Stein Roe Advisor Mutual Funds
Annual Report
Sept. 30, 1997
Growth Funds
Stein Roe Advisor Special Fund
Contents
Performance................................................................. 1
How the Stein Roe Advisor Special 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........................................................ 8
Balance sheets, statements of operations and changes in net assets
Notes to Financial Statements............................................... 14
Financial Highlights........................................................ 17
Selected per-share data
Report of Independent Public Accountants.................................... 19
<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 SPECIAL FUND 33.30% 21.46% 18.30% 14.38%
S&P 500 40.43 29.89 20.75 14.73
Nasdaq Industrials 24.16 20.94 17.24 11.21
Russell 2000 33.19 22.97 20.51 12.25
Investment Comparison
COMPARISON of change in value of a $10,000 investment.
Advisor
Date Special Fund S&P 500
9/30/87 10000 10000
9/30/88 9086 8761
9/30/89 12690 11648
9/30/90 11547 10571
9/30/91 15224 13858
9/30/92 16546 15389
9/30/93 21019 17384
9/30/94 21391 18024
9/30/95 24453 23378
9/30/96 28755 28123
9/30/97 38331 39500
*Historical performance for class K shares for the period prior to Feb. 14,
1997, is based on the performance of SR&F Special 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 Special
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, the Nasdaq Industrials and the
Russell 2000 are unmanaged groups of stocks that differ from the composition of
any Stein Roe fund; they are not available for direct investment.
1
<PAGE>
Fund Data
Investment Objective:
Seeks to achieve capital appreciation by investing primarily in a diversified
portfolio of equity securities that are considered to have limited downside risk
relative to their potential for above-average growth, including securities of
undervalued, underfollowed or out-of-favor companies.
Q&A
An Interview with Gerry Sandel, Portfolio Manager of Advisor Special Fund
Gerry Sandel was named portfolio manager of Stein Roe Advisor Special Fund in
July 1997, replacing Bruce Dunn, who retired as portfolio
manager.
Q: HOW DID THE FUND PERFORM?
A: The Fund posted a total return of 33.30 percent for the year ended Sept. 30,
1997, modestly underperforming the Lipper peer group return of 33.52 percent and
trailing the 40.43 percent return of the S&P 500 Index. For the three-year
period ended Sept. 30, 1997, the Fund returned 21.46 percent, compared to the
24.84 percent return of its peer group and the 29.89 percent return of the S&P
500 Index. Although the S&P 500 is the Fund's published index, it is an index
comprised mainly of large-cap industrial issues. Special Fund tends to invest
largely in mid-cap companies (50 percent of holdings), although it does own
stocks of small- and large-cap companies as well (21 percent and 29 percent of
the portfolio's holdings, respectively).
Q: WHAT FACTORS DROVE PERFORMANCE?
A: The fiscal year started out with a surge by investors into large-cap stocks,
which provided us with opportunities to buy into less popular mid-cap stocks at
attractive prices. That strategy was rewarded when, toward January, mid-caps
began gaining favor, and some of our mid-cap holdings benefited substantially.
In fact, during the last quarter of fiscal year 1997, the Fund returned 14.31
percent, compared to the S&P 500 Index return of 7.49 percent.
2
<PAGE>
Q: WHICH OF THE PORTFOLIO'S HOLDINGS MADE POSITIVE CONTRIBUTIONS
DURING THE PAST 12 MONTHS?
A: Borders Group, Kent Electronics and Progressive Corporation -- up 70 percent,
79 percent and 97 percent respectively for the past 12 months (3.4 percent, 2.5
percent and 3.5 percent of total net assets, respectively). These are the kinds
of investments Advisor Special Fund looks to invest in -- companies that are
benefiting from industry consolidation, acquisitions and streamlining of product
lines.
Q: YOU TOOK OVER AS PORTFOLIO MANAGER IN JULY 1997. WHAT IS YOUR
STRATEGY FOR ADVISOR SPECIAL FUND?
A: The strategy will remain largely the same. We look to buy out-of-favor and
neglected stocks that we believe sell at a discount, not only to their intrinsic
value, but also relative to their competitors in the market. We tend to buy when
others are not very interested in owning the stock, and sell when others are
crowding to buy. This is a result of our efforts to purchase high-quality
companies that have been neglected and that appear to us to have the potential
for a positive "turnaround" event.
Q: WHAT MAKES ADVISOR SPECIAL FUND DIFFERENT FROM OTHER LONG-TERM
INVESTMENTS?
A: We think our contrarian style sets us apart. In general, most investors are
looking for securities that are performing well now. We're willing to be more
patient. We look for securities that investors are not favoring, but which we
believe have two characteristics: attractive valuations and a potential catalyst
- -- something that could happen within the next couple of years and that has the
potential to push the stock to higher valuation levels.
Q. WHAT CHANGES WILL YOU MAKE IN THE FUND?
A: We're looking to trim our positions in some of our issues that have worked
well over the past few years and as a result have become somewhat overpriced. We
will then shift into stocks that we think offer better upside potential relative
to the risk we are willing to take. Of course, we will remain sensitive to the
tax consequences of our sell decisions.
3
<PAGE>
Q. CAN YOU GIVE AN EXAMPLE OF A COMPANY THAT BENEFITED THE PERFORMANCE OF THE
FUND DURING THE PERIOD?
A: Borders Group, the world's second largest retailer of books, music
and other informational, educational and entertainment products, has
been a good investment for us (3.4 percent of total net assets). It is
continuing to make acquisitions, buying up existing stores and adding new stores
at the rate of approximately one per week. It also has high cash flows, which
tends to allow the company to finance its own growth.
Q. WHAT ARE YOUR EXPECTATIONS THROUGH THE END OF 1997?
A: The consensus among investors seems to be that valuation levels in the market
in general are still attractive. Although we agree the outlook is positive, some
of the "blue chip" companies have warned that they may experience
lower-than-expected earnings in the near term primarily because the stronger
U.S. dollar has affected sales internationally. Although we tend not to hold
securities of such companies in Advisor Special Fund, we will continue to
monitor all of our holdings, looking for any that may disappoint in the
earnings arena. We plan to trim stocks that have weakened or that have reached
a valuation level that makes us uncomfortable.
The adviser currently limits expenses on class K shares to 1.45 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 Special 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 Special
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 growth
fund peer group for the one-, five- and 10-year periods were 33.52 percent,
18.62 percent and 13.19 percent, respectively.
Holdings are disclosed as a percentage of total net assets of the SR&F Special
Portfolio.
4
<PAGE>
<TABLE>
SR&F SPECIAL PORTFOLIO
Investments as of September 30, 1997
(Dollar amounts in thousands)
Number Market
COMMON STOCKS (89.8%) of Shares Value
<S> <C> <C>
ADVERTISING (1.9%)
The Interpublic Group of Companies, Inc.............. 490,000 $ 25,143
AUTOMOTIVE (1.5%)
Superior Industries International, Inc............... 701,000 19,409
BANKS (3.3%)
Golden West Financial Corporation.................... 340,000 30,514
Washington Mutual, Inc............................... 200,000 13,950
----------
44,464
BROADCASTING (2.7%)
Grupo Radio Centro, S.A. de C.V. ADSs................ 429,800 7,441
*Scandinavian Broadcasting System S.A................ 510,600 12,254
Westinghouse Electric Corp........................... 600,000 16,238
----------
35,933
BUSINESS SERVICES (3.0%)
Interim Services Inc................................. 950,000 26,719
Unitog Company....................................... 488,850 12,527
----------
39,246
CONSUMER-RELATED (1.5%)
Newell Company....................................... 505,000 20,200
DRUGS (1.8%)
Novartis AG.......................................... 16,000 24,570
ELECTRICAL EQUIPMENT (3.1%)
*Littelfuse, Inc.
Common............................................ 690,000 24,064
Warrants.......................................... 547,200 16,690
----------
40,754
ELECTRONICS & INSTRUMENTATION (6.6%)
AVX Corporation...................................... 618,400 20,021
*Kent Electronics Corp............................... 850,000 33,575
Molex, Inc. Class A.................................. 823,533 33,559
----------
87,155
ENERGY & RELATED SERVICES (6.5%)
Cross Timbers Oil Company............................ 1,494,150 36,420
*Renaissance Energy Ltd.............................. 935,000 23,329
*Petroleum Geo-Services ASA ADRs..................... 388,800 26,293
----------
86,042
FINANCIAL SERVICES (4.5%)
American Express Co.................................. 385,000 31,522
Household International, Inc......................... 250,000 28,297
----------
59,819
HEALTH SERVICES AND EQUIPMENT (12.8%)
*Boston Scientific Corporation....................... 344,600 19,018
Cardinal Health, Inc................................. 450,000 31,950
Columbia HCA Healthcare Corp......................... 350,000 10,063
*Healthcare Compare Corp............................. 350,000 22,356
Invacare Corp........................................ 1,173,550 27,577
*Steris Corporation.................................. 300,000 12,338
5
<PAGE>
<CAPTION>
Number Market
of Shares Value
<S> <C> <C>
HEALTH SERVICES AND EQUIPMENT (CONTINUED)
Stryker Corporation.................................. 464,600 $ 20,297
*Sybron International Corporation.................... 600,000 25,763
----------
169,362
INDUSTRIAL PRODUCTS (2.5%)
Carlisle Corp........................................ 745,200 33,115
INSURANCE COMPANIES (7.0%)
National Mutual Asia Ltd............................. 18,450,000 19,789
The Progressive Corporation.......................... 433,200 46,407
20th Century Industries.............................. 1,042,700 27,045
----------
93,241
LEISURE & ENTERTAINMENT (5.4%)
Carnival Corp. Class A............................... 500,000 23,125
Harley-Davidson, Inc................................. 1,664,000 48,568
----------
71,693
MACHINERY - GENERAL INDUSTRY (1.1%)
Robbins & Myers, Inc................................. 135,100 5,201
Stewart & Stevenson Services, Inc.................... 400,000 9,625
----------
14,826
METALS (0.7%)
Barrick Gold Corp.................................... 400,000 9,900
OFFICE PRODUCTS (1.0%)
Ikon Office Solutions, Inc........................... 510,000 13,037
RETAIL (9.2%)
*Borders Group, Inc.................................. 1,660,000 45,650
*Consolidated Stores Corp............................ 656,250 27,480
*Proffitt's, Inc..................................... 651,600 38,607
*Zale Corp........................................... 404,600 10,494
----------
122,231
SCHOOLS (0.5%)
*Devry, Inc.......................................... 238,400 7,122
SECURITY (1.2%)
Pittston Brinks Group................................ 402,600 16,129
SPECIALTY CHEMICALS (6.9%)
*CIBA Specialty Chemicals AG......................... 21,000 2,032
*Lydall, Inc......................................... 929,000 21,773
Minerals Technology Corp. Class A.................... 624,200 27,816
OM Group, Inc........................................ 1,009,500 40,317
----------
91,938
TEXTILES & APPAREL (2.3%)
Unifi, Inc........................................... 748,475 30,641
TELECOMMUNICATIONS (2.8%)
*Airtouch Communications............................. 799,500 28,332
*PriCellular......................................... 875,000 8,695
----------
37,027
----------
TOTAL COMMON STOCKS (Cost $590,897)............................... 1,192,997
6
<PAGE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
SHORT-TERM OBLIGATIONS (10.1%)
COMMERCIAL PAPER (10.1%)
Associates Corp. of North America 6.400% 10/01/97.... $ 44,460 $ 44,460
Goldman Sachs 5.750% 10/02/97........................ 50,000 49,992
Texas Utilities 5.750% 10/01/97...................... 40,000 40,000
----------
TOTAL SHORT-TERM OBLIGATIONS
(Amortized cost $134,452)......................................... 134,452
TOTAL INVESTMENTS (99.9%)
(Cost $725,349)................................................... 1,327,449
OTHER ASSETS, LESS LIABILITIES (0.1%)............................. 1,189
----------
TOTAL NET ASSETS (100.0%)......................................... $1,328,638
==========
<FN>
*Non-income producing.
</FN>
See accompanying notes to financial statements.
</TABLE>
7
<PAGE>
<TABLE>
STEIN ROE ADVISOR SPECIAL FUND
BALANCE SHEET
SEPTEMBER 30, 1997
(All amounts in thousands, except per-share data)
<CAPTION>
<S> <C>
ASSETS
Investment in SR&F Special Portfolio, at value $ 125
Cash 17
Other assets 16
------
Total Assets $ 158
======
LIABILITIES
Payable to investment adviser and transfer agent $ 20
Other liabilities 13
------
Total Liabilities 33
------
CAPITAL
Paid-in capital 98
Net unrealized appreciation of investments 31
Accumulated undistributed net realized losses on investments (4)
------
TOTAL CAPITAL (NET ASSETS) 125
------
TOTAL LIABILITIES AND CAPITAL $ 158
======
SHARES OUTSTANDING (UNLIMITED NUMBER AUTHORIZED) 10
======
NET ASSET VALUE (CAPITAL) PER SHARE $12.46
======
See accompanying notes to financial statements.
</TABLE>
8
<PAGE>
<TABLE>
STEIN ROE ADVISOR SPECIAL 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 Special Portfolio $ 1
----
EXPENSES
Amortization of organization expenses 20
Accounting fees 16
Audit and legal fees 12
Trustees fees 4
Printing and postage 3
Other 2
----
57
Reimbursement of expenses by investment adviser (56)
----
Total Expenses 1
----
Net Investment Loss --
----
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized losses on investments allocated
from SR&F Special Portfolio (4)
Net realized losses on foreign currency transactions allocated
from SR&F Special Portfolio (2)
Net change in unrealized appreciation or depreciation of investments
and foreign currency transactions 31
----
Net Gains on Investments and Foreign Currency Transactions 25
----
Net Increase in Net Assets Resulting from Operations $ 25
====
<FN>
(a) From commencement of operations on February 14, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
9
<PAGE>
<TABLE>
STEIN ROE ADVISOR SPECIAL FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 (a)
(All amounts in thousands)
<CAPTION>
<S> <C>
OPERATIONS
Net investment loss $ -
Net realized losses on investments and foreign currency transactions (6)
Net change in unrealized appreciation or depreciation of investments
and foreign currency transactions 31
-----
Net Increase in Net Assets Resulting from Operations 25
-----
SHARE TRANSACTIONS
Subscriptions to fund shares (10 shares) 100
-----
Net Increase from Share Transactions 100
-----
Net Increase in Net Assets 125
TOTAL NET ASSETS
Beginning of Period --
-----
End of Period $ 125
=====
<FN>
(a) From commencement of operations on February 14, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
10
<PAGE>
<TABLE>
SR&F SPECIAL PORTFOLIO
BALANCE SHEET
SEPTEMBER 30, 1997
(All amounts in thousands)
<CAPTION>
<S> <C>
ASSETS
Investments, at market value $1,327,449
Receivable for investments sold 10,372
Dividends receivable 296
Cash 4
Other assets 11
----------
Total Assets 1,338,132
----------
LIABILITIES
Payable for investments purchased 8,614
Payable to investment adviser 809
Other liabilities 71
----------
Total Liabilities 9,494
----------
Net Assets applicable to investors' beneficial interest $1,328,638
==========
See accompanying notes to financial statements.
</TABLE>
11
<PAGE>
<TABLE>
SR&F SPECIAL PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 (a)
(All amounts in thousands)
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 4,676
Interest income 3,083
---------
7,759
Foreign taxes withheld (41)
---------
Total Investment Income 7,718
---------
EXPENSES
Management fees 5,249
Custodian fees 87
Accounting fees 35
Trustees' fees 32
Audit and legal fees 18
Other 61
---------
Total Expenses 5,482
---------
Net Investment Income 2,236
---------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gains on investments 90,138
Net realized gains on foreign currency transactions 2,514
Net change in unrealized appreciation or depreciation of
investments and foreign currency transactions 190,726
---------
Net Gains on Investments and Foreign
Currency Transactions 283,378
---------
Net Increase in Net Assets Resulting from Operations $ 285,614
=========
<FN>
(a) From commencement of operations on February 3, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
12
<PAGE>
<TABLE>
SR&F SPECIAL 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 $ 2,236
Net realized gains on investments and foreign
currency transactions 92,652
Net change in unrealized appreciation or depreciation
of investments 190,726
-----------
Net Increase in Net Assets Resulting
from Operations 285,614
-----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 1,189,884
Withdrawals (146,860)
-----------
Net Increase from Transactions in
Investors' Beneficial Interests 1,043,024
-----------
Net Increase in Net Assets 1,328,638
TOTAL NET ASSETS
Beginning of Period --
-----------
End of Period $ 1,328,638
===========
<FN>
(a) From commencement of operations on February 3, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION OF THE SR&F SPECIAL PORTFOLIO
The SR&F Special 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 Special
Fund contributed $1,096,779 in securities and other assets. On February 14,
1997, Stein Roe Advisor Special 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 Special Fund and Stein Roe Advisor Special Fund owned 99.99
percent and .01 percent, respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of Stein Roe Advisor
Special 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.
FORWARD CURRENCY EXCHANGE CONTRACTS
At September 30, 1997, the Portfolio had entered into forward currency exchange
contracts under which it is obligated to exchange currencies at specified
future dates. Risks arise from the possible inability of counterparties to meet
the terms of their contracts and from movements in currency values. The
Portfolio had the following outstanding contracts at September 30, 1997:
Contract To
SETTLEMENT DATE RECEIVE DELIVER
November 6, 1997 $17,430 26,387 CHF
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net unrealized depreciation of $831 on these contracts at September 30,
1997, is included in "payable for investments purchased" in the accompanying
financial statements.
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 it 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 and net
realized capital gains annually, which 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.
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 .75 of 1 percent of average daily net assets up
to $500 million, .70 of 1 percent of the next $500 million, .65 of 1 percent of
the next $500 million, and .60 of 1 percent thereafter.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
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, .10 of 1 percent of the next $500 million, and
.075 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 1.45 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 subtransfer 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
$35, 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 $32,
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
$91,059 and $266,715, respectively.
At September 30, 1997, the cost of investments in the Portfolio for federal
income tax purposes and for financial reporting were $726,903 and $725,349,
respectively. Unrealized appreciation and depreciation on a tax basis were
$601,693 and $1,147, 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.
16
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
STEIN ROE ADVISOR SPECIAL 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 loss (0.03)
Net realized and unrealized gains on investments 2.49
----------
Total from investment operations 2.46
----------
NET ASSET VALUE, END OF PERIOD $ 12.46
==========
Ratio of net expenses to average net assets (b) 1.44%*
Ratio of net investment income to average net assets (c) (0.46%)*
Total return 24.60%
Net assets, end of period $ 125
<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 86.39 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>
17
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
SR&F SPECIAL PORTFOLIO
<CAPTION>
Period
Ended
September 30,
1997(a)
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Ratio of net investment income to average net assets 0.31%*
Ratio of net expenses to average net assets 0.75%*
Portfolio turnover rate 8%
Average commissions (per share) $ 0.0382
<FN>
* Annualized
(a) From commencement of operations on February 3, 1997.
</FN>
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of:
Stein Roe Advisor Special Fund
SR&F Special Portfolio
We have audited the accompanying balance sheet of the Stein Roe Advisor Special
Fund and the accompanying balance sheet, including the schedule of investments,
of the SR&F Special 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 Special 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 Special Fund and the SR&F
Special 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
19
<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
20
<PAGE>
Liberty Financial Investments, Inc., distributor
Member SIPC 11/97
<PAGE>
