Stein Roe Advisor Mutual Funds
Annual Report
Sept. 30, 1997
Growth and Income Funds
Stein Roe Advisor Balanced Fund
Contents
Performance................................................................. 1
How the Stein Roe Advisor Balanced Fund has done over time
Q&A......................................................................... 2
Interview with the portfolio manager and a summary of investment activity
Investments................................................................. 5
A complete list of investments with market values
Financial Statements........................................................ 10
Balance sheets, statements of operations and changes in net assets
Notes to Financial Statements............................................... 16
Financial Highlights........................................................ 20
Selected per-share data
Report of Independent Public Accountants.................................... 22
<PAGE>
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 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 stocks that have grown in value).
Average Annual Total Returns
Periods ended Sept. 30, 1997
PAST 1 PAST 3 PAST 5 PAST 10
YEAR YEARS YEARS YEARS
ADVISOR BALANCED FUND 23.24% 17.26% 13.02% 10.76%
S&P 500 40.43 29.89 20.75 14.73
Investment Comparison
COMPARISON of change in value of a $10,000 investment.
Advisor
Date Balanced Fund S&P 500
9/30/87 10000 10000
9/30/88 9413 8761
9/30/89 11367 11648
9/30/90 10587 10571
9/30/91 13729 13858
9/30/92 15257 15389
9/30/93 17480 17384
9/30/94 17542 18024
9/30/95 20084 23378
9/30/96 23063 28129
9/30/97 28507 39500
* Historical performance for class K shares for the period prior to Feb. 14,
1997, is based on the performance of SR&F Balanced Portfolio, restated to
reflect the 12b-1 fees and any other expenses applicable to that class, without
giving effect to any fee waivers and assuming reinvestment of dividends and
capital gains. Historical performance as restated does not represent Advisor
Balanced Fund's future performance.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL
SHARES. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. The S&P 500 is an
unmanaged group of stocks that differs from the composition of any Stein Roe
fund; it is not available for direct investment.
1
<PAGE>
Fund Data
Investment Objective:
Seeks long-term growth of capital and current income, consistent with reasonable
investment risk by investing primarily in a diversified portfolio of equities,
debt securities and cash.
Q&A
AN INTERVIEW WITH HARVEY HIRSCHHORN, PORTFOLIO MANAGER OF ADVISOR BALANCED FUND
Q: HOW WAS PERFORMANCE FOR THE FISCAL YEAR ENDED SEPT. 30, 1997?
A: The Fund's return of 23.24 percent came in just behind the 23.82 percent
return of the Lipper balanced fund peer group. Performance during the fourth
quarter of 1996 was excellent, but for the remainder of the fiscal year the
Fund's performance was average, dampened by our somewhat defensive stance toward
U.S. equity markets -- we invested only 56 percent of the portfolio in equities.
In addition, about 16 percent of those equities were international securities.*
For the three-year period ended Sept. 30, 1997, the Fund's total return was
17.26 percent, compared to the peer group return of 18.58 percent for the same
period.
Q: WITH INTERNATIONAL STOCKS LARGELY UNDERPERFORMING THE S&P 500, HOW DID
ADVISOR BALANCED FUND'S INTERNATIONAL HOLDINGS FARE?
A: Fortunately, our international selections were good performers. Ericsson (1.6
percent of total net assets), a company that dominates globally in cellular
manufacturing and technology, has been a real winner for us. One of our best
performers was a Japanese company -- Canon, a camera manufacturer (1.0 percent
of total net assets), is up over 60 percent year to date. We remain confident in
our international investments.
Q: WHAT WORKED WELL FOR YOU DOMESTICALLY?
A: Our overweightings in the financial, health care and pharmaceutical sectors
have benefited us. One of our best performers was an initial public offering --
American States Financial (1.2 percent of total net assets), a financial
services company. Since we purchased it, the company experienced growth, was
acquired, and its stock subsequently more than doubled in the past 12 months. In
addition, BankAmerica and Citicorp, two big money center banks (1.2 percent and
1.1 percent of total net assets, respectively), performed well. In the
technology sector, we made a good investment in Intel, up 90 percent this past
year (1.1 percent of total net assets).
2
<PAGE>
Q: IN WHAT AREAS DID EQUITY PERFORMANCE SUFFER?
A: For the most part we believe we did a good job of assessing and eliminating
those stocks that we were concerned would be a drag on performance, before
company fundamentals deteriorated further. Our real estate investment trusts
(REITs) did affect performance, however. Although REITs have turned in
above-average performance at certain times during this past year -- in
particular they were the top performers in the last quarter of calendar year
1996 -- on balance, they underperformed for the year, up 18.2 percent through
the year ended Sept. 30, 1997.
Our overweighted position in the electrical equipment area and our position in
energy stocks dampened performance, as stocks in these sectors generally
underperformed. Other sectors that underperformed include telephones and food --
areas in which we were beneficially underweighted.
Q: HOW DID YOUR FIXED INCOME INVESTMENTS DO?
A: We believe our somewhat longer duration in our fixed income investments was
positive, as longer-term interest rates traded lower within a narrow range
through the past 12 months.
Q: WHAT DO YOU EXPECT FROM THE ECONOMY GOING FORWARD?
The economy has been on a solid growth track this year, showing the strongest
performance in the current six-year expansion. Liquidity and monetary growth
have turned up materially in recent months, suggesting that growth will not slow
as a result of liquidity constraints. Moreover, consumption is moving along and
interest rates have eased to levels that should be attractive for housing and
other interest-rate sensitive areas of the economy.
Going forward, the strength of the economy will be tempered by exports,
inventories and government spending. In our opinion, the dollar's strength may
cause a softening in demand for U.S. exports and firm economic activity may pull
in imports, leading to a continuing deterioration in our trade balance.
Overall, we think the economy may slow from this year's approximately 3.5
percent pace to 2.5 percent next year. We believe inflation is likely to remain
muted at 2 percent and interest rates are likely to fluctuate around current
levels.
Q: HOW WILL THIS AFFECT CORPORATE PROFITS?
With respect to corporate profits we expect more moderate gains this coming
year. Heightened foreign competition due to currency movements may hurt U.S.
company sales and moderating pressure on profit margins may result from firmer
labor costs and slower productivity gains.
Q: HOW MIGHT THE PORTFOLIO REACT?
A: We continue to favor technology, financials, pharmaceuticals and REITs, and
plan to maintain those positions going forward. We foresee opportunities for
good value and improving fundamentals in the mid-cap area of the stock market.
3
<PAGE>
The adviser currently limits expenses on class K shares to 1.35 percent of
average net assets, subject to termination on 30 days' notice to the Fund.
Absent this limit, total return would be less.
Historical performance for class K shares for the period prior to Feb. 14,
1997, is based on the performance of SR&F Balanced Portfolio, restated to
reflect the 12b-1 fees and any other expenses applicable to that class, without
giving effect to any fee waivers and assuming reinvestment of dividends and
capital gains. Historical performance as restated does not represent Advisor
Balanced Fund's future performance.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of Sept. 30, 1997, and are subject to change. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The S&P 500 is an unmanaged group of stocks
that differs from the composition of any Stein Roe fund; it is not available for
direct investment. According to Lipper Analytical Services, Inc., an independent
monitor of mutual fund performance, the median returns for the Fund's flexible
portfolio fund peer group for the one-, five- and 10-year periods ended Sept.
30, 1997, were 23.82 percent, 13.61 percent and 10.44 percent, respectively.
*Foreign investments involve market, political and currency risks not
generally associated with U.S. investments.
Holdings are disclosed as a percentage of the SR&F Balanced Portfolio's total
net assets.
4
<PAGE>
<TABLE>
<CAPTION>
SR&F Balanced Portfolio
- -------------------------------------------------------------------------------
Investments as of September 30, 1997
(Dollar amounts in thousands)
Number Market
EQUITY-RELATED SECURITIES (67.7%) of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (56.4%)
AUTOMOTIVE (0.8%)
Honda Motor Company, Ltd. ADRs....................... 33,000 $ 2,302
BANKS (8.6%)
Banc One Corporation................................. 64,124 3,579
BankAmerica Corporation.............................. 106,000 7,771
Citicorp............................................. 53,000 7,099
Royal Bank of Scotland Group Plc..................... 233,710 2,605
Wells Fargo & Company................................ 5,000 1,375
Westpac Banking Corporation Ltd...................... 320,000 2,016
-------
24,445
CHEMICALS (1.6%)
DuPont Company....................................... 40,000 2,463
Praxair, Inc......................................... 40,000 2,048
-------
4,511
COMPUTERS (1.0%)
International Business Machines Corp................. 26,000 2,754
COMPUTER SOFTWARE AND SERVICES (0.5%)
Fujitsu Ltd.......................................... 125,000 1,563
CONGLOMERATES AND MISCELLANEOUS (1.0%)
Harris Corporation................................... 64,000 2,928
DATA PROCESSING & DUPLICATING (1.0%)
Canon, Inc........................................... 97,000 2,836
DRUGS AND HEALTH PRODUCTS (5.4%)
Bristol-Myers Squibb Company......................... 56,000 4,634
Eli Lilly & Co....................................... 46,000 5,552
Novartis AG ADRs..................................... 45,000 3,455
United Healthcare Corporation........................ 35,000 1,750
-------
15,391
ELECTRICAL EQUIPMENT (6.8%)
Emerson Electric Co. ................................ 97,000 5,590
General Electric Company............................. 117,000 7,963
Hubbell Inc. Class B................................. 78,000 3,608
Siemens AG........................................... 33,000 2,226
-------
19,387
ELECTRONICS (4.0%)
*Analog Devices, Inc................................. 43,000 1,441
Intel Corporation.................................... 43,000 3,969
Motorola, Inc........................................ 50,000 3,594
Sony Corporation Sponsored ADRs...................... 27,000 2,536
-------
11,540
ENERGY SERVICES (2.0%)
Baker Hughes Inc..................................... 60,000 2,625
*Cooper Cameron Corporation.......................... 18,000 1,292
Sante Fe International Corporation................... 36,000 1,674
-------
5,591
5
<PAGE>
<CAPTION>
SR&F Balanced Portfolio CONTINUED
- -------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
FERTILIZERS (0.5%)
Potash Corporation of Saskatchewan Inc. ............. 20,000 $ 1,570
FOOD, BEVERAGE & TOBACCO (2.1%)
General Mills, Inc................................... 26,000 1,792
PepsiCo, Inc......................................... 45,000 1,825
Philip Morris Companies Inc.......................... 60,000 2,494
--------
6,111
INSURANCE (1.2%)
American States Financial Corporation................ 75,500 3,549
MEDICAL SUPPLIES (1.0%)
Baxter International Inc............................. 55,000 2,874
MULTI-INDUSTRY (0.7%)
Honeywell, Inc. ..................................... 30,000 2,016
OIL AND NATURAL GAS (6.2%)
British Petroleum Company Plc ADRs................... 58,000 5,267
Elf Aquitaine Sponsored ADRs......................... 32,000 2,134
El Paso National Gas Company......................... 32,000 1,938
Enron Corp. ......................................... 68,000 2,618
Mobil Corporation.................................... 38,000 2,812
Tosco Corporation.................................... 38,000 1,323
*United Meridian Corporation......................... 42,000 1,544
--------
17,636
PAPER & FOREST PRODUCTS (1.1%)
Plum Creek Timber Company, L.P....................... 90,000 3,049
REAL ESTATE (3.8%)
Kimco Realty Corporation............................. 66,000 2,298
Reckson Associates Realty Corporation................ 96,200 2,561
The Rouse Company.................................... 60,587 1,878
*Security Capital Group Incorporated................. 55,500 1,908
Security Capital Industrial Trust.................... 88,333 2,059
--------
10,704
RETAIL (2.0%)
Home Depot, Inc...................................... 40,500 2,111
Wal-Mart Stores, Inc................................. 94,000 3,443
--------
5,554
TELECOMMUNICATIONS (3.1%)
*AirTouch Communications, Inc. ...................... 80,000 2,835
GTE Corporation...................................... 58,000 2,632
Telebras ADRs........................................ 4,000 515
Telefonica de Argentina S.A. ADRs.................... 75,000 2,747
--------
8,729
TRANSPORTATION (1.2%)
Canadian National Railway Company.................... 65,000 3,380
UTILITIES-ELECTRIC (0.8%)
Empresa Nacional de Electricidad, S.A. de C.V., ADRs. 108,000 2,322
--------
TOTAL STOCKS (Cost $88,470)....................................... 160,742
- -------------------------------------------------------------------------------
6
<PAGE>
<CAPTION>
SR&F Balanced Portfolio CONTINUED
- -------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (0.4%)
OIL & NATURAL GAS (0.4%)
*+Tosco Corporation $2.875 Cv (Cost $937)............ 17,000 $ 1,037
<CAPTION>
- -------------------------------------------------------------------------------
Principal
CONVERTIBLE SUBORDINATED DEBENTURES (10.9%) Amount
- -------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS (2.1%)
Analog Devices 3.500% 12/01/00....................... $ 900 1,493
LM Ericsson 4.250% 6/30/00........................... 700 4,638
--------
6,131
ENERGY (0.9%)
SFP Pipelines Holdings 11.160% 8/15/10............... 2,000 2,590
HEALTH CARE (3.0%)
Elan International Financial Ltd. Zero Coupon
(Effective Yield 4.652%) 10/16/12................. 3,000 3,270
Nationwide Health Properties 6.250% 1/01/99.......... 2,700 2,913
+Roche Holdings Ltd. Zero Coupon (Effective
Yield 4.750%) 9/23/08............................ 2,500 2,325
--------
8,508
HOTELS (1.4%)
HFS Inc. 4.500% 10/01/99............................. 950 3,877
INSURANCE (1.5%)
Fremont General Zero Coupon (Effective
Yield 9.270%) 10/12/13.......................... 4,500 4,168
RETAIL (0.4%)
Home Depot Inc. 3.250% 10/01/01...................... 950 1,169
SERVICES (1.6%)
Danka Business Systems Plc 6.750% 4/01/02............ 1,100 1,701
+U.S. Filter 6.000% 9/15/05.......................... 1,200 2,856
--------
4,557
--------
TOTAL CONVERTIBLE SUBORDINATED DEBENTURES (Cost $17,662).......... 31,000
- -------------------------------------------------------------------------------
TOTAL EQUITY-RELATED SECURITIES (Cost $107,029)................... 192,779
- -------------------------------------------------------------------------------
7
<PAGE>
<CAPTION>
SR&F Balanced Portfolio CONTINUED
- -------------------------------------------------------------------------------
Principal Market
Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C>
BONDS AND NOTES (31.5%)
U.S. GOVERNMENT OBLIGATION (13.7%)
U.S. Treasury Bonds
8.125% 8/15/19.................................... $12,500 $ 14,884
7.250% 8/15/22.................................... 7,200 7,872
U.S. Treasury Notes
6.125% 3/31/98.................................... 1,700 1,706
5.125% 6/30/98.................................... 2,000 1,994
5.875% 3/31/99.................................... 3,250 3,256
7.875% 8/15/01.................................... 6,850 7,293
5.750% 8/15/03.................................... 2,000 1,969
--------
38,974
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (5.8%)
Federal Home Loan Mortgage Corporation Gold
6.500% 2/01/11.................................... 1,704 1,696
6.500% 4/01/11.................................... 890 886
6.500% 10/01/11................................... 1,810 1,800
6.500% 4/01/26.................................... 953 930
6.500% 6/01/26.................................... 959 936
Federal Home Loan Mortgage Corporation
6.500% 4/01/11.................................... 1,565 1,558
6.500% 4/01/26.................................... 981 958
6.500% 2/01/27.................................... 2,962 2,886
6.500% 3/01/27.................................... 2,707 2,641
Government National Mortgage Association
8.000% 7/15/25.................................... 1,233 1,276
8.000% 3/15/26.................................... 887 917
--------
16,484
AIR TRANSPORTATION (2.1%)
Federal Express Corporation 1994 Pass-Through Certificates
Series A310-A1 7.530% 9/23/06..................... 1,907 1,951
Lockheed Martin Corporation 6.550% 5/15/99........... 2,500 2,522
United Airlines Series 1991 9.200% 3/22/08........... 1,340 1,498
--------
5,971
CHEMICALS (0.8%)
BOC Group Plc 5.875% 1/29/01......................... 2,500 2,469
COMMERCIAL BANK (1.6%)
Den Danske Bank 6.550% 9/15/03....................... 2,250 2,235
Deutsche Ausgleichsbank 7.000% 9/24/01............... 2,250 2,319
--------
4,554
CONSTRUCTION & HOUSING (0.8%)
Hanson Overseas 6.750% 9/15/05....................... 2,250 2,250
FINANCIAL (2.9%)
ALPS Pass-Through Trust Series 1994-1 Class C2
9.350% 9/15/04.................................. 2,487 2,567
Lehman Brothers Holdings, Inc. 8.375% 2/15/99........ 2,500 2,575
MDC Mortgage Funding Corporation Series Q Class 5
8.850% 3/20/18.................................. 359 370
Ford Motor Credit 6.375% 9/15/99..................... 2,750 2,764
--------
8,276
FOREIGN GOVERNMENT REGIONAL BONDS (2.3%)
+Corporacion Andina de Fomento 6.625% 10/14/98....... 1,500 1,509
+Republic of Slovenia 7.000% 8/06/01................. 2,750 2,800
Province of Quebec 6.500% 1/17/06.................... 2,400 2,370
--------
6,679
8
<PAGE>
<CAPTION>
SR&F Balanced Portfolio CONTINUED
- -------------------------------------------------------------------------------
Principal Market
Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (0.8%)
American Mortgage Trust Series 1993-3 Class 3B
8.190% 9/27/22.................................. $ 2,272 $ 2,184
UTILITIES - ELECTRIC (0.7%)
National Power Plc 7.125% 7/11/01.................... 2,000 2,041
- -------------------------------------------------------------------------------
TOTAL BONDS AND NOTES (Cost $86,756).............................. 89,882
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS (7.0%)
COMMERCIAL PAPER (7.0%)
Associates Corp. of North America 6.400% 10/01/97.... 12,990 12,990
Bridgestone/Firestone 6.500% 10/01/97................ 2,000 2,000
Goldman Sachs Group 5.600% 10/02/97.................. 5,000 4,999
--------
TOTAL SHORT-TERM OBLIGATIONS (Amortized Cost $19,989)............. 19,989
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (106.2%)
(Cost $213,774)................................................... $302,650
OTHER ASSETS, LESS LIABILITIES (-6.2%)............................ (17,709)
--------
TOTAL NET ASSETS (100.0%)......................................... $284,941
=======
- -------------------------------------------------------------------------------
SECURITIES SOLD SHORT AT SEPTEMBER 30, 1997, WERE AS FOLLOWS:
Market
SHARES VALUE
BankAmerica Corporation........................... 60,000 $ 4,399
British Petroleum Company Plc ADRs................ 58,000 5,267
Citicorp.......................................... 30,000 4,018
Eli Lilly & Co. .................................. 10,000 1,207
Emerson Electric Co. ............................. 20,000 1,152
Enron Corp. ...................................... 25,000 963
General Electric Company.......................... 70,000 4,764
Intel Corporation................................. 8,000 739
--------
TOTAL VALUE OF SECURITIES SOLD SHORT (Proceeds $17,831) .......... $ 22,509
=======
- -------------------------------------------------------------------------------
<FN>
* Non-income producing.
+ These securities are subject to contractual or legal restrictions on their
resale. At September 30, 1997 the aggregate value of these securities
represented 3.7 percent of net assets.
See accompanying notes to financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
STEIN ROE ADVISOR BALANCED FUND
BALANCE SHEET
SEPTEMBER 30, 1997
(All amounts in thousands, except per-share data)
<CAPTION>
<S> <C>
ASSETS
Investment in SR&F Balanced Portfolio, at value $ 112
Cash 17
Other assets 16
------
Total Assets $ 145
======
LIABILITIES
Payable to investment adviser and transfer agent $ 21
Other liabilities 12
------
Total Liabilities 33
------
CAPITAL
Paid-in capital 100
Net unrealized appreciation of investments 16
Accumulated undistributed net realized losses on investments (4)
------
TOTAL CAPITAL (NET ASSETS) 112
------
TOTAL LIABILITIES AND CAPITAL $ 145
======
SHARES OUTSTANDING (UNLIMITED NUMBER AUTHORIZED) 10
======
NET ASSET VALUE (CAPITAL) PER SHARE $11.17
======
See accompanying notes to financial statements.
</TABLE>
10
<PAGE>
<TABLE>
STEIN ROE ADVISOR BALANCED FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997(a)
(All amounts in thousands)
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends and interest allocated from SR&F Balanced Portfolio $ 1
----
EXPENSES
Amortization of organization expenses 20
Accounting fees 16
Audit and legal fees 11
Trustees fees 4
Printing and postage 3
Other 3
----
57
Reimbursement of expenses by investment adviser (56)
----
Total Expenses 1
----
Net Investment Income --
----
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses on investments allocated from SR&F Balanced Portfolio (4)
Net change in unrealized appreciation or depreciation of investments 16
----
Net Gains on Investments 12
----
Net Increase in Net Assets Resulting from Operations $ 12
====
<FN>
(a) From commencement of operations on February 14, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
11
<PAGE>
<TABLE>
STEIN ROE ADVISOR BALANCED FUND
STATMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 (a)
(All amounts in thousands)
<CAPTION>
<S> <C>
OPERATIONS
Net investment income $ --
Net realized losses on investments (4)
Net change in unrealized appreciation or depreciation of investments 16
-----
Net Increase in Net Assets Resulting from Operations 12
-----
SHARE TRANSACTIONS
Subscriptions to fund shares (10 shares) 100
-----
Net Increase from Share Transactions 100
-----
Net Increase in Net Assets 112
TOTAL NET ASSETS
Beginning of Period --
-----
End of Period $ 112
=====
<FN>
(a) From commencement of operations on February 14, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
12
<PAGE>
<TABLE>
SR&F BALANCED PORTFOLIO
BALANCE SHEET
SEPTEMBER 30, 1997
(All amounts in thousands)
<CAPTION>
<S> <C>
ASSETS
Investments, at market value $302,650
Deposit with broker for securities sold short 17,831
Dividends and interest receivable 1,843
Receivable for investments sold 466
Cash 3
Other assets 4
--------
Total Assets 322,797
--------
LIABILITIES
Securities sold short, at market value 22,509
Loan payable to broker 14,500
Interest payable 437
Payable for dividends on securities sold short 231
Payable to investment adviser 138
Other liabilities 41
--------
Total Liabilities 37,856
--------
Net Assets Applicable to Investors' Beneficial Interest $284,941
========
See accompanying notes to financial statements.
</TABLE>
13
<PAGE>
<TABLE>
SR&F BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 (a)
(All amounts in thousands)
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest $ 5,399
Dividends 1,884
-------
Total Investment Income 7,283
-------
EXPENSES
Management fees 971
Accounting fees 20
Custodian fees 20
Audit and legal fees 18
Trustees' fees 17
Transfer agent fees 4
Other 17
-------
Total Expenses 1,067
-------
Net Investment Income 6,216
-------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains on investments 6,044
Net change in unrealized appreciation or depreciation of
investments 21,679
-------
Net Gains on Investments 27,723
-------
Net Increase in Net Assets Resulting from Operations $33,939
=======
<FN>
(a) From commencement of operations on February 3, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
SR&F BALANCED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 1997 (a)
(All amounts in thousands)
<CAPTION>
<S> <C>
OPERATIONS
Net investment income $ 6,216
Net realized gains on investments 6,044
Net change in unrealized appreciation or depreciation
of investments 21,679
---------
Net Increase in Net Assets Resulting
from Operations 33,939
---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions 272,915
Withdrawals (21,913)
---------
Net Increase from Transactions in Investors'
Beneficial Interest 251,002
---------
Net Increase in Net Assets 284,941
TOTAL NET ASSETS
Beginning of Period --
---------
End of Period $ 284,941
=========
<FN>
(a) From commencement of operations on February 3, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION OF THE SR&F BALANCED PORTFOLIO
The SR&F Balanced Portfolio (the "Portfolio") is a separate series of the SR&F
Base Trust, a Massachusetts common law trust organized under an Agreement and
Declaration of Trust dated August 23, 1993. The Declaration of Trust permits the
Trustees to issue nontransferable interests in the Portfolio. The Portfolio
commenced operations on February 3, 1997. At commencement, the Stein Roe
Balanced Fund contributed $260,013 in securities and other assets. On February
14, 1997, Stein Roe Advisor Balanced Fund contributed cash of $100.
The Portfolio allocates net asset value, income and expenses based on
respective percentage ownership of each investor on a daily basis. At September
30, 1997, Stein Roe Balanced Fund and Stein Roe Advisor Balanced Fund owned
99.96 percent and .04 percent, respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of Stein Roe Advisor
Balanced Fund (the "Fund"), a series of the Stein Roe Advisor Trust (a
Massachusetts business trust) and the Portfolio. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
SECURITY VALUATIONS
All securities are valued as of September 30, 1997. Securities are valued,
depending on the security involved, at the last reported sales price, last bid
or asked price, or the mean between last bid and asked price as of the close of
the appropriate exchange or other designated time. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary exchange for such security. Other assets and
securities of the Portfolio are valued by a method that the Board of Trustees
believes represents a fair value.
SECURITIES SOLD SHORT
During the period ended September 30, 1997, the Portfolio engaged in selling
securities short, which obligates the Portfolio to replace a security borrowed
by purchasing the same security at the current market value. The Portfolio may
incur a gain or a loss between the date of the short sale and the date on which
the Portfolio replaces the borrowed security. The Portfolio has established a
margin account with the broker lending the security sold short. While the short
sale is outstanding, the broker retains the proceeds of the short sale in a
margin account.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Portfolio may take a loan against said proceeds not exceeding 95
percent of the total proceeds. The Portfolio also must maintain in a separate
account with the custodian an equivalent amount of the securities sold short or
convertible or exchangeable into said securities.
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 make distributions to its
shareholders to be relieved of all federal income taxes 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 respective percentages of ownership.
The Fund intends to utilize provisions of the federal income tax laws
that allow the Fund to carry a realized capital loss forward up to eight years
following the year of the loss, and offset such losses against any future
realized gains. At September 30, 1997, the Fund had a capital loss carryforward
of $4, which expires in 2005.
DISTRIBUTION TO SHAREHOLDERS
The Fund declares and pays dividends of any net investment income at least
quarterly, and any net realized capital gains annually. Shareholder
distributions are recorded on the ex-dividend date. Dividends are determined in
accordance with income tax principles which may treat certain transactions
differently from generally accepted accounting principles. 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
overdistributions are classified as distributions in excess of net investment
income or net realized gains. Permanent differences are reclassified to the
appropriate capital account.
OTHER INFORMATION
Dividend income is recognized on the ex-dividend date and interest income is
recognized on an accrual basis.
Realized gains or losses from sales of securities are determined on
the specific identified cost basis.
All amounts, except per-share amounts, are shown in thousands.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. 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 "Adviser"), an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for its
services as investment adviser and manager. The management fee for the Portfolio
is computed at an annual rate of .55 of 1 percent of average daily net assets up
to $500 million, .50 of 1 percent of the next $500 million, and .45 of 1 percent
thereafter. The administrative fees for the Fund are computed at an annual rate
of .15 of 1 percent of average daily net assets up to $500 million, .125 of 1
percent of the next $500 million, and .10 of 1 percent thereafter.
The administrative agreement for the Fund provides that the Adviser will
reimburse the Fund to the extent that annual expenses, excluding certain
expenses, exceed the applicable limits prescribed by any state in which the
Fund's shares are offered for sale. In addition, the Adviser has agreed to
reimburse the Fund to the extent that expenses exceed 1.35 percent of average
daily net assets. This expense limitation expires on January 31, 1998, subject
to earlier termination by the Adviser on 30 days' notice.
The transfer agent fees were paid to SteinRoe Services Inc. (SSI), an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company. SSI
entered into an agreement with Colonial Investors Service Center, Inc. (CISC),
an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, to
act as sub-transfer agent for the Fund. Effective October 15, 1997, CISC
replaced SSI as transfer agent for the Fund.
The Adviser also provides certain fund accounting services. For the
period ended September 30, 1997, the Fund and Portfolio incurred charges of $16
and $20, respectively.
Certain officers and trustees of the Trusts are also officers of the
Adviser. The compensation of trustees not affiliated with the Adviser for the
Fund and Portfolio for the period ended September 30, 1997, was $4 and $17,
respectively. No remuneration was paid to any other trustee or officer of the
Trusts.
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Fund and Portfolio maintain borrowing
arrangements under which they can borrow against portfolio securities. Neither
the Fund nor the Portfolio had borrowings during the period ended September 30,
1997.
NOTE 5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales for the Portfolio (other
than short-term obligations) for the period ended September 30, 1997, were
$58,201 and $61,267, respectively.
At September 30, 1997, the cost of investments in the Portfolio for
federal income tax purposes and for financial reporting were $213,713 and
$213,774, respectively. Unrealized appreciation and depreciation on a tax basis
were $89,566 and $629, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of
shareholder accounts.
Annual fees under the Plans of up to .25 percent are computed annually
as a percentage of average daily net assets.
18
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
STEIN ROE ADVISOR BALANCED FUND
Selected per-share data (for a share outstanding throughout the period), ratios
and supplemental data.
<CAPTION>
Period
Ended
September 30,
1997 (a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04
Net realized and unrealized gains on investments 1.13
----------
Total from investment operations 1.17
----------
NET ASSET VALUE, END OF PERIOD $ 11.17
==========
Ratio of net expenses to average net assets (b) 1.35%*
Ratio of net investment income to average net assets (c) 0.70%*
Total return 11.70%
Net assets, end of period $ 112
<FN>
* Annualized
(a) From commencement of operations on February 14, 1997.
(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 87.83 percent for the period ended September 30, 1997.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
</FN>
See accompanying notes to financial statements.
</TABLE>
19
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
SR&F BALANCED PORTFOLIO
Period
Ended
September 30,
1997 (a)
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Ratio of net investment income to average net assets 3.52%*
Ratio of net expenses to average net assets 0.60%*
Portfolio turnover rate 21%
Average commissions (per share) $ 0.0534
<FN>
* Annualized
(a) From commencement of operations on February 3, 1997.
</FN>
</TABLE>
20
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of:
Stein Roe Advisor Balanced Fund
SR&F Balanced Portfolio
We have audited the accompanying balance sheet of the Stein Roe Advisor Balanced
Fund and the accompanying balance sheet, including the schedule of investments,
of the SR&F Balanced Portfolio as of September 30, 1997, and the related
statements of operations, changes in net assets and the financial highlights for
the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Fund's and Portfolio's 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 for the SR&F Balanced Portfolio included confirmation
of securities owned as of September 30, 1997, by correspondence with the
custodian and brokers. As to securities purchased but not received, we requested
confirmation from brokers and, when replies were not received, we carried out
alternative auditing procedures. An audit also includes assessing the 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 referred to above present
fairly the financial position of the Stein Roe Advisor Balanced Fund and the
SR&F Balanced Portfolio at September 30, 1997, the result of their operations,
the changes in their net assets and their financial highlights for the periods
indicated thereon, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 24, 1997
21
<PAGE>
Stein Roe Advisor Trust
TRUSTEES
Timothy K. Armour
President, Mutual Fund Division and Director,
Stein Roe & Farnham Incorporated
Kenneth L. Block
Chairman Emeritus, A.T. Kearney, Inc.
William W. Boyd
Chairman and Director, Sterling Plumbing Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial Officer,
United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General Counsel,
Sara Lee Corporation
Francis W. Morley
Chairman, Employer Plan Administrators and Consultants Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
AGENTS AND ADVISERS
Stein Roe & Farnham Incorporated
Investment Adviser
State Street Bank and Trust Company
Custodian
Colonial Investors Service Center, Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Trust
Arthur Andersen LLP
Independent Public Accountants
OFFICERS
Timothy K. Armour, President
William D. Andrews, Executive Vice President
Jilaine H. Bauer, Executive Vice President, Secretary
Thomas W. Butch, Executive Vice President
Loren A. Hansen, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President, Chief
Financial Officer
Bruno Bertocci, Vice President
David P. Brady, Vice President
Daniel K. Cantor, Vice President
Philip J. Crosley, Vice President
Erik P. Gustafson, Vice President
David P. Harris, Vice President
Harvey B. Hirschhorn, Vice President
Eric S. Maddix, Vice President
Lynn C. Maddox, Vice President
Anne E. Marcel, Vice President
John S. McLandsborough, Vice President
Arthur J. McQueen, Vice President
Nicolette D. Parrish, Vice President, Assistant Secretary
Richard B. Peterson, Vice President
M. Gerard Sandel, Vice President
Gloria J. Santella, Vice President
Heidi J. Walter, Vice President
Stacy H. Winick, Vice President
Sharon R. Robertson, Controller
Scott E. Volk, Treasurer
Margaret O. Zwick, Assistant Treasurer
Janet B. Rysz, Assistant Secretary
22
<PAGE>
Liberty Financial Investments, Inc., distributor
Member SIPC 11/97
<PAGE>
