Stein Roe Mutual Funds
Annual Report
August 31, 2000
Photo of: Hands on globe
Stein Roe Equity Fund
Small Cap Tiger Fund Class S
LOGO: Stein Roe Mutual Funds
Sensible Risks. Intelligent Investments.(R)
<PAGE>
Contents
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From the President................................................ 1
Fund Performance.................................................. 2
Portfolio Managers' Report........................................ 3
Fund Highlights.................................................. 6
Portfolio of Investments.......................................... 7
A complete list of investments with market values
Financial Statements.............................................. 10
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 13
Financial Highlights.............................................. 19
Selected per-share data and ratios
Report of Independent
Auditors.......................................................... 20
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
--------------------------------------------------------------------------------
To Our Shareholders:
I am pleased to present this annual report for the Stein Roe Small Cap
Tiger Fund, Class S for the year ended August 31, 2000. On May 1, 2000, the Fund
changed its name from the Stein Roe Small Cap Asian Tiger Fund.
The continued economic development of countries in northern Asia,
particularly the People's Republic of China (China), highlighted the Fund's
fiscal year ended August 31, 2000. Much of the Fund's positive return was
generated prior to March 2000, when stocks in the technology, telecommunications
and media sectors performed extremely well. After that time, these securities
experienced a correction, which dampened the Fund's performance.
The Fund performed quite well in comparison to its benchmark, the Morgan
Stanley Capital International (MSCI) Pacific (ex-Japan) Index, as shown on page
2. This was due in large part to an overweighting in the markets of northern
Asia. It was also due to the focus of the Fund's management team on small
company stocks with solid, long-term growth potential.
The following report provides more specifics about the Fund's management, and
the economic, political and market factors that affected its performance. As
always, thank you for choosing the Stein Roe Small Cap Tiger Fund and for giving
us the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
October 9, 2000
Photo of: Stephen E. Gibson
1
<PAGE>
Fund Performance
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AVERAGE ANNUAL TOTAL RETURNS
AS OF 8/31/00
ONE LIFE
YEAR OF FUND+
-------------------------------------------------------------------------------
STEIN ROE SMALL CAP TIGER FUND 9.63% -2.67%
MSCI Pacific (Ex-Japan) Index 6.81 -2.26*
Lipper Pacific Ex-Japan Funds Average 5.51 --
-------------------------------------------------------------------------------
The average annual total returns of the Fund through 6/30/00, were 9.38% and
negative 1.59% for the one-year and life of fund periods, respectively.
Lipper, Inc., a monitor of mutual fund performance is the source of the above
category average, which represents an average total return for mutual funds with
similar investment objectives as the Fund (peer group). For the one-year period,
the Fund ranked 22 out of 81 funds in the Lipper Pacific ex-Japan Funds
Category.
+ The Fund began operations on 6/3/96.
* From 5/31/96
Investment Comparison
--------------------------------------------------------------------------------
VALUE OF AN INITIAL $10,000 INVESTMENT
--------------------------------------------------------------------------------
Stein Roe Small Cap Tiger Fund
Line Chart:
Stein Roe Small MSCI Pacific
Cap Tiger (Ex Japan)
Fund Index
5/31/96 10000.00 10000.00
6/30/96 9991.00 9811.00
7/31/96 9426.51 9316.53
8/31/96 9396.34 9732.97
9/30/96 9517.56 9981.17
10/31/96 9174.92 10252.65
11/30/96 9608.90 10799.12
12/31/96 9739.58 10819.64
1/31/97 9901.26 10689.80
2/28/97 9780.46 10841.60
3/31/97 9366.75 10338.55
4/30/97 9286.19 10126.61
5/31/97 9820.15 10756.48
6/30/97 9950.76 10990.97
7/31/97 10323.91 10961.30
8/31/97 9204.80 9439.87
9/30/97 9457.01 9761.77
10/31/97 7662.07 7691.30
11/30/97 7560.93 7448.25
12/31/97 7006.71 7467.62
1/31/98 5807.16 7006.12
2/28/98 7228.76 8083.66
3/31/98 7188.28 7988.27
4/30/98 6624.00 7429.89
5/31/98 5817.20 6596.26
6/30/98 4939.96 6198.50
7/31/98 4677.65 5985.90
8/31/98 3951.68 5176.60
9/30/98 4395.06 5649.23
10/31/98 5493.82 6740.09
11/30/98 5967.39 7053.51
12/31/98 5980.52 6971.69
1/31/99 5595.97 7019.79
2/28/99 5514.83 6946.78
3/31/99 5696.82 7495.58
4/30/99 6961.51 8733.10
5/31/99 7386.16 8113.05
6/30/99 8630.73 8781.57
7/31/99 8559.96 8699.90
8/31/99 8195.31 8499.80
9/30/99 7962.56 8342.55
10/31/99 8418.02 8496.06
11/30/99 9125.97 9201.23
12/31/99 10117.05 9940.09
1/31/00 10086.70 9234.34
2/29/00 10127.05 9204.79
3/31/00 10289.08 9283.95
4/30/00 9287.95 8900.53
5/31/00 8498.48 8072.78
6/30/00 9439.26 9014.87
7/31/00 9034.32 8970.70
8/31/00 8904.28 9078.35
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. The above illustration assumes a $10,000 investment on June
3, 1996, and reinvestment of income and capital gains distributions. The MSCI
Pacific (ex-Japan) Index is an unmanaged group of securities that differs from
the composition of any Stein Roe fund; it is not available for direct
investment. Benchmark performance is from 5/31/96. Foreign investing involves
market, political, currency and accounting risks not associated with domestic
securities.
2
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Portfolio Managers' Report
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FUND DATA
Investment Objective:
Stein Roe Small Cap Tiger Fund seeks capital appreciation. The Fund invests
primarily in stocks of companies located in the ten Tiger countries of Asia.
It seeks stocks of well-established smaller-capitalization companies with
histories of consistent earnings growth in industries with attractive or
improving prospects.
Fund Inception:
June 3, 1996
Total Net Assets:
$12.1 million
THE FUND OUTPACED THE REGION
The year ended August 31, 2000 was one of tremendous volatility for stocks in
Asia. Class S shares of the Fund, formerly Class Z shares of Newport Tiger Cub
Fund, had a total return of 9.63% for the 12-month period ended August 31, 2000
without a sales charge, compared to 6.81% for the Morgan Stanley Capital
International (MSCI) Pacific (ex-Japan) Index. The MSCI Pacific (ex-Japan) Index
is a broad-based, unmanaged index that tracks the performance of stocks in
Pacific Basin countries other than Japan. Most of the positive performance was
generated at the beginning of the period. Later in the period, markets in Asia
followed a worldwide market correction.
GREATER CHINA OFFERED THE BEST OPPORTUNITIES
The Fund continued to emphasize a region we believe represents one of the most
exciting economic stories in the world today - Greater China. Triggered by
successful economic reforms in China, this area, including Asian economic
stalwarts Hong Kong and Taiwan maintained its investment potential. As a result,
well over half of the Fund's assets remained in this region, with most issues
purchased on the well- regulated Hong Kong Stock Exchange. Hong Kong continued
to provide the best venue for access to stocks of mainland Chinese companies or
those that target the entire region. Hong Kong-based companies have also
performed well as that city-state rebounds from recession. Taiwan benefited from
resurgence in export growth and the Fund took an initial position in the Taiwan
market. Also in Northern Asia the Fund took a position in Korea, which showed
signs of economic recovery.
China continued to reap the benefits of its evolving open market system.
The growing entrepreneurial community, particularly in the higher technology
area, created attractive investment potential in small capitalization stocks,
but as is the case globally, greater volatility accompanies such investments.
3
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Portfolio Managers' Report Continued
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SOUTHEAST ASIA CONTINUED TO LAG
In contrast, Southeast Asia offered a less attractive environment. A number of
countries in that region, including the Philippines and Indonesia, struggled
economically. In those nations, economic reforms failed to take hold, and
political upheaval created an unattractive environment for investors. However,
one country in Southeast Asia that managed to hold our attention was Singapore,
where the government's conservative approach toward economic management added
stability to the business climate. The bulk of the Fund's assets devoted to
Southeast Asia were invested in Singapore.
TECHNOLOGY STOCKS SOARED, THEN SOURED
The Fund outperformed in the first half of the year, due in large part to the
positive returns generated by stocks in the technology, media and
telecommunications (TMT) industries. This upswing was in line with a worldwide
trend that saw investors pour money into the stocks of companies representing
those industries. However, in March 2000, technology-oriented stocks from Asia
and other parts of the world experienced a correction. A good example of this
volatility was WYSE Technology (1.4% of net assets), the Taiwanese maker of
"thin client terminals," which are technology tools gaining popularity among
businesses. We bought the stock in January 2000, and saw its value nearly
double. Although the stock eventually lost significant ground due to this
worldwide correction, we believe the company remains very well positioned in a
growth industry. Ultimately, WYSE was affected by the same trend that drove down
prices of many technology stocks. Technology represents about one-fifth of the
portfolio; we continue to seek long-term growth opportunities in TMT as just one
of a wide range of industries.
OUTLOOK
We believe the Asian markets continue to offer prime opportunity for economic
growth. Nowhere is this more evident than in China, where a changing economy and
a trend toward modernization is creating an environment with high consumer
demand. This should allow Chinese companies, as well as those outside of China
including Hong Kong and Taiwan, to benefit from domestic economic growth. There
is tremendous reason for continued optimism about the prospects for companies in
Greater China. We believe the large populations found in China and other Asian
nations, including India, combined with continued economic improvements, should
create investment opportunities for the Fund.
4
<PAGE>
Portfolio Managers' Report Continued
--------------------------------------------------------------------------------
LYNDA COUCH is portfolio manager of the Fund and is a managing director of
Newport Fund Management. CHRISTOPHER LEGALLET is Chief Investment Officer of
Newport Fund Management, Inc. and co-portfolio manager of the Fund.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURN PERFORMANCE
INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME AND CAPITAL GAINS
DISTRIBUTIONS. SHARE PRICE AND INVESTMENT RETURNS WILL VARY, SO YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL SHARES. Portfolio holdings are as of August 31, 2000,
and are subject to change. The MSCI Pacific (ex-Japan) Index is an unmanaged
group of stocks not associated with any Stein Roe Fund; it is not available for
direct investment. Foreign investments involve market, political and currency
risks not generally associated with domestic securities. Emerging market
investing also involves these risks, and emerging market equities are generally
more volatile and less liquid than securities in either the U.S. or countries
with established equity markets.
5
<PAGE>
Fund Highlights as of August 31, 2000
--------------------------------------------------------------------------------
Top 5 Sector Breakdown
PIE CHART:
As of August 31, 1999 As of August 31, 2000
Durable Bonds 13.5% 15.8%
Measuring & Analyzing
Instruments 13.1% 15.4%
Computer Related Services 5.1% 13.4%
Real Estate 12.4% 8.7%
Telecommunications 2.4% 7.1%
Sector breakdowns are calculated as a percentage of net assets. Because the Fund
is actively managed, there can be no guarantee that the Fund will continue to
maintain this breakdown in the future.
--------------------------------------------------------------------------------
Top 10 Equity Holdings (% of Net Assets)
Datacraft Asia Ltd 9.5% Venture Mfg (Singapore) Ltd 5.3%
Johnson Electric Hldgs-New 7.9% Dickson Concepts Intl-New 3.7%
Li & Fung Ltd 7.9% Thai Union Frozen Prod-Foreign 2.8%
China Mobile Ltd 6.4% Cheung Kong Hldg 2.7%
Avimo Singapore Ltd 6.1% China Hong Kong Photo Produc 2.4%
6
<PAGE>
Stein Roe Small Cap Tiger Fund
--------------------------------------------------------------------------------
Investment Portfolio
August 31, 2000 (In thousands)
COMMON STOCKS - 95.9% COUNTRY SHARES VALUE
--------------------------------------------------------------------------------
CONSTRUCTION - 1.5%
SPECIAL TRADE CONTRACTORS
Zhejiang Expressway Co., Ltd., Class H HK 1,000 $ 184
--------
FINANCE, INSURANCE & REAL ESTATE - 18.1%
DEPOSITORY INSTITUTIONS - 3.8%
Dah Sing Financial ................ HK 41 192
Hang Seng Bank Ltd. ................ HK 25 268
--------
460
--------
HOLDING COMPANIES - 3.7%
Dickson Concepts International Ltd.. HK 500 446
--------
INSURANCE CARRIERS -1.9%
Thai Reinsurance Co., Ltd........... Th 240 235
--------
REAL ESTATE - 8.7%
Cheung Kong Holdings Ltd. ......... HK 25 325
City Developments Ltd. ............. Si 54 268
HKR International Ltd. ............. HK 349 186
Sun Hung Kai Properties Ltd. ....... HK 29 276
--------
1,055
--------
MANUFACTURING - 28.1%
COMMUNICATIONS EQUIPMENT - 0.8%
AsiaInfo Holdings, Inc. (a)......... Ch 3 94
--------
ELECTRONIC COMPONENTS - 1.2%
TCL International Holdings Ltd. (a). HK 500 143
--------
FOOD & KINDRED PRODUCTS - 2.8%
Thai Union Frozen Products Public Co.
Foreign Shares ............... Th 160 342
--------
HOUSEHOLD APPLIANCES - 1.0%
Guangdong Kelon Electric Holdings, Class H HK 379 125
--------
NONMETALLIC, EXCEPT FUELS - 1.9%
Eastern Water Resources Development &
Management Ltd. - Foreign Shares Th 332 229
--------
MEASURING & ANALYZING INSTRUMENTS - 15.4%
Avimo Singapore Ltd................. Si 380 733
China Hong Kong Photo Products Holdings Ltd. HK 2,868 287
PT Modern Photo Film-Foreign Shares. In 1,293 197
Venture Manufacturing Singapore Ltd. Si 50 639
--------
1,856
--------
7
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Stein Roe Small Cap Tiger Fund Continued
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COUNTRY SHARES VALUE
--------------------------------------------------------------------------------
MANUFACTURING - (CONTINUED)
PRINTING & PUBLISHING - 2.1%
South China Morning Post Ltd........ HK 340 $ 255
--------
RUBBER & PLASTIC - 1.5%
PT Dynaplast - Foreign Shares ..... In 1,398 187
--------
STONE, CLAY, GLASS & CONCRETE - 1.4%
WYSE Technology Taiwan Ltd. ....... Tw 139 166
--------
RETAIL TRADE - 8.7%
APPAREL & ACCESSORY STORES - 5.3%
Esprit Holdings Ltd................. HK 278 217
Giordano International Ltd. ....... HK 400 219
Glorious Sun Enterprises .......... HK 900 207
--------
643
--------
MISCELLANEOUS RETAIL - 1.8%
Sa Sa International Holdings Ltd. . HK 1,500 219
--------
RESTAURANTS - 1.6%
Cafe de Coral Holdings Ltd. ....... HK 500 189
--------
SERVICES - 13.4%
COMPUTER RELATED SERVICES
Computer & Technologies Holdings Ltd. HK 270 246
Datacraft Asia Ltd. ................ Si 137 1,151
SINA.com (a)............... Ch 10 223
--------
1,620
--------
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS &
SANITARY SERVICES - 10.3%
AIR TRANSPORTATION - 0.8%
Beijing Capital International
Airport Co., Ltd.,
Class H (a)................ HK 400 92
--------
GAS SERVICES - 2.4%
Hong Kong & China Gas Co., Ltd. .... HK 230 285
--------
TELECOMMUNICATION - 7.1%
China Mobile Ltd. (a)(b)............ HK 100 773
Locus Corp. (a)............ Ko 2 82
--------
855
--------
WHOLESALE TRADE - 15.8%
DURABLE GOODS
Johnson Electric Holdings Ltd. (a) HK 461 958
Li & Fung Ltd. ............ HK 219 955
--------
1,913
--------
TOTAL COMMON STOCKS (cost of $10,007) . 11,593
--------
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8
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Stein Roe Small Cap Tiger Fund Continued
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COUNTRY SHARES VALUE
--------------------------------------------------------------------------------
RIGHTS & WARRANTS - 1.5%
RETAIL TRADE - 1.5%
RESTAURANTS
Jollibee Foods Corp. ............... Ph 670 $ 178
--------
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS &
SANITARY SERVICES - 0.0%
TELECOMMUNICATION
Locus Corp. Rights ................ Ko (c) 5
--------
TOTAL RIGHTS & WARRANTS (cost of $332). 183
--------
TOTAL INVESTMENTS - 97.4% (cost of $10,339)(d) 11,776
--------
--------------------------------------------------------------------------------
PAR
--------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.9%
Repurchase Agreement with SBC Warburg Ltd.,
dated 08/31/00, due 09/01/00 at 6.600%, collateralized
by U.S. Treasury notes with various maturities
to 2022, market value $353 (repurchase proceeds $346) $346 346
--------
--------------------------------------------------------------------------------
Other Assets & Liabilities, Net - (0.3)% (34)
--------
NET ASSETS -100.0%..................... $ 12,088
--------
--------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a) Non-income producing.
(b) The value of this security represents fair value as determined in good
faith under the direction of the Trustees.
(c) Rounds to less than one.
(d) Cost for federal income tax purposes is the same.
SUMMARY OF SECURITIES BY
COUNTRY COUNTRY VALUE % OF TOTAL
------- ------- ------- ---------
Hong Kong.............................. HK $ 7,047 59.9
Singapore.............................. Si 2,791 23.7
Thailand .............................. Th 806 6.8
Indonesia.............................. Id 384 3.3
China.................................. Ch 317 2.7
Philippines............................ Ph 178 1.5
Taiwan................................. Tw 166 1.4
Korea.................................. Ko 87 0.7
------- ------
$11,776 100.0
------- ------
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
See notes to financial statements.
9
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Stein Roe Small Cap Tiger Fund
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Statement of Assets and Liabilities
August 31, 2000
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $10,339)..................... $ 11,776
Short-term obligations................................... 346
---------
12,122
Cash including foreign currencies (cost $32)............. 31
Receivable for:
Dividends............................................. 50
Fund shares sold ..................................... 17
Expense reimbursement due from Advisor/Administrator.. 10
Other.................................................... 1 109
-------- ---------
Total Assets.......................................... 12,231
---------
LIABILITIES
Cash including foreign currencies (cost $21)............. 19
Payable for:
Fund shares repurchased............................... 44
Accrued:
Management fee........................................ 12
Administration fee.................................... 3
Transfer agent fee.................................... 8
Bookkeeping fee....................................... 4
Deferred Trustees' fee................................ 1
Other.................................................... 52
--------
Total Liabilities..................................... 143
---------
NET ASSETS............................................... $ 12,088
=========
Net asset value & redemption price per share - Class A ($4,500/509) $ 8.83(a)
=========
Maximum offering price per share - Class A ($8.83/0.9425) $ 9.37(b)
=========
Net asset value & offering price per share - Class B ($6,420/751) $ 8.55(a)
=========
Net asset value & offering price per share - Class C ($805/94) $ 8.57(a)
=========
Net asset value, offering & redemption price per share -
Class S ($363/41) $ 8.88
=========
COMPOSITION OF NET ASSETS
Capital paid in.......................................... $ 15,065
Overdistributed net investment income.................... (3)
Accumulated net realized loss............................ (4,412)
Net unrealized appreciation on:
Investments....................................... 1,437
Foreign currency transactions..................... 1
---------
$ 12,088
=========
(a) Redemption price per share is equal to net asset value less any contingent
deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
10
<PAGE>
Stein Roe Small Cap Tiger Fund
--------------------------------------------------------------------------------
Statement of Operations
For the Year Ended August 31, 2000
(in thousands)
INVESTMENT INCOME
Dividends................................................ $ 369
Interest................................................. 39
---------
Total Investment Income (net of nonreclaimable
foreign taxes withheld at source which
amounted to $16)...................................... 408
EXPENSES
Management fee........................................... $ 156
Administration fee....................................... 34
12b-1 Service and Distribution fees (Class A, B & C)..... 95
Transfer agent fee....................................... 46
Bookkeeping fee.......................................... 27
Trustees fee............................................. 6
Custodian fee............................................ 18
Audit fee................................................ 21
Legal fee................................................ 5
Registration fee......................................... 55
Reports to shareholders.................................. 30
Other.................................................... 5
-------
498
Fees and expenses waived or borne by the
Advisor/Administrator................................. (131) 367
------- ---------
Net Investment Income................................. 41
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments........................................... 1,025
Foreign currency transactions ........................ (7)
-------
Net Realized Gain................................... 1,018
Net change in unrealized appreciation /depreciation
during the period on:
Investments........................................... 266
Foreign currency transactions......................... (1)
-------
Net Change in Unrealized Appreciation/Depreciation.. 265
---------
Net Gain.......................................... 1,283
---------
INCREASE IN NET ASSETS FROM OPERATIONS................... $ 1,324
=========
See notes to financial statements.
11
<PAGE>
Stein Roe Small Cap Tiger Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
(in thousands)
YEARS ENDED AUGUST 31,
2000(A) 1999
---------- ----------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income............................. $ 41 $ 43
Net realized gain (loss).......................... 1,018 (445)
Net change in unrealized appreciation/depreciation 265 7,635
---------- ----------
Net Increase from Operations................... 1,324 7,233
---------- ----------
DISTRIBUTIONS:
From net investment income - Class A.............. -- (4)
From net investment income - Class S.............. -- (b)
---------- ----------
-- 7,229
---------- ----------
FUND SHARE TRANSACTIONS:
Receipts for shares sold - Class A................ 3,430 4,205
Value of distributions reinvested - Class A....... -- 4
Cost of shares repurchased - Class A.............. (4,343) (5,991)
---------- ----------
(913) (1,782)
---------- ----------
Receipts for shares sold - Class B................ 732 2,883
Cost of shares repurchased - Class B.............. (2,096) (2,304)
---------- ----------
(1,364) 579
---------- ----------
Receipts for shares sold - Class C................ 103 470
Cost of shares repurchased - Class C.............. (343) (1,007)
---------- ----------
(240) (537)
---------- ----------
Receipts for shares sold - Class S ............... 420 5
Value of distributions reinvested - Class S ...... -- (b)
Cost of shares repurchased - Class S ............. (94) (15)
---------- ----------
326 (10)
---------- ----------
Net Decrease from Fund
Share Transactions............................. (2,191) (1,750)
---------- ----------
Total Increase (Decrease).................... (867) 5,479
NET ASSETS
Beginning of period............................... 12,955 7,476
---------- ----------
End of period (net of overdistributed net
investment income of $3 and $39,
respectively)................... $ 12,088 $ 12,955
========== =========
NUMBER OF FUND SHARES
Sold - Class A.................................... 402 594
Issued for distributions reinvested - Class A..... -- 1
Repurchased - Class A............................. (494) (906)
---------- ----------
(92) (311)
---------- ----------
Sold - Class B.................................... 83 462
Repurchased - Class B............................. (236) (384)
---------- ----------
(153) 78
---------- ----------
Sold - Class C.................................... 12 84
Repurchased - Class C............................. (39) (154)
---------- ----------
(27) (70)
---------- ----------
Sold - Class S.................................... 46 1
Issued for distributions reinvested - Class S..... -- (b)
Repurchased - Class S............................. (10) (2)
---------- ----------
36 (1)
---------- ----------
(a) Class Z shares were redesignated Class S shares on April 19, 2000.
(b) Rounds to less than one.
See notes to financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES ORGANIZATION:
Stein Roe Small Cap Tiger Fund - Class S (the Fund) and Liberty Newport Tiger
Cub Fund - Class A, B and C (formerly, collectively Newport Tiger Cub Fund) are,
collectively, a series of Liberty Funds Trust II, which is a diversified
portfolio of a Massachusetts business trust, registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek capital appreciation by investing
primarily in equity securities of small companies (i.e., companies with equity
market capitalizations of U.S. $2 billion or less) located in the nine Tiger
markets of Asia (Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand,
Indonesia, The People's Republic of China and the Philippines). The Fund may
issue an unlimited number of shares. The Fund offers four classes of shares:
Class A, Class B, Class C and Class S. Effective April 19, 2000, Class Z shares
were redesignated Class S shares. Class S shares are offered continuously at net
asset value. Each share class has its own sales charge and expense structure,
please refer to the Fund's Class A, B & C share prospectus for more information
on Class A, Class B and Class C shares. The financial highlights for Class A, B
and C are presented in a separate annual report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies that are consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS:
Equity securities generally are valued at the last sale price or, in the case of
unlisted or listed securities for which there were no sales during the day, at
current quoted bid prices. In certain countries, the Fund may hold foreign
designated shares. If the foreign share prices are not readily available as a
result of limited share activity, the securities are valued at the last sale
price of the local shares in the principal market in which such securities are
normally traded. Korean equity securities that have reached the limit for
aggregate foreign ownership and for which premiums to the local exchange prices
may be paid by foreign investors are valued by applying a
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
broker quoted premium to the local share price. In addition, if the values of
foreign securities have been materially affected by events occurring after the
closing of the market, the foreign securities may be valued at their fair value
under procedures approved by the Trustees.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies is
translated into U.S. dollars at that day's exchange rates. In certain countries,
the Fund may hold portfolio positions for which market quotations are not
readily available. Such securities are valued at fair value under procedures
approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS:
All income, expenses (other than 12b-1 service fees and distribution fees),
and realized and unrealized gains (losses) are allocated to each class
proportionately on a daily basis for purposes of determining the net asset
value of each class.
The per share data was calculated using average shares outstanding during the
period.
FEDERAL INCOME TAXES:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders are recorded on the ex-date.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS:
Net realized and unrealized gains (losses) on foreign currency transactions
includes the gains (losses) arising from the fluctuations in exchange rates
between trade and settlement dates on securities transactions, gains (losses)
arising from the disposition of foreign
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
currency and currency gains (losses) between the accrual and payment dates on
dividends and interest income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) from investments.
FORWARD CURRENCY CONTRACTS:
The Fund may enter into forward currency contracts to purchase or sell foreign
currencies at predetermined exchange rates in connection with the settlement of
purchases and sales of securities. The Fund may also enter into forward currency
contracts to hedge certain other foreign currency denominated assets. The
contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. All contracts are marked-to-market daily, resulting in unrealized
gains (losses) which become realized at the time the forward currency contracts
are closed or mature. Realized and unrealized gains (losses) arising from such
transactions are included in net realized and unrealized gains (losses) on
foreign currency transactions. Forward currency contracts do not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract is opened, the actual exposure is typically limited to
the change in value of the contract (in U.S. dollars) over the period it remains
open. Risks may also arise if counterparties fail to perform their obligations
under the contracts.
OTHER:
Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system
of securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Fund. The Fund may experience costs and delays
in liquidating the collateral if the issuer defaults or enters bankruptcy.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE:
Newport Fund Management (the Advisor), is the investment Advisor of the Fund and
receives a monthly fee equal to 1.15% annually of the Fund's average net assets.
ADMINISTRATION FEE:
Colonial Management Associates, Inc. (the Administrator), an affiliate of the
Advisor, provides accounting and other services for a monthly fee equal to 0.25%
annually of the Fund's average net assets.
BOOKKEEPING FEE:
The Administrator provides bookkeeping and pricing services for
a monthly fee equal to $27,000 annually plus 0.035% annually of the Fund's
average net assets over $50 million.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the
Administrator, provides shareholder services for a monthly fee equal to 0.236%
annually of the Fund's average net assets and receives reimbursement for certain
out-of-pocket expenses.
Effective January 1, 2000, the Transfer Agent fee was changed to a fee
comprised of 0.07% annually of average net assets plus charges based on the
number of shareholder accounts and transactions. The Transfer Agent receives
reimbursement for certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the Distributor), a subsidiary of the
Administrator, is the Fund's principal underwriter.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee on Class A, Class B and Class C net assets. The plan also requires
the payment of a distribution fee to the Distributor on Class B and Class C
shares, only. The fee structure for the 12b-1 plan is defined in the Class A, B
and C prospectus.
EXPENSE LIMITS:
The Advisor/Administrator has agreed, until further notice, to waive fees and
bear certain Fund expenses to the extent that total expenses (exclusive of
service fees, distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) exceed 2.00% annually of the Fund's average net
assets.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor or Administrator.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
During the year ended August 31, 2000, purchases and sales of investments, other
than short-term obligations, were $2,938,894 and $4,145,029, respectively.
Unrealized appreciation (depreciation) at August 31, 2000, based on cost of
investments for both financial statement and federal income tax purposes was
approximately:
Gross unrealized
appreciation $ 4,401,000
Gross unrealized
depreciation (2,964,000)
-----------
Net unrealized
appreciation $ 1,437,000
===========
Capital loss carryforwards:
At August 31, 2000, capital loss carryforwards available (to the
extent provided in regulations) to offset future realized gains were
approximately as follows:
Year of Capital loss
expiration carryforward
------- -----------
2006 $ 203,000
2007 4,208,000
----------
$4,411,000
==========
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized
gains, it is unlikely that such gains would be distributed since they may be
taxable to shareholders as ordinary income.
Other:
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of currency exchange or other
foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
NOTE 4. LINE OF CREDIT
The Fund may borrow up to 331 1/43% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1 1/42 of 1%, (2) the lending bank's base rate or (3) IBOR offshore
loan rate plus 1 1/42 of 1%. There were no borrowings under the line of credit
during the year ended August 31, 2000.
18
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
STEIN ROE SMALL CAP TIGER FUND
Selected data for a share of each class outstanding throughout the period are as
follows:
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------------------------
2000 1999 1998 1997 1996
CLASS S (A) CLASS S CLASS S CLASS S CLASS S
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 8.100 $ 3.920 $ 9.130 $ 9.320 $10.000
------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c)......... 0.091 0.067 0.132 0.083 0.021
Net realized and unrealized gain (loss) 0.689 4.136 (5.342) (0.273) (0.701)
------- -------- ------- ------- -------
Total from Investment Operations . 0.780 4.203 (5.210) (0.190) (0.680)
------- -------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income........... -- (0.023) -- -- --
------- -------- ------- ------- -------
NET ASSET VALUE - END OF PERIOD...... $ 8.880 $ 8.100 $ 3.920 $ 9.130 $ 9.320
======= ======== ======= ======= =======
Total return (d)(e).................. 9.63% 107.43% (57.06)% (2.04)% (6.80)%
======= ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (f)......................... 2.00% 2.00% 2.00% 2.00% 2.00%
Net investment income (f)............ 1.01% 1.09% 2.00% 0.87% 0.87%
Fees and expenses waived or borne
by the Advisor/
Administrator (f)................. 0.97% 1.35% 1.02% 1.09% 5.16%
Portfolio turnover................... 23% 36% 56% 96% 3%
Net assets at end of period (000).... $ 363 $ 39 $ 23 $ 1,203 $1,166
(a) Class Z shares were redesignated Class S shares effective April 19, 2000.
(b) Net of fees and expenses waived or
borne by the Advisor/Administrator
which amounted to: $ 0.087 $ 0.083 $ 0.067 $ 0.105 $ 0.123
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Advisor/Administrator not waived or reimbursed a portion of
expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
</TABLE>
19
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of Liberty Funds Trust II:
Liberty Newport Tiger Cub Fund
Stein Roe Small Cap Tiger Fund
We have audited the accompanying statement of assets and liabilities of
Liberty Newport Tiger Cub Fund--Class A, B & C and Stein Roe Small Cap Tiger
Fund--Class S (formerly, collectively, Newport Tiger Cub Fund), collectively a
series of Liberty Funds Trust II (the "Trust"), including the Investment
Portfolio, as of August 31, 2000, and the related statement of operations, the
statement of changes in net assets and the financial highlights for the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended August 31,
1999, and the financial highlights for each of the four years in the period then
ended were audited by other auditors whose report dated October 12, 1999
expressed an unqualified opinion on that financial statement and those financial
highlights.
We conducted our audit 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 August 31, 2000, by correspondence with
the custodian and brokers. 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
audit provides 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
Liberty Newport Tiger Cub Fund--Class A, B, & C and Stein Roe Small Cap Tiger
Fund--Class S, collectively a series of Liberty Funds Trust II, at August 31,
2000, the results of its operations, the changes in it net assets, and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 10, 2000
20
<PAGE>
Investment 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-Corporate Development,
General Counsel and Secretary, Kellogg Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
OFFICERS
Stephen E. Gibson, President
William D. Andrews, Executive Vice President
Loren A. Hansen, Executive Vice President
Kevin M. Carome, Executive Vice President,
Secretary
Christine Balzano, Vice President
David Brady, Vice President
Daniel Cantor, Vice President
J. Kevin Connaughton, Vice President, Treasurer
William Garrison, Vice President
Erik Gustafson, Vice President
Harvey Hirschhorn, Vice President
Gail D. Knudsen, Vice President, Controller
Lynn C. Maddox, Vice President
Mary D. McKenzie, Vice President
Art McQueen, Vice President
Nicholas Norton, Vice President
Michael Fisher, Assistant Treasurer
AGENTS AND ADVISORS
Stein Roe & Farnham Incorporated
Investment Advisor State
Street Bank and Trust Company
Custodian SteinRoe Services Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Fund
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
Midcap Growth Fund
Large Company Focus Fund
Capital Opportunities Fund
International Fund
Small Company Growth Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA
02205-8900
Financial Advisors
call: 800-322-0593
Shareholders call: 800-338-2550
www.steinroe.com
Liberty Funds Distributor, Inc.
S40-02/872C-0900
(10/00) 00/1716
