-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VmXPyiSvI12FirTDYzYJk8tnPD1c7S5UmlQn2h8CPl3eekWy2fki1qF8VMK7VVVz NpK7OcO0CVfEd/xqrJCQnw== 0000891804-00-000427.txt : 20000307 0000891804-00-000427.hdr.sgml : 20000307 ACCESSION NUMBER: 0000891804-00-000427 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY STEIN ROE FUNDS INSTITUTIONAL TRUST CENTRAL INDEX KEY: 0001020521 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 364112276 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07823 FILM NUMBER: 559533 BUSINESS ADDRESS: STREET 1: ONE SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123687836 MAIL ADDRESS: STREET 1: ONE SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 N-30D 1 INSTITUTIONAL CLIENT HIGH YIELD FUND STEIN ROE MUTUAL FUNDS SEMIANNUAL REPORT DECEMBER 31, 1999 [PHOTO OF BONDS] STEIN ROE FIXED INCOME FUND TAXABLE BOND FUND INSTITUTIONAL CLIENT HIGH YIELD FUND LOGO: STEIN ROE MUTUAL FUNDS Sensible Risks. Intelligent Investments.(R) CONTENTS - -------------------------------------------------------------------------------- PERFORMANCE................................................................ 1 How the Institutional Client High Yield Fund has done over time QUESTIONS & ANSWERS........................................................ 2 Interview with the portfolio manager and summary of investment activity PORTFOLIO OF INVESTMENTS................................................... 4 A complete list of investments with market values FINANCIAL STATEMENTS....................................................... 8 Statements of assets and liabilities, operations and changes in net assets NOTES TO FINANCIAL STATEMENTS.............................................. 14 FINANCIAL HIGHLIGHTS....................................................... 16 Selected per-share data Must be preceded or accompanied by a prospectus. FUND PERFORMANCE - -------------------------------------------------------------------------------- One way to evaluate a fund's historical performance is to look at the cumulative return percentage, the average annual total return percentage or the growth of a hypothetical $10,000 investment. Below we compare the returns of the Stein Roe Institutional Client High Yield Fund with its unmanaged benchmark and its peer group. Each performance figure includes changes in a fund's share price, reinvestment of dividends (net investment income) and capital gains, if any (the taxable profits a fund earns when it sells bonds that have grown in value).
CUMULATIVE SIX-MONTH AND AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1999 - -------------------------------------------------------------------------------------------------------------------- Life 6 Months 1 Year of Fund(1) - -------------------------------------------------------------------------------------------------------------------- STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND 2.83% 8.98% 9.49% Merrill Lynch High Yield Master II Index 0.02% 2.51% 5.64% Lipper High Current Yield Fund Average (Peer Group) 0.93% 4.53% 4.37% Number of Funds in Lipper Peer Group 352 339 190
(1) Index and Lipper performance is from Feb. 28, 1997. INVESTMENT COMPARISON - -------------------------------------------------------------------------------- COMPARISON of change in value of a $10,000 investment. GRAPH DATA Institutional Client Merrill Lynch High High Yield Fund Yield Master II Index 2/28/97 10079 10000 3/31/97 9898 9863 10052 9989 10371 10199 6/30/97 10546 10357 10852 10631 10847 10619 9/30/97 11100 10810 11010 10865 11128 10967 12/31/97 11351 11072 11587 11249 11782 11294 3/31/98 12075 11401 12177 11450 12137 11519 6/30/98 12117 11579 12326 11652 11346 11064 9/30/98 11380 11093 11268 10856 11886 11419 12/31/98 11909 11399 12181 11553 12235 11474 3/31/99 12527 11607 12794 11820 12587 11711 6/30/99 12624 11682 12684 11698 12480 11574 9/30/99 12425 11528 12426 11465 12738 11615 12/31/99 12877 11685 PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. An expense limitation of .50% is currently in effect for Institutional Client High Yield Fund, which began operating on Feb. 14, 1997. Returns would have been lower without the limitation. Total return includes changes in share price and reinvestment of income and capital gains distributions. Each index shown above is an unmanaged group of fixed-income securities that differs from the composition of each Stein Roe fund; they are not available for direct investment. Source of data: Lipper, Inc., a monitor of mutual fund performance; Bloomberg; Liberty Funds Distributor, Inc. QUESTIONS & ANSWERS - --------------------------------------------------------------------------- AN INTERVIEW WITH STEVE LOCKMAN, PORTFOLIO MANAGER OF STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND AND SR&F HIGH YIELD PORTFOLIO FUND DATA INVESTMENT OBJECTIVE: Seeks high current income and capital appreciation by investing principally in high-yield, high-risk, medium and lower-quality debt securities. Q: DISCUSS THE FUND'S RETURN FOR THE PERIOD. A: For the six-month period ended December 31, 1999, the Stein Roe Institutional Client High Yield Fund returned 2.83%, while the Merrill Lynch High Yield Master II Index showed a mere 0.02% increase. Q: WHAT STRATEGIES KEPT YOU AHEAD IN SUCH A DIFFICULT HIGH YIELD BOND MARKET? A: Our strategy starts with research. Primarily we look for value and quality in the companies we buy. Digging deeper, we look at the entire infrastructure of the industry and what could affect the issue over time. With this strategy, we strive to uncover high value purchases, and don't focus on "hot" or potentially volatile ideas that other investors may be chasing. We also "rebuy" our Portfolio every day. By this I mean that every day we look at our Portfolio and confirm or deny our confidence on the issues we hold. I stress to my analysts that it's better to pay attention to what we own rather than don't own and watch for declines in the issues we favor. This is how we have consistently avoided defaults and maintained high quality holdings. I should note that out of the Fund's return of 2.83% for the six months ended December 31, 1999, 0.42% (or 14.8% of the Fund's return for the period) was attributable to short-term investments in initial public offerings of common stocks of companies that had issued bonds purchased by the Portfolio. While the Fund was able to take advantage of these opportunities in this period, such investments are not part of the Fund's principal investment strategy. Because the Fund may not have such opportunities in the future, returns from such investments should not be considered sustainable. Q: WHAT WENT ON IN THE HIGH-YIELD MARKET DURING THE PERIOD? A: There were an extremely high number of defaults in the market, and low demand was evidenced by strong mutual fund outflows in the category. Liquidity dried up and restricted supply, as companies could not find a market to place their debt. We focused our purchases in companies that had liquidity, primarily companies with several underwriters and otherwise strong financial backing. Q: WHAT OTHER REPOSITIONING DID YOU DO DURING THE SIX-MONTH PERIOD? A: We made adjustments so that the Portfolio was less interest rate sensitive as interest rates increased. We reduced our holdings in BB-rated bonds because that category has shown more duration sensitivity and thus was affected by the higher rates. Zero-coupon bonds outperformed during the period, especially in the media and telecommunications sector. We held a strong position during the period, and this contributed to our performance. We increased our exposure to chemicals when we saw a valley in chemical prices. We increased our allocation to supermarket bonds, avoiding the poor performers in that arena. We increased our exposure to the telecommunications area, focusing, as we do with all purchases, on companies with business plans that are fully funded. We look for companies that have financial backing, are not topping out their credit limits, have good management, and dedicated investors. We were not heavily invested in deep cyclical industries such as steel, paper, forestry and metals because we do not favor their volatility. However these bonds all performed well during the period. Q: THE MEDIA/TELECOMMUNICATIONS SECTOR CONTINUES TO BE A MAJOR FOCUS FOR THE PORTFOLIO. CAN YOU TELL US WHY THIS AREA IS SO IMPORTANT? A: This area is not only vital to the Portfolio, but the entire high-yield market. Media/telecommunications bonds made up more than 35% of the total high-yield bond market's issues in 1999, and at the end of the period held more than 40% of the Portfolio's assets. The sector has tremendous growth potential as telecommunications services expand throughout the world, shaping the way people live and do business. The large amount of capital dedicated to the industry's growth and merger activity both supported the total return of the market as a whole. In this sector, we avoided negative performing sectors such as movie theaters and satellite companies. Although satellite companies offered high yield and much promise in the ability to allow cellular service to anywhere in the world, their technology was not perfected, and therefore, in our opinion, was too risky for our lower-volatility philosophy. Several telecommunications purchases were in European companies. The European telecommunications and wireless markets have abundant growth potential as the previously government-run utilities are being sold off. This allowed for competition in European telecommunications for the first time in history. Amid this booming growth is the QUESTIONS & ANSWERS CONTINUED - --------------------------------------------------------------------------- underlying element of a need for infrastructure and bandwidth in order for service to reach expanded markets. For that reason, we focus on companies that have that foresight and, whether on their own or through alliances, are helping the entire industry expand. Q: WHAT MOTIVATED YOUR ALLOCATION TO THE INVESTMENT-GRADE BOND SECTOR THIS PERIOD? A: We have the ability to make purchases in investment-grade bonds, and we take advantage of this on occasions when we find attractive purchases. We bought a few investment grade bonds that displayed unique relative value while interest rates increased. Q: WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF THE FISCAL YEAR? A: What will transpire in the high-yield market for the remainder of the year is dependent on domestic and worldwide economies. We anticipate interest rate increases and will monitor their affects on margin pressures and corporate cash flows. Further recovery out of Asia and Latin America would support worldwide economic recovery through the remainder of the fiscal year. The companies that will most likely be in favor are those that have the resources to generate internal financing, those that can retain quality employees, and those that will realize productivity gains from improvements in the worldwide economy. Focusing on these companies may lead us to upgrade the quality of the bonds we own. We plan to maintain a cautious position with a moderate amount of cash until we have confirmation of corporate earnings growth and low inflation. The high-yield market will need to experience a positive flow of mutual fund investments to turn around. If there is demand, the new issue calendar should provide a strong amount of supply to the market. We also believe the default rate may have reached a peak. Now that the media/telecommunications sector has done so well, we might lower our weighting there and dedicate more assets to coupon bonds. Zero coupons have had a strong run and higher interest rates may prevent them from narrowing versus coupon bonds going forward. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Total return includes changes in share price and reinvestment of income and capital gains distributions. Portfolio holdings are as of 12/31/99 and are subject to change. Investing in high yield bonds involves greater credit and other risks not associated with investing in higher-quality bonds. Foreign investments involve market, political, accounting and currency risks not associated with other investments. The Merrill Lynch High Yield Master II Index is an unmanaged group of bonds that vary in quality; it is not available for direct investment. Source of Lipper data: Lipper, Inc.
SR&F HIGH YIELD PORTFOLIO - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio of Investments at December 31, 1999 (Unaudited) (All amounts in thousands) LONG-TERM OBLIGATIONS 93.4% Par Value - ------------------------------------------------------------------------------------------------------------------------------------ AEROSPACE AND MILITARY TECHNOLOGY 3.8% BE Aerospace: 9.500% 11/01/08............................................................................... $ 750 $ 705 10.750% 07/15/08.............................................................................. 1,000 870 Derlan Manufacturing (Yankee Issue) 10.000% 01/15/07............................................. 583 576 Fairchild Corp. 10.750% 04/15/09 ................................................................ 1,000 850 Level 3 Communications Series B 10.375% 05/01/07 (a)............................................. 1,000 605 ---------- 3,606 AUTOMOTIVE 2.3% Budget Group 9.125% 04/01/06..................................................................... 1,500 1,395 Penda Series B 10.750% 03/01/04.................................................................. 800 760 ---------- 2,155 BANKING 1.3% Sovereign Bank 10.500% 11/15/06.................................................................. 1,250 1,271 BUILDING AND CONSTRUCTION 3.3% Beazer Homes USA 8.875% 04/01/08................................................................. 1,000 925 D R Horton 8.000% 02/01/09....................................................................... 1,500 1,380 PYCSA Panama 10.280% 12/15/12 (a)................................................................ 1,469 881 ---------- 3,186 BUSINESS SERVICES 2.1% Penhall Acquisition 12.000% 08/01/06 ............................................................ 1,000 1,010 Nationsrent 10.375% 12/15/08..................................................................... 1,000 978 ---------- 1,988 CABLE AND MEDIA 2.5% Charter Communication (b) (Yield to Maturity 4.094%) 04/01/11.................................... 2,500 1,466 Perry-Judd 10.625% 12/15/07...................................................................... 1,000 880 ---------- 2,346 CHEMICALS 2.7% Biovail Corporation International 10.875% 11/15/05 .............................................. 1,000 1,050 Metromedia Fiber Network 10.000% 12/15/09........................................................ 1,500 1,530 ---------- 2,580 COAL MINING 1.0% AEI Resources 11.500% 12/15/06 (a)............................................................... 1,500 975 COMPUTER EQUIPMENT 4.0% Axia 10.750% 07/15/08............................................................................ 1,500 1,376 Rhythms Netconn 12.750% 04/15/09 ................................................................ 1,500 1,448 Voicestream Wire 10.375% 11/15/09................................................................ 1,000 1,030 ---------- 3,854 CONTAINERS 0.5% Allied Waste N.A. 10.000% 08/01/09 (a)........................................................... 500 445 CONSUMER PRODUCTS 1.1% Sleepmaster 11.000% 05/15/09 (a)................................................................. 1,000 1,001 FINANCIAL 1.5% TPSA Finance 7.750% 12/10/08..................................................................... 1,500 1,400 SR&F HIGH YIELD PORTFOLIO Continued - ------------------------------------------------------------------------------------------------------------------------------------ Par Value - ------------------------------------------------------------------------------------------------------------------------------------ FOOD AND BEVERAGES 3.7% Marsh Supermarket Series B 8.875% 08/01/07....................................................... $ 1,000 $ 970 Pepsi-Gemex Series B (Yankee Issue) 9.750% 03/30/04.............................................. 1,000 998 Stater Brothers Holdings 10.750% 08/15/06........................................................ 1,500 1,515 ---------- 3,483 HEALTH SERVICES AND EQUIPMENT 3.9% Express Scripts 9.625% 06/15/09 ................................................................. 1,500 1,523 Hanger Orthopedic Group 11.250% 06/15/09 ........................................................ 1,000 1,028 Insight Health Services Series B 9.625% 06/15/08................................................. 1,250 1,175 ---------- 3,726 HOSPITALS AND NURSING HOME CARE 3.3% Lifepoint Hospitals 10.750% 05/15/09 ............................................................ 2,000 2,075 Triad Hospitals 11.000% 05/15/09 ................................................................ 1,000 1,035 ---------- 3,110 HOTELS AND ENTERTAINMENT 7.2% Boyd Gaming 9.500% 07/15/07...................................................................... 750 742 Horseshoe Gaming 8.625% 05/15/09 ................................................................ 1,500 1,444 Mohegan Tribal Gaming 8.750% 01/01/09............................................................ 1,500 1,489 Premier Parks: 9.250% 04/01/06............................................................................... 250 246 9.750% 01/15/07............................................................................... 250 256 (b) (Yield to Maturity 4.939%) 04/01/08....................................................... 1,750 1,207 Prime Hospitality Series B 9.750% 04/01/07....................................................... 1,490 1,445 ---------- 6,829 INDUSTRIAL 2.7% Chippac International 12.750% 08/01/09 (a)....................................................... 1,500 1,575 Companhia Petrolifera Marlim 13.125% 12/17/04 (a)................................................ 1,000 1,030 ---------- 2,605 INTERNET SERVICES 4.5% Concentric Network 12.750% 12/15/07 (a).......................................................... 1,500 1,575 ICG Services (b) (Yield to Maturity 4.884%) 05/01/08............................................. 2,250 1,166 PSINet 10.000% 02/15/05.......................................................................... 1,500 1,485 ---------- 4,226 LEISURE PRODUCTS 0.4% Boyds Collection 9.000% 05/15/08 ................................................................ 448 419 MANUFACTURING 0.6% Westinghouse Air Brake 9.375% 06/15/05 .......................................................... 600 600 METALS AND STEEL 1.8% LTV Corp. 11.750% 11/15/09 (a)................................................................... 1,000 1,050 Republic Technologies International 13.750% 07/15/09 (a)......................................... 1,000 660 ---------- 1,710 NONDEPOSITORY CREDIT INSTITUTION 0.9% Mego 1997-3 CTFS 8.010% 08/25/23................................................................. 1,000 806 OIL AND GAS 3.2% Key Energy Services 14.000% 01/15/09 ............................................................ 1,500 1,639 Lomac Petroleum 8.750 01/15/07................................................................... 1,500 1,376 ---------- 3,015 PAPER PRODUCTS 2.0% Buhrmann US Inc. 9.125% 11/01/09................................................................. 1,500 1,560 Indah Kiat Finance 10.000% 07/01/07.............................................................. 500 370 ---------- 1,930 SR&F HIGH YIELD PORTFOLIO Continued - ------------------------------------------------------------------------------------------------------------------------------------ Par Value - ------------------------------------------------------------------------------------------------------------------------------------ PRINTING AND PUBLISHING 2.0% World Color Press 8.375% 11/15/08 ............................................................... $ 2,000 $ 1,955 RESTAURANTS 0.3% AFC Enterprises 10.250% 05/15/07................................................................. 250 251 RUBBER, PLASTIC AND RELATED MATERIALS 1.3% Key Plastics Series B 10.250% 03/15/07........................................................... 500 190 Tekni-Plex 9.250% 03/01/08....................................................................... 1,000 1,015 ---------- 1,205 TELECOMMUNICATIONS 16.5% Carrier One 13.250% 02/15/09..................................................................... 1,000 1,020 Exodus Communications 10.750 12/15/09 (a)........................................................ 1,000 1,020 Focal Communications Series B (b) (Yield to Maturity 5.967%) 02/15/08 (a)........................ 2,000 1,320 Global Crossing 9.125% 11/15/06 (a).............................................................. 1,500 1,483 Globenet Communications 13.000% 07/15/07 (a)..................................................... 1,500 1,522 MGC Communications Series B 13.000% 10/01/04 .................................................... 1,000 1,005 Metronet Communications (Yankee Issue): 12.000% 08/15/07.............................................................................. 1,000 1,169 (b) (Yield to Maturity 6.132%) 06/15/08...................................................... 1,000 802 Nextlink Communications: 10.750% 06/01/09.............................................................................. 1,000 1,038 (b) (Yield to Maturity 6.034%) 06/01/09....................................................... 1,000 615 RCN Corp. 10.125% 02/15/05....................................................................... 1,500 1,498 Tele1 Europe 13.000% 05/15/09 (a)................................................................ 1,000 1,130 Versatel Communications 11.875% 07/15/09......................................................... 1,000 1,020 Viatel 11.250% 04/15/08.......................................................................... 1,000 1,005 ---------- 15,647 TELEPHONE 6.8% Allegiance Telecom Series B (b) (Yield to Maturity 5.870%) 02/15/08.............................. 1,500 1,087 BTI Telecom 10.500% 09/15/07 .................................................................... 1,000 920 Comtel Brasileira (Yankee Issue) 10.750% 09/26/04 (a)............................................ 250 243 Intermedia Communications Series B (b) (Yield to Maturity 6.046%) 03/01/09....................... 3,000 1,800 Knology Holdings (b) (Yield to Maturity 5.840%) 10/15/07......................................... 2,000 1,340 Primus Telecom 12.750% 04/15/09.................................................................. 1,000 1,040 ---------- 6,430 TEXTILE AND APPAREL 1.9% William Carter Series A 10.375% 12/01/06......................................................... 2,000 1,760 Transportation and Transportation Equipment 4.3% Atlas Air 9.375% 11/15/06 ....................................................................... 2,000 1,950 Holt Group 9.750% 01/15/06 ...................................................................... 1,000 650 Railworks 11.500% 04/15/09 ...................................................................... 1,500 1,519 ---------- 4,119 TOTAL LONG-TERM OBLIGATIONS (cost of $91,786)................................................................................ 88,633 - ------------------------------------------------------------------------------------------------------------------------------------ SR&F HIGH YIELD PORTFOLIO Continued - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK (C) 0.2% Shares Value - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS 0.2% Viatel Inc. (cost of $15).................................................................................... 4 $ 216 - ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCK 0.5% - ------------------------------------------------------------------------------------------------------------------------------------ TELEPHONE 0.5% 21st Century Telecom Group (a) (cost of $537)................................................................................... 1 521 - ------------------------------------------------------------------------------------------------------------------------------------ WARRANTS (C) 0.7% - ------------------------------------------------------------------------------------------------------------------------------------ INTERNET SERVICES 0.3% Concentric Network (a) (expires 12/15/07)........................................................ 1 250 OIL AND GAS 0.1% Key Energy Services (expires 01/15/09)........................................................... 2 38 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS 0.3% Carrier One (expires 02/15/09)................................................................... 1 20 Metronet Communications (a) (expires 08/15/07)................................................... 1 116 MGC Communications (a) (expires 10/01/04)........................................................ 1 175 ---------- 311 TELEPHONE 0.0% Allegiance Telecom (a) (expires 02/03/08)........................................................ 2 14 Knology Holdings (a) (expires 10/15/07)......................................................... 2 4 21st Century Telecommunications (a) (expires 02/15/10)........................................... 1 10 ---------- 28 TOTAL WARRANTS (cost of $20).................................................................................... 627 - ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM OBLIGATIONS 3.2% Par - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER 3.2% Associates Corp. of North America 5.600% 01/03/00 (cost of $3,029)................................................................................. $ 3,030 3,029 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS 98.0% (cost of $95,387) (d)............................................................................ 93,026 OTHER ASSETS, LESS LIABILITIES 2.0%.............................................................. 1,909 ---------- NET ASSETS 100.0%................................................................................ $ 94,935 ========== - ------------------------------------------------------------------------------------------------------------------------------------ NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- (a) Represents private placement securities issued under Rule 144A, which are exempt from the registration requirements requirements of the Securities Act of 1933. These securities generally are issued only to qualified institutional investors, and any resale must be in an exempt transaction, normally to other qualified institutional investors. At December 31, 1999, the aggregate value of the Portfolio's private placement securities was $19,071, which represented 20.1% of net assets. (b) Zero coupon bond. (c) Non income producing. (d) At December 31, 1999, the cost of investments for financial reporting and federal income tax purposes was identical. See accompanying Notes to Financial Statements.
SR&F HIGH YIELD PORTFOLIO - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 (Unaudited) (All amounts in thousands) ASSETS Investments, at market value (cost of $95,387).................... $ 93,026 Receivable for investments sold................................... -- Interest receivable............................................... 1,916 Dividend receivable............................................... 2 Cash.............................................................. 3 Variation margin on futures....................................... -- --------- Total assets................................................... 94,947 --------- LIABILITIES Payable for investments purchased................................. -- Other liabilities................................................. 12 --------- Total liabilities.............................................. 12 --------- Net assets applicable to investors' beneficial interest........ $94,935 ========= See accompanying Notes to Financial Statements. SR&F HIGH YIELD PORTFOLIO - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended December 31, 1999 (Unaudited) (All amounts in thousands) INVESTMENT INCOME Interest............................................................ $ 5,310 Dividend............................................................ 21 --------- Total income..................................................... 5,331 EXPENSES Management fees..................................................... 222 Transfer Agent fees................................................. 3 Accounting fees..................................................... 13 Trustees fees....................................................... 5 Custodian fees...................................................... -- Audit fees.......................................................... 8 Legal fees.......................................................... -- Other............................................................... 5 --------- Total expenses................................................... 256 --------- Net investment income............................................ 5,075 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments.................................... (1,923) Net change in unrealized appreciation/depreciation on investments... (496) --------- Net loss on investments.......................................... (2,419) --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $ 2,656 ========== See accompanying Notes to Financial Statements. SR&F High Yield Portfolio - -------------------------------------------------------------------------------- Statements of Changes in Net Assets (All amounts in thousands)
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1999 1999 ------------ ---------- OPERATIONS Net investment income ......................................................... $ 5,075 $ 7,208 Net realized gain (loss) on investments ....................................... (1,923) (632) Net change in unrealized appreciation/depreciation on investments ............. (496) (2,238) -------- -------- Net increase in net assets resulting from operations ....................... 2,656 4,338 -------- -------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST Contributions ................................................................. 43,820 51,100 Withdrawals ................................................................... (39,864) (45,602) -------- -------- Net increase from transactions in investors' beneficial interest ........... 3,956 5,498 -------- -------- Net increase in net assets ................................................. 6,612 9,836 NET ASSETS Beginning of period ........................................................... 88,323 78,487 -------- -------- End of period ................................................................. $ 94,935 $ 88,323 ======== ======== See accompanying Notes to Financial Statements.
STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 (Unaudited) (All amounts in thousands, except per-share data)
ASSETS Investment in SR&F High Yield Portfolio, at value .............................. $ 57,222 Cash ........................................................................... 44 Expense reimbursement due from Advisor ..................................................................... 54 Other .......................................................................... 12 -------- Total assets .............................................................. 57,332 -------- LIABILITIES Dividends payable .............................................................. 12 Total liabilities ......................................................... 12 -------- Net assets ................................................................ $ 57,320 ======== ANALYSIS OF NET ASSETS Paid-in capital ................................................................ $ 59,793 Undistributed net investment income ............................................ 138 Accumulated net realized loss on investments ................................... (1,180) Net unrealized depreciation on investments ..................................... (1,431) -------- Net assets ................................................................ $ 57,320 ======== Shares outstanding (unlimited number authorized) ............................... 5,993 ======== Net asset value per share ...................................................... $ 9.56 ======== See accompanying Notes to Financial Statements.
STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended December 31, 1999 (Unaudited) (All amounts in thousands) INVESTMENT INCOME Interest income allocated from SR&F High Yield Portfolio ....................... $ 3,313 ------- EXPENSES Expenses allocated from SR&F High Yield Portfolio .............................. 161 Administrative fees ............................................................ 42 Accounting fees ................................................................ 13 Transfer agent fees ............................................................ 14 SEC and state registration fees ................................................ 4 Trustees' fees ................................................................. 4 Legal and audit fees ........................................................... 7 Other .......................................................................... 5 ------- Total expenses .............................................................. 250 Fees and expenses waived by the Advisor ........................................ (112) ------- Net expenses ................................................................ 138 ------- Net investment income ....................................................... 3,175 ------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investments ............................................... (1,178) Net change in unrealized appreciation/depreciation on investments .............. (389) ------- Net loss on investments ..................................................... (1,567) ------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................... $ 1,608 ======= See accompanying Notes to Financial Statements.
STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (All amounts in thousands)
(UNAUDITED) SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1999 1999 ----------- -------- OPERATIONS Net investment income .......................................................... $ 3,175 $ 3,943 Net realized gains (losses) on investments ..................................... (1,178) 176 Net change in unrealized appreciation/depreciation on investments .............. (389) (1,277) -------- -------- Net increase in net assets resulting from operations ........................ 1,608 2,842 -------- -------- DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income ........................................... (3,016) (3,964) Distributions from net capital gains ........................................... (178) (1,401) -------- -------- Total distributions to shareholders ......................................... (3,194) (5,365) -------- -------- SHARE TRANSACTIONS Subscriptions to fund shares ................................................... 250 16,562 Value of distributions reinvested .............................................. 3,261 6,199 -------- -------- Net increase from share transactions ........................................ 3,511 22,761 -------- -------- Net increase in net assets .................................................. 1,925 20,238 TOTAL NET ASSETS Beginning of period ............................................................ 55,395 35,157 -------- -------- End of period .................................................................. $ 57,320 $ 55,395 ======== ======== ANALYSES OF CHANGES IN SHARES OF BENEFICIAL INTEREST Subscriptions to fund shares ................................................... 26 1,791 Issued in reinvestment of distributions ........................................ 341 535 -------- -------- Net increase in fund shares .................................................... 367 2,326 Shares outstanding at beginning of period ...................................... 5,626 3,300 -------- -------- Shares outstanding at end of period ............................................ 5,993 5,626 ======== ======== See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (All amounts in thousands) (Unaudited) NOTE 1. ORGANIZATION Stein Roe Institutional Client High Yield Fund (the "Fund") is a series of Liberty-Stein Roe Trust (the "Trust"), formerly Stein Roe Trust, an open-end management investment company organized as a Massachusetts business trust. The Fund invests substantially all of its assets in SR&F High Yield Portfolio (the "Portfolio"), which seeks a high level of current income and capital growth by investing primarily in high yield, high-risk, medium- and lower-quality debt securities. The Portfolio is a series of SR&F Base Trust, a Massachusetts common law trust organized under an Agreement and Declaration of Trust dated August 23, 1993. The Portfolio commenced operations on November 1, 1996. The Portfolio allocates income, expenses, realized and unrealized gains and losses to each investor on a daily basis, based on methods approved by the Internal Revenue Service. At December 31, 1999, Stein Roe Institutional Client High Yield Fund owned 60.3% of the SR&F High Income Portfolio. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The following summarizes the significant accounting policies of the Fund and the Portfolio. These policies are in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME Investment transactions are accounted for on trade date. Interest income, including discount accretion and premium amortization, is recorded daily on the accrual basis. Realized gains or losses from investment transactions are reported on an identified cost basis. Securities purchased on a when-issued or delayed delivery basis may be settled a month or more after the transaction date. The values of such securities are subject to market fluctuations during this period. The Portfolio had no when-issued or delayed delivery purchase commitments as of December 31, 1999. SECURITY VALUATIONS Long-term debt securities are valued using market quotations if readily available at the time of valuation. If market quotations are not readily available, they are valued at a fair value using a procedure determined in good faith by the Board of Trustees, which has authorized the use of market valuations provided by a pricing service. Short-term debt securities with remaining maturities of 60 days or less are valued at their amortized cost. Those with remaining maturities of more than 60 days for which market quotations are not readily available are valued by use of a matrix, prepared by the Advisor, based on quotations for comparable securities. Other assets are valued by a method that the Board of Trustees believes represents a fair value. AMORTIZATION OF ORGANIZATION EXPENSES Organization costs are amortized on a straight-line basis against income over various periods of up to sixty months from the commencement of public offering by the Fund, depending on the nature of the individual cost. FEDERAL INCOME TAXES No provision is made for federal income taxes, since (a) the Fund elects to be taxed as a "regulated investment company" and makes such distributions to its shareholders as to be relieved of all federal income tax under provisions of current federal tax law; and (b) the Portfolio is treated as a partnership for federal income tax purposes and all of its income is allocated to its owners based on methods approved by the Internal Revenue Service. DISTRIBUTIONS TO FUND SHAREHOLDERS Dividends from net investment income are declared daily and paid monthly. Capital gains distributions, if any, are distributed annually. Distributions in excess of tax basis earnings are reported in the financial statements as a return of capital. Permanent differences in the recognition or classification of income between the financial statements and tax earnings are reclassified to paid-in capital. NOTE 3. PORTFOLIO COMPOSITION The Portfolio invests primarily in high yield, high-risk medium- and lower quality debt securities. See the Portfolio's Portfolio of Investments for information regarding individual securities. NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES The Portfolio pays a monthly management fee and the Fund pays a monthly administrative fee to Stein Roe & Farnham Incorporated (the "Advisor"), an indirect, majority- owned subsidiary of Liberty Mutual Insurance Company, for its services as investment advisor and manager. The management fee for the Portfolio is computed at an annual rate of 0.50% of the first $500 million of average daily net assets, and 0.475% thereafter. The administrative fee for the Fund is computed at an annual rate of 0.15% of the first $500 million of average daily net assets, and 0.125% thereafter. The Advisor also provides fund accounting services. The Advisor has agreed to reimburse the Fund to the extent that expenses exceed 0.50% of average annual net assets. This commitment expires January 31, 2001, subject to earlier termination by the Advisor on 30 days' notice to the Fund. Transfer agent fees of the Fund are paid to SteinRoe Services, Inc. (SSI), an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has entered into an agreement with Liberty Funds Distributor, Inc., also an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, to act as subtransfer agent for the Fund. The Transfer Agent provides shareholder services for a monthly fee equal to 0.05% annually of the Fund's average net assets and receives reimbursement for certain out-of-pocket expenses. Certain officers and trustees of the Trust are also officers of the Advisor. Compensation is paid to trustees not affiliated with the Advisor. No remuneration was paid to any other trustee or officer of the Trust who is affiliated with the Advisor. NOTE 5. SHORT-TERM DEBT To facilitate portfolio liquidity, the Fund and the Portfolio maintain borrowing arrangements under which they can borrow against portfolio securities. There were no borrowings during the six months ended December 31, 1999. NOTE 6. INVESTMENT TRANSACTIONS The aggregate cost of purchases and proceeds from sales (other than short-term obligations) for the Portfolio for the six months ended December 31, 1999, were $68,831 and $64,080, respectively. Unrealized appreciation (depreciation) at December 31, 1999 for both financial statement and federal income tax purposes for the Portfolio was: Gross unrealized appreciation................ $ 3,838 Gross unrealized depreciation................ (6,199) ------- Net unrealized depreciation ................. $(2,361) ======= FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SR&F HIGH YIELD PORTFOLIO
(UNAUDITED) SIX MONTHS YEAR YEAR PERIOD ENDED ENDED ENDED ENDED DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, SELECT RATIOS 1999 1999 1998 1997 (a) ---------------- ----------- ----------- -------------- Ratio of net expenses to average net assets................. 0.58%(b) 0.57% 0.65% 0.89%(b) Ratio of net investment income to average net assets........ 11.50%(b) 8.27% 8.13% 8.24%(b) Portfolio turnover rate..................................... 78%(c) 296% 426% 168%(c)
(a)From commencement of operations on November 1, 1996. (b)Annualized. (c)Not annualized. - -------------------------------------------------------------------------------- STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND Selected per-share data (for a share outstanding throughout each period), ratios and supplemental data.
(UNAUDITED) SIX MONTHS YEAR YEAR PERIOD ENDED ENDED ENDED ENDED DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, 1999 1999 1998 1997(e) ------------ --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 9.85 $ 10.65 $ 10.21 $ 10.00 ------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS Net investment income.................................. 0.55 0.98 0.88 0.33 Net realized and unrealized gain (loss) on investments. (0.29) (0.62) 0.58 0.21 ------- --------- --------- --------- Total from investment operations..................... 0.26 0.36 1.46 0.54 ------- --------- --------- --------- DISTRIBUTIONS Net investment income.................................. (0.52) (0.87) (0.88) (0.33) Net realized gains..................................... (0.03) (0.29) (0.14) -- ------- --------- --------- --------- Total distributions.................................. (0.55) (1.16) (1.02) (0.33) ------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD............................ $ 9.56 $ 9.85 $ 10.65 $ 10.21 ======= ========= ========= ========= Ratio of net expenses to average net assets (a)........... 0.50%(b) 0.50% 0.50% 0.50%(b) Ratio of net investment income to average net assets (c).. 11.51%(b) 8.72% 8.31% 8.76%(b) Total return (c).......................................... 2.83%(d) 4.20% 14.88% 5.48% Net assets, end of period (000's)......................... $57,320 $ 55,395 $ 35,157 $ 25,674 (a) If the Fund had paid all of its expenses and there had been no reimbursement by the Advisor, this ratio would have been 0.91% for the six months ended December 31, 1999, 0.97% and 1.28% for the years ended June 30, 1999 and 1998, respectively and 2.59% for the period ended June 30, 1997, respectively. (b) Annualized. (c) Computed giving effect to the Advisor's expense limitation undertaking. (d) Not annualized. (e) From commencement of operations or November 1, 1996.
TO CONTACT US. . . - -------------------------------------------------------------------------------- BY PHONE 800-338-2550 You can discuss your investment questions with a Stein Roe 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 Stein Roe account, including Stein Roe Traditional, Roth and Education IRAs. We're available Monday through Friday, from 8 a.m. to 8 p.m. ET, and Saturdays and Sundays from 10 a.m. to 2 p.m. ET. STEIN ROE'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 Stein Roe 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: o Exchange shares between your Stein Roe accounts; o Purchase fund shares by electronic transfer; o Order additional account statements and money market fund checks; o Redeem shares by check, wire or electronic transfer. 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 800-322-1130. For information on Traditional, Roth and Education IRA plans, call us toll free at 800-338-2550. BY MAIL OR E-MAIL If you prefer to contact us by mail, please address all correspondence to: P.O. Box 8900, Boston, MA 02205-8900. To contact us by e-mail, send correspondence directly to: comments@steinroe.com or visit us at www.steinroe.com on the Internet. ADDITIONAL REPORTS The Funds mail one shareholder report to each shareholder address. If you would like more than one report, please call 800-338-2550 and additional reports will be sent to you. Must be preceded or accompanied by a prospectus. LIBERTY-STEIN ROE FUNDS INSTITUTIONAL TRUST - -------------------------------------------------------------------------------- TRUSTEES John A. Bacon, Jr. Private Investor William W. Boyd Chairman and Director, Sterling Plumbing Group Inc. Lindsay Cook Executive Vice President, Liberty Financial Companies, Inc. Douglas A. Hacker Executive Vice President and Chief Financial Officer, United Airlines Janet Langford Kelly Executive Vice President, Secretary and General Counsel, Kellogg Company Charles R. Nelson Van Voorhis Professor of Political Economy, University of Washington Thomas C. Theobald Managing Director, William Blair Capital Partners OFFICERS Stephen E. Gibson, President William D. Andrews, Executive Vice President Kevin M. Carome, Executive Vice President, Secretary Loren A. Hansen, Executive Vice President Christine Balzano, Vice President Denise Chasmer, Vice President J. Kevin Connaughton, Vice President, Treasurer Timothy Jacoby, Senior Vice President Gail Knudsen, Vice President, Controller Stephen F. Lockman, Vice President Mary McKenzie, Vice President Nicholas Norton, Vice President Nicolette D. Parrish, Vice President, Assistant Secretary Michael Fisher, Assistant Treasurer AGENTS AND ADVISORS Stein Roe & Farnham Incorporated Investment Advisor State Street Bank and Trust Company Custodian Stein Roe Services, Inc. Transfer Agent Bell, Boyd & Lloyd, LLC Legal Counsel to the Trust Ernst & Young LLP Independent Auditors Stein Roe & Farnham One South Wacker Drive Chicago, IL 60606-1130 www.steinroe.com Liberty Funds Distributor, Inc. 2/00 DIR-03/275A-0100 (2/00) 00/209 -----END PRIVACY-ENHANCED MESSAGE-----