Stein Roe Mutual Funds
Annual Report
June 30, 1999
[PHOTO OF BONDS]
Stein Roe Fixed Income Funds
Taxable Bond Funds
Intermediate Bond Fund
Income Fund
High Yield Fund
STEIN ROE MUTUAL FUNDS
Sensible Risks. Intelligent Investments. (R)
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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
Intermediate Bond Fund......................................... 7
Income Fund.................................................... 10
High Yield Fund................................................ 14
Portfolio of Investments.......................................... 18
A complete list of investments with market values
Financial Statements.............................................. 32
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 42
Financial Highlights.............................................. 47
Selected per-share data
Report of Independent Auditors.................................... 51
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
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To Our Shareholders
Fiscal 1999 was a frustrating period for bonds. Fear of higher inflation
outweighed the potentially beneficial effects of a strong domestic economy,
driving down bond prices at the same time that corporate bond issuance reached
record levels.
Stein Roe's three taxable bond funds -- Stein Roe Intermediate Bond Fund,
Stein Roe Income Fund, and Stein Roe High Yield Fund -- have substantial
holdings of corporate bonds. These bonds experienced a roller coaster year as
investors' willingness to accept risk changed substantially during the year.
Preserving capital was challenging for all types of corporate bonds.
The returns of Stein Roe's three taxable bond funds for the one-year and
longer-term periods ended June 30, 1999 are shown on page 4. Amid a tough
investing climate, each Fund provided positive results.
I am especially pleased to report that Stein Roe High Yield Fund, which will
mark its third year of operations in November, finished near the top of its
class for the 12 months ended June 30, 1999. The Fund ranked in the top 6% of
its investment category in total return for both the one-year and life of fund
periods ended June 30, 1999, according to Lipper, Inc.*
On the pages that follow, each Fund's portfolio manager reviews events over
the past 12 months that affected the corporate, U.S. government mortgage-backed
and asset-backed bond markets. While the past year's market results were weak,
we remain confident that taxable bonds can be a rewarding asset class for a
growing number of investors as we enter a new millennium.
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 corporate 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.
[PHOTO OF THOMAS W. BUTCH]
<PAGE>
From the President Continued
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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
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When the government reported that inflation in April was higher than
expected, bond traders demanded much higher yields from fixed-income
investments.
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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, 1998. 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 high yield corporate 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%.
More Credit Risk, Less Interest Rate Risk
Unlike Treasury bonds held to maturity, corporate bonds involve credit risk
and possible loss of principal. High yield securities -- those rated BB and
lower -- involve more credit risk than corporate bonds with higher,
investment-grade ratings. However, high yield corporate bonds have historically
involved less risk to principal over the long term from changing interest rates,
as shown on page 3. Over the past five years, high-yield bonds have also
provided higher returns.
<PAGE>
At Stein Roe, we believe the U.S. economic environment may become more
favorable for bonds 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.
I urge you to review the role your bond fund plays in your portfolio and
consider increasing your financial commitment to this asset class, especially
now that yields have become more attractive. Remember, too, that in a
tax-deferred IRA or other retirement account you can take maximum advantage of
the compounding effects of interest income.
*Stein Roe High Yield Fund's total return ranked 17th of 290 high current yield
funds and 6th of 173 funds for the one-year and life of fund periods ended
6/30/99, respectively, according to Lipper, Inc., a monitor of mutual fund
performance. Rankings are based on total return with distributions reinvested.
An expense limit of 1.00% was in effect for the periods shown. Rankings and
total return would have been lower without the limit.
Sincerely,
[SIGNATURE HERE]
Thomas W. Butch
President
July 19, 1999
Average Annual Total Return and Volatility
Periods Ended June 30, 1999
12 MONTHS 5 YEARS
RETURN VOLATILITY* RETURNVOLATILITY*
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10-Year U.S. Treasury Bonds 1.35% 16.8% 7.75% 7.0%
Merrill Lynch High Yield Master Index II 0.94% 17.0% 10.28% 4.4%
Merrill Lynch Corporate Master Bond Index 1.89% 13.9% 8.32% 5.9%
Past performance does not guarantee future results. Total return includes
reinvestment of distributions and price changes. Each Merrill Lynch index shown
above is unmanaged and does not represent the returns or share price volatility
of any Stein Roe fund; neither is available for direct investment. The Merrill
Lynch Corporate Master Bond Index is composed of investment-grade bonds that
vary in quality. Source: Bloomberg Business News.
*Volatility measured by average annual fluctuations in yield-to-maturity.
From the President Continued
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<PAGE>
Fund Performance
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Average Annual Total Returns
Periods Ended June 30, 1999
1YEAR 5 YEARS 10 YEARS
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Stein Roe Intermediate Bond Fund 2.60% 7.42% 7.66%
Lehman Intermediate Government/
Corporate Bond Index 4.19% 7.04% 7.64%
Lipper Investment Grade Debt Fund Average 2.00% 6.90% 7.38%
Number of Funds in Peer Group 254 119 29
Stein Roe Income Fund 0.52% 7.53% 7.77%
Lehman Intermediate Corporate Bond Index 3.58% 7.75% 8.28%
Lipper Corporate BBB Rated
Debt Fund Average 0.84% 7.84% 8.25%
Number of Funds in Peer Group 112 41 18
1 YEAR LIFETIME
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Stein Roe High Yield Fund 3.50% 10.76%
Merrill Lynch High Yield Master Index II 0.94% 7.88%
Lipper High Current Yield Fund Average -1.44% 6.73%
Number of Funds in Peer Group 290 171
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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% was in effect for High Yield Fund for the periods
shown. 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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Growth of a $10,000 Investment June 30, 1989 to June 30, 1999
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Intermediate Bond Fund
[LINE CHART HERE]
Intermediate Bond Fund
Lehman Brothers Lipper
Intermediate Investment
Government Grade Debt
Intermediate Corporate Fund Average
Bond Fund Bond Index (29 Funds)
6/30/89 10000 10000 10000
6/30/90 10536 10782 10562
6/30/91 11658 11917 11530
6/30/92 13287 13485 13141
6/30/93 14692 14900 14748
6/30/94 14623 14862 14562
6/30/95 16102 16404 16174
6/30/96 17036 17226 16914
6/30/97 18620 18469 18305
6/30/98 20391 20047 20055
6/30/99 20921 20886 20439
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Income Fund
[LINE CHART HERE]
Income Fund
Lipper
Lehman Brothers Corporate
Intermediate BBB Rated Debt
Income Corporate Fund Average
Fund Bond Index (19 Funds)
6/30/89 10000 10000 10000
6/30/90 10251 10820 10349
6/30/91 11208 11951 11324
6/30/92 12917 13673 13135
6/30/93 14808 15348 15135
6/30/94 14705 15262 14905
6/30/95 16588 17229 16958
6/30/96 17540 18148 17927
6/30/97 19345 19624 19888
6/30/98 21032 21400 22112
6/30/99 21141 22166 22152
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. Each illustration above assumes a $10,000
investment on June 30, 1989 and each index 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.
<PAGE>
Investment Comparison
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Growth of a $10,000 Investment November 1, 1996 to June 30, 1999
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High Yield Fund
[LINE CHART HERE]
High Yield Fund
Merrill Lynch Lipper High
High Yield Current Yield
High Yield Master II Fund Average
Fund Index (173 Funds)
11/1/96 10000 10000 10000
12/31/96 10271 10077 10123
3/31/97 10423 10182 10195
6/30/97 11088 10666 10721
9/30/97 11656 11083 11294
12/31/97 11899 11369 11435
3/31/98 12649 11686 11906
6/30/98 12683 11882 11931
9/30/98 11874 11457 11046
12/31/98 12414 11786 11336
3/31/99 13047 11913 11642
6/30/99 13127 11993 11696
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Intermediate Bond Fund - Income Review
Two Decades of Attractive Income Potential
Annual Income from a $100,000 Investment
June 30, 1979-June 30, 1999
[BAR CHART HERE]
Intermediate Bond Fund-Income Review
Intermediate
6/80 11995
6/81 11956
6/82 14531
6/83 14513
6/84 13013
6/85 17143
6/86 17454
6/87 17927
6/88 21437
6/89 21933
6/90 23131
6/91 24948
6/92 26540
6/93 26870
6/94 24835
6/95 27311
6/96 30065
6/97 33683
6/98 34395
6/99 36075
Total Income = $445,853
Account Value = $562,721
Average Annual Return 9.02%
Past performance is not a 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. The High Yield Fund
chart assumes a $10,000 investment on November 1, 1996. The Merrill Lynch High
Yield Master II Index is an unmanaged group of fixed income securities that
differs from the composition of any Stein Roe fund; it is not available for
direct investment. Lipper data is from 11/30/96 and is from Lipper, Inc., a
monitor of mutual fund performance. The Intermediate Bond Fund chart assumes a
$100,000 initial investment on 6/30/79 and continuous reinvestment of
distributions. The amount on top of each bar indicates the amount of income and
capital gains distributed for each 12-month period ended June 30. Intermediate
Bond Fund distributed $32,837 in capital gains for the period shown. Source:
Weisenberger (R)
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Questions &Answers
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An Interview with Michael Kennedy, Portfolio Manager of
Stein Roe Intermediate Bond Fund and SR&F Intermediate Bond Portfolio
Q: How did the Fund perform in fiscal 1999?
Kennedy: For the 12 months ended June 30, 1999, the Fund returned 2.60% with
distributions reinvested. This outpaced the 2.00% return of the average
intermediate investment-grade debt fund according to Lipper, Inc. but under
performed the 4.19% return of the unmanaged Lehman Brothers Intermediate
Government/Corporate Bond Index. We maintained a strong position in corporate
bonds throughout the year, and this helped us to outperform most of the Fund's
peers when corporate bonds performed well later in the fiscal year. This hurt
performance early in the fiscal year but helped performance later in the year
when corporate bonds rebounded.
Intermediate Bond Fund's return was less than its benchmark for the 12 months
ended June 30, 1999 primarily because the Fund's duration was more than a full
year longer than the Index for much of the year.* This hurt our results when
interest rates rose. The average quality of bonds in Intermediate Bond Fund's
portfolio was also lower than that of the Index, and this positioning reduced
returns last autumn when the difference in interest rates between higher and
lower-quality bonds widened.
* Index duration during the period ranged from 3.3 to
3.5 years. Source: Lehman Brothers
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:
$431.1 million
Q: How did weakness in corporate bond prices last summer and autumn affect the
Fund?
Kennedy: The first half of the fiscal year was an extremely difficult period for
the corporate bond market. Global financial problems drove fixed-income
investors to choose U.S. Treasury securities over higher-risk fixed-income
securities. During that time there was low issuance and poor pricing in the
corporate bond market. We held on to our corporate bond holdings based on our
belief that economic conditions would improve. An eventual recovery in the
corporate bond market in calendar 1999
[PHOTO OF MIKE KENNEDY]
<PAGE>
Questions &Answers Continued
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helped the Fund outperform.
With the quality in the corporate bond market improving, we've seen the
quality of individual issues improving as well. Two higher risk, high yield
holdings were upgraded to investment quality during the year -- Niagara Mohawk
and Viacom -- both of which we sold. Their credit quality upgrades boosted the
Fund's performance in fiscal 1999.
Q: How did the Fund's position in mortgage-backed securities fare?
Kennedy: Mortgage-backed securities suffered last summer and autumn as well, but
for different reasons than corporate bonds. When interest rates dropped in late
1998, homeowner-refinancing activity increased and the mortgage market declined.
Lower mortgage rates have historically led to accelerated prepayments, which
reduce the earnings potential of mortgage-backed securities. As interest rates
rose in recent months, the mortgage market recovered and outperformed Treasury
securities. We slightly increased our mortgage bond allocation during the higher
interest rate environment and this worked well for the Fund.
Q: Are there any other areas you believe will provide good investment
opportunities in the coming months?
Kennedy: We believe bonds in the energy sector are attractive. A rebound in oil
prices should lead to improvement in the credit quality of the energy sector.
Q: What's your outlook as we approach the year 2000?
Kennedy: Our long-term outlook for corporate bonds is favorable. Economic growth
is expected to remain moderately strong and therefore corporate profits should
continue to be firm and support the market.
Over the near term, we believe strong corporate bond issuance will put some
pressure on corporate bonds. Many companies are planning to issue debt to avoid
uncertain capital market conditions that may occur during the year 2000
transition. We anticipate that a high level of bond issuance will create
opportunities for us to buy bonds with strong income potential at discount
prices. We've slightly in-creased the Portfolio's allocation to Treasury
securities this past quarter and anticipate there may be attractive corporate
bond opportunities next quarter.
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. Holdings are disclosed as a percentage of SR&F Intermediate
Bond Portfolio's net assets as of 6/30/99, and are subject to change. Investing
in high yield bonds involves greater credit risk and other risks not associated
with investing in higher-quality bonds. The Lehman Brothers Inter mediate
Government/Corporate Bond Index is an unmanaged group of investment-grade bonds
of various quality that differs from any Stein Roe mutual fund; it is not
available for direct investment. Source of Lipper data: Lipper, Inc.
<PAGE>
Portfolio Highlights
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SR&F Intermediate Bond Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
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Corporate Bonds 68.7% 69.7%
Motgage-Backed Securities 18.2 13.3
U.S. Treasuries 10.3 4.6
Asset-Backed Securities 2.4 3.3
Cash and Equivalents 0.4 4.7
Foreign Sovereign 0.0 4.4
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Total Investments 100.0% 100.0%
Portfolio Statistics
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
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Adjusted Duration 4.9 years 4.2 years
Average Weighted Life 8.2 years 7.2 years
Average Weighted Coupon 7.18% 6.82%
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Maturity
[PIE CHARTS HERE]
As of June 30, 1998
Greater than 20 Years - 5.6%
10-20 Years - 3.8%
5-10 Years - 50.2%
1-5 Years - 34.4%
Less than 1 Year - 6.0%
As of June 30, 1999
Greater than 20 Years - 8.8%
10-20 Years - 9.7%
5-10 Years - 47.3%
1-5 Years - 33.8%
Less than 1 Year - 0.4%
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Quality
[PIE CHARTS HERE]
As of June 30, 1998
AAA - 23.7%
AA - 9.1%
A - 30.9%
BBB - 23.7%
BB and Below - 12.6%
As of June 30, 1999
AAA - 28.5%
AA - 8.1%
A - 26.0%
BBB - 24.0%
BB and Below - 13.4%
<PAGE>
Questions & Answers
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An Interview with Steve Lockman, Portfolio Manager of
Stein Roe Income Fund and SR&F Income Portfolio
Q: How did the Fund perform in fiscal year 1999?
Lockman: The Fund's total return of 0.52% for the fiscal year ended June 30,
1999 reflected a difficult environment for corporate bonds. This was less than
the 0.84% return of the average fund in Income Fund's peer group for the period
according to Lipper, Inc. It was also less than the unmanaged Lehman Brothers
Intermediate Corporate Bond Index, which was 3.58%. The Fund's relatively long
duration (5.6 years) hurt its results when interest rates rose this past spring.
Income Fund's duration was more than a full year longer than its benchmark
for much of the year,* and this hurt our results when interest rates rose. The
average quality of bonds in Income Fund's portfolio was also lower than that of
Index, and this positioning reduced returns last autumn when the difference in
interest rates between higher and lower-quality bonds widened.
[PHOTO OF STEVE LOCKMAN]
Fund Data
Investment Objective:
Seeks high current income by investing principally in medium-quality debt
securities. The Fund may also 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:
$294.6 million
Q: What factors made it difficult to invest in corporate bonds?
Lockman: During the summer and early autumn of 1998, the spreads, or differences
in interest rates between investment-grade and high yield bonds, increased
significantly. Investors flocked to the safety of U.S. government securities in
the wake of global credit concerns and reduced their holdings of riskier types
of bonds. Uncertainty about the global economy, particularly emerging markets,
hit a dramatic point in October 1998. Thirty-year U.S. Treasury bond prices rose
and yields hit a low of 4.71% that month while prices of lower-rated corporate
bonds
* Index duration during the period ranged from 4.1 to 4.2 years. Source: Lehman
Brothers
<PAGE>
Questions & Answers Continued
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plunged. A few months later, however, this situation reversed itself amid robust
U.S. economic growth and a more stable credit environment overseas. Investors
demanded higher yields from high-quality bonds after the government's monthly
report on inflation in April, which suggested that living costs were beginning
to accelerate.
Q: How did you position the Fund's high yield component this past year and how
did that affect performance?
Lockman: We increased the portfolio's weighting in high yield bonds throughout
the year, as market volatility drove prices to attractive levels. We focused on
companies with solid cash flows and strong revenue growth. A strong allocation
to high yield bonds supported performance in the latter part of the fiscal year
as this asset class performed well. We may reduce our allocation to high yield
bonds when we believe interest rates stabilize.
Q: How did you adjust the portfolio's duration this year?
Lockman: In June 1998, the Fund's average duration was 5.6 years, higher than
its historical average. This helped our results when the Federal Reserve Board
reduced short-term interest rates by 75 basis points (0.75%) to 4.75% in the
autumn of 1998. We modestly lengthened the portfolio's duration further last
autumn. Then in calendar 1999, when economic conditions firmed up and interest
rates moved higher. Our duration positioning was a drag on performance. We then
shortened the Fund's duration by letting lower-rated securities mature. We also
bought bonds with higher coupons to increase income potential and try to protect
principal. As long-term Treasury bond yields approached 6% in May, we again
extended the portfolio's duration.
Q: How did your investment-grade bond holdings fare during the fiscal year?
Lockman: We found what we believed were good investment opportunities in
investment-grade bonds this year, and while some of these have not been realized
given the
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We increased the portfolio's allocation to
higher-quality bonds rated AA and
reduced our weighting in holdings rated A.
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recent rise in interest rates, we are optimistic our selections will bear fruit
in the coming months. We increased the portfolio's allocation to higher-quality
bonds rated AA and reduced our weighting in holdings rated A. We also found
attractive pricing in lower-quality bonds rated BB and increased the portfolio's
weighting in that area. We believe
<PAGE>
Questions & Answers Continued
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pricing in the investment-grade area of the market is currently attractive.
Q: What industries were attractive or fell out-of-favor this year?
Lockman: During the year, we increased the portfolio's holdings in bonds of
cable and financial services companies, domestic and foreign banks, and electric
utilities. We lowered our weightings in health care, textile and apparel bonds
and dollar-denominated international bonds.
Last year we purchased some real estate investment trust (REIT) bonds. We
held on to these bonds through a difficult period last year. A rebound in REIT
bonds this past spring helped the Fund's performance. We plan to hold these
bonds because we believe they have further appreciation and income potential.
We increased the Portfolio's allocation to dollar-denominated foreign
holdings late in the fiscal year as gains in foreign bonds reflected an
improving geopolitical and international market environment.
Q: What do you expect going forward?
Lockman: Prospects for the coming year look attractive. We see attractively
priced opportunities in the investment-grade area of the market.
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We expect that high yield bonds can provide
attractive income and total return
potential if economic growth remains firm.
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We expect that high yield bonds can provide attractive income and total return
potential if economic growth remains firm.
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. Portfolio holdings are as of 6/30/99 and subject to change.
Investing in high yield bonds involves greater credit and other risks not
associated with investing in higher-quality bonds. Foreign investments involve
market, political, accounting and currency risks not associated with other
investments. Emerging market investments involve market, political, accounting
and currency risks not associated with investments in more developed markets.
The Lehman Brothers Intermediate Corporate Bond Index is an unmanaged group of
bonds that vary in quality; it is not available for direct investment. Source of
Lipper data: Lipper, Inc.
<PAGE>
Portfolio Highlights
- --------------------------------------------------------------------------------
SR&F Income Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
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Financial 33.0% 28.1%
Industrial 20.5 11.5
Media/Communications 13.7 9.2
Consumer Noncyclical 11.8 9.3
Utilities 7.6 8.6
Energy 6.4 5.9
Consumer Cyclical 5.5 10.7
Technology 1.5 3.2
Foreign Sovereign 0.0 9.1
Other 0.0 4.4
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Total Investments 100.0% 100.0%
Portfolio Statistics
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
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Adjusted Duration 5.6 years 5.6 years
Average Weighted Maturity 10.4 years 9.3 years
Average Weighted Coupon 7.96% 7.78%
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Maturity
[PIE CHARTS HERE]
As of June 30, 1998
Greater than 20 Years - 7.9%
10-20 Years - 6.7%
5-10 Years - 57.1%
1-5 Years - 25.7%
Less than 1 Year - 2.6%
As of June 30, 1999
Greater than 20 Years - 11.9%
10-20 Years - 12.3%
5-10 Years - 48.0%
1-5 Years - 26.9%
Less than 1 Year - 0.9%
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Quality
[PIE CHARTS HERE]
As of June 30, 1998
AAA & AA - 9.1%
A - 23.1%
BBB - 33.9%
BB & B - 30.6%
CCC/Not Rated - 3.3%
As of June 30, 1999
AAA & AA - 11.2%
A - 18.7%
BBB - 37.1%
BB & B - 27.5%
CCC/Not Rated - 5.5%
<PAGE>
Questions & Answers
- --------------------------------------------------------------------------------
An Interview with Steve Lockman, Portfolio Manager of
Stein Roe High Yield Fund and SR&F High Yield Portfolio
Q: How did the Fund perform in fiscal 1999?
Lockman: Amid difficult market conditions, Stein Roe High Yield Fund provided
outstanding results for the 12 months ended June 30, 1999. The Fund's total
one-year return of 3.50% outpaced its benchmark and as shown on page 4 ranked in
the top 6% of all high yield funds tracked by Lipper, Inc.* By contrast, the
average high yield fund lost value in fiscal 1999, posting a -1.44% total return
as shown on page 4 according to Lipper, Inc. The Fund's 30-day SEC yield was an
attractive 9.04% as of June 30, 1999.
Q: Can you explain what happened to create difficult market conditions?
Lockman: Fiscal 1999 was a year of volatility and contrast that tested
investors' patience. The spread, or difference in income potential between
high-risk and high-quality bonds, nearly doubled to more than 500 basis points
(5%) by the early autumn of 1998, according to CSI Research. The Fund
outperformed its peers by
*Stein Roe High Yield Fund's return ranked 17th of 290 high current yield funds
and 7th of 173 funds for the one-year and life of fund periods ended 6/30/99,
respectively, according to Lipper, Inc., a monitor of mutual fund performance.
Rankings are based on total return with distributions reinvested. Lipper ranking
for life of fund period is from 11/30/96. An expense limit of 1.00% was in
effect for the periods shown. Rankings and total return would have been lower
without the limit.
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:
November 1, 1996
Total Net Assets:
$32.8 million
taking a more conservative approach when high yield bond prices were weak. We
used income generated by the Fund and other cash to purchase higher-quality high
yield bonds after their prices fell to attractive levels. Timely trading and
solid research allowed us to avoid bonds with credit problems.
Q: How did you position the portfolio in fiscal 1999?
Lockman: We paid particular attention to zero coupon bonds as well as the
telecommunications and technology sectors. Many new bonds have been issued in
these market segments during the past several years, making them bellwether
sectors for the overall high yield market. We varied our exposure throughout
fiscal 1999. For example, we reduced our exposure during the fall of 1998. This
<PAGE>
Questions & Answers Continued
- --------------------------------------------------------------------------------
worked well as economic uncertainty prompted investors to seek higher quality
bonds. This past spring, we increased the Fund's exposure to both areas as
global economic conditions improved and investment markets stabilized.
In fiscal 1999, we also increased the Fund's exposure to the food & beverage,
consumer noncyclical, business services, transportation, and paper industries as
their businesses improved and bond prices became more attractive. We lowered our
allocation to the cable industry due to a lack of attractive opportunities, as
well as our weighting in retail, metals and mining, and textiles and apparel due
to declining industry trends.
As the U.S. economy has shown more strength than expected in recent months,
many deep cyclical industries such as paper and energy and steel have started to
rebound. We are waiting for corporate earnings to reflect the rebound in
commodity prices before we increase the port folio's weighting to these areas.
Overall, we have increased the quality of the portfolio's holdings.
Q: High yield bond defaults rose during the past year. What does this
potentially mean for the market and the Fund?
Lockman: The trailing 12-month default rate, an indicator of high yield issuers'
ability to meet their obligations to bondholders, rose to 3.82% this past
spring, according to Moody's Investors Services. That compares with a 1% rate a
year earlier. While this is a bit more than the annual average default rate of
3.5% for the period from 1971 to 1998, we believe the high yield market's
potential income rewards still far outweigh its risks. One should keep in mind
that the U.S. economy has enjoyed a remarkably long period of economic growth,
and that given the hundreds of billions of dollars in high-yield bonds that have
been issued in the 1990s, it is only natural that a few marginally capitalized
companies will falter. Defaults are still well below the double-digit levels of
the late 1980s. While we can't say what the future holds, I am pleased to report
that none of the portfolio's holdings has gone into default since the Fund began
operations nearly three years ago.
Q: Do you attribute this success to your credit research efforts?
Lockman: It's been challenging to perform the necessary credit research given
the great number of new issues brought to the market. However, we are confident
our research methods can give us an edge on our competition. For instance, we do
our own credit forecasting and assign our own
<PAGE>
Questions & Answers Continued
- --------------------------------------------------------------------------------
ratings for internal review purposes. This provides us with what we think is a
more accurate and timely read on
- --------------------------------------------------------------------------------
We do our own credit forecasting and assign
our own ratings for internal review purposes.
- --------------------------------------------------------------------------------
a company than we could get from widely-used public research. Our analysts
maintain contact with companies and their customers, which helps assess a
company's real value. And because our team covers the high yield as well as the
investment-grade market for Stein Roe, we have broader capabilities than other
management teams that may restrict their research solely to the high yield area.
Q: How do you think the high yield market will fare going forward?
Lockman: We expect that the high yield market will provide attractive
opportunities over the next fiscal year if corporate earnings growth remains on
track. Any improvement from the international arena and/or the equity market may
provide additional support. Finally, as we head into the new millennium, based
on our economic outlook we think high yield bonds should continue to provide
attractive returns.
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. The Advisor currently limits expenses to 1.00% of
net assets, subject to termination upon 30 days' notice to the Fund. Absent this
limit, the Fund's total return would have been less. Portfolio holdings are as
of 6/30/99 and subject to change. Investing in high yield bonds involves greater
credit and other risks not associated with investing in higher-quality bonds.
Foreign investments involve market, political, accounting and currency risk not
associated with other investments. Emerging market investments involve market,
political, accounting and currency risks not associated with investments in more
developed markets. Source of Lipper data: Lipper, Inc.
<PAGE>
Portfolio Highlights
- --------------------------------------------------------------------------------
SR&F High Yield Portfolio
Securities Type Breakdown
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Media/Communications 33.2% 20.3%
Industrial 26.6 18.0
Consumer Cyclical 16.9 14.6
Consumer Noncyclical 16.9 21.6
Technology 3.6 11.7
Energy 1.8 1.5
Financial 1.0 3.4
Utilities 0.0 8.9
- --------------------------------------------------------------------------------
Total Investments 100.0% 100.0%
Portfolio Statistics
PORTFOLIO PORTFOLIO
JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
Adjusted Duration 5.7 years 6.0 years
Average Weighted Maturity 8.8 years 8.7 years
Average Weighted Coupon 8.50% 8.10%
- --------------------------------------------------------------------------------
Maturity
[PIE CHARTS HERE]
As of June 30, 1998
10-15 Years - 7.8%
5-10 Years - 88.4%
1-5 Years - 1.1%
Less than 1 Year - 2.7%
As of June 30, 1999
10-15 Years - 4.4%
5-10 Years - 89.5
1-5 Years - 3.5%
Less than 1 Year - 2.6%
- --------------------------------------------------------------------------------
Quality
[PIE CHARTS HERE]
As of June 30, 1998
BB - 10.5%
B - 70.4%
CCC/Not Rated - 19.1%
As of June 30, 1999
BB - 16.5%
B - 72.7%
CCC/Not Rated - 10.8%
<PAGE>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)
Principal Market
Long-Term Obligations (97.4%) Amount Value
- --------------------------------------------------------------------------------
U.S. Government Obligations (10.2%)
U.S. Treasury Notes
6.625% 6/30/01.................................... $ 125 $ 127
6.500% 5/15/05.................................... 2,750 2,840
6.125% 8/15/07.................................... 18,900 19,121
5.500% 5/15/09.................................... 22,400 21,879
--------
43,967
U.S. Government Agency Mortgage-Backed Securities (7.4%)
FHLMC Gold
12.000% 7/1/20.................................... 1,854 2,094
FHLMC Remic Trust
9.500% 4/15/19 Series 11 Class C.................. 11 11
FNMA
8.500% 4/1/01..................................... 1 1
8.500% 5/1/03..................................... 6 6
8.500% 9/1/03..................................... 49 51
8.500% 11/1/03.................................... 78 80
6.000% 4/1/09..................................... 8,526 8,238
6.000% 1/1/14..................................... 6,258 6,041
6.000% 1/1/24..................................... 732 691
6.000% 3/1/24..................................... 2,012 1,899
6.500% 10/1/28.................................... 6,820 6,582
FNMA Remic Trusts
9.250% 3/25/18 Series 1988-4 Class Z.............. 1,781 1,867
GNMA
8.000% 1/15/08.................................... 217 227
8.000% 2/15/08.................................... 174 181
8.000% 4/15/08.................................... 207 216
8.000% 5/15/08.................................... 239 249
8.000% 6/15/08.................................... 1,525 1,590
8.000% 7/15/08.................................... 270 281
9.000% 6/15/16.................................... 69 74
9.000% 8/15/16.................................... 46 49
9.000% 10/15/16................................... 101 108
6.625% 7/20/25 ARM................................ 1,656 1,681
--------
32,217
Airlines (0.7%)
United Airlines Series 1991-A1 9.200% 3/22/08........ 2,937 3,183
Asset-Backed Obligations (2.4%)
First Boston Mortgage Securities Series 1993-H1 Class A-IO
(Effective Yield 12.820%) 9/28/13................. 5,225 204
Green Tree Home Improvement Loan Trust
Series 1994-A Class A
7.050% 3/15/14.................................... 958 947
Green Tree Recreational, Equipment & Consumer Trust
Series 1998-C Class A6 6.700% 2/15/14............. 4,500 4,332
IMC Home Equity Loan Trust Series 1997-3 Class M2
7.550% 8/20/28.................................... 5,000 4,934
--------
10,417
<PAGE>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
Automotive (1.1%)
Federal-Mogul 7.500% 7/1/04.......................... $ 5,000 $ 4,831
Banking (10.3%)
Commerzbank 5.375% 2/18/04........................... 8,000 7,641
Countrywide Home 6.850% 6/15/04...................... 8,250 8,245
Deutsche Bank 7.872% 12/29/49 (a).................... 4,500 4,356
Dresdner Funding 8.151% 6/30/31 (a).................. 3,500 3,374
HSBC Holdings 7.500% 7/15/09......................... 6,000 6,062
Korea Development Bank 7.150% 4/22/04................ 3,000 2,935
Merita Bank Limited 7.150% 12/24/49 (a).............. 4,500 4,424
Republic of Columbia 9.750% 4/23/09.................. 1,600 1,288
Sumitomo Bank 8.500% 6/15/09......................... 6,250 6,291
--------
44,616
Building and Construction (3.0%)
Hanson Overseas (Yankee Issue) 7.375% 1/15/03........ 6,000 6,144
Owens Corning 7.000% 3/15/09......................... 4,750 4,475
PYCSA Panama 10.280% 12/15/12 (a).................... 3,216 2,495
--------
13,114
Cable and Media (1.9%)
News America Holdings 8.625% 2/1/03.................. 5,000 5,263
Rogers Cablesystems (Yankee Issue) 9.625% 8/1/02..... 3,000 3,120
--------
8,383
Chemicals (1.5%)
Rohm & Haas
7.400% 7/15/09 (a)................................ 2,000 2,032
7.850% 7/15/29 (a)................................ 4,250 4,334
--------
6,366
Electronics (1.1%)
Pan Pacific Industrial Investment (Yankee Issue)
Zero Coupon (Yield to Maturity 8.834%) 4/28/07 (a) 10,000 4,803
Energy Services (2.6%)
AES Eastern Energy 9.670% 1/2/29 (a)................. 6,500 6,296
CMS Energy 8.375% 7/1/03............................. 5,000 4,987
--------
11,283
Financial (10.6%)
Amvescap 6.600% 5/15/05.............................. 5,000 4,862
Associates Corp. of North America 6.950% 11/1/18..... 5,000 4,751
Bistro Trust 9.500% 12/31/02 (a)..................... 3,000 2,837
Cigna CBO Series 1996-1 Class A-2 6.460%11/15/08 (a). 5,000 5,300
Corporacion Andina de Fomento (Yankee Issue) 7.100% 2/1/03 6,000 5,868
First Industrial L.P.
7.500% 12/1/17.................................... 6,000 5,301
7.600% 7/15/28.................................... 1,250 1,083
Household Finance 5.875% 11/1/02..................... 8,000 7,842
Merrill Lynch 6.550% 8/1/04.......................... 6,000 5,961
Salomon (Traveler's Group) 6.750% 1/15/06............ 2,000 1,961
--------
45,766
Foreign Sovereign Regional Bonds (0.8%)
State of Qatar 9.500% 5/21/09 (a).................... 3,500 3,541
Health Service and Equipment (0.9%)
Tenet Healthcare 7.875% 1/15/03...................... 4,000 3,940
<PAGE>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
Hotels and Entertainment (0.6%)
Prime Hospitality 9.250% 1/15/06..................... $ 2,500 $ 2,525
Insurance (4.7%)
Florida Windstorm 7.125% 2/25/19 (a)................. 2,375 2,347
Prudential Insurance 7.650% 7/1/07 (a)............... 7,250 7,484
Sunamerica 5.750% 2/16/09............................ 4,750 4,356
Zurich Capital Trust 8.376% 6/1/37 (a)............... 6,000 6,130
--------
20,317
Manufacturing (4.2%)
PDVSA Finance 8.750% 2/15/04 (a)..................... 3,500 3,483
PDVSA Finance Limited Series 1998-1D 7.400% 8/15/16.. 2,500 1,906
Tyco International Group (Yankee Issue) 6.375% 6/15/05 6,000 5,862
USX Corp 7.200% 2/15/04.............................. 6,800 6,820
--------
18,071
Mining and Agriculture (1.0%)
Freeport-McMoran Copper & Gold 7.500% 11/15/06....... 2,700 1,944
PT Alatief Freeport (Yankee Issue) 9.750% 4/15/01.... 3,000 2,520
--------
4,464
Mortgage-Backed Securities (9.5%)
American Mortgage Trust Series 1993-3 Class 3B
8.190% 9/27/22.................................... 1,733 1,719
Kidder Peabody Acceptance Series 1994-C3 Class A2
8.500% 4/1/07..................................... 3,500 3,726
Lehman Brothers Commercial Conduit Mortgage Trust
Series 1998-C4 Class A1B 6.210% 10/15/08.......... 10,000 9,503
Mellon Residential Funding Series 1998-TBC1 Class A3
5.610% 10/25/28................................... 4,500 4,378
Merrill Lynch Mortgage Investors Series 1995-C3 Class A3
7.060% 12/26/25................................... 4,000 3,991
Merrill Lynch Trust Series 20 Class D 8.000% 12/20/18 1,524 1,546
Nomura Asset Securities Series 1996-MD5 Class A-1B
7.120% 4/13/36.................................... 3,000 3,038
Option One Mortgage Securities Series 1999-B Class CTFS
9.660% 6/25/29 (a)................................ 3,833 3,817
PNC Mortgage Securities Series 1996-1 Class A
7.500% 6/25/26.................................... 3,380 3,369
Resolution Trust Series 1992-C5 Class C
8.850% 5/25/22.................................... 756 775
Structured Assets Securities
Series 1996-CFL Class C 6.525% 2/25/28............ 3,684 3,678
Series 1996-CFL Class X1-IO
Zero Coupon (Yield to Maturity 9.806%) 2/25/28.. 30,423 1,559
--------
41,099
<PAGE>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Principal Market
Amount Value
- --------------------------------------------------------------------------------
Natural Gas and Oil (6.4%)
Baker Hughes 6.875% 1/15/29 (a)...................... $ 5,000 $ 4,637
Gulf Canada Resources (Yankee Issue) 8.250% 3/15/17.. 3,000 2,768
Noble Drilling 7.500% 3/15/19........................ 4,750 4,627
Northwest Pipeline 6.625% 12/1/07.................... 6,000 5,835
Petroleos Mexicanos 9.657% 7/15/05 (a)............... 4,000 3,710
YPF Sociedad Anonima (Yankee Issue)
7.500% 10/26/02.................................. 2,994 3,009
7.250% 3/15/03................................... 1,000 968
10.000% 11/2/28................................... 2,000 2,242
--------
27,796
Printing and Publishing (1.3%)
R.R. Donnelly 6.625% 4/15/29......................... 4,250 3,871
World Color Press 7.750% 2/15/09..................... 2,000 1,853
--------
5,724
Real Estate Investment Trust (5.1%)
Diversified REIT Trust Series 1999-1A Class C
6.780% 3/18/11 (a)................................ 5,000 4,723
Federal Realty Investment Trust
6.625% 12/1/05.................................... 2,750 2,579
7.480% 8/15/26.................................... 3,500 3,359
Meditrust 7.820% 9/10/26............................. 4,200 3,777
Prologis Trust 7.100% 4/15/08........................ 4,500 4,239
Storage USA 7.125% 11/1/03........................... 3,250 3,157
--------
21,834
Retail (1.6%)
Tommy Hilfiger USA 6.850% 6/1/08..................... 5,750 5,399
Price/Costco 7.125% 6/15/05.......................... 1,650 1,679
--------
7,078
Savings and Loans (0.7%)
GS Escrow 7.000% 8/1/03 (a).......................... 3,000 2,934
Telecommunications (2.8%)
Cable & Wireless Optus 8.125% 6/15/09 (a)............ 3,250 3,293
CSC Holdings 7.875% 2/15/18.......................... 4,250 4,104
Telephone & Data Systems 7.000% 8/1/06............... 5,000 4,915
--------
12,312
Tobacco Products (1.1%)
RJ Reynolds Tobacco 7.750% 5/15/06 (a)............... 5,000 4,748
Transportation (0.7%)
Federal Express Pass-Through Certificates
Series A1 7.530% 9/23/06........................ 3,150 3,174
Utilities (3.2%)
Calenergy 7.520% 9/15/08............................. 5,000 5,002
Midamerican Energy 6.500% 12/15/01................... 1,225 1,219
Oglethorpe Power 6.974% 6/30/11(a)................... 3,883 3,874
Public Service of New Mexico
7.100% 8/1/05..................................... 2,500 2,469
7.500% 8/1/18..................................... 1,500 1,457
--------
14,021
--------
Total Long-Term Obligations
(Cost $432,173)................................... 422,524
--------
- --------------------------------------------------------------------------------
<PAGE>
SR&F Intermediate Bond Portfolio
- --------------------------------------------------------------------------------
Continued Number of Market
Preferred Stock (0.9%) Shares Value
- --------------------------------------------------------------------------------
Financial (0.9%)
Pinto Totta International Finance 7.770% (gtd. by Banco
Pinto & Sotto Mayor) (a) (Cost $4,014)............ 4 $ 3,759
--------
- --------------------------------------------------------------------------------
Principal
Short-Term Obligation (0.4%) Amount
- --------------------------------------------------------------------------------
Commercial Paper (0.4%)
Associates First Capital 0.000% 7/1/99
(Cost $1,765)..................................... $ 1,765 1,765
--------
- --------------------------------------------------------------------------------
Total Investments (98.7%)
(Cost $437,952)(b)................................ 428,048
Other Assets, Less Liabilities (1.3%)................ 5,511
--------
Total Net Assets (100.0%)............................ $433,559
========
- --------------------------------------------------------------------------------
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 June 30, 1999, the aggregate
value of the Portfolio's private placement securities was $98,731, which
represented 22.8% of net assets.
(b)At June 30, 1999, the cost of investments for federal income tax purposes
was $438,364. Unrealized depreciation was $10,316, consisting of gross
unrealized appreciation of $2,323 and unrealized depreciation of $12,639.
(c)The following futures contracts were open at June 30, 1999:
Number of Contract Unrealized
Type Contracts Position Value Expiration Gain (Loss)
----------- ---------- ---------- ----------- ---------- ----------
U.S. T-Note 334 Short $37,210 Sep-99 $ (63)
U.S. T-Bond 34 Short 3,961 Sep-99 3
See accompanying Notes to Financial Statements.
<PAGE>
SR&F Income Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)
Principal Market
Long-Term Obligations (97.0%) Amount Value
- --------------------------------------------------------------------------------
U.S. Government Obligations (4.8%)
U.S. Treasury Notes
6.1250% 8/15/07................................... $ 6,300 $ 6,374
5.5000% 5/15/09................................... 5,000 4,884
5.2500% 11/15/28.................................. 3,175 2,813
--------
14,071
Aerospace and Military Technology (1.1%)
Derlan Manufacturing (Yankee Issue) 10.000% 1/15/07.. 1,750 1,680
L-3 Communications Series B 10.375% 5/1/07........... 1,500 1,586
--------
3,266
Airlines (1.2%)
American Airlines Pass-Through Certificates
Series 1991-A 9.710% 1/2/07....................... 2,520 2,770
Continental Airlines Pass-Through Certificates
Series C I 7.420% 4/1/07.......................... 942 934
--------
3,704
Automotive (1.2%)
Federal-Mogul 7.500% 7/1/04.......................... 2,000 1,932
Ford Motor 6.375% 2/1/29............................. 2,000 1,739
--------
3,671
Banking (8.1%)
BBV International Finance (Cayman Islands)
(Yankee Issue) 6.875% 10/27/05.................... 4,000 4,050
BCH (Cayman Islands) 7.700% 7/15/06
(gtd. By Banco Central Hispanoamericano, Yankee Issue) 3,000 3,093
Deutsche Bank Capital Funding 7.872% 12/29/49 (a).... 3,000 2,904
HSBC Holdings Plc 7.5000% 7/15/09.................... 4,000 4,041
Merita Bank Limited 7.150% 12/29/49 (a).............. 3,000 2,950
Merrill Lynch Bank & Trust (Cayman) 8.390% 8/1/01 (a) 3,000 3,105
Swiss Bank 7.375% 7/15/15............................ 4,000 3,922
--------
24,065
Building and Construction (2.7%)
Beazer Homes USA 8.875% 4/1/08 ...................... 3,000 2,857
Building Materials Corp. 7.750% 7/15/05.............. 3,000 2,798
PYCSA Panama 10.280% 12/15/12 (a).................... 3,216 2,495
--------
8,150
Business Services (3.2%)
Iron Mountain 10.125% 10/1/06........................ 2,000 2,110
Lamar Advertising 9.625% 12/1/06..................... 1,850 1,887
Nationsrent 10.375% 12/15/08......................... 1,000 995
Rental Services 9.000% 5/15/08....................... 1,000 1,080
Tyco International Group (Yankee Issue) 6.375% 6/15/05 3,500 3,419
--------
9,491
Cable & Media (6.4%)
Century Communications 9.750% 2/15/02................ 1,850 1,933
Continental Cablevision 8.875% 9/15/05............... 3,500 3,813
JCAC 10.125% 6/15/06................................. 1,500 1,624
News America Holdings 8.625% 2/1/03.................. 2,000 2,105
Rogers Cablesystems (Yankee Issue) 9.625% 8/1/02..... 3,000 3,120
Rogers Cantel (Yankee Issue) 9.375% 6/1/08........... 3,000 3,113
Time Warner Entertainment 8.875% 10/1/12............. 3,000 3,374
--------
19,082
<PAGE>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Chemicals (1.5%)
Rohm & Haas 7.850% 7/15/29 (a)....................... $ 4,250 $ 4,334
Containers (2.7%)
BWAY Series B 10.250% 4/15/07........................ 1,900 1,976
Coca-Cola Bottling Series A 8.560% 2/26/02........... 2,000 2,084
Owens-Illinois 8.100% 5/15/07........................ 4,000 3,962
--------
8,022
Electronics (0.3%)
Ametek, Inc. 7.200% 7/15/2008........................ 1,000 932
Energy (3.0%)
PDVSA Finance Series 1998-1-D 7.400% 8/15/16 (a)..... 2,500 1,906
PDVSA Finance Series 1999-1A 8.750% 2/15/04.......... 2,000 1,990
CMS Energy 8.375% 7/1/03............................. 5,000 4,987
--------
8,883
Financial (8.4%)
Associates Corp. of North America 6.950% 11/1/18..... 2,750 2,613
Bistro Trust 1997-2000 9.500% 12/31/02(a)............ 3,000 2,837
Countrywide Home Loan 6.850% 6/15/04................. 3,500 3,498
Credit Suisse First Boston 7.900% 5/29/49 (a)........ 3,500 3,430
GS Escrow Corp. 7.125% 8/1/05........................ 3,000 2,896
Option One 9.660% 3/26/29 (a)........................ 2,888 2,875
Prudential Property INV
6.625% 4/1/09 (a)................................. 3,000 2,751
7.713% 7/1/07 (a)................................. 4,000 4,017
--------
24,917
Food & Beverage (2.5%)
Panamerica Beverages 7.250% 7/1/09................... 2,000 1,701
Pepsi-Gomex (Yankee Issue) Series B 9.750% 3/30/04... 1,500 1,489
Stater Brothers Holdings 11.000% 3/1/01.............. 4,000 4,160
--------
7,350
Foreign Sovereign Regional Bonds (9.4%)
Corporacion Andina De Fomento 7.750% 3/1/04.......... 5,500 5,496
Export-Import Bank of Korea 6.375% 2/15/06........... 3,000 2,765
Financiera Energetica Euro 9.375% 6/15/06............ 6,000 4,834
Korea Development Bank 7.125% 4/22/04................ 3,500 3,425
Republic of Columbia (Yankee Issue) 8.750% 10/06/99.. 2,500 2,500
Republic of Panama 7.875% 2/13/02.................... 2,000 1,943
State of Qatar 9.500% 5/21/09 (a).................... 2,000 2,023
Sultan of Oman 7.125% 3/20/02........................ 5,000 5,040
--------
28,026
Hospitals and Nursing Homes (1.3%)
Universal Health Services 8.750% 8/15/05............. 2,800 2,856
Universal Hospital Services 10.250% 3/1/08........... 1,000 880
--------
3,736
Hotels and Entertainment (5.1%)
Hyatt Equities 7.000% 5/15/02........................ 5,000 5,019
Marriott International 6.875% 11/15/05............... 5,000 4,792
Premier Parks 9.750% 1/15/07......................... 750 782
<PAGE>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Hotels and Entertainment (Continued)
Prime Hospitality
9.250% 1/15/06.................................... $ 1,100 $ 1,111
9.750% 4/1/07..................................... 2,500 2,500
Speedway Motorsports 8.500% 8/15/07 (a).............. 1,000 1,010
--------
15,214
Insurance Carriers (1.7%)
Florida Windstorm 7.125% 2/25/19 (a)................. 2,000 1,976
Sunamerica Euro 5.750% 2/16/09....................... 3,250 2,981
--------
4,957
Machinery, Metals and Fabricated Metal Products (3.3%)
Cincinnati Milacron 8.375% 3/15/04................... 2,000 2,016
Owens Corning 7.000% 3/15/09......................... 3,250 3,062
USX Corp. 6.850% 3/1/08.............................. 5,000 4,807
--------
9,885
Mining and Agriculture (0.7%)
PT Alatief Freeport Financial (Yankee Issue) 9.750% 4/15/01 2,500 2,100
Natural Gas and Oil (4.6%)
Colorado Interstate Gas 10.000% 6/15/05.............. 1,500 1,715
Husky Oil 8.900% 8/15/28(a).......................... 3,000 2,880
Lyondell Petro 9.750% 9/4/03(a)...................... 2,000 2,048
Noble Drilling 7.500% 3/15/19........................ 3,250 3,166
YPF Sociedad Anonima (Yankee Issue) 7.500% 10/26/02.. 3,746 3,765
--------
13,574
Real Estate Investment Trust (8.3%)
American Healthcare Properties 7.050% 1/15/02........ 3,000 2,908
Carramerica 7.200% 7/1/04............................ 3,000 2,891
First Industrial LP 7.500% 12/1/17................... 6,000 5,301
First Industrial Realty Trust 7.600% 7/15/28......... 1,250 1,083
Meditrust 7.375% 7/15/00............................. 2,000 1,942
Prologis Trust 7.100% 4/15/08........................ 1,500 1,413
Property Trust of America 6.875% 2/15/08............. 2,000 1,905
Storage USA 7.125% 11/1/03........................... 3,000 2,914
Trinet 7.300% 5/15/01................................ 4,500 4,382
--------
24,739
Printing & Publishing (1.2%)
RR Donnelly 6.625% 4/15/29........................... 3,750 3,415
Services (1.6%)
ARA Services 10.625% 8/1/00.......................... 1,600 1,636
Aramark Services 8.150% 5/1/05....................... 2,000 2,075
Dynacorp 9.500% 3/1/07............................... 1,000 993
--------
4,704
Telecommunications (4.4%)
CSC Holdings 7.875% 2/15/18.......................... 3,750 3,621
Cable & Wireless Communications 8.125% 6/15/09 (a)... 2,750 2,787
Comtel Brasileria (Yankee Issue) 10.75% 9/26/04 (a).. 2,000 1,770
Telephone & Data Systems 7.000% 8/1/06............... 5,000 4,915
--------
13,093
Textile and Apparel (1.5%)
Tommy Hilfiger 6.850% 6/1/08......................... 4,750 4,460
Tobacco Products (1.4%)
RJ Reynolds Tobacco 7.750% 5/15/06 (a)............... 4,500 4,273
<PAGE>
SR&F Income Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Utilities (5.4%)
AES Eastern Energy 9.670% 1/2/29 (a)................. $ 3,500 $ 3,390
AES 8.375% 8/15/07................................... 2,000 1,875
Calenergy 7.520% 9/15/08............................. 3,000 3,001
National Power 9.000% 7/5/02......................... 1,500 1,517
Public Services Co. of New Mexico
7.100% 8/1/05..................................... 2,500 2,469
7.500% 8/1/18..................................... 1,500 1,457
Texas Utilities 9.750% 5/1/21........................ 2,000 2,187
--------
15,896
Total Long-Term Obligations
(Cost $296,544)...................................... 288,010
--------
- --------------------------------------------------------------------------------
Number of
Preferred Stock (1.0%) Shares
- --------------------------------------------------------------------------------
Pinto Totta International Finance 7.770% (gtd. By Banco Pinto
totto Mayor) (a) (Cost $3,010).................... 3 2,819
--------
- --------------------------------------------------------------------------------
Principal
Short-Term Obligations (0.1%) Amount
- --------------------------------------------------------------------------------
Commercial Paper (0.1%)
Associates First Capital 0.000% 7/1/99
(Cost $250).......................................... $ 250 250
--------
- --------------------------------------------------------------------------------
Total Investments (98.1%)
(Cost $299,804)(b)................................ 291,079
Other Assets, Less Liabilities (1.9%)................ 5,632
--------
Total Net Assets (100.0%)............................ $296,711
========
- --------------------------------------------------------------------------------
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 June 30, 1999, the aggregate value of
the Portfolio's private placement securities was $58,580, which represented
19.7% of net assets.
(b)At June 30, 1999, the cost of investments for federal income tax purposes was
$300,083. Net unrealized depreciation was $9,004, consisting of gross
unrealized appreciation of $2,381 and gross unrealized depreciation of
$11,385.
See accompanying Notes to Financial Statements.
<PAGE>
SR&F High Yield Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at June 30, 1999
(All amounts in thousands)
Principal Market
Long-Term Obligations (94.4%) Amount Value
- --------------------------------------------------------------------------------
Aerospace and Military Technology (5.3%)
BE Aerospace 9.500% 11/1/08 ......................... $ 750 $ 759
Derlan Manufacturing (Yankee Issue) 10.000% 1/15/07.. 1,000 960
Fairchild Corp 10.750% 4/15/09 (a)................... 1,000 985
L-3 Communications Series B 10.375% 5/1/07 (a)....... 500 529
United Defense Industries 8.750% 11/15/07............ 1,500 1,459
-------
4,692
Automotive (2.5%)
Budget Group 9.125% 4/1/06........................... 1,500 1,399
Penda Series B 10.750% 3/1/04........................ 800 796
-------
2,195
Building and Construction (4.0%)
Beazer Homes USA 8.875% 4/1/08....................... 1,000 952
D R Horton 8.000% 2/1/09............................. 1,500 1,417
PYCSA Panama 10.280% 12/15/12 (a).................... 1,484 1,152
-------
3,521
Business Services (2.3%)
Penhall Acquisition 12.000% 08/1/06.................. 1,000 1,000
Nationsrent 10.375% 12/15/08......................... 1,000 995
-------
1,995
Cable and Media (2.9%)
Charter Communication Zero Coupon (Yield to Maturity
4.094%) 4/1/11 (a)................................ 2,500 1,550
Perry-Judd 10.625% 12/15/07.......................... 1,000 990
-------
2,540
Chemicals (1.2%)
Biovail Corporation International 10.875% 11/15/05... 1,000 1,040
Coal Mining (1.7%)
AEI Resources 11.500% 12/15/06 (a)................... 1,500 1,474
Computer Equipment (3.3%)
Axia 10.750% 7/15/08................................. 1,500 1,477
Rhythms Netconn 12.750% 4/15/09 (a).................. 1,500 1,410
-------
2,887
Containers (1.7%)
Packaging Corp. of America 9.625% 4/1/09 (a)......... 1,500 1,523
Cosmetics and Personal Care Products (2.2%)
Chattem 8.875% 4/1/08................................ 2,000 1,920
Food and Beverages (2.2%)
Marsh Supermarket Series B 8.875% 8/1/07............. 1,000 1,005
Pepsi-Gemex Series B (Yankee Issue) 9.750% 3/30/04... 1,000 992
-------
1,997
Health Services and Equipment (5.0%)
Express Scripts 9.625% 6/15/09 (a)................... 1,500 1,522
Hanger Orthopedic Group 11.250% 6/15/09 (a).......... 1,000 1,025
Insight Health Services Series B 9.625% 6/15/08...... 1,250 1,194
Mediq Zero Coupon (Yield to Maturity 5.810%) 6/1/09 (a) 1,850 703
-------
4,444
<PAGE>
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Hospitals and Nursing Home Care (4.9%)
Lifepoint Hospitals 10.750% 5/15/09 (a).............. $ 2,000 $ 2,040
Triad Hospitals 11.000% 5/15/09 (a).................. 1,000 1,018
Universal Hospital Services 10.250% 3/1/08........... 1,415 1,245
-------
4,303
Hotels and Entertainment (11.7%)
Boyd Gaming 9.500% 7/15/07........................... 750 746
Hard Rock Hotels 9.250% 4/1/05....................... 1,500 1,425
Horseshoe Gaming 8.625% 5/15/09 (a).................. 1,500 1,451
Mohegan Tribal Gaming 8.750% 1/1/09.................. 1,500 1,491
Premier Parks
9.250% 4/1/06..................................... 250 251
9.750% 1/15/07.................................... 250 261
Zero Coupon (Yield to Maturity 4.939%) 4/1/08..... 1,750 1,162
Prime Hospitality Series B 9.750% 4/1/07............. 1,490 1,490
Speedway Motorsports 8.500% 8/15/07.................. 2,000 2,020
-------
10,297
Internet Services (4.8%)
Concentric Network 12.750% 12/15/07 (a).............. 1,500 1,560
ICG Services Zero Coupon (Yield to Maturity 4.884%)
5/1/08.......................................... 2,250 1,232
PSInet 10.000% 2/15/05............................... 1,500 1,492
-------
4,284
Leisure Products (0.5%)
Boyds Collection 9.000% 5/15/08 (a).................. 448 441
Manufacturing (0.7%)
Westinghouse Air Brake 9.375% 6/15/05 (a)............ 600 609
Nondepository Credit Institution (0.9%)
Mego 1997-3 CTFS 8.010% 8/25/23...................... 1,000 805
Oil and Gas (1.7%)
Key Energy Services 14.000% 1/15/09 (a).............. 1,500 1,541
Paper (0.4%)
Indah Kiat Finance 10.000% 7/1/07.................... 500 345
Printing and Publishing (4.6%)
Big Flower Press 8.625% 12/1/08...................... 1,500 1,380
Phoenix Color 10.375% 2/1/09......................... 750 735
World Color Press 8.375% 11/15/08.................... 2,000 1,940
-------
4,055
Restaurants (0.3%)
AFC Enterprises 10.250% 5/15/07...................... 250 252
Rubber, Plastic and Related Materials (1.6%)
Key Plastics Series B 10.250% 3/15/07................ 500 486
Tekni-Plex 9.250% 3/1/08............................. 1,000 970
-------
1,456
Safety Equipment (1.6%)
Protection One 8.125% 1/15/09 (a).................... 1,500 1,388
<PAGE>
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Telecommunications (12.3%)
Arch Escrow 13.750% 4/15/08 (a)...................... $ 1,000 $ 900
Carrier One 13.250% 2/15/09.......................... 1,000 1,015
Focal Communications Series B
Zero Coupon (Yield to Maturity 5.967%) 2/15/08.... 3,300 1,848
Level 3 Communications
Zero Coupon (Yield to Maturity 5.181%) 12/1/08 (a) 1,000 620
MGC Communications Series B 13.000% 10/1/04 (a)...... 1,000 910
Metronet Communications (Yankee Issue)
12.000% 8/15/07................................... 1,000 1,152
Zero Coupon (Yield to Maturity 6.132%) 6/15/08.... 1,000 740
Nextlink Communications
10.750% 6/1/09.................................... 1,000 1,028
Zero Coupon (Yield to Maturity 6.034%) 6/1/09..... 1,000 585
Tele1 Europe 13.000% 5/15/09 (a)..................... 1,000 1,047
Viatel 11.250% 4/15/08............................... 1,000 1,020
-------
10,865
Telephone (5.5%)
Allegiance Telecom Series B
Zero Coupon (Yield to Maturity 5.870%) 2/15/08 (a) 1,500 930
BTI Telecom 10.500% 9/15/07 ......................... 1,000 855
Comtel Brasileira (Yankee Issue) 10.750% 9/26/04 (a). 250 221
Intermedia Communications Series B
Zero Coupon (Yield to Maturity 6.046%) 3/1/09..... 3,000 1,703
Knology Holdings
Zero Coupon (Yield to Maturity 5.840%) 10/15/07 (a) 2,000 1,160
-------
4,869
Textile and Apparel (2.8%)
Pillowtex Series B 9.000% 12/15/07 .................. 500 472
William Carter Series A 10.375% 12/1/06.............. 2,000 2,055
-------
2,527
Transportation and Transportation Equipment (5.8%)
Atlas Air 9.375% 11/15/06 (a)........................ 2,000 1,920
Coach USA Series B 9.375% 7/1/07..................... 1,000 1,045
Holt Group 9.750% 1/15/06 (a)........................ 1,000 660
Railworks 11.500% 4/15/09 (a)........................ 1,500 1,504
-------
5,129
Total Long-Term Obligations
(Cost $85,852)....................................... 83,394
-------
- --------------------------------------------------------------------------------
Number of
Common Stock (0.3%) Shares
- --------------------------------------------------------------------------------
Telecommunications (0.3%)
Viatel Series A 10.000%
(Cost $0)............................................ 4 227
-------
- --------------------------------------------------------------------------------
Preferred Stock (0.3%)
- --------------------------------------------------------------------------------
Telephone (0.3%)
21st Century Telecom Group 13.750%
(Cost $517).......................................... 1 288
-------
<PAGE>
- --------------------------------------------------------------------------------
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Number Market
Warrants (0.7%) of Warrants Value
- --------------------------------------------------------------------------------
Health Services and Equipment
Mediq Warrants 6/1/09 (a)............................ 2 $ (b)
Internet Services (0.4%)
Concentric Network Warrants 12/15/07 (a)............. 1 350
Oil and Gas (0.0%)
Key Energy Services Warrants 1/15/09 (a)............. 1 15
Telecommunications (0.3%)
Metronet Communications Warrants 8/15/07 (a)......... 1 106
MGC Communications Warrants 10/1/04 (a).............. 1 116
-------
222
Telephone (0.0%)
Allegiance Telecom Warrants 2/3/08 (a)............... 2 9
Knology Holdings Warrants 10/15/07 (a)............... 2 4
21st Century Telecommunications Warrants 2/15/10 (a). 1 10
-------
23
Total Warrants
(Cost $15)........................................... 610
-------
<PAGE>
SR&F High Yield Portfolio Continued
- --------------------------------------------------------------------------------
Principal Market
Short-Term Obligation (2.3%) Amount Value
- --------------------------------------------------------------------------------
Commercial Paper (2.3%)
Associates First Capital 0.000% 7/1/99
(Cost $2,075)........................................ $ 2,075 $ 2,075
-------
- --------------------------------------------------------------------------------
Total Investments (98.0%)
(Cost $88,459) (c)................................ 86,594
Other Assets, Less Liabilities (2.0%)................ 1,729
-------
Total Net Assets (100.0%)............................ $88,323
=======
- --------------------------------------------------------------------------------
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 June 30, 1999, the aggregate value of
the Portfolio's private placement securities was $32,403, which represented
36.7% of net assets.
(b)Rounds to less than one.
(c)At June 30, 1999, the cost of investments for financial reporting and federal
income tax purposes was $88,461. Net unrealized depreciation was $1,867,
consisting of gross unrealized appreciation of $1,689 and gross unrealized
depreciation of $3,556.
See accompanying Notes to Financial Statements.
<PAGE>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1999
(All amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
Intermediate High
Bond Income Yield
Fund Fund Fund
----------- ----------- -----------
Assets
<S> <C> <C> <C>
Investment in Portfolio, at value.............................. $431,825 $296,605 $32,827
Receivable for fund shares sold................................ 725 58 23
Cash........................................................... 25 25 55
Other assets................................................... 51 56 5
--------- --------- --------
Total assets................................................ 432,626 296,744 32,910
--------- --------- --------
Liabilities
Payable for fund shares redeemed............................... 825 1,708 45
Dividends payable.............................................. 532 289 73
Payable to investment advisor and transfer agent............... 59 45 10
Other liabilities.............................................. 87 62 16
--------- --------- --------
Total liabilities........................................... 1,503 2,104 144
--------- --------- --------
Net assets.................................................. $431,123 $294,640 $32,766
======== ======== =======
Analysis of Net Assets
Paid-in capital................................................ $449,578 $314,115 $34,271
Undistributed (overdistributed) net investment income.......... (292) 51 (13)
Accumulated net realized loss on investments................... (8,275) (10,803) (759)
Net unrealized depreciation on investments..................... (9,888) (8,723) (733)
--------- --------- --------
Net assets.................................................. $431,123 $294,640 $32,766
======== ======== =======
Shares outstanding (unlimited number authorized)............... 49,974 31,320 3,228
======== ======== =======
Net asset value per share...................................... $ 8.63 $ 9.41 $ 10.15
======== ======== =======
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended June 30, 1999
(All amounts in thousands)
Intermediate High
Bond Income Yield
Fund Fund Fund
----------- ----------- -----------
Investment Income
<S> <C> <C> <C>
Interest income allocated from Portfolio....................... $31,031 $28,471 $3,490
Dividend income allocated from Portfolio....................... 308 233 9
-------- -------- -------
Total investment income..................................... 31,339 28,704 3,499
-------- -------- -------
Expenses
Expenses allocated from Portfolio.............................. 1,685 1,910 229
Administrative fees............................................ 669 489 57
Transfer agent fees............................................ 671 557 64
SEC and state registration fees................................ 49 42 22
Audit and legal fees........................................... 2 4 15
Accounting fees................................................ 35 33 25
Trustees' fees................................................. 12 12 10
Other.......................................................... 71 56 38
-------- -------- -------
Total expenses.............................................. 3,194 3,103 460
Reimbursement of expenses by investment advisor................ -- -- (81)
-------- -------- -------
Net expenses................................................ 3,194 3,103 379
-------- -------- -------
Net investment income....................................... 28,145 25,601 3,120
-------- -------- -------
Realized and Unrealized Gain (Loss) on Investments and Futures Transactions
Net realized gain (loss) on investments and futures
transactions allocated from Portfolio..................... 178 (9,974) (759)
Net change in unrealized appreciation or depreciation on
investments and futures transactions...................... (16,916) (14,328) (869)
-------- -------- -------
Net loss on investments and futures transactions............ (16,738) (24,302) (1,628)
-------- -------- -------
Net Increase in Net Assets Resulting from Operations........... $11,407 $ 1,299 $1,492
========== ========== =========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
Intermediate High Yield
Bond Fund Income Fund Fund
----------------------- ----------------------- ----------------------
Year ended Year ended Year ended Year ended Year ended Year ended
June 30, June 30, June 30, June 30, June 30, June 30,
1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- ---------
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income.......................... $ 28,145 $ 25,498 $ 25,601 $ 29,046 $ 3,120 $ 2,334
Net realized gain (loss) on investments
and futures transactions allocated
from Portfolio............................ 178 6,530 (9,974) 5,548 (759) 1,361
Net change in unrealized appreciation
or depreciation on investments and
futures transactions...................... (16,916) 2,808 (14,328) 67 (869) (131)
--------- --------- --------- --------- -------- --------
Net increase in net assets resulting
from operations........................... 11,407 34,836 1,299 34,661 1,492 3,564
--------- --------- --------- --------- -------- --------
Distributions to Shareholders
Distributions from net investment income....... (28,795) (25,498) (25,599) (29,046) (3,133) (2,334)
Distributions from net capital gains........... -- -- -- -- (1,156) (424)
--------- --------- --------- --------- -------- --------
Total distributions to shareholders......... (28,795) (25,498) (25,599) (29,046) (4,289) (2,758)
--------- --------- --------- --------- -------- --------
Share Transactions
Subscriptions to fund shares................... 218,839 177,002 67,976 151,635 53,537 39,280
Value of distributions reinvested.............. 21,841 18,599 22,401 21,636 3,686 1,347
Redemptions of fund shares..................... (229,625) (96,267) (219,840) (105,755) (63,131) (13,444)
--------- --------- --------- --------- -------- --------
Net increase (decrease) from share
transactions.............................. 11,055 99,334 (129,463) 67,516 (5,908) 27,183
--------- --------- --------- --------- -------- --------
Net increase (decrease) in net assets....... (6,333) 108,672 (153,763) 73,131 (8,705) 27,989
Total Net Assets
Beginning of year.............................. 437,456 328,784 448,403 375,272 41,471 13,482
--------- --------- --------- --------- -------- --------
End of year.................................... $431,123 $437,456 $294,640 $448,403 $32,766 $41,471
========= ========= ========= ========= ======== ========
Analysis of Changes in Shares of
Beneficial Interest
Subscriptions to fund shares................... 24,753 19,854 6,948 15,110 5,211 3,593
Issued in reinvestment of distributions........ 2,470 2,083 2,304 2,154 362 124
Redemptions of fund shares..................... (26,004) (10,792) (22,635) (10,526) (6,117) (1,224)
--------- --------- --------- --------- -------- --------
Net increase (decrease) in fund shares...... 1,219 11,145 (13,383) 6,738 (544) 2,493
Shares outstanding at beginning of year........ 48,755 37,610 44,703 37,965 3,772 1,279
--------- --------- --------- --------- -------- --------
Shares outstanding at end of year.............. 49,974 48,755 31,320 44,703 3,228 3,772
========= ========= ========= ========= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1999
(All amounts in thousands)
SR&F
Intermediate SR&F SR&F
Bond Income High Yield
Portfolio Portfolio Portfolio
------------- --------- -----------
Assets
Investments, at market value (cost of $437,952,
$299,804 and $88,459, respectively)........ $428,048 $291,079 $86,594
Receivable for investments sold............... 15,577 15,732 1,776
Interest receivable........................... 5,891 5,665 1,262
Cash.......................................... 3 1 4
--------- --------- --------
Total assets............................... 449,519 312,477 89,636
--------- --------- --------
Liabilities
Payable for investments purchased............. 15,463 15,646 1,250
Payable to investment advisor................. 138 -- 43
Variation margin payable...................... 332 -- --
Other liabilities............................. 27 120 20
--------- --------- --------
Total liabilities.......................... 15,960 15,766 1,313
--------- --------- --------
Net assets applicable to investors'
beneficial interest...................... $433,559 $296,711 $88,323
======== ======== =======
See accompanying Notes to Financial Statements.
<PAGE>
Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended June 30, 1999
(All amounts in thousands)
SR&F
Intermediate SR&F SR&F
Bond Income High Yield
Portfolio Portfolio Portfolio
------------- --------- -----------
Investment Income
Interest income.............................. $31,589 $28,704 $7,707
-------- -------- -------
Expenses
Management fees.............................. 1,577 1,757 420
Accounting fees.............................. 35 33 26
Audit and legal.............................. 21 20 17
Trustees' fees............................... 17 17 11
Other........................................ 48 55 25
-------- -------- -------
Total expenses............................ 1,698 1,882 499
-------- -------- -------
Net investment income..................... 29,891 26,822 7,208
-------- -------- -------
Realized and Unrealized Gain (Loss) on Investments
and Futures Transactions
Net realized gain (loss) on investments....... 67 (9,978) (632)
Net realized gain on futures transactions..... 80 -- --
Net change in unrealized appreciation or depreciation
on investments and futures transactions.. (17,001) (14,331) (2,238)
-------- -------- -------
Net loss on investments and futures
transactions............................. (16,854) (24,309) (2,870)
-------- -------- -------
Net Increase in Net Assets Resulting from
Operations............................... $13,037 $ 2,513 $4,338
========== ========== =========
See accompanying Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
SR&F Intermediate SR&F Income SR&F High Yield
Bond Portfolio Portfolio Portfolio
----------------------- ----------------------- ----------------------
Year ended Period ended Year ended Period ended Year ended Year ended
June 30, June 30, June 30, June 30, June 30, June 30,
1999 1998 (a) 1999 1998 (a) 1999 1998
--------- --------- --------- --------- --------- ---------
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income...................... $ 29,891 $ 11,522 $ 26,822 $ 12,968 $ 7,208 $ 5,000
Net realized gain (loss) on investments
and futures transactions.............. 147 1,053 (9,978) 3,126 (632) 3,084
Net change in unrealized appreciation or
depreciation on investments and
futures transactions.................. (17,001) (623) (14,331) (5,089) (2,238) (176)
--------- --------- --------- --------- -------- --------
Net increase in net assets resulting
from operations....................... 13,037 11,952 2,513 11,005 4,338 7,908
--------- --------- --------- --------- -------- --------
Transactions in Investors' Beneficial
Interest
Contributions.............................. 97,305 461,444 13,011 456,478 51,100 40,432
Withdrawals................................ (116,948) (33,231) (167,955) (18,341) (45,602) (9,126)
--------- --------- --------- --------- -------- --------
Net increase (decrease) from
transactions in investors'
beneficial interest................... (19,643) 428,213 (154,944) 438,137 5,498 31,306
--------- --------- --------- --------- -------- --------
Net increase (decrease) in net
assets................................ (6,606) 440,165 (152,431) 449,142 9,836 39,214
Total Net Assets
Beginning of period........................ 440,165 -- 449,142 -- 78,487 39,273
--------- --------- --------- --------- -------- --------
End of period.............................. $433,559 $440,165 $296,711 $449,142 $88,323 $78,487
========= ========= ========= ========= ======== ========
</TABLE>
(a)From commencement of operations on February 2, 1998.
See accompanying Notes to Financial Statements.
<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. On February 4, 1998, Stein Roe Advisor Intermediate Bond Fund
contributed cash of $100 to its respective Portfolio. The Portfolios allocate
income, expenses, realized and unrealized gains and losses to each investor on a
daily basis, based on methods approved by the Internal Revenue Service. At June
30, 1999, Intermediate Bond Fund and Advisor Intermediate Bond Fund owned 99.6
percent and 0.4 percent, respectively, of SR&F Intermediate Bond Portfolio;
Income Fund owned 100 percent of SR&F Income Portfolio; and High Yield and Stein
Roe Institutional Client High Yield Fund owned 37.2 percent and 62.8 percent,
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.
<PAGE>
Notes to Financial Statements Continued
- --------------------------------------------------------------------------------
Investment Transactions and
Investment Income
Investment transactions are accounted for on trade date. Interest income,
including premium amortization, is recorded daily on an accrual basis. Realized
gains or losses from investment transactions are reported on a specific
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.
All of the Portfolios had when-issued or delayed delivery purchase commitments
as of June 30, 1999.
Security Valuations
All securities are valued as of June 30, 1999. 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 Advisor, 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 year ended June 30, 1999, 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 variation margin
payable or receivable and offset in 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
<PAGE>
Notes to Financial Statements Continued
- --------------------------------------------------------------------------------
futures contracts at June 30, 1999. 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 distri butions 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 methods approved by the Internal Revenue Service.
The Funds intend to utilize provisions of the 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, 1999, the Funds had capital loss carryforwards as follows:
Year of
Fund Amount Expiration
Intermediate
Bond Fund $7,092 2003-2005
Income Fund 6,779 2002-2007
High Yield Fund 758 2007
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.
<PAGE>
Notes to Financial Statements Continued
- --------------------------------------------------------------------------------
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 "Advisor"),
an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for
its services as investment advisor and manager.
The management fee for Intermediate Bond Portfolio is computed at an annual
rate of .35 of 1 percent of the average daily net assets. The management fee for
Income Portfolio is .50 of 1 percent of the first $100 million of average daily
net assets and .475 of 1 percent thereafter. The management fee for High Yield
Portfolio is .50 of 1 percent of the first $500 million of average daily net
assets and .475 of 1 percent thereafter.
The administrative fee for Intermediate Bond Fund is com puted at an annual
rate of .15 of 1 percent of average daily net assets. The administrative fee for
Income Fund is .15 of 1 percent of the first $100 million of average daily net
assets and .125 of 1 percent thereafter. The administrative fee for the High
Yield Fund is .15 of 1 percent of the first $500 million of average daily net
assets and .125 of 1 percent thereafter.
The Advisor also provides fund accounting services.
The Advisor has agreed to reimburse High Yield Fund for expenses in excess of
1.00 percent of average annual net assets. This commitment expires on October
31, 1999, subject to earlier termination by the Advisor on 30 days' notice.
Transfer agent fees are paid to SteinRoe Services, Inc. (SSI), an indirect,
majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has entered
into an agreement with Liberty Funds Services, Inc., formerly Colonial Investors
Service Center, Inc., also an indirect, majority-owned subsidiary of Liberty
Mutual Insurance Company, to act as a subtransfer agent for the Funds.
Certain officers and trustees of the Trusts are also officers of the Advisor.
Compensation is paid to trustees not affiliated with the Advisor. No
remuneration was paid to any other trustee or officer of the Trusts.
<PAGE>
Notes to Financial Statements Continued
- --------------------------------------------------------------------------------
Note 5. Short-Term Debt
To facilitate portfolio liquidity, the Funds and Portfolios maintain borrowing
arrangements under which they can borrow against portfolio securities. There
were no borrowings during the period ended June 30, 1999.
Note 6. Investment Transactions
The aggregate cost of purchases and proceeds from sales of investments or
maturities, excluding short-term obligations, for the year ended June 30, 1999,
were:
Purchases Sales
--------- ---------
SR&F Income Portfolio..................................$ 729,957 $ 764,802
SR&F Intermediate Bond Portfolio....................... 1,311,852 1,102,965
SR&F High Yield Portfolio.............................. 247,622 236,312
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Intermediate Bond Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Net Asset Value, Beginning of
<S> <C> <C> <C> <C> <C>
Period....................... $ 8.97 $ 8.74 $ 8.58 $ 8.67 $ 8.44
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income.......... 0.56 0.58 0.60 0.59 0.58
Net realized and unrealized
gain (loss) on investments
and futures transactions.... (0.33) 0.23 0.17 (0.10) 0.23
-------- -------- -------- -------- --------
Total from investment
operations................. 0.23 0.81 0.77 0.49 0.81
-------- -------- -------- -------- --------
Distributions
Net investment income.......... (0.57) (0.58) (0.61) (0.58) (0.58)
-------- -------- -------- -------- --------
Total distributions......... (0.57) (0.58) (0.61) (0.58) (0.58)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.... $ 8.63 $ 8.97 $ 8.74 $ 8.58 $ 8.67
==================================================
Ratio of net expenses to average
net assets (a)............... 0.72% 0.72% 0.73% 0.70% 0.70%
Ratio of net investment income to average
net assets...................... 6.31% 6.51% 6.97%(b) 6.79%(b) 6.94%(b)
Portfolio turnover................. -- 138%(c) 210% 202% 162%
Total return....................... 2.60% 9.51% 9.31%(b) 5.76%(b)10.11%(b)
Net assets, end of period (000's). $431,123 $437,456 $328,784 $298,112 $301,733
</TABLE>
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Advisor, this ratio would have been 0.75, 0.75 and 0.71 percent for
the years ended June 30, 1997, 1996 and 1995, respectively.
(b)Computed giving effect to the Advisor's expense limitation undertaking.
(c)Prior to commencement of operations of the Portfolio.
<PAGE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
Income Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
Years Ended June 30,
1999 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................... 0.67 0.69 0.70 0.71 0.71
Net realized and unrealized gain (loss)
on investments....................... (0.62) 0.15 0.25 (0.16) 0.43
-------- -------- -------- -------- --------
Total from investment operations..... 0.05 0.84 0.95 0.55 1.14
-------- -------- -------- -------- --------
Distributions
Net investment income................. (0.67) (0.69) (0.70) (0.71) (0.71)
-------- -------- -------- -------- --------
Net Asset Value, End of Period........... $ 9.41 $ 10.03 $ 9.88 $ 9.63 $ 9.79
======== ======== ======== ======== ========
Ratio of net expenses to average
net assets(a)......................... 0.84% 0.83% 0.84% 0.82% 0.82%
Ratio of net investment income to average
net assets............................ 6.91% 6.89% 7.26%(b) 7.26%(b) 7.55%(b)
Portfolio turnover....................... -- 59%(c) 138% 135% 64%
Total return............................. 0.52% 8.72% 10.34%(b) 5.70%(b)12.79%(b)
Net assets, end of period (000's)....... $294,640 $448,403 $375,272 $309,564 $174,327
</TABLE>
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Advisor, this ratio would have been 0.85, 0.88 and 0.85 percent for
the years ended June 30, 1997, 1996 and 1995, respectively.
(b)Computed giving effect to the Advisor's expense limitation undertaking.
(c)Prior to commencement of operations of the Portfolio.
<PAGE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
High Yield Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
Year Year Period
Ended Ended Ended
June 30, June 30, June 30,
1999 1998 1997 (c)
---------- -------- --------
Net Asset Value, Beginning of Period.......... $ 11.00 $ 10.54 $ 10.00
------- ------- -------
Income From Investment Operations
Net investment income...................... 0.85 0.85 0.52
Net realized and unrealized gain
(loss) on investments.................... (0.53) 0.61 0.54
------- ------- -------
Total from investment operations......... 0.32 1.46 1.06
------- ------- -------
Distributions
Net investment income...................... (0.85) (0.85) (0.52)
Net realized gains......................... (0.32) (0.15) --
------- ------- -------
Total distributions...................... (1.17) (1.00) (0.52)
------- ------- -------
Net Asset Value, End of Period................ $ 10.15 $ 11.00 $ 10.54
===========================
Ratio of net expenses to average net
assets (a)............................... 1.00% 1.00% 1.00%(d)
Ratio of net investment income to average
net assets (b)........................... 8.23% 7.79% 8.05%(d)
Total return (b).............................. 3.50% 14.38% 10.88%
Net assets, end of period (000's)............. $32,766 $41,471 $13,482
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Advisor, this ratio would have been 1.22 percent and 1.32 percent for
the years ended June 30, 1999 and 1998 and 2.29 percent for the period ended
June 30, 1997.
(b)Computed giving effect to the Advisor's expense limitation undertaking.
(c)From commencement of operations on November 1, 1996.
(d)Annualized.
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
For the fiscal year ended June 30, 1999, the Fund paid capital gains
distributions of which 5.27% were long-term capital gains.
- --------------------------------------------------------------------------------
<PAGE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
SR&F Intermediate Bond Portfolio
Year Period
Ended Ended
June 30, June 30,
1999 1998 (a)
------------- ----------
Select Ratios
Ratio of net expenses to average net assets......... 0.36% 0.39%(b)
Ratio of net investment income to average net assets 6.41% 6.77%(b)
Portfolio turnover rate............................. 253% 86%
(a)From commencement of operations on February 2, 1998.
(b)Annualized.
- --------------------------------------------------------------------------------
SR&F Income Portfolio
Year Period
Ended Ended
June 30, June 30,
1999 1998 (a)
------------- ----------
Select Ratios
Ratio of net expenses to average net assets......... 0.50% 0.51%(b)
Ratio of net investment income to average net assets 7.17% 7.23%(b)
Portfolio turnover rate............................. 203% 77%
(a)From commencement of operations on February 2, 1998.
(b)Annualized.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SR&F High Yield Portfolio
Year Year Period
Ended Ended Ended
June 30, June 30, June 30,
1999 1998 1997 (a)
--------- -------- --------
Select Ratios
<S> <C> <C> <C>
Ratio of net expenses to average net assets......... 0.57% 0.65% 0.89%(b)
Ratio of net investment income to average net assets 8.27% 8.13% 8.24%(b)
Portfolio turnover rate............................. 296% 426% 168%
(a)From commencement of operations on November 1, 1996.
(b)..................................Annualized.
</TABLE>
<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 Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
SR&F Intermediate Bond Portfolio
SR&F Income Portfolio
SR&F High Yield Portfolio
We have audited the accompanying statements of assets and liabilities of Stein
Roe Intermediate Bond Fund, Stein Roe Income Fund and Stein Roe High Yield Fund
as of June 30, 1999, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. We have also audited the accompanying statements of assets
and liabilities, including the portfolio of investments, of SR&F Intermediate
Bond Portfolio, SR&F Income Portfolio and SR&F High Yield Portfolio as of June
30, 1999, and the related statements of operations, statements of changes in net
assets, and financial highlights for the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Funds' and Portfolios' 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 dis-closures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the account-ing 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 positions of Stein
Roe Intermediate Bond Fund, Stein Roe Income Fund, Stein Roe High Yield Fund,
SR&F Intermediate Bond Portfolio, SR&F
<PAGE>
Report of Independent Auditors Continued
- --------------------------------------------------------------------------------
Income Portfolio, and SR&F High Yield 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 conformity with generally
accepted accounting principles.
Earnst + Young L.L.P.
Chicago, Illinois
August 11, 1999
<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
Kevin M. Carome, Executive Vice President,
Assistant Secretary
Loren A. Hansen, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Treasurer
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
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
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.
BD11A 8/99