Annual Report
June 30, 1995
SteinRoe
Bond Funds
Limited Maturity Income Fund
Government Income Fund
Intermediate Bond Fund
Income Fund
Photographic image of two men and girl on a bridge
Graphic of SteinRoe Logo
SteinRoe Mutual Funds
Building Wealth for GenerationsTM
Contents
From the President 1
Tim Armour's thoughts on the markets and investing
Performance 3
How the SteinRoe Bond Funds have done over time
Q&A
Limited Maturity Income Fund 7
Government Income Fund 10
Intermediate Bond Fund 12
Income Fund 16
Interviews with the portfolio managers and a
summary of major shifts in the Funds' investments
over the past twelve months
Investments 19-29
A complete list of each Fund's investments with
market values
Financial Statements 30-37
Balance sheets, statements of operations,
and changes in net assets
Notes to the Financial Statements 38-41
Financial Highlights 42-49
Selected per-share data
Report of Independent Auditors 50
General Information 51-56
A guide to products and services
From the President
Photographic Image of Tim Armour
To Our Shareholders
We are pleased to present this annual report for the SteinRoe Bond Funds --
SteinRoe Limited Maturity Income Fund, SteinRoe Government Income Fund,
SteinRoe Intermediate Bond Fund and SteinRoe Income Fund.
We never forget our relationship with you is built not only on investment
management capabilities but also on service. That's why we have redesigned our
annual report to make it simpler for you to evaluate your fund's performance.
We hope you find it easier to read and understand.
The Market
Fixed income investors have weathered both the best and the worst of times
during the past 12 months. The first half of our fiscal year saw many fixed
income issues -- and the funds that invest in them -- struggle. During the
second half, however, the fixed income markets experienced a complete
turnaround, rebounding so strongly that, according to Morningstar, Inc., not a
single taxable bond fund posted a loss during the second quarter of 1995.
Municipal bonds also benefited in the rally, though not to the same extent as
taxables.
The U.S. economy sizzled in 1994 as the Gross Domestic Product (GDP)
consistently topped 4 percent. A mature economy like the United States,
however, can seldom maintain a growth rate of more than three percent without
also experiencing higher inflation. That's why the Fed -- worried that
inflation might soon catch up to the fast pace of the economy -- pushed
short-term interest rates up seven times in the 12-month period between
February 1994 and February 1995. These sharp spikes in interest rates caused
bond prices to plummet, and contributed to what will long be remembered as one
of the worst bond markets in history.
Then, as economic data indicated the economy was slowing, the fixed income
markets started to come back. Intermediate- and long-term interest rates
peaked in late November, and -- although the Fed continued to push up
short-term rates into early February -- the bond market began to rally. Adding
to the strength of the rally were the many investors who, sobered by
market-shattering events like the devaluation of the Mexican peso and the
failure of one of Britain's oldest and most venerable banks, returned to the
relative safety of U.S. Treasury and corporate issues.
So, what's ahead for the fixed income market? We anticipate weak economic
activity through the third quarter, which may squeeze corporate profits. Lower
corporate profits would put pressure on stock prices and make fixed income
investments look attractive relative to equities. After the third quarter,
however, we are forecasting firmer, steady, noninflationary economic growth
throughout 1996. We also think that, following a cautious easing move early in
the third quarter of 1995, the Federal Reserve will respond further to slow
growth and improving inflation by reducing short-term interest rates in a few
more steps. Long-term interest rates, on the other hand, can be expected to
trade in a range centered on roughly 6.6 percent.
The Basics
While past performance is no guarantee of future results, and no one can
predict what might happen to bond funds or the markets in the future, we
believe investors must understand the factors that move the markets, not just
to profit from them, but to gain the patience to ride out short-term
volatility in their investments. As always, no matter what direction you think
the economy is heading, it is important to remember the basics. Think long
term and re-evaluate your investment portfolio from time to time to make sure
it continues to match your goals, risk tolerance and time horizon. And try to
follow a regular investment plan. By investing a certain amount of money each
month or quarter, you can take advantage of dollar-cost averaging. Of course,
not everyone is in a position to follow a regular investment plan. And it
neither ensures a profit nor protects against a loss in a declining market.
This simple strategy, however, can help you turn market volatility to your
advantage.
Please call us at 1 800 338-2550 with your comments and suggestions. As
always, we look forward to serving your investment needs.
Sincerely,
Timothy K. Armour
President
August 9, 1995
Fund Performance
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual return
percentage change, or the growth of a hypothetical $10,000 investment. Each
performance figure includes changes in a fund's share price, plus reinvestment
of any dividends (net investment income) and capital gains (the profits the
fund earns when it sells fixed income securities that have grown in value).
Average Annual Total Returns
Periods ended June 30, 1995
Past 1 Past 3 Past 5 Past 10
Year Years Years Years
Intermediate Bond Fund 10.11% 6.62% 8.86% 9.19%
Lehman Intermediate
Government/Corporate Index 10.37 6.75 8.76 9.10
Past 1 From
Year Inception*
Limited Maturity Income Fund 6.96% 3.90%
Lehman 1- to 3-Year
Government Index 7.67 4.55
Past 1 Past 3 Past 5 From
Year Years Years Inception*
Government Income Fund 10.94% 5.92% 8.18% 7.74%
Lehman Government Index 12.06 7.67 9.35 8.46
Income Fund 12.79 8.69 10.11 8.95
Lehman Corporate Index 15.12 8.76 10.42 9.57
<FN>
Total return performance includes changes in share price and reinvestment of
income and capital gains distributions. This 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.
* Inception Dates: Limited Maturity Income Fund -- March 11, 1993; Government
Income Fund -- March 5, 1986; and Income Fund -- March 5, 1986. Because index
returns are calculated on a monthly basis, the index returns marked "from
inception" are calculated from the month-end results that fall closest to the
Funds' inception dates.
Investment Comparison
Limited Maturity Income Fund
Chart:
Date Limited Maturity Lehman 1-3 Year
Income Fund Government Index
3/31/93 10000 10000
6/30/93 10071 10111
9/30/93 10178 10250
12/31/93 10222 10315
3/31/94 10197 10265
6/30/94 10137 10265
9/30/94 10222 10367
12/31/94 10234 10368
3/31/95 10540 10712
6/30/95 10843 11052
Government Income Fund
Chart:
Year Ended Government Income Lehman Government
6/30 Fund Bond Index
3/31/86 10000 10000
6/30/86 10130 10132
1987 10326 10549
1988 11204 11308
1989 12391 12674
1990 13248 13552
1991 14527 14926
1992 16511 16979
1993 18098 19169
1994 17689 18912
1995 19624 21193
These graphs compare the performance of SteinRoe's Funds to the Lehman 1- to
3-Year Government Index, Lehman Government Bond Index, Lehman Intermediate
Government/Corporate Index and Lehman Corporate Bond Index, each an unmanaged
group of fixed income securities that differs from the composition of each
SteinRoe Fund; they are not available for direct investment.
Investment Comparison
Intermediate Bond Fund
Chart:
Year Ended Intermediate Bond Lehman Intermediate
6/30 Fund Government/Corporate Index
1985 10000 10000
1986 12208 11621
1987 12615 12269
1988 13473 13208
1989 14948 14559
1990 15744 15697
1991 17422 17348
1992 19827 19632
1993 21928 21693
1994 21824 21638
1995 24031 23882
Income Fund
Chart:
Year Ended Income Fund Lehman Corporate Bond Index
6/30
3/31/86 10000 10000
6/30/86 10179 10131
1987 10974 10778
1988 11995 11673
1989 13319 13186
1990 13646 14187
1991 14922 15697
1992 17191 18101
1993 19712 20618
1994 19576 20230
1995 22080 23289
Total return performance includes changes in share price and reinvestment of
income and capital gains distributions. This 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.
Investment Comparison Continued
Making the Most of Performance
The wide assortment of performance data available today can be a mixed
blessing. On one hand, a fund's performance results can be a valuable source
of information when considering an investment. On the other hand, even
seasoned investors may find the wide array of data and the different methods
of interpretation confusing.
That's why one of the most important pieces of advice we can give you is to
remember that a fund's past performance is just that -- past. While a fund's
past performance is not a guarantee of how it will perform in the future, it
can help you make rational decisions about the funds you currently hold or
about funds you might be considering. Owning bond funds, for example, can help
to reduce overall risks in a well-diversified portfolio. Because of their
income component, bond funds tend to reduce portfolio fluctuations when stock
funds are down. Nonetheless, bond fund share prices will fluctuate as interest
rates change. The price and total return of a mutual fund will change daily
and if you sell your shares during a downturn in the market, you might lose
money. But, if you can ride out the market's ups and downs, your fund might
achieve a gain.
No one can make your financial decisions better than you. We hope this annual
report helps you to better understand and evaluate your fund's performance,
and serves as a helpful aid in making intelligent, appropriate investment
decisions. If you have any questions, please call a SteinRoe account
representative at 1 800 338-2550.
Q&A
An Interview with Steve Luetger, Portfolio Manager of
Limited Maturity Income Fund
Photographic image of Steve Luetger
Fund Data
Investment Objective:
Seeks high current income and capital preservation by investing primarily in
U.S. government and other high-quality debt securities. The Fund pursues a
higher level of income than is usually available from money market instruments
with stable prices and shorter maturities. While the price will fluctuate, it
is expected to be less volatile than the price of longer-term funds with
higher yield potential.
Fund Inception:
March 11, 1993
Total Net Assets:
$27.9 million
Steve Luetger was named portfolio manager in February 1995.
Q: What's your strategy?
A: I view this Fund as a distant cousin to a money market fund. Unlike a money
market fund, our share price will fluctuate, but the biggest difference is
that we aim to enhance our return by purchasing primarily U.S. government and
other high-quality fixed income securities that, we believe, have the interest
rate risk of a three-year Treasury. That way, we can offer the potential for
higher returns than a money market fund at less price risk than that of other
short-term fixed income investments of lesser quality.
Q: How did the Fund perform?
A: For the year, the Fund posted a return of 6.96 percent, versus a 7.67
percent return for the Lehman 1- to 3-Year Government Index. The Fund's
underperformance was mainly driven by our duration -- which, for most of the
year, was shorter than that of the Index -- and the portfolio's exposure to
mortgages.1
Q: How does duration affect a bond fund's performance?
A: Duration -- or, more correctly, adjusted duration -- is a measure of a bond
fund's sensitivity to interest rates. If a bond has a duration of five, for
example, and interest rates fall by 1 percent, then the bond's price should
rise by approximately 5 percent. The longer the duration, the more sensitive a
bond's price will be to changes in interest rates.
A bond fund's portfolio manager uses a weighted average adjusted duration to
reflect the durations of the fund's holdings, and adjusts the fund's duration
according to what he or she expects interest rates might do.
Put simply, a shorter duration tends to help a bond fund's relative
performance in bear markets -- as it did for Limited Maturity Income Fund last
year -- and hinders performance in bull markets, such as the one we are now
experiencing.
Q: What other factors affected performance?
A: During the first half of the year -- a period of rising rates -- we
held a significant percentage of the portfolio in floating rate securities.
Because the coupon rate on a floating rate note varies with market rates, in a
rising rate environment income flows into the Fund at a higher level, which
benefits the Fund's performance.
Some of our mortgage-backed securities had an adverse effect on performance.
When interest rates fall, as they did during the last several months,
borrowers tend to refinance their mortgages -- an action that shortens the
average maturity of the pooled mortgage securities held in a fund's portfolio.
Interest rates fell sharply during the second quarter of 1995, and mortgage
securities -- reflecting growing anticipation among investors that a wave of
refinancing was on its way -- trailed the performance of other securities.
With mortgage-backed securities representing roughly 27 percent of the
portfolio on June 30, these securities significantly affected the Fund's
duration, and as a result, its performance.
Q: What are your expectations?
A: With the Federal Reserve now possibly entering a period of easing, we could
expect to see interest rates continue to drift down and the yield curve to
steepen, particularly on the short end. If this proves true, we'll begin
shifting out of our shorter Treasuries and into modestly longer high-quality
corporate bonds and asset-backed securities.
In the asset-backed securities sector, I expect to continue investing in
manufactured housing, which provides relatively good prepayment protection at
wider spreads than available elsewhere. I also like credit card-related
securities, which, on June 30, accounted for roughly eight percent of the
portfolio.
(1) Total return performance includes changes in share price and reinvestment
of income and capital gains distributions. The Fund's adviser currently limits
expenses to 0.45 percent, subject to termination upon 30 days' notice to the
Fund. Absent past limits, the Fund's total return would have been less. Past
performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or a loss when you sell shares. The
Lehman 1- to 3-Year Government Index is an unmanaged group of short-term bonds
that differs from the composition of each SteinRoe Fund; the Lehman 1- to
3-Year Government Index is not available for direct investment.
Fund Highlights
Limited Maturity Income Fund
Securities Type Breakdown
Portfolio Portfolio
June 30, 1994 June 30, 1995
U.S. Treasury and Agency Securities 35.3% 19.8%
Mortgage-Backed Securities 23.1 27.1
Corporate Bonds 14.8 28.9
Asset-Backed Securities 13.6 20.8
Cash Equivalents 13.2 3.4
Total 100% 100%
Average Life
Pie Charts:
As of June 30, 1994 As of June 30, 1995
Less Than One Year (19.3%) Less Than One Year (33.3%)
1-3 Years (61.7%) 1-3 Years (44.8%)
Over 3 Years (19.0%) Over 3 Years (21.9%)
Portfolio Quality
Pie charts:
As of June 30, 1994 As of June 30, 1995
U.S. Treasury (19.8%) U.S. Treasury (16.0%)
BBB (10.9%) BBB (13.0%)
A (16.4%) A (11.0%)
AA (8.4%) AA (13.0%)
AAA/Agency (44.5%) AAA/Agency (47.0%)
Q&A
An Interview with Mike Kennedy, Portfolio Manager of
Government Income Fund and Intermediate Bond Fund
Photographic image of Mike Kennedy
Government Income Fund Data
Investment Objective:
The Fund seeks high current income by investing primarily in securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
Fund Inception:
March 5, 1986
Total Net Assets:
$37.3 Million
Government Income Fund Q&A
Q: How did the Fund perform?
A: For the year, Government Income Fund posted a return of 10.94 percent,
versus a gain of 12.06 percent for the Lehman Government Index. The Fund's
performance, however, matched the median return of its Lipper peer group for
the period.1 The primary reason the Fund lagged the Index was the
underperformance of the mortgage market relative to the Treasury market. The
Fund is heavily weighted in mortgage-backed securities, while the Index
contains none.
Q: What caused the mortgage market to underperform Treasuries?
A: For the last half of the Fund's fiscal year, the bond markets, buoyed by a
drop in interest rates, moved at a torrid pace. In May alone, the long-term
Treasury rates dropped from 7.35 percent to 6.67 percent, while five- and
ten-year Treasury rates also saw a dramatic decline. This sharp drop in
interest rates helped to boost the market value of Treasuries. It also created
a dramatic increase in prepayment risk, which caused mortgages to lag
Treasuries. Although the majority of our mortgage holdings are concentrated in
securities with better prepayment protection than the mortgage market as a
whole, even mortgage-backed securities with superior prepayment protection
underperformed Treasuries during the last half of the Fund's fiscal year.
Q: What is prepayment risk?
A: The interest rate on a mortgage-backed security will generally be above the
risk-free yield on a Treasury security of comparable maturity. This spread
reflects certain risks that a mortgage investor assumes, such as collection
costs, costs associated with default, and uncertainty concerning the timing of
cash flow, also known as prepayment risk. Simply put, someone who invests in a
mortgage has granted the borrower an option to prepay all or part of a
mortgage balance at any time. When interest rates are rising, few borrowers
pay off their mortgages; when rates fall, however, borrowers have an increased
incentive to prepay if interest rates fall below the contract rate of their
mortgages. When that happens, mortgage investors often have to reinvest the
proceeds they receive from prepayments at lower rates.
Q: Did you make any changes to the Fund's sector weightings or its investment
strategy?
A: No, the Fund's sector allocation remained stable during the year. We
maintained a heavy emphasis on mortgage-backed securities, which, as of June
30, 1995, represented approximately 65 percent of the portfolio. The Fund's
adjusted duration, a measure of price volatility, declined slightly, from 5.1
years to 4.6 years, mainly as the result of increased expectations of rising
prepayments.
Q: What other factors affected the Fund's performance?
A: Against a possible rise in interest rates, we hedged the portfolios by
selling Treasury futures contracts during the year. When rates unexpectedly
fell, prices increased and those futures positions became unfavorable. While
we realized some losses in these transactions, those losses are neutralized
somewhat by significant capital appreciation on the securities that were
hedged.
Q: What is your outlook for the Fund and, in particular, the mortgage market?
A: We remain optimistic about the long-term potential for mortgage-backed
securities. We believe the market is unduly concerned about prepayment risk
and supply. As investors realize that prepayments will not rise to levels
close to those experienced in 1993, investors will begin to gradually add to
their mortgage holdings and mortgages should outperform Treasuries.
The mortgage market also could perform well if interest rates stabilize. The
mortgage market generally performs poorly relative to Treasuries when the
markets are volatile, as they were toward the end of the reporting period.
While the biggest risk to the mortgage market at this point is another sharp
drop in rates -- which would lead to a surge in prepayments -- we do not
expect long-term rates to decline much more over the next six to 12 months.
As a result, we expect to maintain the Fund's current overweighting in
mortgages.
(1) Total return performance includes changes in share price and reinvestment
of income and capital gains distributions. The Fund's adviser currently limits
expenses to 1 percent of average net assets, subject to termination upon 30
days' notice to the Fund. Absent past limits, the Fund's total return would
have been less. The Fund is neither insured nor guaranteed by the U.S.
government. Up to 20 percent of the Fund's assets may be invested in other
types of securities. The Fund's peer group, as defined by Lipper Analytical
Services, Inc., an independent monitor of mutual fund performance, includes
funds that invest at least 65 percent of assets in U.S. government and agency
issues. There were 159 funds in this peer group for the year ended June 30,
1995. The Lehman Government Bond Index represents an unmanaged group of
government securities that differs from the composition of each SteinRoe Fund;
it is not available for direct investment. Past performance is no guarantee of
future results. Share price and investment return will vary, so you may have a
gain or a loss when you sell shares.
Q&A Continued
Intermediate Bond
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 ten years.
Fund Inception:
December 5, 1978
Total Net Assets:
$301.7 Million
Intermediate Bond Fund Q&A
Q: How did the Fund perform during the past year?
A: Over the past 12 months, the Fund's return of 10.11 percent trailed the
Lehman Intermediate Government/Corporate Index return of 10.37 percent.1 The
Fund's slight underperformance over the past year was primarily driven by the
poor performance of a few of our mortgage and corporate holdings relative to
the holdings in the Index.
Q: Did you make any changes to the Fund's portfolio?
A: We continued to maintain a heavy emphasis on corporate bonds and
mortgage-backed securities, with each sector representing about 34 percent of
the long-term holdings in the portfolio as of June 30, 1995. In a tactical
move, however, during the second quarter of 1995 we reduced the Fund's
weighting in corporate bonds by 5 percent and purchased Treasuries in
anticipation of an increase in corporate issuance and a potential widening of
the yield spread between corporate bonds and Treasuries. Yield spreads did in
fact widen and, consequently, we sold Treasuries and purchased attractively
priced corporate bonds of Commonwealth Edison, Nabisco and Cox Cable (as of
June 30, 2.14 percent, 1.12 percent and 2.08 percent of the portfolio,
respectively). The Fund's adjusted duration, a measure of price volatility,
declined from 4 years to 3.6 years. This was primarily the result of increased
expectations for rising prepayments on some of the Fund's mortgage holdings
and increased call risk on the Fund's callable federal agency bonds.
Q: What other factors affected the Fund's performance?
A: During the year, we hedged the portfolio against a possible rise in
interest rates by selling Treasury futures contracts. When rates unexpectedly
fell, prices increased and those futures positions became unfavorable. While
we realized some losses in these transactions, those losses are neutralized
somewhat by significant capital appreciation on the securities that were
hedged.
Q: How are you positioning the Fund to take advantage of the current
environment?
A: Over the next three months, we'll be making changes to our holdings in
corporate bonds to take advantage of the "Fourth Quarter Effect" -- corporate
bonds typically underperform Treasuries and higher-quality corporate bonds
typically outperform lower-quality corporate bonds during the fourth quarter
of the year. This is usually caused by investors and dealers cleaning up their
balance sheets before year end.
Q: Do you plan on making any changes to the Fund's investment strategy?
A: No, we expect to maintain the Fund's current weighting in mortgages because
we believe the market is unduly concerned about prepayment and supply. As
investors realize that prepayments will not rise to levels close to those
experienced in 1993, investors will begin to gradually add to their holdings.
At current prices, mortgages offer very attractive yields relative to
Treasuries.
(1) Total return performance includes changes in share price and reinvestment
of income and capital gains distributions. The Fund's adviser currently limits
expenses to 0.70 percent of average net assets, effective through October 31,
1995. Absent past limits, the Fund's total return would have been less. The
Lehman Intermediate Government/Corporate Index represents an unmanaged group
of intermediate-term bonds that differs from the composition of each SteinRoe
Fund; it is not available for direct investment. Past performance is no
guarantee of future results. Share price and investment return will vary, so
you may have a gain or a loss when you sell shares.
Fund Highlights
Government Income Fund
Securities Type Breakdown
Portfolio Portfolio
June 30, 1994 June 30, 1995
Federal Agency Mortgage-
Backed Securities 57.6% 59.8%
U.S. Treasury Securities 20.2 25.8
Cash Equivalents 14.5 8.0
Federal Agency Securities 4.5 2.7
AAA Mortgage-Backed Securities 3.2 3.7
Total 100% 100%
Maturity
Pie chart:
As of June 30, 1994 As of June 30, 1995
Under 5 Years (5.0%) Under 5 Years (5.3%)
5-10 Years (9.0%) 5-10 Years (16.3%)
10-20 Years (29.0%) 10-20 Years (22.0%)
20-25 Years (28.0%) 20-25 Years (30.2%)
Over 25 Years (29.0%) Over 25 Years (26.2%)
Portfolio Quality
Pie chart:
As of June 30, 1994 As of June 30, 1995
Treasury (20.2%) Treasury (29.9%)
AAA/Agency (79.8%) AAA/Agency (70.1%)
Fund Highlights
Intermediate Bond Fund
Securities Type Breakdown
Portfolio Portfolio
June 30, 1994 June 30, 1995
Corporate Bonds 51.2% 36.4%
Mortgage-Backed Securities 29.2 33.6
Cash Equivalents 8.8 4.1
Asset-Backed Securities 7.6 7.0
Federal Agency Securities 2.7 8.6
U.S. Treasury Securities 0.5 10.3
Total 100% 100%
Average Life
Pie charts:
As of June 30, 1994 As of June 30, 1995
Less Than 1 Year (11.0%) Less Than 1 Years (9.0%)
1-5 Years (46.0%) 1-5 Years (40.0%)
5-10 Years (40.0%) 5-10 Years (49.0%)
Over 10 Years (3.0%) Over 10 Years (2.0%)
Portfolio Quality
Pie charts:
As of June 30, 1994 As of June 30, 1995
AAA/Fed Agency (34.0%) AAA/Fed Agency (44.0%)
AA (12.0%) AA (4.0%)
A (20.0%) A (16.0%)
BBB (26.0%) BBB (28.0%)
BB (7.0%) BB (8.0%)
B (1.0%)
Q&A
An Interview with Ann Benjamin, Portfolio Manager of Income Fund
Photographic image of Ann Benjamin
Fund Data
Investment Objective:
Seeks high current income by investing principally in medium-quality debt
securities. The Fund also may invest in higher-quality securities and, to a
lesser extent, lower-quality securities which may involve greater credit and
other risk.
Fund Inception:
March 5, 1986
Total Net Assets:
$174.3 million
Q: How did the Fund perform?
A: Our one-year return of 12.79 percent underperformed the Lehman Corporate
Bond Index return of 15.12 percent and roughly matched the Fund's Lipper
corporate debt peer group return of 12.62 percent.1 The Fund underperformed
the Index in part because this Index includes a mix of long- and
intermediate-term securities, while the Fund focuses primarily on
intermediate-term securities. In addition, the Fund maintained a slightly
shorter duration than did the Index. A bond rally, such as the powerful rally
in the Treasury market we experienced during the second quarter of 1995, tends
to shorten a fund's duration. And, while we were able to lengthen our duration
to 5.23 by the end of the quarter, for much of the quarter we were well below
the Index duration of 5.7.
With the rally in the Treasury market and yield on the benchmark long-term
bond rocketing to 7.8 percent, this has been a good year for bonds. We scored
particularly well during the Treasury rally, since we were heavily weighted in
10-year Treasury securities, the rally's strongest performer. In addition, our
holdings of Yankee bonds -- dollar-denominated bonds issued in the United
States by foreign banks and corporations -- performed well during the rally.
We had no deterioration in any of our corporate credits, while the market
experienced some defaults among corporate bonds. In fact, many of our holdings
were upgraded.
Q: Did you make any changes to your investment strategy this year?
A: Economic growth, right in step with the Federal Reserve's plan for a soft
landing, slowed to a crawl during the first and second quarters of 1995. But
it's a fine line between slow growth and recession, so in January we began
paring back our holdings of securities in cyclical industries and began
investing more defensively -- buying the securities of companies that would be
able to withstand a possible recession.
Q: How did the Fund weather the devaluation of the Mexican peso in December
1994?
A: Mexico took everyone by surprise, and certainly it has been a drag on our
return this year. The good new is that, when the Federal Reserve began pushing
up interest rates in February 1994, we saw that Third World securities were
becoming illiquid. That was our cue to start selling our holdings in those
countries, and we sold most of our Mexican position. When the crisis hit, we
had less than a five percent exposure to Mexico, and we sold the balance of
our holdings in the first quarter of 1995. So while we were affected by the
Mexican devaluation, we were, fortunately, able to avoid the brunt of the
impact.
Q: What do you look for when you're shopping for an investment?
A: We always evaluate the issuing company before we ever consider the
individual security. We look for companies with stable cash flows, a history
of solid growth and earnings, strong banking relationships and proven
management capabilities. If a company meets those criteria, we'll look at its
securities -- and we examine every security independently. There's no
substitute for research.
Q: What's your outlook?
A: We're at a weighted average duration of about five, a neutral duration that
will allow us to respond very quickly -- either moving duration higher or
lower -- to changes in the economic environment. Right now, we're expecting
interest rates to stabilize, but because the data are so mixed right now
(corporate earnings have been much stronger than expected, indicating that the
economy is still growing at a good pace), we're not planning to make any
significant changes in the near term.
(1) Total return performance includes changes in share price and reinvestment
of income and capital gains distributions. The Fund's adviser currently limits
expenses to 0.82 percent of average net assets, effective through October 31,
1998. Absent past limits, the Fund's total return would have been less. Past
performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or a loss when you sell shares. The
Fund's peer group, as defined by Lipper Analytical Services, Inc., an
independent monitor of mutual fund performance, includes funds that invest at
least 65 percent of assets in corporate and government debt issues in the top
four grades. There were 74 funds in this peer group for the year ended June
30, 1995. The Lehman Corporate Bond Index is an unmanaged group of
intermediate- and long-term bonds that differs from the composition of each
SteinRoe Fund; the Lehman Corporate Bond Index is not available for direct
investment.
Fund Highlights
Income Fund
Securities Type Breakdown
Portfolio Portfolio
June 30, 1994 June 30, 1995
Industrial 34.6% 34.6%
Financial 24.6 16.1
Utilities 13.8 13.3
U.S. Government Securities 6.8 12.6
Miscellaneous 20.2 23.4
Total 100% 100%
Maturity
Pie charts:
As of June 30, 1994 As of June 30, 1995
Less Than 1 Year (9.6%) Less Than 1 Year (5.0%)
1-5 Years (15.9%) 1-5 Years (9.0%)
5-10 Years (55.9%) 5-10 Years (64.1%)
10-20 Years (13.5%) 10-20 Years (18.6%)
Over 20 Years (5.1%) Over 20 Years (3.3%)
Portfolio Quality
Pie charts:
As of June 30, 1994 As of June 30, 1995
Treasury AAA/Agency (14.3%) Treasury AAA/Agency (16.1%)
AA (6.8%) AA (6.4%)
A (15.0%) A (11.0%)
BBB (31.0%) BBB (37.5%)
BB (29.6%) BB (25.3%)
B/NR* (3.3%) B/NR* (3.7%)
*Nonrated
Limited Maturity Income Fund
Investments as of June 30, 1995
(Dollar Amounts In Thousands)
Principal Market
Long-Term Obligations (95.6%) Amount Value
U.S. Government and Agency Obligations (19.6%)
Federal Home Loan Mortgage Corporation 7.110% 10/06/97 $ 1,000 $ 1,003
U.S. Treasury Notes
7.875% 2/15/96 500 506
8.875% 2/15/96 800 815
7.625% 5/31/96 1,000 1,017
7.750% 12/31/99 2,000 2,135
-------
5,476
U.S. Government Agency Mortgage-Backed Securities (17.1%)
Federal Home Loan Mortgage Corporation Remic Trusts
4.750% 12/15/00 Series 1604-B 1,000 986
4.750% 11/15/01 Series 1565-B 1,000 978
5.000% 6/15/06 Series 1560-PB 1,000 991
Federal National Mortgage Association Remic Trust
7.688% 4/25/20 Series 1993-M1 Class A 839 850
Government National Mortgage Association 6.750% 4/20/23 ARM 944 961
-------
4,766
Asset-Backed Obligations (20.6%)
First Deposit Master Trust Series 1993 Class 2A 5.750% 6/15/01 400 395
Greentree Financial Corp. Series 1994
6.550% 7/15/19 Class A1 773 770
5.600% 5/15/24 Class 1 679 665
Greentree Financial Corp. Manufactured Housing Series 1993-1
Class A-1 4.900% 4/15/18 131 130
Greentree Securities Net Int. Series 1994-A 6.900% 2/15/04 185 183
Household Home Equity Trust 1993 Class A3 4.650% 12/20/08 595 572
Premier Auto Trust Series 1994-3 Class A-4 6.500% 11/02/97 750 753
Prime Credit Trust Series 1992-2-A2 7.450% 11/15/02 750 782
Signet Master Trust Services 1993-4 Class A 6.313% 5/15/02
Floating Rate 1,500 1,500
-------
5,750
Financial (24.2%)
American Reinsurance Corp. 10.875% 9/15/04 1,000 1,109
Banponce Financial Corp. 6.160% 7/30/98 1,000 987
General Motors Acceptance Corp. 8.625% 6/15/99 600 642
Health & Rehabilitation Property Trust 7.300% 7/13/99
Floating Rate 1,000 1,026
Korean Development Bank Medium-Term Note 7.950% 3/25/97 1,000 1,025
Lehman Brothers 5.040% 12/15/96
8.000% thereafter until maturity of 12/15/03 1,000 979
Salomon Brothers Mortgage Medium-Term Note 5.370% 12/17/96 1,000 985
-------
6,753
Food and Beverages (0.9%)
Philip Morris Companies Medium-Term Note 8.450% 5/24/96 250 254
Mortgage-Backed Securities (9.8%)
General Electric Capital Mortgage Services Series 1994
6.500% 7/25/18 Class A6 1,000 990
6.500% 8/25/24 Class A4 1,000 992
Kearny Street Real Estate Co., L.P. Commercial Mortgage Pass-Through
Certificates Class B 6.550% 7/15/00 350 349
Limited Maturity Income Fund Continued
Principal Market
Amount Value
Mortgage-Backed Securities (continued)
Salomon Brothers Mortgage Pass-Through Certificates
Series 1993-3 Class A-3 7.200% 7/25/23 $ 400 $ 398
-------
2,729
Utilities (3.4%)
New York State Electric & Gas 5.625% 1/01/97 975 965
--------
Total Long-Term Obligations
(Cost basis $26,959) 26,693
Short-Term Obligation - Commercial Paper (3.4%)
Lehman Brothers Holding Inc. 6.350% 7/03/95
(Amortized Cost $945) 945 945
Total Investments (99.0%)
(Cost basis $27,904) 27,638
Other Assets, Less Liabilities (1.0%) 269
--------
Total Net Assets (100%) $ 27,907
========
See accompanying notes to financial statements.
Government Income Fund
Investments as of June 30, 1995
(Dollar Amounts In Thousands)
Principal Market
Long-Term Obligations (94.5%) Amount Value
U.S. Government and Agency Obligations ( 29.3%)
Federal National Mortgage Association
8.000% 4/13/05 $1,000 $ 1,034
U.S. Treasury Bonds
7.500% 11/15/01 1,000 1,073
12.750% 11/15/10 600 882
7.500% 11/15/16 2,000 2,180
8.875% 8/15/17 4,200 5,234
7.125% 2/15/23 500 527
--------
10,930
U.S. Government Agency Mortgage-Backed Securities (61.4%)
Federal Home Loan Mortgage Corporation
12.000% 7/01/13 364 406
Federal Home Loan Mortgage Corporation Gold
7.500% 3/01/08 1,970 2,000
12.000% 07/01/20 1,200 1,347
7.500% 11/01/23 1,340 1,344
Federal Home Loan Mortgage Corporation Remic Trusts
8.500% 5/15/01 Series 197-H 1,316 1,327
9.500% 4/15/19 Series 11-C 193 202
Federal National Mortgage Association
8.000% 6/01/02 855 878
6.000% 4/01/09 862 834
6.000% 2/01/24 907 850
8.500% 7/01/24 1,390 1,435
8.500% 11/01/24 38 39
8.500% 1/01/25 1,996 2,059
*8.000% 2/15/25 1,500 1,528
8.500% 3/01/25 31 32
Federal National Mortgage Association Remic Trusts
14.400% (Effective Yield) 7/25/98 Series 1991-91-SA
14 81
6.000% 6/25/04 Series 1994-86-PD 1,750 1,721
9.250% 3/25/18 Series 1988-4-Z 1,414 1,489
5.850% 1/25/19 Series 1993-183-GB 500 480
Government National Mortgage Association
8.000% 6/15/06 192 199
8.000% 3/15/08 1,120 1,156
8.000% 5/15/08 79 81
8.000% 6/15/08 494 509
8.000% 7/15/08 1,360 1,403
9.000% 6/15/16 456 483
9.000% 8/15/16 80 85
9.000% 11/15/16 226 239
9.000% 2/15/17 113 120
9.000% 3/15/21 185 195
9.000% 8/15/21 353 372
--------
22,894
Government Income Fund Continued
Principal Market
Amount Value
Mortgage-Backed Securities (3.8%)
Countrywide Mortgage Backed Securities Inc.
Series 1994-F-Class A4 6.000% 4/25/09 $ 750 $ 710
MDC Mortgage Funding Corporation Series Q Class 5
8.850% 3/20/18 687 713
--------
1,423
--------
Total Long-Term Obligations
(Cost basis $33,854) 35,247
Short-Term Obligations (8.2%)
U.S. Government Agency Obligation (4.0%)
Federal Farm Credit Bank 5.860% 7/17/95 1,500 1,496
Repurchase Agreement (4.2%)
Salomon Brothers Inc.; 6/30/95 agreement collateralized
by U.S. Treasury Notes 6.250% due 7/03/95 1,555 1,555
--------
Total Short-Term Obligations
(Amortized cost $3,051) 3,051
Total Investments (102.7%)
(Cost basis $36,905) 38,298
Other Assets, Less Liabilities (-2.7%) (1,018)
--------
Total Net Assets (100%) $ 37,280
========
<FN>
*Security purchased on a when-issued or delayed delivery basis for which
the Fund had not taken delivery as of June 30, 1995.
See accompanying notes to financial statements.
Intermediate Bond Fund
Investments as of June 30, 1995
(Dollar Amounts In Thousands)
Principal Market
Long-Term Obligations (97.8%) Amount Value
U.S. Government and Agency Obligations (19.3%)
Federal Home Loan Mortgage Corporation 5.630% 1/05/99 $ 8,500 $ 8,311
Federal National Mortgage Association
5.330% 6/26/98 Medium-Term Note 5,000 4,878
5.200% 7/10/98 Medium-Term Note 8,500 8,250
8.000% 4/13/05 5,000 5,172
U.S. Treasury Notes
6.875% 3/31/97 1,500 1,525
6.750% 6/30/99 3,000 3,080
7.750% 2/15/01 5,000 5,403
7.500% 5/15/02 4,000 4,309
6.375% 8/15/02 9,250 9,361
7.250% 5/15/04 7,500 8,009
--------
58,298
U.S. Government Agency Mortgage-Backed Securities (20.7%)
Federal Home Loan Mortgage Corporation Gold 12.000% 7/01/20 5,719 6,420
Federal Home Loan Mortgage Corporation Remic Trusts
8.500% 5/15/01 Series 197-H 4,826 4,865
9.500% 4/15/19 Series 11-C 462 482
Federal National Mortgage Association
9.148% 6/01/97 (Multi Family Housing) Floating Rate 158 159
8.500% 4/01/01 3 3
8.500% 5/01/03 49 50
8.500% 9/01/03 134 138
8.500% 11/01/03 309 319
6.000% 4/01/09 14,195 13,733
11.250% 11/01/13 (FHA/VA guaranteed) 383 421
6.000% 1/01/24 975 914
6.000% 3/01/24 2,929 2,747
8.500% 12/01/24 3,984 4,114
*8.000% 2/15/25 4,750 4,839
Federal National Mortgage Association Remic Trusts
14.400% (Effective Yield) 7/25/98 Series 1991-91-SA 65 387
6.000% 6/25/04 Series 1994-86-PD 4,500 4,426
9.250% 3/25/18 Series 88-4-Z 4,779 5,032
Government National Mortgage Association
8.000% 1/15/08 840 869
8.000% 2/15/08 546 563
8.000% 4/15/08 711 733
8.000% 5/15/08 689 711
8.000% 6/15/08 3,190 3,293
8.000% 7/15/08 596 614
9.000% 6/15/16 199 210
9.000% 8/15/16 139 147
9.000% 10/15/16 287 304
*6.500% 10/15/25 ARM 6,000 6,068
--------
62,561
Air Transportation (2.5%)
Federal Express Corporation 1994 Pass-Through
Certificates Series A310-A1 7.530% 9/23/06 4,918 5,055
United Airline Corporation Series 1991-A1 9.200% 3/22/08 2,323 2,436
--------
7,491
Intermediate Bond Fund Continued
Principal Market
Amount Value
Asset-Backed Obligations (7.1%)
ALPS Pass-Through Trust Series 1994-1 Class C2 9.350% 9/15/04 $ 3,482 $ 3,621
First Boston Home Equity Loan Pass-Through Certificates Series
1993-H1 Class A-IO 12.820% (Effective Yield) 9/28/13 38,057 1,270
Greentree Finance Manufactured Housing Series 1994-S-A3
7.600% 9/01/19 3,000 3,116
Greentree Home Improvement Loan Trust
Series 1994-A Class A 7.050% 3/15/14 3,841 3,831
Greentree Securitized Net Interest Margin Series 1994-A
6.900% 2/15/04 2,548 2,532
Household Credit Card Trust Series 1991-2B 6.700% 7/15/97 3,500 3,502
Prime Credit Card Trust Series 1992 Class B-1 7.550% 2/15/01 3,500 3,638
--------
21,510
Brokerage (1.0%)
Lehman Brothers Holdings Inc. 7.625% 6/15/97 3,000 3,044
Commercial Banks (4.1%)
**Corporacion Andina de Fomento 6.625% 10/14/98 3,500 3,355
National Westminster Bank PLC, New York
(Yankee Issue) 9.450% 5/01/01 3,250 3,697
Santander Financial Issuances 7.875% 4/15/05 5,000 5,302
--------
12,354
Communications (3.4%)
Cox Communications 6.875% 6/15/05 6,500 6,398
Viacom 10.250% 9/15/01 3,500 3,894
--------
10,292
Containers and Glass (0.7%)
Owens-Illinois, Inc. 11.000% 12/01/03 1,800 1,982
Fabricated Metal Products (1.4%)
Boise Cascade Corp. 10.125% 12/15/97 4,000 4,312
Financial (4.0%)
General Motors Acceptance Corporation 7.300% 2/02/98 2,400 2,445
Greentree Financial Corp. 10.250% 6/01/02 3,000 3,534
Merrill Lynch Series 1994-M1 Class C 8.227% 4/15/23 1,300 1,338
**VW Credit Inc. 5.750% 11/15/98 5,000 4,888
--------
12,205
Financial Services (2.1%)
American Residential Mortgage Corp. 6.110% 2/03/99 4,000 3,955
**John Hancock Surplus Notes 7.375% 2/15/24 2,500 2,320
--------
6,275
Food, Beverages & Tobacco (1.1%)
Nabisco, Inc. 6.850% 6/15/05 3,500 3,445
Foreign Government Bonds (0.7%)
**The Republic of Poland 7.750% 7/13/00 2,000 2,000
Mining (1.3%)
PT Alatief Freeport Finance Co. B.V 9.750% 4/15/01. 3,500 3,797
Mortgage-Backed Securities (13.6%)
American Mortgage Trust Series 1993-3 Class 3B 8.190% 9/27/22 2,956 2,852
Countrywide Mortgage Backed Securities Inc.
Series 1994-F Class A4 6.000% 4/25/09 3,250 3,074
Intermediate Bond Fund Continued
Principal Market
Amount Value
Mortgage-Backed Securities (Continued)
Excel Credit Corporation Commercial Mortgage Pass-Through
Certificate Series 1994-1Class A 6.663% 3/01/04
Floating Rate $ 2,700 $ 2,723
Kearny Street Real Estate Co., L.P. Commercial Mortgage
Pass-Through Certificates
7.700% 7/15/01 Class C 1,500 1,519
9.560% 7/15/03 Class D 3,750 3,800
Kidder Peabody 8.500% 4/01/07 Series 1994-C3-A2 3,500 3,798
**Lennar 8.120% 9/15/02 3,500 3,528
MDC Mortgage Funding Corporation Series Q Class 5
8.850% 3/20/18 2,403 2,496
**Prudential Home Mortgage Finance Corp.
Series 1992-A Class B2-2 7.900% 11/25/22 7,000 6,384
Resolution Trust Corporation Series 1992-5 Class A3
8.850% 5/25/22 2,732 2,832
**SKW Real Estate L.P. Commercial Mortgage Pass-Through Certificates
7.050% 4/15/02 Class C 2,000 2,011
9.050% 4/15/04 Class D 1,500 1,517
PS CMO Trust Series 1994-C1-A2 7.920% 8/15/02 4,250 4,387
---------
40,921
Natural Gas (1.4%)
Transco Energy 9.125% 5/01/98 4,000 4,261
Paper (1.1%)
Riverwood International Corp. 10.750% 6/15/00 3,000 3,240
Petroleum (0.3%)
Gulf Canada 9.250% 1/15/04 1,000 978
Publishing & Broadcasting (1.9%)
Time Warner Inc. Step Reset Note 7.765%
(Effective Yield) 8/15/02 5,750 5,649
Real Estate Investment Trust (0.3%)
Merry Land & Investments 7.250% 6/15/05 1,000 990
Retail (1.1%)
Federated Department Stores 10.000% 2/15/01 3,000 3,233
Telephone (1.0%)
GTE South 9.375% 6/15/30 3,000 3,162
Utilities (5.9%)
Commonwealth Edison
6.625% 7/15/03 1,000 971
7.375% 9/15/02 5,500 5,624
Niagara Mohawk Power Corp.
7.375% 8/01/03 5,000 4,984
8.000% 6/01/04 3,500 3,621
North Atlantic Energy Corporation Series A First Mortgage
9.050% 6/01/02 2,548 2,614
---------
17,814
Wholesale (1.8%)
Sears Roebuck & Co. 9.250% 4/15/98 5,000 5,361
---------
Total Long-Term Obligations
(Cost basis $290,521) 295,175
Intermediate Bond Fund Continued
Principal Market
Amount Value
Short-Term Obligations - Commercial Paper (4.2%)
America Honda Finance Corp. 5.975% 7/25/95 $6,000 $ 5,976
Countrywide Funding Corp. 5.970% 7/17/95 5,000 4,987
Lehman Brothers Holding Inc. 6.350% 7/03/95 1,740 1,739
--------
Total Short-Term Obligations
(Amortized cost $12,702) 12,702
Total Investments (102.0%)
(Cost basis $303,223) 307,877
Other Assets, Less Liabilities (-2.0%) (6,144)
---------
Total Net Assets (100.0%) $ 301,733
=========
<FN>
*Security purchased on a when-issued or delayed delivery basis for
which the Fund had not taken delivery as of June 30, 1995
**These securities are subject to contractual or legal restrictions
on their resale. At June 30, 1995, the aggregate value of these
securities represented 8.6 percent of net assets.
See accompanying notes to financial statements.
Income Fund
Investments as of June 30, 1995
(Dollar Amounts In Thousands)
Principal Market
Long-Term Obligations (96.3%) Amount Value
U.S. Government Obligations (12.6%)
U.S Treasury Notes
6.250% 2/15/03 $ 4,500 $ 4,515
5.750% 8/15/03 1,000 970
7.250% 5/15/04 5,000 5,340
6.500% 5/15/05 5,500 5,615
7.875% 11/15/04 5,000 5,568
---------
22,008
Airlines (1.2%)
American Airlines Equipment Trust 9.710% 1/02/07 1,866 1,997
Asset-Backed Obligations (3.6%)
ALPS Pass-Through Trust Series 1994-1
Class C2 9.350% 9/15/04 995 1,035
Carco Auto Loan Master Trust Series 1991-3A
7.875% 3/15/98 2,000 2,051
Prime Credit Card Trust Series 1992
Class B-1 7.550% 2/15/01 3,000 3,118
---------
6,204
Automotive (0.5%)
Masco Corp. 7.125% 8/15/13 1,000 952
Cable/Media (9.1%)
Continental Cablevision Inc. 8.875% 9/15/05 1,500 1,526
Le Groupe Videotron LTEE 10.625% 2/15/05 2,000 2,115
News America Holdings Inc. 8.625% 2/01/03 2,000 2,158
Rogers Cable Systems Senior Secured Second
Priority Note 9.625% 8/01/02 2,000 2,015
Tele-Communications, Inc. Class A 9.800% 2/01/12 2,000 2,197
Time Warner Inc. 7.250% 9/01/08 2,000 1,908
Viacom International Inc. 10.250% 9/15/01 2,000 2,225
Young Broadcasting, Inc. 11.750% 11/15/04 1,500 1,642
---------
15,786
Commercial & Development Banks (6.7%)
*Banko del Estado de Chile (Caymen Islands)
8.390% 8/01/01 3,000 3,120
Banca Commercial Italian 8.250% 7/15/07 3,000 3,148
Banesto Delaware Inc. 8.250% 7/28/02 2,000 2,107
*Corporacion Andina de Fomento 6.625% 10/14/98 1,000 959
RBSG Capital Corp. 10.125% 3/01/04 2,000 2,405
---------
11,739
Containers & Glass (2.2%)
Coca-Cola Bottling Company Medium-Term Note
8.560% 2/26/02 2,000 2,182
Owens-Illinois, Inc. 11.000% 12/01/03 1,500 1,652
---------
3,834
Electronics (1.9%)
Philips Electronics N.V. 8.375% 9/15/06 2,000 2,217
Plantronics 10.000% 1/15/01 1,000 1,013
---------
3,230
Financial (7.4%)
Ford Capital B.V. 9.875% 5/15/02 2,000 2,327
General Motors Acceptance Corp. 9.625% 12/15/01 2,000 2,288
*Goldman Sachs 6.200% 2/15/01 2,000 1,942
Greentree Acceptance Corp. 10.250% 6/01/02 2,000 2,356
Income Fund Continued
Principal Market
Amount Value
Financial (continued)
Navistar Financial Corp. Medium-Term Note
9.500% 6/01/96 $2,000 $ 2,020
Property Trust of America 6.875% 2/15/08 2,000 1,926
---------
12,859
Food, Beverages & Tobacco (5.7%)
Cott Corp. 9.375% 7/01/05 1,500 1,504
Nabisco, Inc. 6.850% 6/15/05 2,250 2,214
Philip Morris Companies 7.125% 8/15/02 2,000 2,025
RJR Nabisco 8.625% 12/01/02 2,000 2,046
Ralcorp Holdings, Inc. 8.750% 9/15/04 2,000 2,165
---------
9,954
Foreign Government Bonds (3.7%)
Basque Region of Spain 8.000% 9/21/04 2,000 2,152
New Zealand Government Debentures 8.750% 12/15/06 2,0002,328
*The Republic of Poland 7.750% 7/13/00 2,000 2,000
---------
6,480
Gaming (1.8%)
Caesars World Inc. 8.875% 8/15/02 1,000 1,057
Circus Circus Enterprises, Inc. 10.625% 6/15/97 2,000 2,141
---------
3,198
Health Services & Equipment (1.3%)
Columbia/HCA Health Care Corp. 8.850% 1/01/07 2,000 2,261
Hospitals, Nursing Homes (1.2%)
National Medical Enterprises, Inc. 9.625% 9/01/02 2,0002,115
Hotels (2.0%)
Embassy Suites Inc. 8.750% 3/15/00 1,250 1,259
MGM Grand Hotel 12.000% 5/01/02 2,000 2,228
---------
3,487
Machinery & Fabricated Metal Products (3.6%)
Black & Decker Inc. 7.000% 2/01/06 2,000 1,943
Cincinnati Milacron 8.375% 3/15/04 2,000 2,031
Rexnord Corp. 10.750% 7/01/02 2,000 2,244
---------
6,218
Mining (3.0%)
PT Alatief Freeport Finance Co. B.V. 9.750% 4/15/01 3,000 3,255
Santa Fe Pacific Gold 8.375% 7/01/05 2,000 1,988
---------
5,243
Mortgage-Backed Security (0.5%)
Resolution Trust Corporation Series 1992-C1
Class A1 8.800% 8/25/23 849 874
Natural Gas & Oil (6.0%)
Arkla Inc. 9.875% 4/15/97 2,000 2,080
Colorado Interstate Gas 10.000% 6/15/05 1,500 1,811
Texas Eastern Transmission Corporation 10.375% 11/15/00 2,000 2,320
Texas Gas Transmission Corporation 9.625% 7/15/97 2,000 2,120
Transco Energy Co. 9.125% 5/01/98 2,000 2,131
---------
10,462
Petroleum (4.6%)
Gulf Canada 9.250% 1/15/04 1,500 1,466
*Lyondell Petroleum 9.750% 9/04/03 2,000 2,287
Income Fund Continued
Principal Market
Amount Value
Petroleum (Continued)
Occidental Petroleum Corporation 11.750% 3/15/11 $2,000 $ 2,159
Union Texas Petroleum 8.500% 4/15/07 2,000 2,176
---------
8,088
Retail (2.8%)
Hook-SuperX, Inc. 10.125% 6/01/02 2,000 2,160
Federated Department Stores 10.000% 2/15/01 1,500 1,616
Kroger Company 9.750% 2/15/04 1,000 1,082
---------
4,858
Services (3.3%)
ARA Services, Inc. 10.625% 8/01/00 1,600 1,780
Aramark Services 8.150% 5/01/05 1,000 1,053
Rykoff Sexton Inc. 8.875% 11/01/03 1,750 1,733
Service Corp. International 8.375% 12/15/04 1,000 1,097
---------
5,663
Telephone (1.2%)
Rogers Cantel Mobile, Inc. 10.750% 11/01/01 2,000 2,070
Textile (0.7%)
Dominion Textile (USA) Inc. Gtd. 8.875% 11/01/03 1,2501,266
Utilities (9.7%)
CTC Mansfield Funding Corporation 11.125% 9/30/16 1,5001,545
Kentucky Power First Mortgage Medium-Term Note
8.900% 5/21/01 2,000 2,195
Long Island Lighting 6.250% 7/15/01 1,500 1,368
Louisiana Power & Light Company Series A
10.670% 1/02/17 1,000 1,076
*National Power Corp. Medium-Term Note
9.000% 7/05/02 1,500 1,508
Niagara Mohawk Power Corp. 6.875% 4/01/03 2,000 1,940
North Atlantic Energy Corporation Series A First
Mortgage 9.050% 6/01/02 2,831 2,905
Texas Utilities Company 9.750% 5/01/21 2,000 2,267
Utilicorp United, Inc. 8.200% 1/15/07 2,000 2,153
---------
16,957
---------
Total Long-Term Obligations
(Cost basis $160,913) 167,803
Short-Term Obligations - Commercial Paper (3.8%)
Lehman Brothers Holding Inc. 6.350% 7/03/95
(Amortized Cost $6,683) 6,685 6,683
Total Investments (100.1%)
(Cost basis $167,596) 174,486
Other Assets, Less Liabilities (-0.1%) (159)
---------
Total Net Assets (100.0%) $174,327
=========
* These securities are subject to contractual or legal restrictions
on their resale. At June 30, 1995, the aggregate value of these securities
represented 6.8% of net assets.
See accompanying notes to financial statements.
Balance Sheets
June 30, 1995
(All Amounts In Thousands)
Limited
Maturity GovernmentIntermediate
Income Income Bond Income
Fund Fund Fund Fund
------- ------- --------- ---------
Assets
Investments, at market value $27,638 $38,298 $307,877 $174,486
Receivable for investments sold -- -- 5,159 2,049
Receivable for fund shares sold 8 633 526 464
Accrued interest receivable 243 371 3,351 3,321
Receivable from investment adviser 26 -- -- --
Cash and other assets 152 104 166 111
-------- -------- --------- ---------
Total Assets $28,067 $39,406 $317,079 $180,431
======= ======= ======== ========
Liabilities
Payable for investments purchased $ -- $ 1,534 $ 12,956 $ 5,487
Payable for fund shares redeemed 81 474 1,621 113
Dividends payable 48 68 550 352
Payable to investment adviser and transfer agent 6 20 137 114
Other liabilities 25 30 82 38
-------- -------- --------- ---------
Total Liabilities 160 2,126 15,346 6,104
-------- -------- --------- ---------
Capital
Paid-in capital 28,913 38,147 314,227 175,478
Net unrealized appreciation (depreciation) of investments (266) 1,393 4,654 6,890
Accumulated undistributed net investment income 11 -- 28 6
Accumulated net realized losses on investments (751) (2,260) (17,176) (8,047)
-------- -------- --------- ---------
Total Capital (Net Assets) 27,907 37,280 301,733 174,327
-------- -------- --------- ---------
Total Liabilities and Capital $28,067 $39,406 $317,079 $180,431
======= ======= ======== ========
Shares Outstanding (Unlimited Number Authorized) 2,877 3,786 34,787 17,807
======= ======= ======== ========
Net Asset Value (Capital) Per Share $ 9.70 $ 9.85 $ 8.67 $ 9.79
======= ======= ======== ========
See accompanying notes to financial statements.
Statements of Operations
For the Year Ended
June 30, 1995
(All Amounts In Thousands)
Limited
Maturity GovernmentIntermediate
Income Income Bond Income
Fund Fund Fund Fund
------ ------ -------- --------
Investment Income
Interest income $1,803 $3,192 $22,790 $13,400
------- ------- -------- --------
Expenses
Management fees 172 253 1,491 1,011
Transfer agent fees 56 75 368 177
Printing and postage 31 22 68 41
Custodian fees 8 13 49 14
Legal and audit fees 27 27 27 27
Registration fees 25 20 26 22
Accounting fees 17 17 21 19
Trustees' fees 15 15 21 15
Other expenses 14 18 42 35
------- ------- -------- --------
365 460 2,113 1,361
Reimbursement of expenses by investment adviser (235) (38) (26) (48)
------- ------- -------- --------
Total Expenses 130 422 2,087 1,313
------- ------- -------- --------
Net Investment Income 1,673 2,770 20,703 12,087
------- ------- -------- --------
Realized and Unrealized Gains (Losses) on Investments
Net realized losses on investments (548) (607) (10,410) (2,294)
Net realized losses on futures transactions -- (555) (1,306) --
Net change in unrealized appreciation or
depreciation on investments 736 2,629 18,957 10,187
------- ------- -------- --------
Net Gains on Investments 188 1,467 7,241 7,893
------- ------- -------- --------
Net Increase in Net Assets Resulting from Operations $ 1,861 $ 4,237 $ 27,944 $ 19,980
========= ========= ========== ==========
See accompanying notes to financial statements.
Statements of Changes in Net Assets
for the Years Ended June 30, 1994 and 1995
(All Amounts In Thousands)
Limited Maturity Government
Income Fund Income Fund
1994 1995 1994 1995
------- ------ ------- -------
Operations
Net investment income $ 1,238 $ 1,673 $ 3,096 $ 2,770
Net realized losses on investments (203) (548) (882) (1,162)
Net change in unrealized appreciation or
depreciation of investments (1,006) 736 (3,179) 2,629
-------- -------- -------- --------
Net Increase (Decrease) in Net Assets Resulting
from Operations 29 1,861 (965) 4,237
-------- -------- -------- --------
Distributions To Shareholders
Dividends from net investment income (1,236) (1,664) (3,106) (2,770)
Dividends from net capital gains -- -- (34) --
Distributions in excess of realized gains -- -- (1,097) --
-------- -------- -------- --------
Total Distributions to Shareholders (1,236) (1,664) (4,237) (2,770)
-------- -------- -------- --------
Share Transactions
Subscriptions to fund shares 53,026 17,366 9,910 15,151
Investment income dividends reinvested 756 1,160 2,376 2,106
Capital gain distributions reinvested -- -- 1,042 --
Redemptions of fund shares (24,811) (26,199) (23,881) (27,280)
-------- -------- -------- --------
Net Increase (Decrease) from Share Transactions 28,971 (7,673) (10,553) (10,023)
-------- -------- -------- --------
Net Increase (Decrease) in Net Assets 27,764 (7,476) (15,755) (8,556)
Total Net Assets
Beginning of year 7,619 35,383 61,591 45,836
-------- -------- -------- --------
End of year $35,383 $27,907 $45,836 $37,280
======== ======== ======== ========
Accumulated Undistributed Net Investment Income at
End of Year $ 2 $ 11 $ -- $ --
======== ======== ======== ========
Analyses of Changes in Shares of Beneficial Interest
Subscriptions to fund shares 5,368 1,814 975 1,606
Investment income dividends reinvested 77 121 234 223
Capital gain distributions reinvested -- -- 103 --
-------- -------- -------- --------
5,445 1,935 1,312 1,829
Redemptions of fund shares (2,525) (2,739) (2,367) (2,877)
-------- -------- -------- --------
Net increase (decrease) in fund shares 2,920 (804) (1,055) (1,048)
Shares outstanding at beginning of year 761 3,681 5,889 4,834
-------- -------- -------- --------
Shares outstanding at end of year 3,681 2,877 4,834 3,786
======== ======== ======== ========
See accompanying notes to financial statements.
Statements of Changes in Net Assets
for the Years Ended June 30, 1994 and 1995
(All Amounts In Thousands)
Intermediate
Bond Fund Income Fund
1994 1995 1994 1995
-------- -------- -------- --------
Operations
Net investment income $ 19,586 $ 20,703 $ 11,038 $ 12,087
Net realized gains (losses) on investments (1,068) (11,716) 1,130 (2,294)
Net change in unrealized appreciation or depreciation
of investments (19,948) 18,957 (13,315) 10,187
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets Resulting
from Operations (1,430) 27,944 (1,147) 19,980
--------- --------- --------- ---------
Distributions To Shareholders
Dividends from net investment income (19,608) (20,726) (11,003) (12,126)
Dividends from net capital gains (2,830) -- -- --
Distributions in excess of realized gains (5,460) -- -- --
--------- --------- --------- ---------
Total Distributions to Shareholders (27,898) (20,726) (11,003) (12,126)
--------- --------- --------- ---------
Share Transactions
Subscriptions to fund shares 125,654 109,708 61,219 62,511
Investment income dividends reinvested 14,570 16,092 7,306 7,966
Capital gain distributions reinvested 7,469 -- -- --
Redemptions of fund shares (127,586) (133,792) (49,083) (62,890)
--------- --------- --------- ---------
Net Increase (Decrease) from Share Transactions 20,107 (7,992) 19,442 7,587
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets (9,221) (774) 7,292 15,441
Total Net Assets
Beginning of year 311,728 302,507 151,594 158,886
--------- --------- --------- ---------
End of year $302,507 $301,733 $158,886 $174,327
========== ========== ========== ==========
Accumulated Undistributed Net Investment Income at
End of Period $ 51 $ 28 $ 44 $ 6
========== ========== ========== ==========
Analyses of Changes in Shares of Beneficial Interest
Subscriptions to fund shares 13,948 13,047 6,148 6,703
Investment income dividends reinvested 1,627 1,920 734 853
Capital gain distributions reinvested 834 -- -- --
--------- --------- --------- ---------
16,409 14,967 6,882 7,556
Redemptions of fund shares (14,239) (16,019) (4,927) (6,720)
--------- --------- --------- ---------
Net increase (decrease) in fund shares 2,170 (1,052) 1,955 836
Shares outstanding at beginning of year 33,669 35,839 15,016 16,971
--------- --------- --------- ---------
Shares outstanding at end of year 35,839 34,787 16,971 17,807
========== ========== ========== ==========
See accompanying notes to financial statements.
Notes to the Financial Statements
Note 1. Significant Accounting Policies
The following are the significant accounting policies of SteinRoe Limited
Maturity Income Fund, SteinRoe Government Income Fund, SteinRoe Intermediate
Bond Fund and SteinRoe Income Fund (the "Funds"), each a series of the
SteinRoe Income Trust (a Massachusetts business trust).
Security Valuations
All securities are valued as of June 30, 1995. 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 Adviser, 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, 1995, Government Income Fund and Intermediate
Bond Fund entered into U.S. Treasury Bond futures contracts to either hedge
against expected declines of their portfolio 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 Fund 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
portfolio securities being hedged.
Upon entering into a futures contract, the Fund 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 Fund equal to the
daily change in the contract value and are recorded as unrealized gains or
losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Federal Income Taxes
No provision is made for federal income taxes, since the Funds elect to be
taxed as "regulated investment companies" and make such distributions to their
shareholders as to be relieved of all federal income taxes under provisions of
current federal tax law.
The Funds intend to utilize provisions of the federal income tax laws which
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, 1995, the Funds had capital loss carryforwards as follows:
Year of
Fund Amount Expiration
Limited
Maturity
Income $ 655 2002-2003
Government
Income 2,106 2003
Intermediate
Bond 9,889 2003
Income 6,779 1999-2003
Distributions to Shareholders
Dividends from net investment income are declared daily and paid monthly.
Capital gain distributions, if any, are distributed annually. Distributions in
excess of tax basis earnings are reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings that result in temporary
over-distributions are classified as distributions in excess of net investment
income or net realized gains, and all permanent differences are reclassified
to paid-in capital.
None of the Funds had distributions in excess of net investment income or net
realized gains for the year ended June 30, 1995.
Other Information
Realized gains or losses from sales of securities are determined on the
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. These securities are subject to
market fluctuation during this period. When-issued and delayed delivery
purchase commitments of Government Income Fund and Intermediate Bond Fund as
of June 30, 1995, amounted to $1,534 and $10,956, respectively.
All amounts, except per-share amounts, are shown in thousands.
Note 2. Portfolio Composition
Limited Maturity Income Fund invests primarily in U.S. Government and other
high-quality debt securities. Government Income Fund invests primarily in
securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies and instrumentalities. Intermediate Bond Fund
invests primarily in marketable debt securities and Income Fund in
medium-quality debt securities.
See each Fund's schedule of investments for information on individual
securities as well as industry diversification, and see Fund Highlights for
each Fund's portfolio quality.
Notes to the Financial Statements Continued
Note 3. Trustees' Fees and Transactions with Affiliates
The Funds pay a monthly management fee to Stein Roe & Farnham Incorporated
(the "Adviser"), an indirect subsidiary of Liberty Mutual Insurance Company,
for its services as investment adviser and manager. The management fee for
Limited Maturity Income Fund is computed at an annual rate of .60 of 1 percent
of the first $100 million of average net assets, .55 of 1 percent of the next
$100 million and .50 of 1 percent thereafter; Government Income Fund is
computed at an annual rate of .60 of 1 percent of the first $100 million of
average net assets and .55 of 1 percent thereafter; Intermediate Bond Fund is
computed at an annual rate of .50 of 1 percent of average net assets; and
Income Fund is computed at an annual rate of .65 of 1 percent of the first
$100 million of average net assets and .60 of 1 percent thereafter.
The investment advisory agreements of the Funds provide that the Adviser will
reimburse each Fund to the extent that its annual expenses, excluding certain
expenses, exceed the applicable limits prescribed by any state in which each
Fund's shares are offered for sale. In addition, the Adviser has agreed to
reimburse Limited Maturity Income Fund, Government Income Fund and Income Fund
to the extent that their expenses exceed .45 percent, 1 percent and .82
percent of average net assets, respectively. Effective May 1, 1995, the
Adviser agreed to reimburse Intermediate Bond Fund to the extent that expenses
incurred exceed .70 percent of average net assets. The expense limitations for
Limited Maturity Income Fund, Government Income Fund and Intermediate Bond
Fund expire October 31, 1995, subject to earlier termination by the Adviser on
30 days' notice. The expense limitation for Income Fund commenced on October
29, 1993 and expires October 31, 1998.
The transfer agent fees of the Funds are paid to SteinRoe Services Inc., an
indirect subsidiary of Liberty Mutual Insurance Company.
Pursuant to an agreement with the Funds, the Adviser provides certain
accounting services. For the year ended June 30, 1995, Limited Maturity Income
Fund, Government Income Fund, Intermediate Bond Fund and Income Fund incurred
charges of $17, $17, $21 and $19, respectively.
Certain officers and trustees of the Trust are also officers of the Adviser.
The compensation of trustees not affiliated with the Adviser for Limited
Maturity Income Fund, Government Income Fund, Intermediate Bond Fund and
Income Fund for the year ended June 30, 1995, was $15, $15, $21 and $15,
respectively. No remuneration was paid to any other trustee or officer of the
Trust.
Note 4. Short-Term Debt
To facilitate portfolio liquidity, the Funds maintain borrowing arrangements
under which they can borrow against portfolio securities. There were no
borrowings for any of the Funds during the year ended June 30, 1995.
Note 5. Investment Transactions
The aggregate cost of purchases and proceeds from sales of securities other
than short-term obligations for the year ended June 30, 1995, were:
Fund Purchases Sales
--------- ---------
Limited Maturity Income Fund $ 17,876 $ 25,073
Government Income Fund 91,802 101,251
Intermediate Bond Fund 461,283 450,049
Income Fund 116,249 96,993
At June 30, 1995, unrealized appreciation and depreciation of investments on a
tax basis and the cost of investments for financial reporting purposes and for
federal income tax purposes were as follows:
Cost of Investments
Net Federal
Appreciation Financial Income
Fund Appreciation Depreciation (Depreciation) Reporting Tax
--------- -------- --------- -------- --------
Limited Maturity Income Fund $ 71 $ 337 $ (266) $ 27,904 $ 27,904
Government Income Fund 1,665 273 1,392 36,905 36,906
Intermediate Bond Fund 7,431 2,812 4,619 303,223 303,258
Income Fund 7,661 792 6,869 167,596 167,617
Financial Highlights
Limited Maturity Income 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,
1993(a) 1994 1995
------- ------- -------
Net Asset Value, Beginning of Period $10.00 $ 10.01 $ 9.61
------ ------- -------
Income From Investment Operations
Net investment income .12 .47 .56
Net realized and unrealized gains (losses)
on investments .01 (.40) .09
------ ------- -------
Total from investment operations .13 .07 .65
Distributions from net investment income (.12) (.47) (.56)
------ ------- -------
Net Asset Value, End of Period $10.01 $ 9.61 $ 9.70
========= ========= =========
Ratio of net expenses to average net assets (b) 0.45%* 0.45% 0.45%
Ratio of net investment income to average
net assets (c) 4.18%* 4.81% 5.83%
Portfolio turnover rate 20%** 122% 64%
Total return (c) 1.43%** 0.66% 6.96%
Net assets, end of period (000s) $7,619 $35,383 $27,907
<FN>
*Annualized
**Not annualized
(a) The Fund commenced operations on March 11, 1993.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this ratio would
have been 3.63 percent for the period ended June 30, 1993 and 1.14
and 1.27 percent for the years ended June 30, 1994, and June 30, 1995,
respectively.
(c) Computed giving effect to investment adviser's expense
limitation undertaking.
Financial Highlights Continued
Government Income Fund
Selected per-share data (for a share outstanding throughout each period),
ratios and supplemental data.
Period
Ended
June 30, Years Ended June 30,
1986(a) 1987 1988 1989 1990
------- ------- ------- ------- -------
Net Asset Value, Beginning of Period $ 10.00 $ 10.10 $ 9.79 $ 9.59 $ 9.77
------- ------- ------- ------- -------
Income From Investment Operations
Net investment income .24 .72 .74 .78 .76
Net realized and unrealized gains (losses)
on investments .10 (.31) (.15) .18 (.11)
------- ------- ------- ------- -------
Total from investment operations .34 .41 .59 .96 .65
------- ------- ------- ------- -------
Distributions
Net investment income (.24) (.72) (.74) (.78) (.76)
Net realized capital gains -- -- (.05) -- --
In excess of realized gains -- -- -- -- --
------- ------- ------- ------- -------
Total distributions (.24) (.72) (.79) (.78) (.76)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.10 $ 9.79 $ 9.59 $ 9.77 $ 9.66
========= ========= ========= ========= =========
Ratio of net expenses to average net assets (b) 1.00%* 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average
net assets (c) 7.61%* 7.13% 7.68% 8.19% 7.90%
Portfolio turnover rate 91%** 205% 237% 239% 181%
Total return (c) 3.35%** 4.01% 6.35% 1.61% 6.92%
Net assets, end of period (000s) $11,970 $22,656 $26,859 $32,011 $46,853
Years Ended June 30,
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
Net Asset Value, Beginning of Period $ 9.66 $ 9.81 $ 10.40 $ 10.46 $ 9.48
------- ------- ------- ------- -------
Income From Investment Operations
Net investment income .75 .72 .64 .56 .62
Net realized and unrealized gains (losses)
on investments .15 .59 .31 (.77) .37
------- ------- ------- ------- -------
Total from investment operations .90 1.31 .95 (.21) .99
------- ------- ------- ------- -------
Distributions
Net investment income (.75) (.72) (.64) (.56) (.62)
Net realized capital gains -- -- (.25) (.01) --
In excess of realized gains -- -- -- (.20) --
------- ------- ------- ------- -------
Total distributions (.75) (.72) (.89) (.77) (.62)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.81 $ 10.40 $ 10.46 $ 9.48 $ 9.85
========= ========= ========= ========= =========
Ratio of net expenses to average net assets (b) 1.00% 0.99% 0.95% 0.98% 1.00%
Ratio of net investment income to average
net assets (c) 7.65% 7.05% 6.25% 5.49% 6.56%
Portfolio turnover rate 136% 139% 170% 167% 225%
Total return (c) 9.61% 13.75% 9.60% (2.26%) 10.94%
Net assets, end of period (000s) $49,952 $58,978 $61,591 $45,836 $37,280
<FN>
*Annualized
**Not annualized
(a) The Fund commenced operations on March 5, 1986.
(b) If the Fund had paid all of its expenses and there had been
no reimbursement by the investment adviser, this ratio would have
been 3.33 percent for the period ended June 30, 1986, and 1.44, 1.37,
1.21 and 1.07 percent for the years ended June 30, 1987 through 1990,
respectively, and 1.09 percent for the year ended June 30, 1995.
(c) Computed giving effect to investment adviser's expense
limitation undertaking.
Financial Highlights Continued
Intermediate Bond Fund
Selected per-share data (for a share outstanding throughout each year),
ratios and supplemental data.
Years Ended June 30,
1986 1987 1988 1989 1990
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Year $ 8.89 $ 9.92 $ 8.77 $ 8.51 $ 8.65
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income .84 .74 .68 .74 .73
Net realized and unrealized gains (losses)
on investments 1.03 (.41) (.12) .14 (.28)
-------- -------- -------- -------- --------
Total from investment operations 1.87 .33 .56 .88 .45
-------- -------- -------- -------- --------
Distributions
Net investment income (.84) (.74) (.68) (.74) (.72)
Net realized capital gains -- (.74) (.14) -- --
In excess of realized gains -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions (.84) (1.48) (.82) (.74) (.72)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 9.92 $ 8.77 $ 8.51 $ 8.65 $ 8.38
========= ========= ========= ========= =========
Ratio of expenses to average net assets (a) 0.69% 0.68% 0.73% 0.73% 0.74%
Ratio of net investment income to average net
assets (b) 9.03% 7.94% 7.97% 8.71% 8.60%
Portfolio turnover rate 334% 230% 273% 197% 296%
Total return (b) 21.90% 3.40% 6.92% 10.97% 5.33%
Net assets, end of year (000s) $183,440 $188,674 $162,225 $165,056 $161,439
Years Ended June 30,
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Year $ 8.38 $ 8.53 $ 8.99 $ 9.26 $ 8.44
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income .69 .69 .65 .56 .58
Net realized and unrealized gains (losses)
on investments .16 .46 .27 (.59) .23
-------- -------- -------- -------- --------
Total from investment operations .85 1.15 .92 (.03) .81
-------- -------- -------- -------- --------
Distributions
Net investment income (.70) (.69) (.65) (.56) (.58)
Net realized capital gains -- -- -- (.08) --
In excess of realized gains -- -- -- (.15) --
-------- -------- -------- -------- --------
Total distributions (.70) (.69) (.65) (.79) (.58)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 8.53 $ 8.99 $ 9.26 $ 8.44 $ 8.67
========= ========= ========= ========= =========
Ratio of expenses to average net assets (a) 0.73% 0.70% 0.67% 0.70% 0.70%
Ratio of net investment income to average net
assets (b) 8.17% 7.87% 7.22% 6.20% 6.94%
Portfolio turnover rate 239% 202% 214% 206% 162%
Total return (b) 10.62% 14.02% 10.59% (0.47%) 10.11%
Net assets, end of year (000s) $184,444 $242,948 $311,728 $302,507 $301,733
<FN>
(a) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have
been 0.71 percent for the year ended June 30, 1995.
(b) Computed giving effect to investment adviser's expense
limitation undertaking.
Financial Highlights Continued
Income Fund
Selected per-share data (for a share outstanding throughout each
period), ratios and supplemental data.
Period
Ended
June 30, Years Ended June 30,
1986(a) 1987 1988 1989 1990
------- ------- ------- -------- -------
Net Asset Value, Beginning of Period $ 10.00 $ 9.94 $ 9.71 $ 9.60 $ 9.65
------- ------- ------- -------- -------
Income From Investment Operations
Net investment income .30 .98 .95 .95 .92
Net realized and unrealized gains (losses)
on investments (.06) (.23) (.11) .05 (.70)
------- ------- ------- ------- -------
Total from investment operations .24 .75 .84 1.00 .22
Distributions from net investment income (.30) (.98) (.95) (.95) (.92)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.94 $ 9.71 $ 9.60 $ 9.65 $ 8.95
========= ========= =================== =========
Ratio of net expenses to average net assets (b) 1.00%* 0.96% 0.91% 0.90% 0.93%
Ratio of net investment income to average net
assets (c) 10.07%* 9.90% 10.08% 9.97% 10.02%
Portfolio turnover rate 84%** 153% 158% 94% 90%
Total return 2.42%** 7.70% 9.38% 11.06% 2.48%
Net assets, end of period (000s) $32,034 $91,916 $96,611 $110,376 $89,023
Years Ended June 30,
1991 1992 1993 1994 1995
------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 8.95 $ 8.95 $ 9.51 $ 10.10 $ 9.36
------- -------- -------- -------- --------
Income From Investment Operations
Net investment income .80 .76 .75 .69 .71
Net realized and unrealized gains (losses)
on investments -- .56 .59 (.74) .43
------- -------- -------- -------- --------
Total from investment operations .80 1.32 1.34 (.05) 1.13
Distributions from net investment income (.80) (.76) (.75) (.69) (.71)
------- -------- -------- -------- --------
Net Asset Value, End of Period $ 8.95 $ 9.51 $ 10.10 $ 9.36$ 9.79
======== ========= ========= ========= =========
Ratio of net expenses to average net assets (b) 0.95% 0.90% 0.82% 0.82% .82%
Ratio of net investment income to average net
assets (c) 8.98% 8.20% 7.62% 6.94% 7.55%
Portfolio turnover rate 77% 76% 39% 53% 64%
Total return 9.30% 15.30% 14.64% (0.69%) 12.79%
Net assets, end of period (000s) $93,952 $112,706 $151,594 $158,886 $174,327
<FN>
*Annualized
**Not annualized
(a) The Fund commenced operations on March 5, 1986.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 2.01
percent for the period ended June 30, 1986 and 0.83 and 0.85 percent for the
years ended June 30, 1994, and June 30, 1995, respectively.
(c) Computed giving effect to investment adviser's expense limitation
undertaking.
Report of Independent Auditors
To the Shareholders and Board of Trustees of SteinRoe Income Trust
SteinRoe Limited Maturity Income Fund
SteinRoe Government Income Fund
SteinRoe Intermediate Bond Fund
SteinRoe Income Fund
We have audited the accompanying balance sheets, including the schedules of
investments, of SteinRoe Limited Maturity Income Fund, SteinRoe Government
Income Fund, SteinRoe Intermediate Bond Fund and SteinRoe Income Fund as of
June 30, 1995, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights of SteinRoe Government Income Fund and
SteinRoe Intermediate Bond Fund for the periods subsequent to June 30, 1987,
and the financial highlights of SteinRoe Limited Maturity Income Fund and
SteinRoe Income Fund since inception. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of June 30, 1995, 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 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
SteinRoe Limited Maturity Income Fund, SteinRoe Government Income Fund,
SteinRoe Intermediate Bond Fund, and SteinRoe Income Fund at June 30, 1995,
and 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.
Ernst & Young LLP
Chicago, Illinois
August 9, 1995
A Guide to SteinRoe Services
We encourage you to take advantage of our free shareholder services. If you
would like additional information about how to establish or use a SteinRoe
service, just call us at 1 800 338-2550.
Purchases
In addition to sending us a check or wire to purchase additional fund shares,
you can take advantage of these convenient automatic services:
* Automatic Investment Plan -- Make regular investments ($50 minimum) in your
SteinRoe account directly from your bank checking account. You select monthly,
quarterly, semiannual or annual purchases.
* Special Investments -- Purchase shares by telephone and pay for them by
electronic transfer from your bank checking account.
Exchanges
* Telephone Exchange -- Call us to exchange $1,000 or more from your account
in one SteinRoe Fund to an identically registered account in another SteinRoe
Fund. You receive this service when you open a SteinRoe Fund account, unless
you elect not to.*
* Automatic Exchange -- SteinRoe will regularly exchange shares
from your account in one SteinRoe Fund to your account in another. You select
twice-monthly, monthly, quarterly, semiannual or annual exchanges.
Redemptions
* Telephone Redemption by Check -- Call to redeem $1,000 or more from your
account. A check will be sent to your registered address. You automatically
receive this service when you open a SteinRoe account, unless you elect not
to.
* Telephone Redemption by Wire -- Redeem shares by phone from your Money
Market Fund account ($1,000 minimum) and wire the proceeds to your bank
checking account. A small fee for wiring proceeds will be deducted from
the amount wired.
* Special Redemption Option -- If you do not want to pre-schedule your
redemptions, you can redeem shares by telephone ($50 minimum/ $100,000
maximum) and have the proceeds sent directly to your bank checking account.
* Automatic Redemption Plan -- Redeem either a fixed dollar or
share amount, or a fixed percentage of your account automatically on a
schedule you establish. You select monthly, quarterly, semiannual or annual
withdrawals ($50 minimum/ $100,000 maximum), and the proceeds are sent either
to your bank checking account or to an address you specify.
* Money Market Fund Check
Writing -- Write checks for $50 or more on your Money Market Fund account.
Distributions
Most investors like to reinvest their dividends and capital gains
distributions and put them back to work. If, however, you do not want them
reinvested, consider these alternatives:
* Dividend Purchase Option -- Use the distributions from one SteinRoe Fund
account ($25 minimum) to automatically purchase shares in your account with
another SteinRoe Fund.
* Automatic Dividend Deposit -- Instead of receiving your dividends by check,
your distributions are deposited automatically into your bank checking
account.
Recordkeeping
* Summary of Investments -- Consolidates quarterly transaction and
investment information for any or all of your household's SteinRoe accounts on
one easy-to-read statement. At year end, SteinRoe provides a complete summary
of all account activity for the year.
*SteinRoe reserves the right to discontinue or modify the exchange privilege,
and certain restrictions apply. Please refer to your prospectus for details.
Funds for Every Investment Objective
The SteinRoe family of 100 percent no-load mutual funds offers a variety of
funds so you can select the right fund, or combination of funds, to meet your
investment objectives. Call us at 1 800 338-2550 for a prospectus and more
complete information on any of the funds, including management fees and
expenses. Please read the prospectus carefully before you invest or send
money.
Money Market Funds
Money market funds seek to provide income while preserving principal and
maintaining liquidity. These funds offer free check writing.
* Government Reserves -- Invests primarily in securities issued or guaranteed
by the U.S. government and its agencies and instrumentalities.*
* Cash Reserves -- Invests in high-quality, short-term money market
securities such as certificates of deposit, banker's acceptances and
commercial paper.*
Bond Funds
Bond funds seek high current income by investing primarily in fixed income
securities.
* Limited Maturity Income Fund -- Invests primarily in U.S. government and
other high-quality debt securities. The dollar-weighted average effective
maturity will not exceed three years.
* Government Income Fund -- Invests primarily in securities issued or
guaranteed by the U.S. government and its agencies.*
* Intermediate Bond Fund -- Invests primarily in marketable debt securities
with an average life of three to ten years.
* Income Fund -- Pursues a higher level of current income by investing
primarily in medium- and lower-quality bonds.
Tax-Exempt Funds
These funds help investors keep more of their earnings by investing in
instruments that earn income free from federal income tax. Income may be
subject to federal alternative minimum tax and state and local taxes; capital
gains are subject to state, local and federal taxes.
* Municipal Money Market Fund -- Seeks to provide the liquidity and stability
of a money market fund plus current tax-free income. Free check writing
available.*
* Intermediate Municipals -- Seeks high current yield through investments
primarily in the three highest grades of intermediate-term municipal
securities.
* Managed Municipals -- Pursues high tax-free income by investing in a
quality-conscious portfolio of long-term municipal bonds.
* High-Yield Municipals -- Seeks a higher level of tax-free income from
long-term municipal securities, primarily of medium or lower quality.
Growth and Income Funds
These funds seek to provide a conservative investment that is well positioned
for long-term growth and current income. Each fund's approach is designed to
limit the effects of market volatility.
* Total Return Fund -- Strives for maximum total return consistent with
reasonable investment risk by investing in stocks, bonds and convertible
securities.
* Prime Equities -- Pursues long-term capital growth by investing primarily
in large, well-established companies.
Growth Funds
Growth funds offer long-term capital appreciation potential by investing
primarily in various types of stocks.
* Growth Stock Fund -- Pursues long-term capital appreciation from stocks
with strong growth potential.
* Special Fund -- Invests in securities believed to have limited downside
risk relative to their potential for above-average growth, including
securities of undervalued, underfollowed or out-of-favor companies.
* Special Venture Fund -- Seeks capital appreciation through equity
securities of entrepreneurially managed companies.
* Young Investor Fund -- Invests in securities of companies that affect the
lives of children or teenagers.
* Capital Opportunities Fund -- Takes a long-term approach to emerging growth
by selecting quality companies with the potential to generate high levels of
earnings growth over a three- to five-year period.
* International Fund -- Invests in a diversified portfolio of foreign
securities.
*Money market mutual funds strive to maintain a $1 per share net asset value,
but there is no assurance that the fund will be able to maintain a stable net
asset value. The net asset value of a fund that invests in securities issued
or guaranteed by the U.S. government is not guaranteed.
To Contact Us. . .
By Phone 1 800 338-2550
You can discuss your investment questions with a SteinRoe account
representative by calling us toll free. We'll be happy to answer questions
about your current account, or to provide you with information about opening a
SteinRoe Fund account, including SteinRoe IRAs. We're available seven days a
week, from 7 a.m. to 8 p.m. weekdays and from 8 a.m. to 5 p.m. Saturday and
Sunday (central time).
SteinRoe's Funds-on-Call(R)
24-Hour Service Line
Using a touch-tone phone, call our toll-free number, day or night, for your
current account balance, the latest SteinRoe Fund prices and yields, and other
information. In addition, if you have a Personal Identification Number (PIN),
you may place orders for the following transactions 24 hours a day:
* Exchange shares between your SteinRoe accounts;
* Purchase Fund shares by electronic transfer;
* Order additional account statements and Money Market Fund checks;
* Redeem shares by check, wire or electronic transfer.
Please contact an account representative if you would like to apply for a PIN.
Retirement Plan Accounts
Call us for information about how we can assist you with your defined
contribution plan, including 401(k) plans. You can reach us toll free at
1 800 322-1130.
By Mail
If you prefer to contact us by mail, please address all correspondence to:
P.O. Box 804058, Chicago, IL 60680.
In Person
If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive, 32nd Floor. Our account
representatives can answer questions about your current Fund investments or
provide you information about any of the SteinRoe Funds and retirement plans.
Stop by weekdays between 8 a.m. and 5:15 p.m.
This report must be preceded or accompanied by a prospectus.
Income Trust
Trustees
Timothy K. Armour
President of Mutual Fund Division and Director of Stein Roe & Farnham
Incorporated
Kenneth L. Block
Chairman Emeritus, A. T. Kearney, Inc.
William W. Boyd
Chairman and Director of Sterling
Plumbing Group, Inc.
Lindsay Cook
Senior Vice President of Liberty Financial Companies, Inc.
Francis W. Morley
Chairman, Employer Plan Administrators
and Consultants Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy, University of Washington
Gordon R. Worley
Private investor
Officers
Timothy K. Armour, President
Jilaine H. Bauer, Executive Vice President,
Secretary
N. Bruce Callow, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Ann H. Benjamin, Vice President
Thomas W. Butch, Vice President
Philip D. Hausken, Vice President
Michael T. Kennedy, Vice President
Stephen P. Lautz, Vice President
Steven P. Luetger, Vice President
Lynn C. Maddox, Vice President
Anne E. Marcel, Vice President
Jane M. Naeseth, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Thomas P. Sorbo, Vice President
Sharon R. Robertson, Controller
Margaret O. Zwick, Treasurer
Janet B. Rysz, Assistant Secretary
Agents and Advisers
Stein Roe & Farnham Incorporated
Investment Adviser
State Street Bank and Trust Company
Custodian
SteinRoe Services Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Trust
Ernst & Young LLP
Independent Auditors
Graphic SteinRoe Logo
The SteinRoe Funds
SteinRoe Government Reserves
SteinRoe Cash Reserves
SteinRoe Limited Maturity Income Fund
SteinRoe Government Income Fund
SteinRoe Intermediate Bond Fund
SteinRoe Income Fund
SteinRoe Municipal Money Market Fund
SteinRoe Intermediate Municipals
SteinRoe Managed Municipals
SteinRoe High-Yield Municipals
SteinRoe Total Return Fund
SteinRoe Prime Equities
SteinRoe Young Investor Fund
SteinRoe Growth Stock Fund
SteinRoe Capital Opportunities Fund
SteinRoe Special Fund
SteinRoe Special Venture Fund
SteinRoe International Fund
P.O. Box 804058
Chicago, Illinois 60680
1 800 338-2550
In Chicago, visit our Investor Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
Member, SIPC
8/95
20009