STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
JUNE 30, 1999
PHOTO OF: ABACUS
STEIN ROE MONEY MARKET FUND
CASH RESERVES FUND
LOGO: STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(R)
<PAGE>
Contents
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From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Performance Summary............................................... 3
Questions & Answers
Interview with the portfolio manager and
a summary of investment activity
Cash Reserves Fund............................................. 4
Portfolio of Investments.......................................... 7
A complete list of investments with market values
Financial Statements.............................................. 9
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 15
Financial Highlights.............................................. 18
Selected per-share data
Report of Independent Auditors.................................... 19
General Information............................................... 20
To Contact Us. . .
MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
<PAGE>
From the President
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Photo of: THOMAS W. BUTCH
TO OUR SHAREHOLDERS
In fiscal 1999, cash was king.
Between June 30, 1998 and June 30, 1999, money market funds such as Stein Roe
Cash Reserves Fund provided higher returns than long-term, taxable fixed-income
securities. (See table on page 3). Fear of higher inflation outweighed the
potentially beneficial effects of a strong domestic economy, driving down
intermediate and long-term bond prices.
I am pleased to report that your Fund met its objectives of maximizing income
while providing liquidity and safety during the 12 months ended June 30, 1999, a
period of exceptional bond market volatility.
Your Fund's fiscal 1999 results outpaced both inflation and the average
returns of its peers as shown on page 3. I think this is a noteworthy
achievement given the fact that the rate of inflation has modestly increased.
Also, unlike long-term fixed-income investments, the income potential of
securities maturing in 90 days or less has declined since the summer of 1998.
The annualized yield of three-month Treasury bills fell from 5.09% to 4.76% from
June 30, 1998 to June 30, 1999.
While the Fund's yearly return of 4.64% may not seem especially robust in
absolute terms, you should know that long-term Treasury bonds* declined in value
during the same 12-month period, even with interest income reinvested.
Beginning on page 4, your Fund's portfolio manager reviews events over the
past 12 months that affected money market and bond investments.
DOUBLE-EDGE DILEMMA: GROWTH AND INFLATION
In the 1990s advances in technology -- particularly electronic commerce -- as
well as prudent Federal Reserve monetary policy, have helped fuel one of the
longest and strongest U.S. economic booms since the end of World War II. In May
1999, the nation's unemployment rate dropped to 4.2%, a level not seen since the
1960s.
Our growing economy helps bond issuers meet debt payments, but too much
growth can cause the cost of living to accelerate. Higher prices, in turn,
reduce the purchasing power of bond income.
When the government reported that inflation in April was higher-than-
expected, bond traders demanded much higher yields from fixed-income
investments. Bond prices - which move in the opposite direction of yields - fell
sharply. This fear of inflation was compounded by the resignation of a U.S.
Treasury Secretary who helped engineer the first budget surpluses in a
generation, higher oil prices and reports of building material and labor
shortages.
A YEAR OF VOLATILITY IN TREASURIES
As of June 30, 1999, the average yield of 30-year U.S. Treasury bonds stood at
5.98%, some 35 basis points (0.35%) higher than on June 30, 1988. However, this
modest increase masks a year of exceptional volatility that saw yields fluctuate
from a record low of 4.71% last October to a high of 6.19% in late June.
Fiscal 1999 initially began with positive developments for Treasuries and a
worrisome environment for other types of bonds. Investors flocked to the safety
of U.S. government debt as global credit concerns mounted and equity markets
weakened. By this spring, however, the reverse was true. Emerging markets
stabilized. U.S. corporate profits were generally better than expected, stocks
soared and the domestic economy showed vigorous growth. This past June, the Fed
raised short-term interest rates by 25 basis points (0.25%) to 5%.
At Stein Roe, we believe the U.S. economic environment will become more
favorable for fixed-income investments in the coming months as investors begin
to realize that inflation is not expected to rise much beyond 3%. In addition,
we think some companies may hold off on purchasing plans until after the year
2000, helping to temper domestic growth.
Historically, the Fed's efforts to rein in inflation have benefited
money-market yields. At such times, investors seeking to capitalize on a
potential rise in bond prices shift resources to long-term securities, reducing
demand for money-market securities, causing short-term yields to rise. With its
relatively short maturity, we think your Fund is well positioned for the coming
months.
A taxable money market fund can be a prudent place to park your cash as you
decide on a long-term investment strategy, but it is not an asset class that can
help most growth-oriented investors achieve their goals. I urge you to review
your portfolio and, if your investment horizon is more than a year or two,
consider increasing your financial commitment to Stein Roe funds that are better
designed to help you meet your long-term objectives.
Sincerely,
/s/ Thomas W. Butch
Thomas W. Butch
President
July 19, 1999
*UNLIKE TREASURIES, AN INVESTMENT IN THE FUND IS NEITHER INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORP. (FDIC) OR
ANY GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND.
<PAGE>
Performance Summary
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AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999
1 YEAR 5 YEARS 10 YEARS
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STEIN ROE CASH RESERVES FUND 4.64% 4.94% 4.99%
U.S. Consumer Price Index (Inflation) 2.00 2.35 3.04
Lehman Brothers Government Bond Index 3.05 7.59 7.96
Merrill Lynch High Yield Master II Index 0.94 10.06 10.65
Lipper Money Market Fund Average 4.51 4.90 4.98
Number of Funds in Peer Group 318 214 131
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURN INCLUDES
REINVESTMENT OF INCOME. YIELDS FLUCTUATE AND ARE NOT GUARANTEED. AN INVESTMENT
IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORP. (FDIC) OR ANY GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THE FUND. THE U.S. CONSUMER PRICE INDEX IS THE GOVERNMENT'S MEASURE
OF RETAIL INFLATION. EACH BOND INDEX SHOWN ABOVE IS UNMANAGED AND DOES NOT
REPRESENT THE PERFORMANCE OF ANY STEIN ROE MUTUAL FUND; NEITHER IS AVAILABLE FOR
DIRECT INVESTMENT. SOURCE OF LIPPER DATA: LIPPER, INC., A MONITOR OF MUTUAL FUND
PERFORMANCE.
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Cash Reserves Fund's Yield History vs. Inflation January 1997-June 1999
Line Chart:
Cash Reserves Fund's U.S. Consumer Price Index
7-Day Current Yield (Inflation)
Jan-97 4.74 3
4.7 3
Mar-97 4.7 2.8
4.89 2.5
4.96 2.2
Jun-97 4.96 2.3
4.89 2.2
5.01 2.2
Sep-97 4.93 2.2
4.9 2.1
5 1.8
Dec-97 5.26 1.7
4.99 1.6
4.94 1.4
Mar-98 4.96 1.4
4.95 1.4
4.89 1.7
Jun-98 4.82 1.7
4.96 1.7
4.92 1.6
Sep-98 4.85 1.5
4.71 1.5
4.57 1.5
Dec-98 4.7 1.6
4.5 1.7
4.25 1.6
Mar-99 4.22 1.7
4.18 2.3
4.21 2.1
Jun-99 4.37 2
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. YIELDS FLUCTUATE AND ARE
NOT GUARANTEED. THE U.S. CONSUMER PRICE INDEX IS THE GOVERNMENT'S MEASURE OF
RETAIL INFLATION. SOURCE: BLOOMBERG BUSINESS NEWS.
<PAGE>
Questions & Answers
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AN INTERVIEW WITH JANE NAESETH, PORTFOLIO MANAGER OF STEIN
ROE CASH RESERVES FUND AND SR&F CASH RESERVES PORTFOLIO
FUND DATA
INVESTMENT OBJECTIVE:
Seeks maximum current income consistent with capital preservation and
maintenance of liquidity by investing in high-quality money market
securities, such as U.S. Treasuries, commercial paper, bankers acceptances
and certificates of deposit.
FUND INCEPTION:
Oct. 2, 1976
TOTAL NET ASSETS:
$503.7 million
PHOTO OF : JANE NAESETH
Q: HOW DID THE FUND PERFORM?
NAESETH: The Fund performed better than the average money market fund tracked by
Lipper, Inc. for the one-year period ended June 30, 1999, as shown on page 3.
The Fund's income potential declined during the period as the Federal Reserve
Board reduced the overnight lending rate by 75 basis points (0.75%) during the
first half of fiscal 1999.
Q: WHAT EFFECT DID THE RATE DECLINES AT THE END OF 1998 HAVE ON THE FUND?
NAESETH: The three consecutive 25 basis point (0.25%) rate decreases that the
Federal Open Market Committee made during the last quarter of 1998 had a
slightly negative impact on Fund performance during the first quarter of 1999
when higher-yielding securities from 1998 matured. We expect the 0.25% rate
increase the Fed enacted in late June to have a modestly positive effect on the
portfolio in the coming months.
Q: HOW DID YOU POSITION THE FUND'S AVERAGE MATURITY AND WHY?
NAESETH: We lengthened average maturity during the first half of the fiscal year
in anticipation of the rate decreases by the Federal Open Market Committee. We
began shortening our average maturity in 1999 due to the small spreads, or
differences, in long- and short-term yields. We didn't want to give up any
potential current yield for a rate change that might happen. So we lengthened
maturity where we could in December to capture the attractive yields as far into
1999 as possible.
Q: WERE THERE ANY PARTICULAR SECTORS THAT WERE ATTRACTIVE OVER THE PAST YEAR?
NAESETH: Because letters of credit weren't attractive to us last June, we held a
larger portion of the portfolio in commercial paper. Most of our letters of
credit were in Japan and because of the turmoil in their markets, we moved out
of Japan.
We also purchased a floating-rate note. We had gotten out of floating-rate
securities because the income potential was unattractive when interest rates
were declining. Now that interest rates have risen again, floating-rate notes
are looking more attractive.
Q: WHAT IMPACT WILL THE RECENT RATE INCREASE HAVE ON THE FUND?
NAESETH: Although income potential might increase slightly, we don't expect that
there will be a dramatic impact on the Fund because much of the increase was
already built into any recent securities we bought.
Q: DID THE FUND BEAT THE RATE OF INFLATION?
NAESETH: The Fund's annual rate of return of 4.64% provided income potential at
a rate that was twice that of the increase in the cost of living between June
1998 and June 1999 as shown on page 3. We expect inflation to remain a benign
factor in the overall economy, at least for the short term.
Q: WHAT'S YOUR OUTLOOK FOR MONEY MARKET SECURITIES?
NAESETH: With a neutral Federal Open Market Committee bias and the summer months
a normally slow time of year for money markets, we expect the portfolio's income
potential to remain relatively stable in the third quarter. We have lengthened
average maturity slightly now that the Fed has increased rates modestly.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURN INCLUDES
REINVESTMENT OF INCOME. YIELDS FLUCTUATE AND ARE NOT GUARANTEED. AN INVESTMENT
IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORP. (FDIC) OR ANY GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THE FUND. SOURCE OF LIPPER DATA: LIPPER, INC., A MONITOR OF MUTUAL
FUND PERFORMANCE.
<PAGE>
Fund Highlights
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Cash Reserves Portfolio
SECURITIES TYPE BREAKDOWN
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PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
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Commercial Paper 87.3% 89.9
Letter of Credit Commercial Paper 0.0 3.9
Yankee Certificates of Deposit 7.1 3.2
Corporate Notes 5.6 3.0
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Total Investments 100.0% 100.0%
PORTFOLIO STATISTICS
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
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7-day Dollar-Weighted
Average Maturity 27.1 days 27.7 days
7-day Current Yield* 4.37% 4.94%
*NET OF ALL FEES AND EXPENSES AND REPRESENTS AN ANNUALIZATION OF DIVIDENDS
DECLARED AND PAYABLE TO SHAREHOLDERS FOR THE LAST SEVEN DAYS OF INVESTMENT.
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PIE CHARTS:
MATURITY
As of June 30, 1999 As of June 30, 1998
GREATER THAN 59 DAYS 14.7% 7.7%
30-59 DAYS 9.0% 11.0%
15-29 DAYS 15.2% 27.6%
5-14 DAYS 51.5% 32.3%
1-4 DAYS 9.6% 21.4%
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<TABLE>
SR&F Cash Reserves Portfolio
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Portfolio of Investments at June 30, 1999
(All amounts in thousands)
<CAPTION>
INTEREST MATURITY PRINCIPAL AMORTIZED
COMMERCIAL PAPER (86.9%) RATE RANGE(a) DATE RANGE AMOUNT COST
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEVERAGES (3.2%)
Coca-Cola Enterprises (b)...... 4.919 7/7/99 $25,000 $24,980
COMPUTER SERVICES (2.4%)
Electronic Data Systems (b).... 4.922 7/2/99 19,000 18,997
CONSULTING SERVICES (1.7%)
CSC Enterprises (gtd. by
Computer Sciences).......... 5.034 7/6/99 12,835 12,826
FINANCIAL SERVICES (64.0%)
AUTO LENDING (3.2%)
American Honda Finance (gtd. by
American Honda Motor).... 4.878 7/7/99 25,000 24,980
DIVERSIFIED FINANCIAL SERVICES (4.5%)
Finova Capital.............. 4.967 7/12/99 35,000 34,947
LEASING (4.6%)
Enterprise Funding (b)...... 5.140-5.876 7/1/-9/8/1999 35,547 35,396
OTHER FINANCIAL (6.5%)
Asset Securitization (b).... 5.212 7/14/99 38,000 37,929
Caterpillar Financial Services 5.307 7/9/99 12,000 11,986
-------
49,915
SPECIAL PURPOSE ENTITIES (45.2%)
Citic Pacific Finance
(LOC Bank of America).... 4.942-5.253 7/12-7/28/1999 38,000 37,875
CSN Overseas
(LOC Barclays Bank)...... 5.163 7/26/99 25,000 24,911
Falcon Asset Securitization (b) 5.276 8/3/99 35,000 34,831
Harley-Davidson Funding (gtd. By
Eaglemark Inc.) (b)...... 4.940-4.950 7/6-7/7/1999 34,000 33,975
Old Line Funding (b)........ 4.891-4.938 7/6/99 35,000 34,976
Preferred Receivables Funding (b) 4.883 7/8/99 33,500 33,468
Receivables Capital (b)..... 4.902 7/7/99 29,905 29,881
Special Purpose
Accounts Receivable (b).. 5.348 8/4/99 35,000 34,824
Superior Funding (b)........ 5.097 7/21/99 35,000 34,901
Thames Asset Global
Securitization No. 1 (b). 4.979-5.061 7/8-7/15/1999 35,606 35,557
Windmill Funding (b)........ 5.004 7/16/99 14,000 13,971
-------
349,170
-------
TOTAL FINANCIAL SERVICES.... 494,408
-------
<PAGE>
<CAPTION>
SR&F Cash Reserves Portfolio Continued
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST MATURITY PRINCIPAL AMORTIZED
RATE RANGE(a) DATE RANGE AMOUNT COST
- ---------------------------------------------------------------------------------------------------------------------------
MANUFACTURING (4.5%)
Eaton (b)...................... 5.208 7/9/99 $35,000 $ 34,959
MEDICAL PRODUCTS (4.5%)
Baxter International........... 5.014-5.110 7/6-7/8/1999 34,500 34,474
RETAIL - CONVENIENCE STORE (6.6%)
Southland (gtd. By Ito-Yokado). 4.912 7/9/99 15,785 15,768
Toys R Us...................... 4.933 7/1/99 35,000 35,000
-------
50,768
-------
TOTAL COMMERCIAL PAPER......... 671,412
-------
- ---------------------------------------------------------------------------------------------------------------------------
CORPORATE NOTES (5.5%)
FINANCIAL SERVICES (5.5%)
Household Finance.............. 8.836 9/15/99 10,000 10,077
Transamerica Financial......... 8.466 10/1/99 7,800 7,872
Goldman Sachs Group............ 5.020 2/17/00 25,000 25,000
-------
42,949
-------
- ---------------------------------------------------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT (7.1%)
BANKS (7.1%)
ABN-AMRO Canada................ 4.933 10/12/99 25,000 24,656
Commerzbank New York........... 5.087 2/16/00 30,000 29,994
-------
54,650
-------
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TOTAL INVESTMENTS (99.5%)(C)... 769,011
OTHER ASSETS, LESS LIABILITIES (0.5%) 3,450
-------
TOTAL NET ASSETS (100.0%)...... $772,461
========
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Notes to Portfolio of Investments
(a) The interest rate is the effective rate at the date of purchase except for
variable rate notes, for which the interest rate represents the current
rate as of the most recent reset date.
(b) Represents private placement securities exempt from registration by Section
4(2) of the Securities Act of 1933. These securities generally are issued
to investors who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale by the
Portfolio must be in an exempt transaction, normally to other institutional
investors. At June 30, 1999, the aggregate value of the Fund's private
placement securities was $438,645, which represented 56.8 percent of net
assets. None of these securities were deemed illiquid.
(c) At June 30, 1999, the cost of investments for financial reporting and
income tax purposes was identical.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
Stein Roe Cash Reserves Fund
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Statement of Assets and Liabilities
June 30, 1999
(All amounts in thousands, except per-share amount)
ASSETS
Investment in Portfolio, at amortized cost........................ $505,585
Receivable for fund shares sold................................... 2,505
Cash.............................................................. 50
Other assets...................................................... 1
---------
Total assets................................................... 508,141
---------
LIABILITIES
Payable for fund shares redeemed.................................. 3,576
Dividends payable................................................. 584
Other liabilities................................................. 295
---------
Total liabilities.............................................. 4,455
---------
Net assets..................................................... $503,686
=========
ANALYSIS OF NET ASSETS
Paid-in capital................................................... $503,553
Accumulated net realized gain on investments...................... 133
---------
Net assets..................................................... $503,686
=========
Shares outstanding (unlimited number authorized).................. 503,564
=========
Net asset value per share......................................... $ 1.00
=========
See accompanying Notes to Financial Statements.
<PAGE>
Stein Roe Cash Reserves Fund
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Statement of Operations
For the Year Ended June 30, 1999
(All amounts in thousands)
Interest allocated from Portfolio................................ $26,443
-------
EXPENSES
Administrative fees.............................................. 1,250
Transfer agent fees.............................................. 794
Expenses allocated from Portfolio................................ 1,307
Printing and postage............................................. 35
SEC and state registration fees.................................. 57
Accounting fees.................................................. 36
Trustees' fees................................................... 12
Audit and legal fees............................................. 14
Other............................................................ 5
-------
Total expenses................................................ 3,510
-------
Net investment income......................................... 22,933
-------
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments allocated from Portfolio..... (3)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $22,930
=======
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
Stein Roe Cash Reserves Fund
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Statements of Changes in Net Assets
(All amounts in thousands)
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income .................................... $ 22,933 $ 24,264
Net realized loss on investments ......................... (3) --
----------- -----------
Net increase in net assets resulting from operations .. 22,930 24,264
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ................. (22,933) (24,264)
----------- -----------
SHARE TRANSACTIONS
Subscriptions to fund shares ............................. 1,292,705 914,335
Value of distributions reinvested ........................ 21,281 21,185
Redemptions of fund shares ............................... (1,304,251) (893,924)
----------- -----------
Net increase from share transactions .................. 9,735 41,596
----------- -----------
Net increase in net assets ............................ 9,732 41,596
TOTAL NET ASSETS
Beginning of period ...................................... 493,954 452,358
----------- -----------
End of period ............................................ $ 503,686 $ 493,954
=========== ===========
ANALYSES OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares ............................. 1,292,663 914,335
Issued in reinvestment of distributions .................. 21,281 21,185
Redemptions of fund shares ............................... (1,304,251) (893,924)
----------- -----------
Net increase in fund shares ........................... 9,693 41,596
Shares outstanding at beginning of period ................ 493,871 452,275
----------- -----------
Shares outstanding at end of period ...................... 503,564 493,871
=========== ===========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
SR&F Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1999
(All amounts in thousands)
ASSETS
Investments, at amortized cost.................................... $769,011
Cash.............................................................. 2,526
Interest receivable............................................... 1,162
---------
Total assets................................................... 772,699
---------
LIABILITIES
Payable to investment advisor..................................... 157
Other liabilities................................................. 81
---------
Total liabilities.............................................. 238
---------
Net assets applicable to investors' beneficial interests....... $772,461
=========
See accompanying Notes to Financial Statements.
<PAGE>
SR&F Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended June 30, 1999
(All amounts in thousands)
INVESTMENT INCOME
Interest......................................................... $39,905
-------
EXPENSES
Management fees.................................................. 1,809
Accounting fees.................................................. 42
Other............................................................ 121
-------
Total expenses................................................ 1,972
-------
Net investment income......................................... 37,933
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. 37,933
-------
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments.............................. (4)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $37,929
=======
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
SR&F Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
(All amounts in thousands)
<CAPTION>
YEAR PERIOD
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998 (a)
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income ...................................... $ 37,933 $ 12,145
Net realized losses on investments ......................... (4) --
----------- -----------
Net increase in net assets resulting from operations .... 37,929 12,145
----------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions .............................................. 1,549,789 1,158,202
Withdrawals ................................................ (1,501,534) (484,070)
----------- -----------
Net increase from transactions in investors'
beneficial interests .................................. 48,255 674,132
----------- -----------
Net increase in net assets .............................. 86,184 686,277
TOTAL NET ASSETS
Beginning of period ........................................ 686,277 --
----------- -----------
End of period .............................................. $ 772,461 $ 686,277
=========== ===========
(a) From commencement of operations on March 2, 1998.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Stein Roe Cash Reserves Fund (the "Fund") is a series of Stein Roe Income Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The Fund invests substantially all of its assets
in SR&F Cash Reserves Portfolio (the "Portfolio"), which seeks maximum income
consistent with capital preservation and maintenance of liquidity.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on March 2, 1998. At commencement,
Stein Roe Cash Reserves Fund and Colonial Money Market Fund (formerly Colonial
Government Money Market Fund) contributed $493,224 and $187,537, respectively,
in securities and other assets in exchange for beneficial ownership of the
Portfolio. The Portfolio allocates income, expenses and realized gains and
losses to each investor on a daily basis, based on their respective percentage
of ownership. At June 30,1999, Stein Roe Cash Reserves Fund and Colonial Money
Market Fund owned 65.5 percent and 34.5 percent, respectively, of the Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Fund and
Portfolio. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and 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 trans actions are
reported on an identified cost basis.
The Portfolio is permitted to invest in repurchase agreements involving
securities issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. The Portfolio requires issuers of repurchase agreements to
transfer the securities underlying those agreements to the Portfolio's custodian
at the time of payment.
<PAGE>
INVESTMENT VALUATIONS
The Portfolio utilizes the amortized cost method to value its investments. This
technique approximates market value and involves valuing a security initially at
cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium. In the event that a deviation of .50 of 1 percent or more
exists between the Fund's $1.00 per-share net asset value, calculated at
amortized cost, and the net asset value calculated by reference to market
quotations, the Board of Trustees would consider what action, if any, should be
taken. Other assets are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
The Fund attempts to maintain a per-share net asset value of $1, which
management believes will be possible under most conditions.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elects to be
taxed as a "regulated investment company" and makes distributions to its
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on their respective percentages of ownership.
The Fund intends to utilize provisions of the federal income tax law that
allows 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, 1999, the Fund had capital loss carryforwards totaling $106,000
and expiring in the years 2002 - 2008.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly.
<PAGE>
NOTE 3. PORTFOLIO COMPOSITION
Under normal market conditions, the Portfolio will invest at least 25 percent of
its total assets in securities of issuers in the financial services industry
(which includes, but is not limited to, banks, consumer and business credit
institutions, and other financial services companies). At June 30, 1999, 76.6
percent of the Portfolio's net assets were invested in the financial services
industry.
See the portfolio of invest ments for additional information regarding
portfolio composition.
NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee to Stein Roe & Farnham Incorporated (the "Advisor"), an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for its
services as investment advisor and manager.
The management fee for the Portfolio is computed at an annual rate of .25 of
1 percent of the first $500 million of average daily net assets, and .225 of 1
percent over $500 million. The administrative fee for the Fund is computed at an
annual rate of .25 of 1 percent of the first $500 million of average daily net
assets, .20 of 1 percent of the next $500 million, and .15 of 1 percent over $1
billion.
The Advisor also provides certain fund accounting services. For the year
ended June 30, 1999, the Fund and Portfolio incurred fees of $36 and $42,
respectively.
Transfer agent fees are paid to SteinRoe Services Inc. (SSI), an indirect,
majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has entered
into an agreement with Liberty Funds Services, Inc., formerly Colonial Investors
Service Center, Inc., also an indirect, majority-owned subsidiary of Liberty
Mutual Insurance Company, to act as subtransfer agent for the Fund.
Certain officers and trustees of the Trust are also officers of the Advisor.
The compensation of trustees not affiliated with the Advisor for the Fund and
Portfolio for the year ended June 30, 1999, was $12 and $22, respectively. No
remuneration was paid to any other trustee or officer of the Trust.
<PAGE>
<TABLE>
Financial Highlights
- --------------------------------------------------------------------------------
Cash Reserves Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income.................. 0.045 0.050 0.048 0.050 0.048
Distributions from net investment
income............................... (0.045) (0.050) (0.048) (0.050) (0.048)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.70% 0.75% 0.77% 0.78% 0.76%
Ratio of net investment income to average
net assets............................. 4.58% 4.98% 4.80% 4.98% 4.83%
Total return.............................. 4.64% 5.09% 4.92% 5.07% 4.96%
Net assets, end of period (000's)......... $503,686 $493,954 $452,358 $476,840 $498,163
</TABLE>
SR&F Cash Reserves Portfolio
YEAR PERIOD
ENDED ENDED
JUNE 30, JUNE 30,
RATIOS TO AVERAGE NET ASSETS 1999 1998 (a)
--------- ---------
Ratio of expenses to average net assets................... 0.25% 0.26%(b)
Ratio of net investment income to average net assets...... 4.83% 5.45%(b)
(a) From commencement of operations on March 2, 1998.
(b) Annualized.
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders, Holders of
Investors' Beneficial Interests and
Board of Trustees of Stein Roe
Income Trust and SR&F Base Trust
Stein Roe Cash Reserves Fund
SR&F Cash Reserves Portfolio
We have audited the accompanying statement of assets and liabilities of Stein
Roe Cash Reserves Fund and the accompanying statement of assets and liabilities,
including the portfolio of investments, of SR&F Cash Reserves Portfolio as of
June 30, 1999, and the related state ments of operations for the year then
ended, the statements of changes in net assets and the financial highlights for
each of the fiscal periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's and Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included con firmation of
securities owned as of June 30, 1999, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Stein
Roe Cash Reserves Fund and SR&F Cash Reserves Portfolio at June 30, 1999, the
results of their operations, the changes in their net assets and their financial
highlights for the periods referred to above, in con formity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Chicago, Illinois
August 11, 1999
<PAGE>
To Contact Us. . .
- --------------------------------------------------------------------------------
BY PHONE 800-338-2550
You can discuss your investment questions with a Stein Roe account
representative by calling us toll free. We'll be happy to answer questions about
your current account, or to provide you with information about opening a Stein
Roe account, including Stein Roe Traditional, Roth and Education IRAs. We're
available seven days a week, from 7 a.m. to 7 p.m. weekdays and from 9 a.m. to
1 p.m. Saturday and Sunday (Central time).
STEIN ROE'S FUNDS-ON-CALL(R)
24-HOUR SERVICE LINE
Using a touch-tone phone, call our toll-free number, day or night, for your
current account balance, the latest Stein Roe Fund prices and yields and other
information. In addition, if you have a Personal Identification Number (PIN),
you may place orders for the following transactions 24 hours a day:
o Exchange shares between your Stein Roe accounts;
o Purchase fund shares by electronic transfer;
o Order additional account statements and money market fund checks;
o Redeem shares by check, wire or electronic transfer.
RETIREMENT PLAN ACCOUNTS
Call us for information about how we can assist you with your defined
contribution plan, including 401(k) plans. You can reach us toll free at
800-322-1130. For information on Traditional, Roth and Education IRA plans, call
us toll free at 800-338-2550.
BY MAIL OR E-MAIL
If you prefer to contact us by mail, please address all correspondence to:
P.O. Box 8900, Boston, MA 02205-8900. To contact us by e-mail, send
correspondence directly to: [email protected] or visit us at
www.steinroe.com on the Internet.
IN PERSON
If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive. Our account representatives can
answer questions about your current Fund investments or provide you with
information about any of the Stein Roe Funds and retirement plans. Stop by
weekdays between 8 a.m. and 5:15 p.m.
MUST BE PRECEDED OR
ACCOMPANIED BY A PROSPECTUS.
<PAGE>
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
Kevin M. Carome, EXECUTIVE VICE PRESIDENT,
ASSISTANT SECRETARY
Loren A. Hansen, EXECUTIVE VICE PRESIDENT
Gary A. Anetsberger, SENIOR VICE PRESIDENT,
TREASURER
J. Kevin Connaughton, VICE PRESIDENT
Timothy Jacoby, VICE PRESIDENT
Michael P. Kennedy, VICE PRESIDENT
Gail D. 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
Sharlene Thomas, VICE PRESIDENT
Heidi J. Walter, VICE PRESIDENT, SECRETARY
Patricia Judge, CONTROLLER
Janet B. Rysz, ASSISTANT SECRETARY
AGENTS AND ADVISORS
Stein Roe & Farnham Incorporated
INVESTMENT ADVISOR
State Street Bank and Trust Company
CUSTODIAN
Liberty Funds Services Inc.
TRANSFER AGENT
Bell, Boyd & Lloyd
LEGAL COUNSEL TO THE TRUST
Ernst & Young LLP
INDEPENDENT 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
Disciplined Stock Fund*
Growth Stock Fund
Growth Investor Fund
Young Investor Fund
Large Company Focus Fund
Midcap Growth Fund**
Capital Opportunities Fund
International Fund
Small Company Growth Fund
* Formerly Special Fund
** Formerly Growth Opportunities Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
Financial Advisors call: 800-322-0593
Shareholders call: 800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive
Liberty Funds Distributor, Inc.
MM11A 8/99
