% 4/15/07 .............................. 350 368
Cosmetics and Personal Care Products (1.2%)
Chattem 8.875% 4/1/08 (a) .................................. 1,000 1,025
Food and Beverages (1.2%)
Pepsi-Gemex Series B (Yankee Issue) 9.750% 3/30/04 ......... 1,000 965
Health Services and Equipment (6.0%)
Dynacare (Yankee Issue) 10.750% 1/15/06 .................... 2,000 2,000
Insight Health Services Series B 9.625% 6/15/08 ............ 1,750 1,689
Leiner Health Products 9.625% 7/1/07 ....................... 500 520
<PAGE>
<CAPTION>
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Health Services and Equipment (Continued)
Mediq Zero Coupon (Yield to Maturity 5.810%) 6/1/09 .......... $1,850 $ 832
------
5,041
Hospitals and Nursing Home Care (2.4%)
Tenet Healthcare 8.625% 1/15/07 .............................. 750 780
Universal Hospital Services 10.250% 3/1/08 ................... 1,415 1,259
------
2,039
Hotels and Entertainment (10.9%)
Boyd Gaming 9.500% 7/15/07 ................................... 750 750
Empress Entertainment 8.125% 7/1/06 .......................... 1,500 1,500
Hard Rock Hotels 9.250% 4/1/05 ............................... 1,500 1,500
Premier Parks
9.250% 4/1/06 ............................................. 250 259
9.750% 1/15/07 ............................................ 250 271
Zero Coupon (Yield to Maturity 4.939%) 4/1/08 ............. 1,750 1,186
Prime Hospitality Series B 9.750% 4/1/07 ..................... 1,490 1,520
Speedway Motorsports 8.500% 8/15/07 .......................... 2,000 2,110
------
9,096
Internet Services (4.4%)
Concentric Network 12.750% 12/15/07 .......................... 1,000 1,020
ICG Services Zero Coupon (Yield to Maturity 4.884%) 5/1/08 ... 2,250 1,162
Psinet 10.000% 2/15/05 ....................................... 1,500 1,485
------
3,667
Leisure Products (1.0%)
Boyds Collection 9.000% 5/15/08 (a) .......................... 750 802
Oil and Gas (1.2%)
Gulf Canada Resources 8.375% 11/15/05 ........................ 1,000 1,004
Paper (0.5%)
Indah Kiat Finance 10.000% 7/1/07 ............................ 500 270
Specialty Paperboard (Fibermark) 9.375% 10/15/06 ............. 50 152
------
422
Printing and Publishing (4.2%)
Big Flower Press 8.625% 12/1/08 (a) .......................... 1,500 1,500
World Color Press 8.375% 11/15/08 (a) ........................ 2,000 2,010
------
3,510
Restaurants (0.3%)
AFC Enterprises 10.250% 5/15/07 .............................. 250 261
Retail (5.6%)
Cole National Group 9.875% 12/31/06 .......................... 200 207
Holmes Products Series B 9.875% 11/15/07 ..................... 1,000 940
Marsh Supermarket Series B 8.875% 8/1/07 ..................... 1,000 1,050
MTS 9.375% 5/1/05 ............................................ 1,500 1,462
Westpoint Stevens 7.875% 6/15/08 ............................. 1,000 1,008
------
4,667
Rubber, Plastic and Related Materials (1.8%)
Key Plastics Series B 10.250% 3/15/07 ........................ 500 467
Tekni-Plex 9.250% 3/1/08 ..................................... 1,000 1,045
------
1,512
Sanitary Services (1.1%)
Allied Waste 7.625% 1/1/06 (a) ............................... 900 909
<PAGE>
<CAPTION>
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications (13.5%)
Focal Communications Series B
Zero Coupon (Yield to Maturity 5.967%) 2/15/08 ........ $ 2,500 $ 1,350
Level 3 Communications
9.125% 5/1/08 ......................................... 1,000 993
Zero Coupon (Yield to Maturity 5.181%) 12/1/08 (a) .... 1,000 582
McLeodusa 9.500% 11/1/08 (a) ............................. 1,000 1,065
MGC Communications Series B 13.000% 10/1/04 .............. 1,000 660
Metromedia Fiber Networks 10.000% 11/15/08 (a) ........... 1,500 1,541
Metronet Communications (Yankee Issue)
12.000% 8/15/07 ....................................... 1,000 1,087
Zero Coupon (Yield to Maturity 5.307%) 6/15/08 ........ 1,000 613
Nextlink Communications 9.625% 10/1/07 ................... 1,250 1,216
Optel Series B 11.500% 7/1/08 ............................ 1,200 1,176
Viatel 11.250% 4/15/08 ................................... 1,000 1,000
-------
11,283
Telephone (5.0%)
Allegiance Telecom Series B
Zero Coupon (Yield to Maturity 5.870%) 2/15/08 ........ 1,500 720
BTI Telecom 10.500% 9/15/07 .............................. 1,000 740
Comtel Brasileira (Yankee Issue) 10.750% 9/26/04 (a) .... 250 195
Esprit Telecom Group (Yankee Issue) 11.500% 12/15/07 .... 1,000 1,035
ITC Deltacom 9.750% 11/15/08 (a) ......................... 500 520
Knology Holdings
Zero Coupon (Yield to Maturity 5.840%) 10/15/07 ....... 2,000 920
-------
4,130
Textile and Apparel (2.5%)
Pillowtex Series B 9.000% 12/15/07 ....................... 750 772
William Carter Series A 10.375% 12/1/06 .................. 1,200 1,308
-------
2,080
Transportation and Transportation Equipment (3.9%)
Atlas Air 9.375% 11/15/06 (a) ............................ 2,000 2,000
Coach USA Series B 9.375% 7/1/07 ......................... 500 515
Holt Group 9.750% 1/15/06 (a) ............................ 1,000 700
-------
3,215
Utilities (0.7%)
Calenergy 9.500% 9/15/06 ................................. 500 555
-------
Total Long-Term Obligations
(Cost basis $80,918) ..................................... 78,590
-------
<CAPTION>
- --------------------------------------------------------------------------------
Number of
Preferred Stock (0.5%) Units
- --------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications (0.1%)
Viatel Series A 10.000%.............................. 1 55
Telephone (0.4%)
21st Century Telecom Group 13.750% .................. 1 361
-------
Total Preferred Stock
(Cost basis $518).................................... 416
-------
================================================================================
<PAGE>
<CAPTION>
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Number Market
of Warrants Value
Warrants (0.3%)
- --------------------------------------------------------------------------------
Internet Services (0.2%)
Concentric Network Warrants 12/15/07 (a)............. 1 $ 140
Telecommunications (0.1%)
Metronet Communications Warrants 8/15/07 (a)......... 1 42
MGC Communications Warrants 10/01/04 (a)............. 1 31
-------
73
Telephone (0.0%)
Allegiance Telecom Warrants 2/3/08 (a)............... 2 3
Knology Holdings Warrants 10/15/07 (a)............... 2 4
21st Century Telecommunications Warrants 2/15/10 (a). 1 15
-------
22
Total Warrants
(Cost $- )........................................ 235
-------
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Short-Term Obligation (3.0%) Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (3.0%)
Associates Corp. of North America 5.080% 1/4/99
(Amortized cost $2,474).......................... $ 2,475 2,474
-------
================================================================================
Total Investments (98.0%)
(Cost basis $83,808) (b).......................... 81,715
Other Assets, Less Liabilities (2.0%)................ 1,663
-------
Total Net Assets (100.0%)............................ $83,378
=======
================================================================================
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a)Represents private placement securities issued under Rule 144A, which are
exempt from the registration requirements of the Securities Act of 1933.
These securities generally are issued only to qualified institutional
investors, and any resale must be in an exempt transaction, normally to other
qualified institutional investors. At December 31, 1998, the aggregate value
of the Portfolio's private placement securities was $21,620 (aggregate cost
$21,748), which represented 25.9% of net assets.
(b)At December 31, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized depreciation was
$2,093, consisting of gross unrealized appreciation of $1,561 and gross
unrealized depreciation of $3,654.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1998
(All amounts in thousands, except per-share data)
(Unaudited)
<CAPTION>
Intermediate High
Bond Income Yield
Fund Fund Fund
--------- --------- ----------
<S> <C> <C> <C>
Assets
Investment in Portfolio, at value ..................................................... $ 457,418 $ 366,232 $ 37,879
Receivable for fund shares sold ....................................................... 337 385 110
Cash .................................................................................. 25 25 25
Receivable from investment adviser .................................................... -- -- 14
Other assets .......................................................................... 59 47 12
--------- --------- ---------
Total assets ....................................................................... 457,839 366,689 38,040
--------- --------- ---------
Liabilities
Payable for fund shares redeemed ...................................................... 1,103 2,792 25
Dividends payable ..................................................................... 1,058 732 624
Payable to investment adviser and transfer agent ...................................... 115 89 --
Other liabilities ..................................................................... 106 123 14
--------- --------- ---------
Total liabilities .................................................................. 2,382 3,736 663
--------- --------- ---------
Net assets ......................................................................... $ 455,457 $ 362,953 $ 37,377
========= ========= =========
Analysis of Net Assets
Paid-in capital ....................................................................... $ 460,251 $ 371,123 $ 39,526
Net unrealized appreciation (depreciation) on investments and futures contracts ....... 2,597 (714) (1,183)
Accumulated net realized losses on investments ........................................ (7,391) (7,456) (966)
--------- --------- ---------
Net assets ......................................................................... $ 455,457 $ 362,953 $ 37,377
========= ========= =========
Shares outstanding (unlimited number authorized) ...................................... 51,214 37,237 3,735
========= ========= =========
Net asset value per share .......................................................... $ 8.89 $ 9.75 $ 10.01
========= ========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
- --------------------------------------------------------------------------------
For the Six Months Ended December 31, 1998
(All amounts in thousands)
(Unaudited)
<CAPTION>
Intermediate High
Bond Income Yield
Fund Fund Fund
-------- -------- --------
<S> <C> <C> <C>
Investment Income
Interest income allocated from Portfolio ........................................ $ 15,874 $ 16,028 $ 1,661
-------- -------- --------
Expenses
Expenses allocated from Portfolio ............................................... 838 1,058 110
Administrative fees ............................................................. 335 273 27
Transfer agent fees ............................................................. 313 291 26
Printing and postage ............................................................ 34 24 6
SEC and state registration fees ................................................. 19 18 9
Accounting fees ................................................................. 18 17 13
Audit and legal fees ............................................................ 3 3 7
Trustees' fees .................................................................. 1 1 3
Other ........................................................................... 109 121 26
-------- -------- --------
Total expenses ............................................................... 1,670 1,806 227
Reimbursement of expenses by investment adviser ................................. -- -- (44)
-------- -------- --------
Net expenses ................................................................. 1,670 1,806 183
-------- -------- --------
Net investment income ........................................................ 14,204 14,222 1,478
-------- -------- --------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains (losses) on investments and futures
transactions allocated from Portfolio ......................................... 577 (6,606) (966)
Net change in unrealized appreciation or depreciation on investments ............ (4,431) (6,319) (1,319)
-------- -------- --------
Net losses on investments .................................................... (3,854) (12,925) (2,285)
-------- -------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations ................. $ 10,350 $ 1,297 $ (807)
======== ======== ========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(All amounts in thousands)
(Unaudited)
<CAPTION>
Intermediate Income High Yield
Bond Fund Fund Fund
Six Months Fiscal Year Six Months Fiscal Year Six Months Fiscal Year
Ended Ended Ended Ended Ended Ended
Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30,
1998 1998 1998 1998 1998 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income ................................ $ 14,204 $ 25,498 $ 14,222 $ 29,046 $ 1,478 $ 2,334
Net realized gains (losses) on investments ........... 577 6,530 (6,606) 5,548 (966) 1,361
Net change in unrealized appreciation
or depreciation on investments .................... (4,431) 2,808 (6,319) 67 (1,319) (131)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ...................... 10,350 34,836 1,297 34,661 (807) 3,564
--------- --------- --------- --------- --------- ---------
Distributions to Shareholders
Distributions from net investment income ............. (14,204) (25,498) (14,222) (29,046) (1,478) (2,334)
Distributions from net capital gains ................. -- -- -- -- (1,156) (424)
--------- --------- --------- --------- --------- ---------
Total distributions to shareholders ............... (14,204) (25,498) (14,222) (29,046) (2,634) (2,758)
--------- --------- --------- --------- --------- ---------
Share Transactions
Subscriptions to fund shares ......................... 103,633 177,002 47,594 151,635 19,815 39,280
Value of distributions reinvested .................... 10,103 18,599 11,153 21,636 1,446 1,347
Redemptions of fund shares ........................... (91,881) (96,267) (131,272) (105,755) (21,914) (13,444)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from
share transactions ............................. 21,855 99,334 (72,525) 67,516 (653) 27,183
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets ............. 18,001 108,672 (85,450) 73,131 (4,094) 27,989
Total Net Assets
Beginning of period .................................. 437,456 328,784 448,403 375,272 41,471 13,482
--------- --------- --------- --------- --------- ---------
End of period ........................................ $ 455,457 $ 437,456 $ 362,953 $ 448,403 $ 37,377 $ 41,471
========= ========= ========= ========= ========= =========
Analysis of Changes in Shares
of Beneficial Interest
Subscriptions to fund shares ......................... 11,656 19,854 4,821 15,110 1,925 3,593
Issued in reinvestment of distributions .............. 1,136 2,083 1,137 2,154 143 124
Redemptions of fund shares ........................... (10,333) (10,792) (13,424) (10,526) (2,105) (1,224)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in fund shares ............ 2,459 11,145 (7,466) 6,738 (37) 2,493
Shares outstanding at beginning of period ............ 48,755 37,610 44,703 37,965 3,772 1,279
--------- --------- --------- --------- --------- ---------
Shares outstanding at end of period .................. 51,214 48,755 37,237 44,703 3,735 3,772
========= ========= ========= ========= ========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1998
(All amounts in thousands)
(Unaudited)
<CAPTION>
SR&F
Intermediate SR&F SR&F
Bond Income High Yield
Portfolio Portfolio Portfolio
-------- -------- --------
<S> <C> <C> <C>
Assets
Investments, at market value (cost of $456,776,
$359,933 and $83,808, respectively) .............................. $458,917 $359,218 $ 81,715
Accrued interest receivable ......................................... 6,191 7,307 1,716
Receivable for investments sold ..................................... 6,738 1,240 --
Variation margin receivable on futures .............................. 14 -- --
Other assets ........................................................ 172 1 --
-------- -------- --------
Total assets ..................................................... 472,032 367,766 83,431
-------- -------- --------
Liabilities
Payable for investments purchased ................................... 10,063 1,257 --
Payable to investment adviser ....................................... 133 148 37
Cash overdraft ...................................................... -- 17 7
Other liabilities ................................................... 13 10 9
-------- -------- --------
Total liabilities ................................................ 10,209 1,432 53
-------- -------- --------
Net assets applicable to investors'
beneficial interests .......................................... $461,823 $366,334 $ 83,378
======== ======== ========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
- --------------------------------------------------------------------------------
For the Six Months Ended December 31, 1998
(All amounts in thousands)
(Unaudited)
<CAPTION>
SR&F
Intermediate SR&F SR&F
Bond Income High Yield
Portfolio Portfolio Portfolio
-------- -------- --------
<S> <C> <C> <C>
Investment Income
Interest income .................................................. $ 15,997 $ 16,032 $ 3,410
-------- -------- --------
Expenses
Management fees .................................................. 791 1,005 188
Accounting fees .................................................. 18 17 13
Audit and legal .................................................. 12 12 8
Trustees' fees ................................................... 6 6 2
Other ............................................................ 17 19 15
-------- -------- --------
Total expenses ................................................ 844 1,059 226
-------- -------- --------
Net investment income ......................................... 15,153 14,973 3,184
-------- -------- --------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains (losses) on investments ....................... 3,888 (6,608) (1,715)
Net realized losses on futures transactions ...................... (3,341) -- --
Net change in unrealized appreciation or depreciation
on investments ................................................. (4,418) (6,320) (2,466)
-------- -------- --------
Net losses on investments ..................................... (3,871) (12,928) (4,181)
-------- -------- --------
Net Increase (Decrease) in Net Assets Resulting
from Operations ............................................... $ 11,282 $ 2,045 $ (997)
======== ======== ========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<CAPTION>
(All amounts in thousands)
(Unaudited)
SR&F Intermediate SR&F Income SR&F High Yield
Bond Portfolio Portfolio Portfolio
Six Months Period Six Months Period Six Months Fiscal Year
Ended Ended Ended Ended Ended Ended
Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30,
1998 1998 (a) 1998 1998 (a) 1998 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income ................................ $ 15,153 $ 11,522 $ 14,973 $ 12,968 $ 3,184 $ 5,000
Net realized gains (losses) on investments
and futures transactions ........................... 547 1,053 (6,608) 3,126 (1,715) 3,084
Net change in unrealized appreciation
or depreciation on investments ..................... (4,418) (623) (6,320) (5,089) (2,466) (176)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 11,282 11,952 2,045 11,005 (997) 7,908
--------- --------- --------- --------- --------- ---------
Transactions in Investors' Beneficial Interests
Contributions ........................................ 51,199 461,444 11,723 456,478 22,406 40,432
Withdrawals .......................................... (40,823) (33,231) (96,576) (18,341) (16,518) (9,126)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from transactions
in investors' beneficial interests .............. 10,376 428,213 (84,853) 438,137 5,888 31,306
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets ............. 21,658 440,165 (82,808) 449,142 4,891 39,214
Total Net Assets
Beginning of period .................................. 440,165 -- 449,142 -- 78,487 39,273
--------- --------- --------- --------- --------- ---------
End of period ........................................ $ 461,823 $ 440,165 $ 366,334 $ 449,142 $ 83,378 $ 78,487
========= ========= ========= ========= ========= =========
(a)From commencement of operations on February 2, 1998.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(All amounts in thousands)
Note 1. Organization
Stein Roe Intermediate Bond Fund, Stein Roe Income Fund and Stein Roe High Yield
Fund are series of Stein Roe Income Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust. Intermediate
Bond Fund, Income Fund and High Yield Fund invest substantially all of their
assets in SR&F Intermediate Bond Portfolio, SR&F Income Portfolio and SR&F High
Yield Portfolio (the "Portfolios"), respectively.
The Portfolios are series of the SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. SR&F High Yield Portfolio commenced operations on November 1, 1996, in
conjunction with High Yield Fund. SR&F Intermediate Bond Portfolio and SR&F
Income Portfolio commenced operations on February 2, 1998. At commencement,
Intermediate Bond Fund and Income Fund contributed $427,315 and $432,720 in
securities and other assets to SR&F Intermediate Bond Portfolio and SR&F Income
Portfolio, respectively, in exchange for beneficial ownership of those
Portfolios. At February 4, 1998, Stein Roe Advisor Intermediate Bond Fund and
Stein Roe Advisor Income Fund each contributed cash of $100 to their respective
Portfolios. The Portfolios allocate income, expenses, realized and unrealized
gains and losses to each investor on a daily basis, based on their respective
percentage of ownership. At December 31, 1998, Intermediate Bond Fund and
Advisor Intermediate Bond Fund owned 99.0% and 1.0%, respectively, of SR&F
Intermediate Bond Portfolio; Income Fund owned substantially all of SR&F Income
Portfolio; and High Yield Fund and Stein Roe Institutional Client High Yield
Fund owned 45.4% and 54.6%, respectively, of SR&F High Yield Portfolio.
Note 2. Significant Accounting Policies
The following summarizes the significant accounting policies of the Funds and
Portfolios. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Investment Transactions and Investment Income
Investment transactions are accounted for on trade date. Interest income,
including discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
Securities purchased on a when-issued or delayed delivery basis may be
settled a month or more after the transaction date. The values of such
securities are subject to market fluctuations during this period. None of the
Portfolios had when-issued or delayed delivery purchase commitments as of
December 31, 1998.
Security Valuations
All securities are valued as of December 31, 1998. Long-term debt
securities are valued using market quotations if readily available at the time
of valuation. If market quotations are not readily available, they are valued at
a fair value using a procedure determined in good faith by the Board of
Trustees, which has authorized the use of market valuations provided by a
pricing service. Short-term debt securities with remaining maturities of 60 days
or less are valued at their amortized cost. Those with remaining maturities of
more than 60 days for which market quotations are not readily available are
valued by use of a matrix, prepared by the Adviser, based on quotations for
comparable securities. Other assets are valued by a method that the Board of
Trustees believes represents a fair value.
Futures Contracts
During the six months ended December 31, 1998, SR&F Intermediate Bond
Portfolio entered into U.S. Treasury security futures contracts to either hedge
against expected declines in the value of its securities or as a temporary
substitute for the purchase of individual bonds. Risks of entering into futures
contracts include the possibility that there may be an illiquid market at the
time the Portfolio seeks to close out a contract, and changes in the value of
the futures contract may not correlate with changes in the value of the
securities being hedged.
Upon entering into a futures contract, the Portfolio deposits cash or
securities with its custodian in an amount sufficient to meet the initial margin
requirement. Subsequent payments are made or received by the Portfolio equal to
the daily change in the contract value and are recorded as unrealized gains or
losses. The Portfolio recognizes a realized gain or loss when the contract is
closed or expires. See SR&F Intermediate Bond Portfolio's portfolio of
investments for a summary of open futures contracts at December 31, 1998. No
other Portfolios entered into any futures contracts during the period.
Federal Income Taxes
No provision is made for federal income taxes, since (a) 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 tax
under provisions of current federal tax law; and (b) the Portfolios are treated
as partnerships for federal income tax purposes and all of their income is
allocated to their owners based on respective percentages of ownership.
The Funds intend to utilize provisions of federal income tax law that allow
them to carry a realized capital loss forward for eight years following the year
of the loss and offset such losses against any future realized gains.
At June 30, 1998, the Funds had capital loss carryforwards as follows:
Year of
Fund Amount Expiration
Intermediate
Bond Fund $7,831 2003-2005
Income Fund 706 2002
Distributions to Shareholders
Dividends from net investment income are declared daily and paid monthly.
Capital gains distributions, if any, are distributed annually. Distributions in
excess of tax basis earnings are reported in the financial statements as a
return of capital. Permanent differences in the recognition or classification of
income between the financial statements and tax earnings are reclassified to
paid-in capital.
Note 3. Portfolio Composition
Intermediate Bond Portfolio invests primarily in marketable debt securities with
an expected average life between three and ten years. Income Portfolio invests
principally in medium-quality debt securities. High Yield Portfolio invests
primarily in high yield, high-risk medium- and lower-quality debt securities.
See each Portfolios' portfolio of investments for information regarding
individual securities as well as industry diversification. See each Portfolio's
Fund Highlights for unaudited information regarding portfolio quality and
average maturity.
Note 4. Trustees' Fees and Transactions with Affiliates
The Funds and Portfolios pay monthly management and administrative fees,
computed and accrued daily, to Stein Roe & Farnham Incorporated (the "Adviser"),
an indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), for its services as investment adviser and manager. The annual
rates, as a percentage of average daily net assets, are as follows:
<TABLE>
Management Fee Administrative Fee
<S> <C> <C>
Intermediate Bond Fund N/A .150%
SR&F Intermediate Bond .350% N/A
Portfolio
Income Fund N/A .150% up to $100 million,
.125% thereafter
SR&F Income Portfolio .500% up to $100 million, N/A
.475% thereafter
High Yield Fund N/A .150% up to $500 million,
.125% thereafter
SR&F High Yield Portfolio .500% up to $500 million, N/A
Portfolio .475% thereafter
</TABLE>
The Adviser also provides fund accounting services.
The Adviser has agreed to reimburse High Yield Fund for annual expenses in
excess of 1.00% of average daily net assets. This commitment expires on October
31, 1999, subject to earlier termination by the Adviser on 30 days notice.
Transfer agent fees are paid to SteinRoe Services, Inc. (SSI), a direct,
wholly-owned subsidiary of Liberty. SSI has entered into an agreement with
Liberty Funds Services, Inc., an indirect, wholly-owned subsidiary of Liberty,
to act as a subtransfer agent for the Funds.
Certain officers and trustees of the Trusts are also officers of the Adviser.
Compensation is paid to trustees not affiliated with the Adviser. No
remuneration was paid to any other trustee or officer of the Trusts.
Note 5. Short-Term Debt
To facilitate portfolio liquidity, the Funds and Portfolios maintain borrowing
arrangements under which they can borrow against portfolio securities. There
were no borrowings during the six months ended December 31, 1998. Note 6.
Investment Transactions The aggregate cost of purchases and proceeds from sales
of securities or maturities, other than short-term obligations, for the six
months ended December 31, 1998, were:
Purchases Sales
--------- ---------
SR&F Intermediate Bond Portfolio....................... $501,969 $467,701
SR&F Income Portfolio.................................. 298,371 360,646
SR&F High Yield Portfolio.............................. 101,891 89,028
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Intermediate Bond Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
Six Months
Ended
Dec. 31,
1998 Years Ended June 30,
(Unaudited) 1998 1997 1996 1995
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .......................... $8.97 $8.74 $ 8.58 $ 8.67 $ 8.44
----- ----- ------- ------- -------
Income From Investment Operations
Net investment income ....................... .28 .58 .60 .59 .58
Net realized and unrealized
gains (losses)
on investments ........................... (.08) .23 .17 (.10) .23
----- ----- ------- ------- -------
Total from investment
operations ............................ .20 .81 .77 .49 .81
----- ----- ------- ------- -------
Distributions
Net investment income ....................... (.28) (.58) (.61) (.58) (.58)
Net realized gains .......................... -- -- -- -- --
----- ----- ------- ------- -------
Total distributions ...................... (.28) (.58) (.61) (.58) (.58)
----- ----- ------- ------- -------
Net Asset Value, End of Period ................. $8.89 $8.97 $ 8.74 $ 8.58 $ 8.67
===== ===== ======= ======= =======
Ratio of net expenses to
average net assets (a) ....................... .75%(c) 0.72% 0.73% 0.70% 0.70%
Ratio of net investment
income to average
net assets (b) .............................. 6.35%(c) 6.51% 6.97% 6.79% 6.94%
Portfolio turnover ............................. N/A 138%(d) 210% 202% 162%
Total return (b) ............................... 2.32% 9.51% 9.31% 5.76% 10.11%
Net assets, end of period (000's) ............. $455,457 $437,456 $328,784 $298,112 $301,733
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this ratio would have been 0.75%, 0.75% and 0.71% for the
years ended June 30, 1997, 1996 and 1995, respectively.
(b)Computed giving effect to the Adviser's expense limitation undertaking.
(c)Annualized
(d)Prior to commencement of operations of the Portfolio.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
Income Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
Six Months
Ended
Dec. 31,
1998 Years Ended June 30,
(Unaudited) 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 10.03 $ 9.88 $ 9.63 $ 9.79 $ 9.36
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net investment income ..................... .34 .69 .70 .71 .71
Net realized and unrealized
gains (losses)
on investments ......................... (.28) .15 .25 (.16) .43
----------- ----------- ----------- ----------- -----------
Total from investment
operations .......................... .06 .84 .95 .55 1.14
----------- ----------- ----------- ----------- -----------
Distributions
Net investment income ..................... (.34) (.69) (.70) (.71) (.71)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ............... $ 9.75 $ 10.03 $ 9.88 $ 9.63 $ 9.79
=========== =========== =========== =========== ===========
Ratio of net expenses to
average net assets (a) ................... 0.87%(c) 0.83% 0.84% 0.82% 0.82%
Ratio of net investment
income to average
net assets (b) ............................ 6.84%(c) 6.89% 7.26% 7.26% 7.55%
Portfolio turnover ........................... N/A 59%(d) 138% 135% 64%
Total return (b) ............................. 0.61% 8.72% 10.34% 5.70% 12.79%
Net assets, end of period (000's) ........... $ 362,953 $ 448,403 $ 375,272 $ 309,564 $ 174,327
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this ratio would have been 0.85%, 0.88% and 0.85% for the
years ended June 30, 1997, 1996 and 1995, respectively.
(b)Computed giving effect to the Adviser's expense limitation undertaking.
(c)Annualized
(d)Prior to commencement of operations of the Portfolio.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
High Yield Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
Six Months
Ended Year Period
Dec. 31, Ended Ended
1998 June 30, June 30,
(Unaudited) 1998 1997 (c)
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 11.00 $ 10.54 $ 10.00
---------- ---------- ----------
Income From Investment Operations
Net investment income ............................................ .42 .85 .52
Net realized and unrealized gains on investments ................. (.67) .61 .54
---------- ---------- ----------
Total from investment operations ............................... (.25) 1.46 1.06
---------- ---------- ----------
Distributions
Net investment income ............................................ (.42) (.85) (.52)
Net realized gains ............................................... (.32) (.15) --
---------- ---------- ----------
Total distributions ............................................ (.74) (1.00) (.52)
---------- ---------- ----------
Net Asset Value, End of Period ...................................... $ 10.01 $ 11.00 $ 10.54
==========
Ratio of net expenses to average net assets (a) ..................... 1.00%(d) 1.00% 1.00%(d)
Ratio of net investment income to average net assets (b) ............ 8.08%(d) 7.79% 8.05%(d)
Total return (b) .................................................... (2.11%) 14.38% 10.88%
Net assets, end of period (000's) ................................... $ 37,377 $ 41,471 $ 13,482
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this ratio would have been 1.24% for the six months ended
December 31, 1998, 1.32% for the year ended June 30, 1998 and 2.29% for the
period ended June 30, 1997.
(b)Computed giving effect to the Adviser's expense limitation undertaking.
(c)From commencement of operations on November 1, 1996.
(d)Annualized
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
SR&F Intermediate Bond Portfolio
<CAPTION>
Six Months
Ended Period
Dec. 31, Ended
1998 June 30,
(Unaudited) 1998 (b)
------------- ----------
<S> <C> <C>
Select Ratios
Ratio of net expenses to average net assets......... 0.37%(a) 0.39%(a)
Ratio of net investment income to average net assets 6.71%(a) 6.77%(a)
Portfolio turnover rate............................. 108% 86%
(a)Annualized
(b)From commencement of operations on February 2, 1998.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
SR&F Income Portfolio
<CAPTION>
Six Months
Ended Period
Dec. 31, Ended
1998 June 30,
(Unaudited) 1998 (b)
------------- ----------
<S> <C> <C>
Select Ratios
Ratio of net expenses to average net assets......... 0.51%(a) 0.51%(a)
Ratio of net investment income to average net assets 7.17%(a) 7.23%(a)
Portfolio turnover rate............................. 75% 77%
(a)Annualized
(b)From commencement of operations on February 2, 1998.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
SR&F High Yield Portfolio
<CAPTION>
Six Months
Ended Year Period
Dec. 31, Ended Ended
1998 June 30, June 30,
(Unaudited) 1998 1997 (b)
---------- -------- --------
<S> <C> <C> <C>
Select Ratios
Ratio of net expenses to average net assets......... 0.60%(a) 0.65% 0.89%(a)
Ratio of net investment income to average net assets 8.48%(a) 8.13% 8.24%(a)
Portfolio turnover rate............................. 127% 426% 168%
(a)Annualized
(b)From commencement of operations on November 1, 1996.
</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 maximum), 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 of 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
information 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>
Stein Roe Income Trust
- --------------------------------------------------------------------------------
Trustees
John A. Bacon, Jr.
Private Investor
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial Officer,
United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
Officers
Thomas W. Butch, President
William D. Andrews, Executive Vice President
Loren A. Hansen, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Kevin M. Carome, Vice President,
Assistant Secretary
Kevin Connaughton, Vice President
Timothy Jacoby, Vice President
Michael T. Kennedy, Vice President
Gail Knudsen, Vice President
Stephen F. Lockman, Vice President
Lynn C. Maddox, Vice President
Jane M. Naeseth, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Sharon Robertson, Controller
Heidi J. Walter, Vice President, Secretary
Janet B. Rysz, Assistant Secretary
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 Public Auditors
<PAGE>
- --------------------------------------------------------------------------------
The Stein Roe Mutual Funds
Fixed Income Funds
Cash Reserves Fund
Municipal Money Market Fund
Intermediate Municipals Fund
Managed Municipals Fund
High-Yield Municipals Fund
Intermediate Bond Fund
Income Fund
High Yield Fund
Equity Funds
Balanced Fund
Growth & Income Fund
Growth Stock Fund
Young Investor Fund
Growth Opportunities Fund
Special Fund
Large Company Focus Fund
Special Venture Fund
Capital Opportunities Fund
International Fund
Small Company Growth Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 800-322-0593
Shareholders call: 800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd Floor.
Liberty Funds Distributor, Inc.
BD12A 2/99
