Stein Roe Mutual Funds
Semiannual Report
Dec. 31, 1998
Photo of: abacus
Stein Roe Money Market Fund
Cash Reserves Fund
LOGO: STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(SM)
<PAGE>
Contents
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From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Questions & Answers
Interview with the portfolio manager and a summary of investment activity
Cash Reserves Fund............................................. 3
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
General Information............................................... 19
A guide to Stein Roe services
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
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To Our Shareholders
We are pleased to report that Stein Roe Cash Reserves Fund met its investment
objective of maximizing income while providing liquidity and safety during the
six months ended Dec. 31, 1998, a period of dynamic change for fixed-income
securities.
On the pages that follow, you'll see how your Fund was positioned to try to
take advantage of market trends as well as how an investment in Stein Roe Cash
Reserves Fund has measured up against inflation.
Interest Rates Decline Sharply
Since my last report to you, the income potential of money market investments
has declined. During the second half of calendar-year 1998, the Federal Reserve
acted decisively to reduce 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.
We maintained above-average returns in the Fund because we had positioned the
Fund defensively against this decrease in rates. As well, the market was buoyed
by a traditional favorable year-end boost in yields as lenders increased rates
to entice buyers to rid them of their year-end inventory.
A Positive Economic Climate
We believe the current domestic economic environment remains favorable for
investors. Continued sales and cash-flow growth has helped many companies meet
their obligations and maintain their credit ratings. Consumer inflation is at
its lowest point in 12 years. And although we anticipate strong retail demand to
help maintain manufacturing output, we doubt it will be enough to overcome
weakness in demand from American companies' overseas customers. We expect
economic growth to slow moderately in the coming year.
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,
/s/ Thomas W. Butch
Thomas W. Butch
President
January 11, 1999
Photo of: Thomas W. Butch
<PAGE>
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
Stein Roe Cash Reserves Fund with its peer group of mutual funds and the U.S.
Consumer Price Index (inflation). Each fund performance figure includes
reinvestment of dividends.
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Cumulative Six-Month and Average Annual Total Returns
Periods Ended Dec. 31, 1998
6 MONTHS 1 YEAR 5 YEARS 10 YEARS
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Stein Roe Cash Reserves Fund 2.45% 5.01% 4.80% 5.22%
U.S. Consumer Price Index (Inflation)* 0.85 1.80 2.70 3.20
Lipper Money Market Fund Average 2.37 4.85 4.76 5.18
Number of Funds in Peer Group 323 308 200 124
Past performance is no guarantee of future results. Total return performance
includes reinvestment of income. An investment in the Fund is neither insured
nor guaranteed by the Federal Deposit Insurance Corp. (FDIC) or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund. The U.S. Consumer Price Index is the government's monthly measure of
retail inflation.
Source of Lipper data: Lipper, Inc., a monitor of mutual fund performance.
* Source: Bloomberg Business News
<PAGE>
Questions & Answers
- --------------------------------------------------------------------------------
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, banker's acceptances
and certificates of deposit.
Fund Inception:
Oct. 2, 1976
Total Net Assets:
$499.3 million
Photo of : Jane Naeseth
Q: Interest rates have declined sharply since June. How has the Fund performed
in this environment?
A: Cash Reserves Fund provided a total return of 2.45% for the six months ended
Dec. 31, 1998. Income potential remained attractive during the period because
the supply of securities was plentiful. Dealers sought to "clean house" at
year's end by selling their excess inventory of money market securities such as
commercial paper. This kept rates higher through year-end.
Q: How much have rates changed?
A: At June 30, 1998, the difference in income potential between money market
securities and long-term bonds was narrow, which means investors were not
rewarded for taking on additional interest rate risk. At the time, the rate
banks charge each other for overnight loans stood at 5.5% while the average
yield of 30-year U.S. bonds was 5.6%. This changed dramatically beginning in
July. Russia's debt default, Asia's recession and signs of weakness in the
domestic economy prompted the Federal Reserve to reduce short-term interest
rates to 4.75%. Long-term rates, meanwhile, fell to just over 5% by year's end.
This past summer, we structured the portfolio to take advantage of
anticipated interest rate cuts. We lengthened average maturity from just under
23 days at June 30, 1998, to just under 31 days as of Dec. 31, 1998. This
enhanced returns.
Q: How has the Fund's income potential stood up against inflation?
A: As interest rates and inflation have fallen since the start of 1997, the
Fund's seven-day current yield has declined. However, the Fund's income
advantage over inflation has grown during the past two years (see chart on page
5). Back in January 1997, the Fund's seven-day yield was 175 basis points
(1.75%) more than the year-over-year increase in consumer prices. As of Dec. 31,
1998, Cash Reserves Fund's seven-day yield was 312 basis points (3.12%) more
than the prevailing inflation rate. Thus the Fund's potential to preserve the
purchasing power of a short-term investment has increased.
Q: What do you see happening with interest rates and inflation for the balance
of fiscal 1999 and how might this affect the Fund?
A: Maintaining the Fund's income potential is likely to be challenging in the
coming months, as rates for recent issues have fallen. Further modest rate cuts
by the Federal Reserve could occur if U.S. economic growth slows in calendar
year 1999. Money market rates could drift down further. Short-term interest
rates are approaching the record lows they set in 1993. U.S. inflation was at it
lowest level in 12 years in 1998, and, in our view, is likely to stay low given
low prices for many commodities and weakness in export-oriented manufacturing.
<PAGE>
Questions & Answers Continued
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Cash Reserves Fund's Yield History vs. Inflation 1997-1998
Line Chart:
Cash Reserves Fund's
7-Day Current Yield U.S. Consumer Price Index (Inflation)
Jan-97 4.75% 3.0%
4.66 3.0
Mar-97 4.83 2.8
4.9 2.5
4.96 2.2
Jun-97 4.93 2.3
4.92 2.2
4.54 2.2
Sep-97 4.83 2.2
4.94 2.1
4.99 1.8
Dec-97 5.24 1.7
5 1.6
4.94 1.4
Mar-98 4.94 1.4
4.95 1.4
4.9 1.7
Jun-98 4.94 1.7
4.96 1.7
4.89 1.6
Sep-98 4.89 1.5
4.71 1.5
4.62 1.5
Dec-98 4.72 1.6
Past performance does not guarantee future results. The Fund's yield fluctuates
and is not guaranteed.
Source: Bloomberg Business News. The U.S. Consumer Price Index is the
government's measure of retail inflation.
<PAGE>
Questions & Answers Continued
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Q: How did you position the Fund within sectors during the period?
A: We have invested more than half the portfolio's net assets in commercial
paper because these securities appear to offer the best risk/reward ratio. We
slightly increased letter of credit commercial paper positions because this
sector appeared undervalued. When a portion of our Yankee CD holdings matured,
we did not replace them with similar securities. We looked to add floating rate
notes (variable rate corporate securities) to the portfolio during 1998.
However, we could not find any floating rate notes offered at prices we
considered attractive.
Q: What's your strategy for coming months?
A: We bought a one-year corporate note, and we plan to continue to make moves
that will lengthen the Fund's duration for maximum income potential. We expect
to maintain a maturity range similar to our current positioning and invest
primarily in U.S. commercial paper.
Past performance is no guarantee of future results. Total return performance
includes reinvestment of income. An investment in the Fund is neither insured
nor guaranteed by the Federal Deposit Insurance Corp. (FDIC) or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
<PAGE>
Fund Highlights
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Cash Reserves Portfolio
Securities Type Breakdown
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PORTFOLIO PORTFOLIO
DEC. 31, 1998 JUNE 30, 1998
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Commercial Paper 79.7% 89.9%
Letter of Credit Commercial Paper 14.0 3.9
Yankee Certificates of Deposit 4.1 3.2
Corporate Notes 1.1 3.0
Federal Agencies 1.1 --
- --------------------------------------------------------------------------------
Total 100.0% 100.0%
================================================================================
PIE CHART:
Maturity
As of Dec. 31, 1998 As of June 30, 1998
Greater than 59 Days 5.9% 7.7%
30-59 Days 12.2% 11.0%
15-29 Days 46.6% 27.6%
5-14 Days 33.6% 32.3%
0-4 Days 1.7% 21.4%
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<TABLE>
SR&F Cash Reserves Portfolio
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Portfolio of Investments at December 31, 1998
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
INTEREST MATURITY PRINCIPAL AMORTIZED
Commercial Paper (93.3%) RATE RANGE(a) DATE RANGE AMOUNT COST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chemicals - Plastics (2.0%)
Formosa Plastic
(LOC Bank of America) 5.033% 3/26/99 $15,000 $14,827
Consulting Services (1.9%)
CSC Enterprises (gtd. by
Computer Sciences) 5.203 2/2/99 14,700 14,633
Consumer Products (2.5%)
Fortune Brands (b) 5.169 1/26/99 19,000 18,932
Financial Services (73.0%)
Auto Lending (4.0%)
American Honda Finance (gtd. by
American Honda Motor) 5.357-5.362 1/27/99 30,000 29,885
Banks (4.0%)
Svenska Handelsbanken (gtd. by
Svenska Handelsbank) 5.617 1/5/99 30,000 29,981
Diversified Financial Services (5.5%)
Associates Corp. of North America 5.083 1/4/99 12,000 11,995
Finova Capital 5.383-5.725 1/28-1/29/99 30,000 29,875
-------
41,870
Leasing (4.7%)
Enterprise Funding (b) 5.474-5.554 1/8-1/20/99 35,898 35,841
Mortgage Banking (4.6%)
Countrywide Home Loans (gtd. by
Countrywide Credit Industries) 5.511 1/21/99 35,000 34,894
Other Financial (4.7%)
Asset Securitization (b) 5.506 1/19/99 20,000 19,946
Caterpillar Financial Services 5.349 1/13/99 15,700 15,672
-------
35,618
Special Purpose Entities (45.5%)
BAT Capital (gtd. by
BAT Industries) 5.593-5.791 1/7-1/14/99 35,000 34,933
CSN Overseas
(LOC Barclays Bank) 5.580 1/12-1/13/99 35,000 34,939
Centric Capital (b) 5.616 1/11/99 20,000 19,969
International Securitization (b) 5.541-5.574 1/13-1/21/99 26,000 25,930
Old Line Funding (b) 5.487 1/22/99 35,000 34,889
Pooled Accounts
Receivable Capital (b) 5.628-5.629 1/19/99 25,400 25,329
Preferred Receivables Funding (b) 5.547 1/5/99 7,810 7,805
Receivables Capital (b) 5.357 1/29/99 35,000 34,856
Special Purpose
Accounts Receivable (b) 5.282-5.612 1/15-1/20/99 35,000 34,911
TEB Funding II
(LOC Societe Generale) 5.179 5/28/99 21,250 20,812
<PAGE>
<CAPTION>
SR&F Cash Reserves Portfolio Continued
- ----------------------------------------------------------------------------------------------------------
INTEREST MATURITY PRINCIPAL AMORTIZED
Commercial Paper (continued) RATE RANGE(a) DATE RANGE AMOUNT COST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Purpose Entities (continued)
Thames Asset Global
Securitization No. 1 (b) 5.421-5.548% 2/17-2/18/99 $34,391 $ 34,145
Windmill Funding (b) 5.536-5.620 1/7-1/13/99 35,000 34,945
--------
343,463
--------
Total Financial Services 551,552
Pipelines (4.6%)
Transportadora de Gas Del Sur
(LOC Dresdner Bank) 5.299-5.429 1/21-1/25/99 35,000 34,885
Retail - Convenience Store (3.4%)
Southland (gtd. by Ito-Yokado). 5.258-5.426 1/12-2/18/99 25,550 25,452
Telecommunications (3.9%)
GTE (b) 5.451-5.606 1/14-1/29/99 30,000 29,918
Utility - Electric (2.0%)
Northern Indiana Public Service 5.479 1/20/99 15,000 14,957
--------
Total Commercial Paper 705,156
--------
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Corporate Note (1.1%)
Financial Services (1.1%)
Transamerica Financial 8.750 10/1/99 7,800 8,013
--------
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Federal Agency Discount Notes (1.1%)
Government Agency (1.1%)
Federal Home Loan Bank 5.208-5.389 1/4-2/1/99 8,500 8,486
--------
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Yankee Certificate of Deposit (4.1%)
Banks (4.1%)
Canadian Imperial Bank 5.250 2/4/99 31,000 31,000
--------
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Total Investments (99.6%) 752,655
Other Assets, Less Liabilities (0.4%) 2,927
--------
Total Net Assets (100.0%) $755,582
========
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Notes to Portfolio of Investments
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(a)The interest rate is the effective rate at the date of purchase except for
the corporate note and yankee certificate of deposit, for which the interest
rate represents the instrument's coupon rate.
(b)Represents private placement securities exempt from registration by Section
4(2) of the Securities Act of 1933. These securities generally are issued to
investors who agree that they are purchasing the securities for investment
and not for public distribution. Any resale by the Portfolio must be in an
exempt transaction, normally to other institutional investors. At December
31, 1998, the aggregate value of the Fund's private placement securities
was $357,416, which represented 47.3% of net assets. None of these securities
were deemed illiquid.
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
Stein Roe Cash Reserves Fund
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Statement of Assets and Liabilities
December 31, 1998
(All amounts in thousands, except per-share amount)
(Unaudited)
<CAPTION>
<S> <C>
Assets
Investment in SR&F Cash Reserves Portfolio, at value ............ $497,099
Receivable for fund shares sold ................................. 5,614
Cash ............................................................ 50
Other assets .................................................... 58
--------
Total assets ................................................. 502,821
--------
Liabilities
Payable for fund shares redeemed ................................ 2,760
Dividends payable ............................................... 344
Payable to investment adviser and transfer agent ................ 174
Other liabilities ............................................... 283
--------
Total liabilities ............................................ 3,561
--------
Net assets ................................................... $499,260
========
Analysis of Net Assets
Paid-in capital ................................................. $499,127
Accumulated net realized gains on investments ................... 133
--------
Net assets ................................................... $499,260
========
Shares outstanding (unlimited number authorized) ................ 499,134
========
Net asset value per share ....................................... $ 1.00
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Stein Roe Cash Reserves Fund
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Statement of Operations
For the Six Months Ended December 31, 1998
(All amounts in thousands)
(Unaudited)
<CAPTION>
<S> <C>
Investment Income
Interest allocated from SR&F Cash Reserves Portfolio ........... $ 13,975
--------
Expenses
Expenses allocated from SR&F Cash Reserves Portfolio ........... 656
Administrative fees ............................................ 629
Transfer agent fees ............................................ 378
Printing and postage ........................................... 56
SEC and state registration fees ................................ 22
Accounting fees ................................................ 18
Audit and legal fees ........................................... 8
Other .......................................................... 43
--------
Total expenses .............................................. 1,810
--------
Net investment income ....................................... 12,165
--------
Realized Losses on Investments
Net realized losses on investments allocated from
SR&F Cash Reserves Portfolio .............................. (3)
--------
Net Increase in Net Assets Resulting from Operations ........... $ 12,162
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Stein Roe Cash Reserves Fund
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Statements of Changes in Net Assets
(All amounts in thousands)
(Unaudited)
<CAPTION>
Six Months
Ended Year Ended
Dec. 31, June 30,
1998 1998
--------- ---------
<S> <C> <C>
Operations
Net investment income .......................................... $ 12,165 $ 24,264
Net realized losses on investments ............................. (3) --
--------- ---------
Net increase in net assets resulting from operations ........ 12,162 24,264
--------- ---------
Distributions to Shareholders
Distributions from net investment income ....................... (12,165) (24,264)
--------- ---------
Share Transactions
Subscriptions to fund shares ................................... 586,227 914,335
Value of distributions reinvested .............................. 10,897 21,185
Redemptions of fund shares ..................................... (591,861) (893,924)
--------- ---------
Net increase from share transactions ........................ 5,263 41,596
--------- ---------
Net increase in net assets .................................. 5,260 41,596
Total Net Assets
Beginning of period ............................................ 494,000 452,404
--------- ---------
End of period .................................................. $ 499,260 $ 494,000
========= =========
Analyses of Changes in Shares of Beneficial Interest
Subscriptions to fund shares ................................... 586,227 914,335
Issued in reinvestment of distributions ........................ 10,897 21,185
Redemptions of fund shares ..................................... (591,861) (893,924)
--------- ---------
Net increase in fund shares ................................. 5,263 41,596
Shares outstanding at beginning of period ...................... 493,871 452,275
--------- ---------
Shares outstanding at end of period ............................ 499,134 493,871
========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Cash Reserves Portfolio
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Statement of Assets and Liabilities
December 31, 1998
(All amounts in thousands)
(Unaudited)
<CAPTION>
<S> <C>
Assets
Investments, at amortized cost .................................... $752,655
Cash .............................................................. 2,668
Interest receivable ............................................... 429
Other assets ...................................................... 26
--------
Total assets ................................................... 755,778
--------
Liabilities
Payable to investment adviser ..................................... 167
Other liabilities ................................................. 29
--------
Total liabilities .............................................. 196
--------
Net assets applicable to investors' beneficial interests ....... $755,582
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Cash Reserves Portfolio
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Statement of Operations
For the Six Months Ended December 31, 1998
(All amounts in thousands)
(Unaudited)
<CAPTION>
<S> <C>
Investment Income
Interest ....................................................... $ 21,170
--------
Expenses
Management fees ................................................ 924
Accounting fees ................................................ 21
Audit and legal fees ........................................... 9
Trustees' fees ................................................. 7
Other .......................................................... 34
--------
Total expenses .............................................. 995
--------
Net investment income ....................................... 20,175
--------
Realized Losses on Investments
Net realized losses on investments .......................... (4)
--------
Net Increase in Net Assets Resulting from Operations ........... $ 20,171
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Cash Reserves Portfolio
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Statements of Changes in Net Assets
(All amounts in thousands)
(Unaudited)
<CAPTION>
Six Months Period
Ended Ended
Dec. 31, June 30,
1998 1998(a)
----------- -----------
<S> <C> <C>
Operations
Net investment income ............................ $ 20,175 $ 12,145
Net realized losses on investments ............... (4) --
----------- -----------
Net increase in net assets resulting
from operations ............................. 20,171 12,145
----------- -----------
Transactions in Investors' Beneficial Interests
Contributions .................................... 499,846 1,158,202
Withdrawals ...................................... (450,712) (484,070)
----------- -----------
Net increase from transactions in investors'
beneficial interests ........................ 49,134 674,132
----------- -----------
Net increase in net assets .................... 69,305 686,277
Total Net Assets
Beginning of period .............................. 686,277 --
----------- -----------
End of period .................................... $ 755,582 $ 686,277
=========== ===========
(a) From commencement of operations on March 2, 1998.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(All amounts, except per-share amounts, in thousands)
NOTE 1. ORGANIZATION
Stein Roe Cash Reserves Fund (the "Fund") is a series of Stein Roe Income Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The Fund invests substantially all of its assets
in SR&F Cash Reserves Portfolio (the "Portfolio"), which seeks maximum income
consistent with capital preservation and maintenance of liquidity.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on March 2, 1998. At commencement,
Stein Roe Cash Reserves Fund and Colonial Money Market Fund (formerly Colonial
Government Money Market Fund) contributed $493,224 and $187,537, respectively,
in securities and other assets in exchange for beneficial ownership of the
Portfolio. The Portfolio allocates income, expenses and realized gains and
losses to each investor on a daily basis, based on their respective percentage
of ownership. At December 31, 1998, Stein Roe Cash Reserves Fund and Colonial
Money Market Fund owned 65.8% and 34.2%, 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.
Certain prior-year amounts have been restated to conform to current-year
presentation.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Interest income,
including discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
The Portfolio is permitted to invest in repurchase agreements involving
securities issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. The Portfolio requires issuers of repurchase agreements to
transfer the securities underlying those agreements to the Portfolio's custodian
at the time of origination.
<PAGE>
INVESTMENT VALUATIONS
The Portfolio utilizes the amortized cost method to value its investments. This
technique approximates market value and involves valuing a security initially at
cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium. In the event that a deviation of .50% or more exists
between the Fund's $1.00 per-share net asset value, calculated at amortized
cost, and the net asset value calculated by reference to market quotations, the
Board of Trustees would consider what action, if any, should be taken. Other
assets are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees.
The Fund attempts to maintain a per-share net asset value of $1.00, which
management believes will be possible under most conditions.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elects to be
taxed as a "regulated investment company" and makes distributions to its
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on their respective percentages of ownership.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly.
Dividends are determined in accordance with income tax principles, which may
treat certain transactions differently from generally accepted accounting
principles. Distributions in excess of tax basis earnings are reported in the
financial statements as a return of capital. Permanent differences in the
recognition or classification of income between the financial statements and tax
earnings are reclassified to paid-in capital.
<PAGE>
NOTE 3. PORTFOLIO COMPOSITION
Under normal market conditions, the Portfolio will invest at least 25% 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 December 31, 1998,
74.1% of the Portfolio's net assets were invested in the financial services
industry.
See the portfolio of investments for additional information regarding
portfolio composition.
NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee to Stein Roe & Farnham Incorporated (the "Adviser"), an
indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), for its services as investment adviser and manager.
The management fee for the Portfolio is computed at an annual rate of .25% of
the first $500 million of average daily net assets, and .225% thereafter. Prior
to March 2, 1998, the management fee for the Fund was computed at an annual rate
of .25% of average daily net assets. The administrative fee for the Fund is
computed at an annual rate of .25% of the first $500 million of average daily
net assets, .20% of the next $500 million, and .15% thereafter.
The Adviser also provides fund accounting services.
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 subtransfer agent for the Fund.
Certain officers and trustees of the Trust are also officers of the Adviser.
The compensation of trustees not affiliated with the Adviser for the Fund and
Portfolio for the period ended December 31, 1998, was $1 and $7, 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>
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 ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------ ------------
Net investment income ................... 0.024 0.050 0.048 0.050 0.048
Distributions from net
investment income ..................... (0.024) (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 ............................... 0.72%(a) 0.75% 0.77% 0.78% 0.76%
Ratio of net investment income
to average net assets ................... 4.83%(a) 4.98% 4.80% 4.98% 4.83%
Total return ............................... 2.45% 5.09% 4.92% 5.07% 4.96%
Net assets, end of period (000's)........... $ 499,260 $ 493,954 $ 452,358 $ 476,840 $ 498,163
</TABLE>
<TABLE>
SR&F Cash Reserves Portfolio
<CAPTION>
Six Months
Ended Period
Dec. 31, Ended
1998 June 30,
Ratios to Average Net Assets (Unaudited) 1998 (b)
----------- ---------
<S> <C> <C>
Ratio of net expenses to average net assets................... 0.26%(a) 0.26%(a)
Ratio of net investment income to average net assets.......... 5.27%(a) 5.45%(a)
(a) Annualized
(b) From commencement of operations on March 2, 1998.
</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>
A Guide to Stein Roe Services
- --------------------------------------------------------------------------------
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>
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 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, 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, 32nd Floor.
Liberty Funds Distributor, Inc.
MM12A 2/99
