STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
JUNE 30, 2000
[ABACUS PHOTO HERE]
STEIN ROE CASH RESERVES
CASH RESERVES FUND
[STEIN ROE LOGO]
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.
<PAGE>
Contents
--------------------------------------------------------------------------------
From the President................................................ 1
Stephen Gibson's thoughts on the markets and investing
Performance Summary............................................... 2
Questions & Answers
Interview with the portfolio manager and
a summary of investment activity
Cash Reserves Fund............................................. 3
Portfolio of Investments.......................................... 5
A complete list of investments with market values
Financial Statements.............................................. 7
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 13
Financial Highlights.............................................. 16
Selected per-share data
Report of Ernst & Young LLP,
Independent Auditors.............................................. 17
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
--------------------------------------------------------------------------------
To Our Shareholders
Consumer confidence remained high and spending was strong, posting
near-record sales in many industries during the 12-month period ending June 30,
2000. The U.S. economy continued its steady growth through the second half of
1999, and though it has shown signs of slowing in the first two quarters of
2000, it has not stabilized sufficiently to satisfy the Federal Reserve Board
(the Fed).
The bond market has been volatile, buoyed on the one hand by signs of slowing
economic activity, yet troubled by signs of inflation creep on the other. Supply
and demand have worked at cross purposes as well, with liquidations of bond
mutual funds suppressing demand, even as the Treasury acts to reduce supply by
using the budget surplus to buy outstanding Treasury debt. Institutional
investors became more cautious, selling off corporate debt and buying short-term
treasury, which further added to the volatility.
We remain confident that for those seeking a relatively stable haven for
their dollars and potential for current income, Stein Roe Cash Reserves Fund may
be an attractive option. The following report will provide you with more
specific information about your Fund's performance and the strategies used
during the period. I thank you for giving us the opportunity to serve your
investment needs.
Sincerely,
/S/ Stephen E. Gibson
Stephen E. Gibson
President
August 18, 2000
Stephen E. Gibson
[STEPHEN GIBSON PHOTO HERE]
1
<PAGE>
Performance Summary
--------------------------------------------------------------------------------
Average Annual Total Returns
Period Ended June 30, 2000
<TABLE>
<CAPTION>
6 MONTH 1 5 10
(CUMULATIVE) YEAR YEARS YEARS
---------------------------------------------------
<S> <C> <C> <C> <C>
Stein Roe Cash Reserves Fund 2.70% 5.22% 4.99% 4.69%
U.S. Consumer Price Index (Inflation) 2.38 3.67 2.47 2.86
Lehman Brothers Government Bond Index 4.97 5.01 6.20 7.77
Merrill Lynch High Yield Master II Index (1.19) (1.37) 6.75 10.43
Lipper Money Market Fund Average 2.65 5.06 4.91 4.69
-------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURN INCLUDES
REINVESTMENT OF INCOME. YIELDS FLUCTUATE AND ARE NOT GUARANTEED. An investment
in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance
Corp. (FDIC) or any government agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Fund. The U.S. Consumer Price Index is the government's measure
of retail inflation. Each bond index shown above is unmanaged and does not
represent the performance of any Stein Roe mutual fund; neither is it available
for direct investment. Source of Lipper data: Lipper, Inc., a monitor of mutual
fund performance.
2
<PAGE>
Questions & Answers
--------------------------------------------------------------------------------
An Interview with Jane M. Naeseth, Portfolio Manager of Stein Roe Cash
Reserves Fund and SR&F Cash Reserves Portfolio
Jane Naeseth
[JANE NAESETH PHOTO HERE]
Q: What happened in the market the fund invests in during the period?
NAESETH: The most significant force in the short-term bond market is always
the Federal Reserve Board. As we expected, the Fed reacted to a strong U.S.
economy by raising interest rates five times during the 12-month period ended
June 30, 2000, from 5% - 6.5%. The Fed's action benefited shareholders by
increasing the income paid by money market securities.
Q: What was your strategy during the period?
NAESETH: In anticipation of a long series of interest rate increases by the
Fed, we maintained our defensive posture. As a result, the composition of the
Portfolio did not change a great deal. The average maturity of the Portfolio
remained consistently short during the period, averaging approx imately 26 days.
We decreased holdings in letter of credit commercial paper (from 8% to 5.7% of
the Fund's assets) and corporate notes (from 5.6% to 4.2%), while increasing
holdings in commercial paper (from 79% to 82.5%). We like the flexi bility and
risk level of commercial paper because it is issued only by top-rated concerns.
Fund Data
Investment Objective:
Stein Roe Cash Reserves Fund seeks maximum current income consistent with
capital preservation and maintenance of liquidity. The Fund invests all of
its assets in Stein Roe & Farnham Cash Reserves Portfolio as a part of master
fund/feeder fund structure. The Portfolio invests in high-quality money
market securities.
Fund Inception:
Oct. 2, 1976
Total Net Assets:
$496.9 million
Q: What is your outlook for the market?
NAESETH: Despite the gradual slowing of economic growth, we anticipate the
possibility of further tightening by the Fed. Accordingly, we will continue to
maintain a cautious approach to managing the Portfolio. As always, we will
lengthen average maturity only when we see a yield advantage.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURN INCLUDES
REINVESTMENT OF INCOME. YIELDS FLUCTUATE AND ARE NOT GUARANTEED. An investment
in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any government agency. Although the Fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose money by
investing in the Fund.
3
<PAGE>
Portfolio Highlights
Cash Reserves Portfolio
--------------------------------------------------------------------------------
Securities Type Breakdown(1)
--------------------------------------------------------------------------------
PORTFOLIO PORTFOLIO
JUNE 30, 2000 JUNE 30, 1999
--------------------------------------------------------------------------------
Commercial Paper 82.5% 79.1%
Yankee Certificates of Deposit 7.6 7.1
Letters of Credit Commercial Paper 5.7 8.2
Corporate Notes 4.2 5.6
--------------------------------------------------------------------------------
Total Investments 100.0% 100.0%
Portfolio Statistics
PORTFOLIO PORTFOLIO
JUNE 30, 2000 JUNE 30, 1999
--------------------------------------------------------------------------------
7-Day Dollar-Weighted
Average Maturity 25.86 days 27.10 days
7-Day Current Yield2 5.62% 4.37%
1 The sector classifications used on this page are based upon the Advisor's
defined criteria as used in the investment process.
2 Net of all fees and expenses and represents an annualization of dividends
declared and payable to shareholders for the last seven days of
investments.
--------------------------------------------------------------------------------
Maturity
[CHART DATA]
As of June 30, 2000
Greater than 59 days 14.0%
30-59 days 11.0%
15-29 days 8.0%
5-14 days 59.0%
1-4 days 8.0%
[CHART DATA]
As of June 30, 1999
Greater than 59 days 14.7%
30-59 days 9.0%
15-29 days 15.2%
5-14 days 51.5%
1-4 days 9.6%
4
<PAGE>
SR&F Cash Reserves Portfolio
-------------------------------------------------------------------------------
Investment Portfolio at June 30, 2000
(All amounts in thousands)
INTEREST MATURITY
COMMERCIAL PAPER - 87.9% RATE(a) DATE PAR VALUE
--------------------------------------------------------------------------------
ASSET SECURITIZATION CORP.,(B)
6.570% 7/13/00 $20,000 $ 19,956
ASSOCIATES FIRST CAPITAL,
6.950% 7/3/00 41,000 40,984
CATERPILLAR FINANCIAL SERVICES CORP.,
6.260% 8/22/00 35,000 34,693
CITIC PACIFIC FINANCE (LOC BANK OF AMERICA),
6.650% 7/3/00 20,000 19,993
COOPER INDUSTRIES INC.,
7.060% 7/5/00 14,000 13,989
CORPORATE ASSET FUNDING,(B)
6.810% 7/5/00 37,000 36,972
COUNTRYWIDE HOME LOANS,
6.810% 7/10/00 37,000 36,937
CSN OVERSEAS (LOC BARCLAYS),
6.280% 8/31/00 24,927 24,671
EATON CORP.,(B)
6.760% 7/5/00 38,000 37,972
ENTERPRISE FUNDING CORP.,(B)
6.810% 7/6/00 25,000 24,976
FALCON ASSET SECURITIZATION,(B)
6.640% 7/14/00 35,000 34,917
GENERAL DYNAMICS,(B)
6.770% 9/11/00 5,000 4,934
GOLDMAN SACHS & CO.,
6.580% 7/17/00 24,000 23,930
GTE CORP.,(B)
6.630% 7/5/00 25,000 24,982
HARLEY-DAVIDSON FUNDING (B):
6.590% 7/10/00 15,135 15,110
6.770% 7/18/00 15,000 14,952
INTERNATIONAL SECURITIZATION,(B)
6.680% 7/12/00 10,587 10,566
NORTHERN INDUSTRIAL PUBLIC SERVICES,
6.700% 7/14/00 35,000 34,916
OLD LINE FUNDING,(B)
6.660% 7/7/00 38,000 37,958
7-ELEVEN CORP.,
6.570% 7/6/00 17,000 16,985
SPECIAL PURPOSE ACCOUNTS RECEIVABLE,(B)
6.600% 7/13/00 35,000 34,923
SUPERIOR FUNDING,(B)
6.640% 7/7/00 35,000 34,962
TARGET CORP.,
6.630% 7/11/00 27,000 26,951
TEXTRON FINANCIAL,
6.650% 7/6/00 24,000 23,978
THAMES ASSET GLOBAL,(B)
6.750% 8/30/00 35,000 34,611
US WEST COMMUNICATIONS,
6.830% 7/18/00 28,000 27,910
-------
TOTAL COMMERCIAL PAPER
(cost of $ 693,728)......... 693,728
-------
--------------------------------------------------------------------------------
5
<PAGE>
SR&F Cash Reserves Portfolio Continued
--------------------------------------------------------------------------------
INTEREST MATURITY
CORPORATE NOTES - 4.2% RATE(a) DATE PAR VALUE
--------------------------------------------------------------------------------
GTE CORP.,
9.375% 12/1/00 $13,000 $ 13,135
WORLDCOM, INC.,(B)
6.940% 8/17/00 20,000 20,037
-------
TOTAL CORPORATE NOTES,
(cost of $33,172)........... 33,172
-------
--------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT - 7.6%
ABN - AMRO CANADA
6.240% 8/8/00 30,000 29,808
CANADIAN IMPERIAL HOLDINGS,
7.060% 12/27/00 30,000 30,000
-------
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(cost of $59,808)........... 59,808
-------
--------------------------------------------------------------------------------
TOTAL INVESTMENTS
(cost of $786,708)(c).... 786,708
-------
OTHER ASSETS, LESS LIABILITIES - 0.3% 2,055
-------
NET ASSETS - 100%.............. $788,763
=======
--------------------------------------------------------------------------------
(a) The interest rate is the effective rate at the date of purchase except for
variable rate notes, for which the interest rate represents the current
rate as of the most recent dates.
(b) Represents private placement securities exempt from registration by Section
4(2) Securities Act of 1933. These securities are issued to investors who
agree that they are purchasing the securities for investment and not with a
view to public distribution. Any resale by the Fund must be in an exempt
transaction, normally to other institutional investors. At June 30, 2000,
the aggregate value of the Fund's private placement securities was
$387,828, which represented 49.2% of net assets. None of these securities
were deemed illiquid.
(c) At June 30, 2000, the cost of investments for financial reporting and
federal income tax purposes was identical.
See accompanying Notes to Financial Statements.
6
<PAGE>
SR&F Cash Reserves Portfolio
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
Ended June 30, 2000
(All amounts in thousands)
ASSETS
Investments at value (cost $786,708).............................. $786,708
Cash.............................................................. 2,127
Interest receivable............................................... 89
---------
Total Assets................................................... 788,924
---------
LIABILITIES
Accrued:
Management fee................................................. 135
Bookkeeping fee................................................ 7
Transfer agent fee............................................. 1
Other............................................................. 18
---------
Total Liabilities.............................................. 161
---------
Net Assets applicable to investors' beneficial interest........ $788,763
=========
See accompanying Notes to Financial Statements.
7
<PAGE>
SR&F Cash Reserves Portfolio
--------------------------------------------------------------------------------
Statement of Operations
For the Year Ended June 30, 2000
(All amounts in thousands)
INVESTMENT INCOME
Interest......................................................... $47,208
-------
EXPENSES
Management fees............................................... 1,943
Bookkeeping fees.............................................. 44
Trustees' fees................................................ 25
Audit fee..................................................... 17
Legal fees.................................................... 4
Transfer agent fees........................................... 6
Custodian fee................................................. 2
-------
Total expenses................................................ 2,041
-------
Net Investment Income......................................... 45,167
-------
NET REALIZED LOSS ON INVESTMENTS
Net realized loss............................................. (2)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $45,165
=======
8
<PAGE>
SR&F Cash Reserves Portfolio
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
(All amounts in thousands)
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
------------ ----------
OPERATIONS
Net investment income............................. $ 45,167 $ 37,933
Net realized loss on investments.................. (2) (4)
---------- ----------
Net increase in net assets resulting from operations 45,165 37,929
---------- ----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions..................................... 3,386,150 1,549,789
Withdrawals....................................... (3,415,013) (1,501,534)
---------- ----------
Net increase (decrease) from transactions in
investors' beneficial interest............... (28,863) 48,255
---------- ----------
Net increase in net assets..................... 16,302 86,184
TOTAL NET ASSETS
Beginning of period............................... 772,461 686,277
---------- ----------
End of period..................................... $ 788,763 $ 772,461
========== ==========
See accompanying Notes to Financial Statements.
9
<PAGE>
Stein Roe Cash Reserves Fund
-------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 2000
(All amounts in thousands, except per-share amount)
ASSETS
Investment in Portfolio, at value................................. $514,906
Receivable for fund shares sold................................... 3,921
Other ............................................................ 78
---------
Total Assets................................................... 518,905
---------
LIABILITIES
Payable for fund shares repurchased............................... 21,034
Dividends payable................................................. 761
Accrued:
Administrative fees............................................ 115
Bookkeeping fees............................................... 3
Transfer agent fees............................................ 99
Other............................................................. 43
---------
Total Liabilities.............................................. 22,055
---------
Net assets..................................................... $496,850
=========
ANALYSIS OF NET ASSETS
Paid-in capital................................................... $496,750
Undistributed net investment income............................... 100
---------
Net assets..................................................... $496,850
=========
Shares outstanding (unlimited number authorized).................. 496,628
=========
Net asset value per share......................................... $ 1.00
=========
See accompanying Notes to Financial Statements.
10
<PAGE>
Stein Roe Cash Reserves Fund
--------------------------------------------------------------------------------
Statement of Operations
For the Year Ended June 30, 2000
(All amounts in thousands)
INVESTMENT INCOME
Interest allocated from Portfolio................................ $30,705
-------
EXPENSES
Expenses allocated from Portfolio................................ 1,273
Administrative fee............................................... 1,325
Transfer agent fee............................................... 878
Bookkeeping fees................................................. 37
Registration fees................................................ 35
Custodian fee.................................................... 1
Audit fee........................................................ 10
Trustees' fees................................................... 5
Reports to shareholders.......................................... 12
Legal fee........................................................ 4
-------
Total expenses................................................ 3,580
-------
Net investment income......................................... 27,125
-------
See accompanying Notes to Financial Statements.
11
<PAGE>
Stein Roe Cash Reserves Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
(All amounts in thousands)
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
------------ ----------
OPERATIONS
<S> <C> <C>
Net investment income...................................... $ 27,125 $ 22,933
Net realized loss on investments allocated from Portfolio.. -- (3)
---------- ----------
Net increase in net assets resulting from operations.... 27,125 22,930
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income................... (27,025) (22,933)
---------- ----------
SHARE TRANSACTIONS
Subscriptions to fund shares............................... 2,263,416 1,292,705
Value of distributions reinvested.......................... 24,804 21,281
Redemptions of fund shares................................. (2,295,156) (1,304,251)
---------- ----------
Net increase (decrease) from share transactions......... (6,936) 9,735
---------- ----------
Net increase (decrease) in net assets................... (6,836) 9,732
TOTAL NET ASSETS
Beginning of period........................................ 503,686 493,954
---------- ----------
End of period.............................................. $ 496,850 $ 503,686
========== ==========
Undistributed net investment income........................ $ 100 $ --
========== ==========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares .............................. 2,263,416 1,292,663
Issued in reinvestment of distributions.................... 24,804 21,281
Redemptions of fund shares................................. (2,295,156) (1,304,251)
---------- ----------
Net increase (decrease) in fund shares.................. (6,936) 9,693
Shares outstanding at beginning of period.................. 503,564 493,871
---------- ----------
Shares outstanding at end of period........................ 496,628 503,564
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(All amounts in thousands)
Note 1. Organization
Stein Roe Cash Reserves Fund (the "Fund") is a series of Liberty-Stein Roe Funds
Income Trust (the "Trust") (formerly Stein Roe Income Trust), an open-end
management investment company organized as a Massachusetts business trust. The
Fund invests substantially all of its assets in SR&F Cash Reserves Portfolio
(the "Portfolio"), which seeks maximum income consistent with capital
preservation and maintenance of liquidity.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on March 2, 1998. At commencement,
Stein Roe Cash Reserves Fund and Liberty Money Market Fund (formerly Colonial
Money Market Fund) contributed $493,224 and $187,537, respectively, in
securities and other assets in exchange for beneficial ownership of the
Portfolio. The Portfolio allocates income, expenses and realized gains and
losses to each investor on a daily basis, based on methods approved by the
Internal Revenue Service. At June 30, 2000, Stein Roe Cash Reserves Fund and
Liberty Money Market Fund owned 65.3% and 34.7%, respectively, of the Portfolio.
--------------------------------------------------------------------------------
Note 2. Significant Accounting Policies
The following summarizes the signi ficant accounting policies of the Fund and
Portfolio. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Investment Transactions and Investment Income:
Investment transactions are accounted for on trade date. Interest income,
including discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
The Portfolio is permitted to invest in repurchase agreements involving
securities issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. The Portfolio requires issuers of repurchase agreements to
transfer the securities underlying those agreements to the Portfolio's custodian
at the time of payment.
Security Valuations:
The Portfolio utilizes the amortized cost method to value its investments. This
technique approximates market value and involves valuing a security initially at
cost and, thereafter assuming a constant amortization to maturity of any
discount or premium. In the event that a deviation of 0.50% or more exists
between the Fund's $1.00 per-share net asset value, calculated at amortized
cost, and the net asset
13
<PAGE>
Notes to Financial Statements Continued
--------------------------------------------------------------------------------
value calculated by reference to market quotations, the Board of Trustees would
consider what action, if any, should be taken. Other assets are valued at fair
value as determined in good faith by or under the direction of the Board of
Trustees.
The Fund attempts to maintain a per-share net asset value of $1, which
management believes will be possible under most conditions. Federal Income
Taxes: No provision is made for federal income taxes because the Portfolio is
treated as a partnership for federal income tax purposes and all of its income
is allocated to its owners based on methods approved by the Internal Revenue
Service.
The Fund intends to utilize provisions of the federal income tax laws, which
allow them to carry a realized capital loss forward up to eight years following
the year of the loss, and offset such losses against any future realized gains.
At June 30, 2000, the Fund had capital loss carryforwards as follows:
Year of
Amount Expiration
------ ----------
$106 2002-2008
Distributions to Shareholders
The Fund declares and records distributions daily and pays monthly.
--------------------------------------------------------------------------------
Note 3. Portfolio Composition
Under normal market conditions, the Portfolio will invest a least 25% of its
total assets in securities of issuers in the financial services industry (which
includes, but is not limited to, banks, consumer and business credit
institutions, and other financial services companies). At June 30, 2000, 72% of
the Portfolio's net assets were invested in the financial services industry. See
the Investment Portfolio for additional inform ation regarding portfolio
composition.
--------------------------------------------------------------------------------
Note 4. Trustees' Fees and Transactions with Affiliates
Management & Administrative fees
The Portfolio pays monthly management fees to Stein Roe & Farnham Incorporated
(the "Advisor"), an indirect, majority-owned subsidiary of Liberty Mutual
Insurance Company, for its services as investment Advisor and manager. The
management fee for the Portfolio is computed at an annual rate of 0.25% of the
first $500 million of average daily net assets, and 0.225% over $500 million.
Bookkeeping fee
The Advisor provides bookkeeping and pricing services for a monthly fee equal
to $25 annually plus 0.0025% annually of the Fund's average daily net assets
over $50 million.
14
<PAGE>
Notes to Financial Statements Continued
--------------------------------------------------------------------------------
Transfer agent fee
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of Liberty,
provides shareholder services for a monthly fee equal to 0.15% annually of the
Fund's average daily net assets and receives reimbursement for certain out of
pocket expenses.
Other
Certain officers and trustees of the Trust 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 Trust, who is
affiliated with the Advisor.
--------------------------------------------------------------------------------
Note 5. Line of Credit
The Liberty-Stein Roe Municipals Trust (excluding the Stein Roe High Yield
Municipals Fund and Stein Roe Municipal Money Market Fund), the Liberty
Stein-Roe Investment Trust and the SR&F Base Trust (collectively, the "Trusts"),
participate in unsecured line of credit agreements provided by the custodian
bank consisting of two components. The committed line of credit entitles the
Trusts to borrow from the custodian at any time upon notice from the Trusts. The
uncommitted line of credit permits the Trusts to borrow from the custodian at
the custodian's sole discretion. The aggregate borrowings available to the
Trusts for the committed and uncommitted lines of credit are $200 million and
$100 million, respectively. Borrowings may be made to temporarily finance the
repurchase of Fund shares. Interest is charged to each Trust and, ultimately,
the Fund based on its borrowings at a rate equal to the Federal Funds Rate plus
5% per year. In addition, a commitment fee of 0.10% per annum on each Fund's
borrowings shall be paid quarterly by the Fund based on the relative asset size
of the Fund. For the year ended June 30, 2000, the Trusts had no borrowings
under the agreement.
15
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
Cash Reserves Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income.......... 0.051 0.045 0.050 0.048 0.050
Distributions from net investment
income....................... (0.051) (0.045) (0.050) (0.048) (0.050)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Ratio of expenses to average
net assets................... 0.68% 0.70% 0.75% 0.77% 0.78%
Ratio of net investment income
to average net assets....... 5.11% 4.58% 4.98% 4.80% 4.98%
Total return ..................... 5.22% 4.64% 5.09% 4.92% 5.07%
Net assets, end of period (000's). $496,850 $503,686 $493,954 $452,358 $476,840
</TABLE>
SR&F Cash Reserves Portfolio
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
RATIOS TO AVERAGE NET ASSETS 2000 1999 1998 (a)
-------- -------- --------
<S> <C> <C> <C>
Ratio of net expenses to average net assets........ 0.25% 0.25% 0.26%(b)
Ratio of net investment income
to average net assets......................... 5.52% 4.83% 5.45%(b)
(a)From commencement of operations on March 2, 1998.
(b)Annualized.
</TABLE>
16
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders, Holders of Investors' Beneficial Interests and Board of
Trustees of Liberty Funds Trust II and SR&F Base Trust
Liberty Money Market Fund
SR&F Cash Reserves Portfolio
We have audited the accompanying statement of assets and liabilities of Liberty
Money Market Fund (formerly, Colonial Money Market Fund, a series of Liberty
Funds Trust II), as of June 30, 2000, and the related statement of operations,
statement of changes in net assets and the financial highlights for the year
then ended, and the accompanying statement of assets and liabilities, including
the portfolio of investments, of SR&F Cash Reserves Portfolio (a series of SR&F
Base Trust) as of June 30, 2000, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trusts' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The statement of changes in net assets for the period ended June
30, 1999, and the financial highlights for each of the four years in the period
then ended for the Liberty Money Market Fund were audited by other auditors
whose report dated August 11, 1999 expressed an unqualified opinion on that
financial statement and those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2000, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
17
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors Continued
--------------------------------------------------------------------------------
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned series of Liberty Funds Trust II and SR&F Base Trust at June 30,
2000, the results of their operations, the changes in their net assets, and
their financial highlights for each of the periods referred to above, in
conformity with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
August 18, 2000
18
<PAGE>
This page intentionally left blank.
19
<PAGE>
This page intentionally left blank.
20
<PAGE>
Liberty-Stein Roe Funds Income Trust
--------------------------------------------------------------------------------
Trustees
John A. Bacon, Jr.
Private Investor
William W. Boyd
Chairman and Director, Sterling Plumbing Group Inc.
Lindsay Cook
Executive Vice President, Liberty Financial Companies, Inc.
Douglas A. Hacker
Executive Vice President and Chief Financial Officer, United Airlines
Janet Langford Kelly
Executive Vice President, Secretary and General Counsel, Kellogg Company
Charles R. Nelson
Van Voorhis Professor of Political Economy, University of Washington
Thomas C. Theobald
Managing Director, William Blair Capital Partners
Officers
Stephen E. Gibson, President
William D. Andrews, Executive Vice President
Kevin M. Carome, Executive Vice President, Secretary
Loren A. Hansen, Executive Vice President
Joseph Palombo, Executive Vice President
Pamela McGrath, Senior Vice President, Treasurer
Nancy L. Conlin, Senior Vice President, Secretary
Kevin Connaughton, Controller
Agents and Advisors
Stein Roe & Farnham Incorporated
Investment Advisor
State Street Bank and Trust Company
Custodian
Stein Roe Services Inc.
Transfer Agent
Bell, Boyd & Lloyd, LLC
Legal Counsel to the Trust
Ernst & Young LLP
Independent Auditors
<PAGE>
THE STEIN ROE MUTUAL FUNDS
FIXED INCOME FUNDS
Cash Reserves Fund
Municipal Money Market Fund
Intermediate Municipals Fund
Managed Municipals Fund
High-Yield Municipals Fund
Intermediate Bond Fund
Income Fund
High Yield Fund
EQUITY FUNDS
Balanced Fund
Growth & Income Fund
Disciplined Stock Fund*
Growth Stock Fund
Growth Investor Fund
Young Investor Fund
Large Company Focus Fund
Midcap Growth Fund**
Capital Opportunities Fund
International Fund
Small Company Growth Fund
* Formerly Special Fund
** Formerly Growth Opportunities Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
Financial Advisors call: 800-322-0593
Shareholders call: 800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive
Liberty Funds Distributor, Inc.
536-02/255C-0700 (8/00) 00/1373
