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STEIN ROE ADVISOR GROWTH STOCK FUND Annual report
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[GRAPHIC OMITTED]
September 30, 1998
Not FDIC May Lose Value
Insured No Bank Guarantee
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PRESIDENT'S MESSAGE
TO OUR SHAREHOLDERS
[PHOTO]
We are pleased to present this annual report for Stein Roe Advisor Growth Stock
Fund. This report covers the 12 months ended September 30, 1998.
What goes up...
Until July, it appeared as if the equity markets were set to deliver another
year of record gains. Growth was supported by low inflation, consumer confidence
and a strong dollar. Money flooded the equity markets as domestic and
international investors sought to participate in what they hoped would be
another record year for the U.S. stock market. Through its high point on July
17, the equity market was up 25.54 percent year-to-date as measured by the S&P
500 Index, following a period of average annual gains of more than 30 percent
for the past three fiscal years.*
By the end of August, however, we were reminded that what goes up comes down, as
equity markets gave back all of their gains for the year, much during a dramatic
one-day drop of 512 points, or 6.4 percent on August 31. At the end of September
(the end of the Fund's fiscal year), the Dow Jones Industrials Average, at
7842.62, was 0.3 percent below where it was twelve months before.
What happened
The reason for the retreat had its roots primarily in overseas events. Southeast
Asia continued to suffer economic and financial crises throughout the year. Then
in August, Asian woes spread to other developing nations as Latin American
markets suffered and the Russian ruble devalued. This created selling pressure
in U.S. markets as investors feared that economic crises in developing nations
could stifle our economy, which is dependent, in part on healthy markets for
exported goods. Moreover, concerns about the sustainability of U.S. corporate
earnings and the level of interest rates heightened fears about a possible
slowdown in growth. The confluence of these negative forces overwhelmed U.S.
markets in August and September, creating the resulting weak market returns
noted above.
Back from the depths
Then on October 15, 1998, the Federal Reserve took the unusual step of lowering
two key interest rates between its regular meetings. This catalyzed a
significant market rally, which was sustained by generally better-than-expected
third quarter financial results reported by many major U.S. companies. As of the
writing of this letter, markets have recovered considerably from their August 31
lows, although not to the levels reached prior to that date.
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2
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Looking forward
No one knows for certain what lies ahead for the U.S. equity markets. What we
can assess is that the Asian problems appear to have a ways to go before they
are fully resolved and that the continued durability of corporate earnings may
have further implications for the equity markets. In addition, many market
observers believe that, following extraordinary gains in 1995, 1996 and 1997,
the S&P 500 Index* will likely begin to deliver returns more in line with
historical trends.
A reminder of risk
In our experience, market declines, while unsettling, are normal. While the
recent market volatility has reminded us of the significance of market
downturns, it also should remind us that history has shown that investors can
lose opportunities when they bail out of the market. In fact, about the only
thing worse than experiencing a bear market is missing out on the potential that
a bull market will follow. While past performance cannot predict future results,
it is important to note that long-term growth investors have not lost money in
any 15-year period of the stock market's existence, as represented by the S&P
500.+ As always, we look forward to serving your investment needs.
Sincerely,
/s/ Thomas W. Butch
Thomas W. Butch
President
October 26, 1998
* The Standard & Poor's 500 Index is an unmanaged index that tracks the
performance of widely held, large-capitalization U.S. stocks. Unlike mutual
funds, indexes are not investments, do not incur fees or expenses and are
not professionally managed. It is not possible to invest directly in an
index.
+ Used with permission. (C) 1997. Ibbotson Associates, Inc. All rights
reserved. (Certain portions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.)
Because market and economic conditions change frequently, there can be no
assurance that the trends described above or on the following pages will
continue.
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3
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PORTFOLIO MANAGEMENT REPORT
Erik Gustafson is portfolio manager of Stein Roe Advisor Growth Stock Fund and
SR&F Growth Stock Portfolio.
How did the Fund perform?
The Fund's Class A shares had a total return of 5.67 percent(1) for this fiscal
year ended September 30, 1998, based on net asset value. The Fund outperformed
the Lipper growth fund peer group average return of negative 1.44 percent.(2)
What influenced the Fund's performance?
For most of the year, large-cap growth companies produced strong returns. The
S&P 500 gained 22 percent from September 30, 1997, through mid-July 1998. Then
the markets corrected due to continued emerging market concerns, political
problems surrounding President Clinton and general global deflation worries.
Although large-cap growth stocks continued to perform ahead of all other equity
groups, all equity markets suffered.
Do you believe the recent correction will change investor sentiment?
The markets often react strongly to short-term events. Markets are
forward-looking which means they react according to the way investors believe
the economy will grow and function in future months. Historically, when the
economy has looked uncertain or slow, the markets have gone down. However, with
no significant indications of recession in the United States and firm prospects
for economic growth over the long term, investor sentiment should remain
positive.
In what areas are the portfolio's investments focused?
We continue to find what we think are attractive investment opportunities in
large-cap U.S. growth companies. We favor sectors that will benefit from the
demographic aging of the U.S. populace -- mainly health care and financial
services. The health care companies we have the most confidence in are American
Home Products, Eli Lilly and Pfizer (3.2 percent, 3.7 percent and 3.6 percent of
total net assets, respectively). In financial services, we favor
Top Ten Equity Holdings
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1. Cisco Systems ...............5.1%
2. Paychex......................4.2%
3. Lucent Technologies..........3.8%
4. Microsoft....................3.8%
5. Eli Lilly &Company...........3.7%
6. MCI WorldCom ...............3.7%
7. Pfizer.......................3.6%
8. TimeWarner...................3.6%
9. Intel .......................3.5%
10. Fannie Mae..................3.5%
Holdings are calculated as a percentage of the total net assets of the SR&F
Growth Stock Portfolio. Because the Portfolio is actively managed, there can be
no guarantee the Portfolio will continue to hold these securities in the future.
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4
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Travelers Group and American International Group (2.6 percent and 3.2 percent,
respectively). We have faith that these companies will be able to meet their
earnings expectations and continue to grow for the next several years. We also
continue to favor certain companies in the technology area, specifically,
telecommunications and information services companies such as Cisco Systems,
Lucent Technologies, Tellabs and Microsoft (5.1 percent, 3.8 percent, 2.4
percent and 3.8 percent of total net assets, respectively). We believe that the
Internet and global networking will continue to shape the world and that
companies in these industries will benefit from demand for new products.
Did any of the portfolio's holdings suffer form international turmoil?
Many of the leading U.S. multinational companies held by the portfolio have a
substantial presence in Asia and therefore have been negatively influenced by
the crisis in that region. For example, Coca-Cola (2.1 percent of total net
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Sector Breakdown
[PIE CHART OMITTED]
Technology: .......................27%
Consumer Non-Cyclical:.............25%
Financial: ........................19%
Consumer Cyclical: ................13%
Industrial: .......................10%
Utilities: .........................4%
Energy: ............................2%
Sectors are calculated as a percentage of the total equity holdings of the
SR&F Growth Stock Portfolio. Because the Portfolio is actively managed,
there can be no guarantee the Portfolio will continue to maintain this
sector allocation. The sector classifications on this page are based upon
the Adviser's defined criteria as used in the investment process.
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assets) earns about 75 percent of its profits overseas. When global economies
are under pressure, a company with this level of exposure will inevitably
suffer. Financial services holdings with direct exposure to Asia were also hurt,
and technology companies that rely on trade with Asia lost value due to slower
demand.
However, we balance out global exposure with strong positions in domestic
companies that are less affected by world economies crises. For example, one of
the portfolio's largest sectors, drug and health care companies, continued to
provide strong returns because people's need for medicine is constant. And as
baby boomers age, their demand for health care products and services should
increase.
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5
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Did you sell holdings when the markets declined?
We did not lose confidence and participate in the sell-off. We believe that the
strength of the companies in our portfolio may allow for a strong rebound when
markets come back.
Any thoughts about what lies ahead?
Economic growth is slowing around the world. This should support a further
interest rate reduction by the Federal Reserve Board. Historically, lower
interest rates have improved the valuations of large-cap growth stocks.
Therefore, we remain optimistic about the growth prospects of large-cap
companies.
(1) Stein Roe Advisor Growth Stock Fund invests all of its investable assets in
SR&F Growth Stock Portfolio, which has the same investment objective and
substantially the same investment policies as the Fund. The Fund commenced
operations on 2/14/97, but until 10/15/97 offered only the shares that are now
designated as Class K shares. The historical performance of Class K shares for
the period prior to 2/14/97, and the historical performance of each other class
of shares for the period prior to 10/15/97, is based on the performance of SR&F
Growth Stock Portfolio and its predecessor, restated to reflect the sales
charges, the 12b-1 fees and other expenses applicable to that class as set forth
in the prospectus under "Fee Table," without giving effect to any fee waivers
described therein and assuming reinvestment of all dividends and capital gains.
Performance results reflect any voluntary waivers or reimbursements of Fund
expenses by the Adviser. Absent these waivers or reimbursement arrangements,
performance results would have been lower. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
(2) Source: Lipper Analytical Services, Inc. Lipper rankings are based on the
Lipper Growth Funds category. For the twelve-month period ended September 30,
1998, the Fund's Class Kshares ranked in the 2nd quartile (273rd out of 934
funds).
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. Total
return performance includes changes in share price at net asset value (NAV) and
reinvestment of income and capital gains distributions. The S&P 500 is and
unmanaged group of stocks that differs from the Fund; it is not available for
direct investment. According to Lipper Analytical Services, Inc., a monitor of
mutual fund performance, the average annual returns for the Fund's growth fund
peer group for the one-, five- and 10-year periods ended September 30, 1998,
were -1.44 percent, 14.35 percent and 14.56 percent, respectively.
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6
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Stein Roe Advisor Growth Stock Fund vs.
The Standard & Poor's 500 Index
Change in Value of $10,000 from 9/30/88 - 9/30/98
Class A Shares Based on NAV and POP
[The following table was originally a mountain graph in the printed materials.]
Class A
Hypothetical
Investment
POP NAV of $10,000 in:
Value Value
Period w/Load w/out Load S&P 500 Monthly Reinvested
- ------ ------ ---------- --------------------------
09/30/88 9,425 10,000 $10,000
12/31/88 9,468 10,046 $10,308
03/31/89 10,183 10,804 $11,039
06/30/89 11,256 11,943 $12,011
09/30/89 12,631 13,401 $13,295
12/31/89 12,791 13,571 $13,569
03/31/90 12,496 13,258 $13,160
06/30/90 14,483 15,366 $13,986
09/30/90 12,069 12,805 $12,067
12/31/90 12,871 13,656 $13,147
03/31/91 14,947 15,859 $15,053
06/30/91 15,093 16,014 $15,017
09/30/91 16,442 17,445 $15,819
12/31/91 18,736 19,879 $17,143
03/31/92 17,917 19,010 $16,711
06/30/92 17,607 18,681 $17,028
09/30/92 18,749 19,893 $17,565
12/31/92 20,219 21,452 $18,448
03/31/93 19,762 20,967 $19,253
06/30/93 19,305 20,483 $19,345
09/30/93 19,646 20,844 $19,843
12/31/93 20,731 21,996 $20,303
03/31/94 19,518 20,709 $19,534
06/30/94 18,935 20,090 $19,616
09/30/94 19,998 21,218 $20,573
12/31/94 19,889 21,102 $20,570
03/31/95 21,314 22,614 $22,570
06/30/95 23,226 24,643 $24,722
09/30/95 25,556 27,115 $26,685
12/31/95 26,895 28,536 $28,290
03/31/96 28,141 29,858 $29,808
06/30/96 29,996 31,826 $31,145
09/30/96 30,841 32,722 $32,108
12/31/96 32,429 34,407 $34,782
03/31/97 32,324 34,296 $35,716
06/30/97 38,799 41,166 $41,946
09/30/97 40,927 43,424 $45,087
12/31/97 43,212 45,848 $46,382
03/31/98 47,968 50,895 $52,847
06/30/98 50,895 54,000 $54,601
09/30/98 43,248 45,887 $49,182
Cumulative Return 358.87% 358.87%
Cumulative Return
Based on $10,000 338.23% 358.87%
Growth of a $10,000 investment made on 9/30/88
As of 9/30/98
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Class A Class B Class C Class K
NAV POP NAV w/CDSC NAV w/CDSC NAV
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$45,887 $43,248 $42,773 $42,773 $42,700 $42,700 $45,941
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Average Annual Total Returns
As of September 30, 1998
Class A Class B Class C Class K
Inception 10/15/97 10/15/97 10/15/97 2/14/97
NAV POP NAV w/CDSC NAV w/CDSC NAV
1 Year 5.67% (0.40)% 4.93% (0.07)% 4.75% 3.75% 5.33%
5 Years 17.10 15.72 16.27 16.05 16.23 16.23 17.06
10 Years 16.46 15.77 15.19 15.19 15.62 15.16 16.47
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. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions.
Stein Roe Advisor Growth Stock Fund invests all of its investable assets in SR&F
Growth Stock Portfolio, which has the same investment objective and
substantially the same investment policies as the Fund. The Fund commenced
operations on 2/14/97, but until 10/15/97 offered only the shares that are now
designated as Class K shares. The historical performance of Class K shares for
the period prior to 2/14/97, and the historical performance of each other class
of shares for the period prior to 10/15/97, is based on the performance of SR&F
Growth Stock Portfolio and its predecessor, restated to reflect the sales
charges, the 12b-1 fees and other expenses applicable to that class as set forth
in the prospectus under "Fee Table," without giving effect to any fee waivers
described therein and assuming reinvestment of all dividends and capital gains.
Performance results reflect any voluntary waivers or reimbursements of fund
expenses by the Adviser. Absent these waivers or reimbursement arrangements,
performance results would have been lower. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
Public offering price (POP) performance reflects the maximum initial sales
charge of 5.75% applicable to Class A shares. The applicable contingent deferred
sales charge (CDSC) for Class B shares is 5% for 1 year and 2% for 5 years. The
CDSC for Class C shares is 1% for 1 year.
The Standard & Poor's 500 Index is an unmanaged index that tracks the
performance of widely held, large-capitalization U. S. stocks. Unlike mutual
funds, indexes are not investments, do no incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
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7
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SR&F GROWTH STOCK PORTFOLIO
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PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1998
(DOLLAR AMOUNTS IN THOUSANDS)
Number Market
Common Stocks (90.7%) of Shares Value
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Banks and Savings & Loans (2.9%)
NationsBank ........................................ 400,000 $21,400
Business Services (4.2%)
Paychex ............................................ 600,000 30,938
Computers and Computer Software (12.4%)
Cisco Systems (a) .................................. 600,000 37,087
Intel .............................................. 300,000 25,725
Microsoft (a) ...................................... 250,000 27,516
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90,328
Consumer-Related (4.8%)
Gillette ........................................... 450,000 17,213
Procter & Gamble ................................... 250,000 17,734
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34,947
Distribution - Retail (6.5%)
Home Depot ......................................... 600,000 23,700
Kohl's (a) ......................................... 500,000 19,500
Walgreen Co. ....................................... 100,000 4,406
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47,606
Electrical Equipment (3.1%)
General Electric ................................... 280,000 22,278
Financial Services (9.0%)
American Express ................................... 250,000 19,406
Fannie Mae ......................................... 400,000 25,700
Household International ............................ 550,000 20,625
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65,731
Food, Beverage and Tobacco (2.1%)
Coca-Cola .......................................... 270,000 15,559
Health Care (5.9%)
American Home Products ............................. 450,000 23,569
Johnson & Johnson .................................. 250,000 19,562
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43,131
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SR&F Growth Stock Portfolio Continued
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Number Market
of Shares Value
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Insurance (5.7%)
American International Group ..................... 300,000 $ 23,100
Travelers Group .................................. 500,000 18,750
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41,850
Leisure and Entertainment (5.1%)
Walt Disney ...................................... 450,000 11,391
Time Warner ...................................... 300,000 26,269
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37,660
Medical Supplies (3.2%)
Medtronic ........................................ 400,000 23,150
Oil and Gas (1.7%)
Schlumberger Limited ............................. 250,000 12,578
Pharmaceutical (10.0%)
Eli Lilly & Company .............................. 350,000 27,409
Merck & Company .................................. 150,000 19,434
Pfizer ........................................... 250,000 26,484
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73,327
Rubber, Plastic and Related (2.2%)
Illinois Tool Works .............................. 300,000 16,350
Telecommunications (11.9%)
LM Ericsson Telecommunications
ADRs, class B ................................. 800,000 14,700
Lucent Technologies .............................. 400,000 27,625
MCI WorldCom (a) ................................. 550,000 26,881
Tellabs (a) ...................................... 450,000 17,916
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87,122
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Total Common Stocks (Cost $365,916) .............. 663,955
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9
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SR&F Growth Stock Portfolio Continued
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Principal Market
Short-Term Obligations (9.4%) Amount Value
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Commercial Paper (9.4%)
Associates Corp. of North America
5.750% 10/1/98 ................................. $ 38,635 $ 38,635
Safeway 5.750% 10/2/98 ............................ 30,000 29,995
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Total Short-Term Obligations (Cost $68,630) ....... 68,630
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Total Investments (100.1%)
(Cost $434,546) ................................... 732,585
Other Assets, Less Liabilities (-0.1%) ............ (1,042)
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Total Net Assets (100.0%) ......................... $731,543
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Notes to Portfolio of Investments
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(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$298,039, consisting of gross unrealized appreciation of $319,003 and gross
unrealized depreciation of $20,964.
See accompanying Notes to Financial Statements.
10
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STEIN ROE ADVISOR GROWTH STOCK FUND
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STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(All amounts in thousands, except per-share data)
Assets
Investment in SR&F Growth Stock Portfolio, at value .............. $ 115,787
Receivable for fund shares sold .................................. 1,459
Receivable from investment adviser ............................... 98
Other assets ..................................................... 25
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Total assets .................................................. 117,369
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Liabilities
Payable for fund shares redeemed ................................. 302
Payable to distributor ........................................... 61
Payable to transfer agent ........................................ 27
Other liabilities ................................................ 70
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Total liabilities ............................................. 460
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Net assets .................................................... $ 116,909
=========
Analysis of Net Assets
Paid-in capital .................................................. $ 121,464
Net unrealized appreciation on investments ....................... 2,374
Undistributed net investment income .............................. --
Accumulated net realized loss on investments ..................... (6,929)
---------
Net assets .................................................... $ 116,909
=========
Class A
Net asset value per share (based on net assets of $39,521 and
3,345 shares issued and outstanding) .......................... $ 11.82
=========
Maximum offering price per share (includes 5.75% initial
sales charge) ................................................. $ 12.54
=========
Class B
Net asset value per share (based on net assets of $64,148 and
5,463 shares issued and outstanding) .......................... $ 11.74
=========
Class C
Net asset value per share (based on net assets of $10,472 and
894 shares issued and outstanding) ............................ $ 11.72
=========
Class K
Net asset value per share (based on net assets of $2,768 and
233 shares issued and outstanding) ............................ $ 11.86
=========
See accompanying Notes to Financial Statements.
11
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STEIN ROE ADVISOR GROWTH STOCK FUND
================================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(All amounts in thousands)
Investment Income
Dividends allocated from SR&F Growth Stock Portfolio .............. $ 496
Interest allocated from SR&F Growth Stock Portfolio ............... 145
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Total income ................................................... 641
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Expenses
12b-1 distribution and service fees ............................... 503
Expenses allocated from SR&F Growth Stock Portfolio ............... 431
Transfer agent fees ............................................... 169
SEC and state registration fees ................................... 126
Administrative fees ............................................... 107
Accounting fees ................................................... 26
Printing and postage .............................................. 18
Amortization of organization expenses ............................. 15
Legal and audit fees .............................................. 15
Trustees' fees .................................................... 7
Other ............................................................. 31
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Total expenses ................................................. 1,448
Reimbursement of expenses by investment adviser ................... (160)
-------
Net expenses ................................................... 1,288
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Net investment loss ............................................ (647)
-------
Realized and Unrealized Gains (Losses) on Investments
Net realized losses on investments allocated from SR&F Growth
Stock Portfolio ................................................ (6,921)
Net change in unrealized appreciation or depreciation on
investments .................................................... 2,340
-------
Net losses on investments ...................................... (4,581)
-------
Net Decrease in Net Assets Resulting from Operations .............. $(5,228)
=======
See accompanying Notes to Financial Statements.
12
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SR&F ADVISOR GROWTH STOCK FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
THE PERIOD ENDED SEPTEMBER 30, 1997
(All amounts in thousands)
1998 1997 (a)
--------- ---------
Operations
Net investment loss ...................................... $ (647) $ --
Net realized losses on investments ....................... (6,921) (8)
Net change in unrealized appreciation or depreciation
on investments ........................................ 2,340 34
--------- -----
Net increase (decrease) in net assets resulting
from operations .................................... (5,228) 26
--------- -----
Share Transactions
Subscriptions to fund shares - Class A ................... 46,829 --
Redemptions of fund shares - Class A ..................... (6,434) --
--------- -----
40,395 --
--------- -----
Subscriptions to fund shares - Class B ................... 71,665 --
Redemptions of fund shares - Class B ..................... (3,980) --
--------- -----
67,685 --
--------- -----
Subscriptions to fund shares - Class C ................... 12,370 --
Redemptions of fund shares - Class C ..................... (1,334) --
--------- -----
11,036 --
--------- -----
Subscriptions to fund shares - Class K ................... 3,500 260
Redemptions of fund shares - Class K ..................... (730) (35)
--------- -----
2,770 225
--------- -----
Net increase from share transactions .................. 121,886 225
--------- -----
Net increase in net assets ............................ 116,658 251
Total Net Assets
Beginning of period ...................................... 251 --
--------- -----
End of period ............................................ $ 116,909 $ 251
========= =====
Undistributed Net Investment Income at End of Period ..... $ -- $ --
========= =====
(a) From commencement of operations on February 14, 1997.
See accompanying Notes to Financial Statements.
13
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SR&F GROWTH STOCK PORTFOLIO
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(All amounts in thousands)
Assets
Investments, at market value (cost $434,546) ...................... $732,585
Dividends receivable .............................................. 380
Cash .............................................................. 1
--------
Total assets ................................................... 732,966
--------
Liabilities
Payable for investments purchased ................................. 961
Payable to investment adviser ..................................... 358
Other liabilities ................................................. 104
--------
Total liabilities .............................................. 1,423
--------
Net assets applicable to investors' beneficial interest ........ $731,543
========
See accompanying Notes to Financial Statements.
14
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SR&F GROWTH STOCK PORTFOLIO
================================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(All amounts in thousands)
Investment Income
Dividends .......................................................... $ 5,194
Interest ........................................................... 1,544
--------
Total investment income ......................................... 6,738
--------
Expenses
Management fees .................................................... 4,252
Accounting fees .................................................... 42
Trustees' fees ..................................................... 24
Audit and legal fees ............................................... 19
Custodian fees ..................................................... 10
Other .............................................................. 123
--------
Total expenses .................................................. 4,470
--------
Net investment income ........................................... 2,268
--------
Realized and Unrealized Gains (Losses) on Investments
Net realized losses on investments ................................. (7,814)
Net change in unrealized appreciation or depreciation on
investments ..................................................... 32,197
--------
Net gains on investments ........................................ 24,383
--------
Net Increase in Net Assets Resulting from Operations ............... $ 26,651
========
See accompanying Notes to Financial Statements.
15
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SR&F GROWTH STOCK PORTFOLIO
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
AND THE PERIOD ENDED SEPTEMBER 30, 1997
(All amounts in thousands)
1998 1997 (a)
--------- ---------
Operations
Net investment income ................................. $ 2,268 $ 1,842
Net realized gains (losses) on investments ............ (7,814) 26,585
Net change in unrealized appreciation or depreciation
on investments ..................................... 32,197 53,294
--------- ---------
Net increase in net assets resulting from
operations ...................................... 26,651 81,721
--------- ---------
Transactions in Investors' Beneficial Interest
Contributions ......................................... 151,248 571,598
Withdrawals ........................................... (54,727) (44,948)
--------- ---------
Net increase from transactions in investors'
beneficial interest ............................. 96,521 526,650
--------- ---------
Net increase in net assets ......................... 123,172 608,371
Total Net Assets
Beginning of period ................................... 608,371 --
--------- ---------
End of period ......................................... $ 731,543 $ 608,371
========= =========
(a) From commencement of operations on February 3, 1997.
See accompanying Notes to Financial Statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
(All amounts in thousands)
Note 1. Organization
Stein Roe Advisor Growth Stock Fund (the "Fund") is a multi-class series of
Stein Roe Advisor Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust. The Fund invests substantially all
of its assets in SR&F Growth Stock Portfolio (the "Portfolio"), which seeks to
achieve long-term capital appreciation by investing primarily in common stocks
and other equity-type securities that are believed to have long-term
appreciation potential. The Fund currently offers four classes of shares: Class
A, Class B, Class C and Class K. Class A shares are offered at net asset value
plus a sales charge imposed at the time of purchase; Class B shares are offered
at net asset value and are subject to a declining contingent deferred sales
charge on redemptions made within six years after purchase; Class C shares are
offered at net asset value and are subject to a contingent deferred sales charge
on redemptions made within one year after purchase; and Class K shares are
offered at net asset value only through certain intermediaries as disclosed in
the prospectus. Class B shares automatically convert to Class A shares after
approximately eight years. Class C and Class K shares do not convert. The Fund
commenced offering Class A, Class B and Class C shares on October 15, 1997.
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 February 3, 1997. At commencement,
Stein Roe Growth Stock Fund contributed $474,861 in securities and other assets
in exchange for beneficial ownership of the Portfolio. At February 14, 1997,
Stein Roe Advisor Growth Stock Fund contributed cash of $100. The Portfolio
allocates income, expenses, realized and unrealized gains and losses to each
investor on a daily basis, based on their respective percentage of ownership. At
September 30, 1998, Stein Roe Growth Stock Fund and Stein Roe Advisor Growth
Stock Fund owned 84.2 percent and 15.8 percent, respectively, of the Portfolio.
Note 2. Significant Accounting Policies
The following summarizes the significant accounting policies of the Fund and
Portfolio. The 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.
Security Valuations
All securities are valued as of September 30, 1998, the last business day of the
period. Securities traded on national securities exchanges are valued at the
last reported sales price or, if there are
17
<PAGE>
Notes to Financial Statements Continued
================================================================================
no sales, at the latest bid quotation. Each over-the-counter security for which
the last sale price is available from NASDAQ is valued at that price. All other
over-the-counter securities for which reliable quotations are available are
valued at the latest bid quotation. Securities and other assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, and interest income is recorded on the accrual
basis. Interest income includes discount accretion on fixed income securities.
Realized gains and losses from investment transactions are reported on an
identified cost basis.
Multi-Class Allocations
All income, expenses (other than transfer agent fees and 12b-1 distribution and
services fees), realized and unrealized gains and losses are allocated to each
class proportionately based on their net assets on a daily basis for purposes of
determining the per-share net asset value of each class.
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 their respective percentages of ownership.
The Fund intends to utilize provisions of federal income tax law, which 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, 1998, the Fund had a capital loss carryforward of $6,929, which
expires in 2005 and 2006.
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. Permanent differences in the
recognition or classification of income between the financial statements and tax
earnings are reclassified to paid-in capital.
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
18
<PAGE>
Notes to Financial Statements Continued
================================================================================
"Adviser"), an indirect, wholly-owned subsidiary of Liberty Financial Companies,
Inc. ("Liberty"), for its services as investment adviser and manager.
The management fee for the Portfolio is computed at an annual rate of .60 of
1 percent of average daily net assets up to $500 million, .55 of 1 percent of
the next $500 million, and .50 of 1 percent thereafter. The administrative fee
for the Fund is 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 Adviser also provides fund accounting services. For the period ended
September 30, 1998, the Fund and Portfolio incurred charges of $26 and $42,
respectively.
The Adviser has agreed to reimburse the Fund to the extent that its annual
expenses exceed 1.40 percent of average daily net assets for Class A shares,
2.10 percent of average daily net assets for Class B and Class C shares, and
1.35 percent of average daily net assets for Class K shares through January 31,
2000, subject to earlier termination by the Adviser on 30 days notice.
Shares of the Fund are distributed by Liberty Funds Distributor, Inc. (the
"Distributor"), an indirect, wholly-owned subsidiary of Liberty. The trustees of
the Trust have adopted a plan of distribution and service pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Plan"). The Plan provides that,
as compensation for the personal service and/or maintenance of shareholder
accounts, the Distributor receives from the Fund a service fee at an annual rate
not to exceed 0.25 percent of average daily net assets attributed to each class
of shares other than Class K shares. The Plan also provides that, as
compensation for expenses related to the promotion and distribution of Fund
shares, the Distributor receives a distribution fee at an annual rate not to
exceed 0.10 percent of average daily net assets attributed to Class A shares,
and 0.75 percent of the average daily net assets attributed to each of its Class
B and Class C shares. The Plan further provides that, as compensation for
services and/or distribution, the Distributor receives a fee at an annual rate
not to exceed 0.25 percent of the average daily net assets attributable to Class
K shares. The Distributor currently limits the Class A annual distribution fee
to 0.05 percent of average daily net assets, subject to termination at any time
without shareholder approval. For the period ended September 30, 1998, the Fund
incurred 12b-1 distribution and service charges of $85, $353, $62 and $3 for
Class A, Class B, Class C and Class K shares, respectively.
Transfer agent fees are paid to Liberty Funds Services, Inc., an indirect,
wholly-owned subsidiary of Liberty. Prior to October 15, 1997, transfer agent
fees were paid to SteinRoe Services Inc., a direct, wholly-owned subsidiary of
Liberty. Transfer agent fees for Class A, Class B and Class C shares are
computed an annual rate of 0.236 percent of average daily
19
<PAGE>
Notes to Financial Statements Continued
================================================================================
net assets. Transfer agent fees for Class K shares are computed an annual rate
of 0.30 percent of average daily net assets. For the period ended September 30,
1998, the Fund incurred transfer agent charges of $67, $83, $15 and $4 for Class
A, Class B, Class C and Class K shares, respectively.
Certain officers and trustees of the Trust are also officers of the Adviser.
The compensation of trustees not affiliated with the Adviser for the Fund and
the Portfolio for the year ended September 30, 1998, was $7 and $24,
respectively. No remuneration was paid to any other trustee or officer of the
Trust.
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 year ended September 30,
1998.
Note 5. Investment Transactions
The Portfolio's aggregate cost of purchases and proceeds from sales other than
short-term obligations for the year ended September 30, 1998, were $327,934 and
$269,847, respectively.
Note 6. Capital Share Transactions
The following table summarizes Fund share activity during the reporting period:
Period Ended
September 30,
Class A Shares 1998 (a)
- -------------- -------------
Subscriptions to fund shares 3,848
Redemptions of fund shares (503)
-----
Net increase in fund shares 3,345
=====
Period Ended
September 30,
Class B Shares 1998 (a)
- -------------- -------------
Subscriptions to fund shares 5,778
Redemptions of fund shares (315)
-----
Net increase in fund shares 5,463
=====
Period Ended
September 30,
Class C Shares 1998 (a)
- -------------- -------------
Subscriptions to fund shares 998
Redemptions of fund shares (104)
-----
Net increase in fund shares 894
=====
Year Period
Ended Ended
Class K Sept. 30, Sept. 30,
Shares 1998 1997 (b)
- -------- --------- ---------
Subscriptions to
fund shares 268 25
----- -----
Redemptions of
fund shares (57) (3)
----- -----
Net increase in
fund shares 211 22
===== =====
(a) From commencement of multi-class offering on October 15, 1997.
(b) From commencement of operations on February 14, 1997.
20
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
Stein Roe Advisor Growth Stock Fund
Selected per-share data (for a share outstanding throughout the period), ratios
and supplemental data.
Period Ended
September 30,
Class A 1998 (a)
---------
Net Asset Value, Beginning of Period.............................. $ 11.59
--------
Income From Investment Operations
Net investment loss............................................ (0.04)
Net realized and unrealized gains on investments............... 0.27
--------
Net Asset Value, End of Period.................................... $ 11.82
========
Ratio of net expenses to average net assets (b)................... 1.40%(d)
Ratio of net investment loss to average net assets (c)............ (0.50)%(d)
Total return (c).................................................. 1.98%
Net assets, end of period (000's)................................. $39,521
(a) From commencement of multi-class offering on October 15, 1997.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 1.63
percent for the period ended September 30, 1998.
(c) Computed giving effect to the investment adviser's expense limitation
undertaking.
(d) Annualized
Period Ended
September 30,
Class B 1998 (a)
---------
Net Asset Value, Beginning of Period.............................. $ 11.59
--------
Income From Investment Operations
Net investment loss............................................ (0.08)
Net realized and unrealized gains on investments............... 0.23
--------
Net Asset Value, End of Period.................................... $ 11.74
========
Ratio of net expenses to average net assets (b)................... 2.10%(d)
Ratio of net investment loss to average net assets (c)............ (1.20)%(d)
Total return (c).................................................. 1.29%
Net assets, end of period (000's)................................. $ 64,148
(a) From commencement of multi-class offering on October 15, 1997.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 2.31
percent for the period ended September 30, 1998.
(c) Computed giving effect to the investment adviser's expense limitation
undertaking.
(d) Annualized
21
<PAGE>
Financial Highlights Continued
================================================================================
Stein Roe Advisor Growth Stock Fund
Selected per-share data (for a share outstanding throughout the period), ratios
and supplemental data.
Period Ended
September 30,
Class C 1998 (a)
---------
Net Asset Value, Beginning of Period.............................. $ 11.59
--------
Income From Investment Operations
Net investment loss............................................ (0.08)
Net realized and unrealized gains on investments............... 0.21
--------
Net Asset Value, End of Period.................................... $ 11.72
========
Ratio of net expenses to average net assets (b)................... 2.10%(d)
Ratio of net investment loss to average net assets (c)............ (1.21)%(d)
Total return (c).................................................. 1.12%
Net assets, end of period (000's)................................. $ 10,472
(a) From commencement of multi-class offering on October 15, 1997.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 2.30
percent for the period ended September 30, 1998.
(c) Computed giving effect to the investment adviser's expense limitation
undertaking.
(d) Annualized
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, September 30,
Class K 1998 1997 (a)
-------- --------
<S> <C> <C>
Net Asset Value, Beginning of Period.................... $ 11.26 $ 10.00
------- -------
Income From Investment Operations
Net investment loss.................................. (0.03) (0.01)
Net realized and unrealized gains on investments..... 0.63 1.27
------- -------
Net Asset Value, End of Period.......................... $ 11.86 $ 11.26
======= =======
Ratio of net expenses to average net assets (b)......... 1.35% 1.35%(d)
Ratio of net investment loss to average net assets (c).. (0.47%) (0.22%)(d)
Total return (c)........................................ 5.33% 12.60%
Net assets, end of period (000's)....................... $ 2,768 $ 251
</TABLE>
(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 by the investment adviser, this ratio would have been 2.07
percent and 56.10 percent for the year ended September 30, 1998, and the
period ended September 30, 1997, respectively.
(c) Computed giving effect to the investment adviser's expense limitation
undertaking.
(d) Annualized
22
<PAGE>
Financial Highlights Continued
================================================================================
SR&F Growth Stock Portfolio
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, September 30,
1998 1997 (b)
----------- -----------
<S> <C> <C>
Ratio of net expenses to average net assets ............ 0.61% 0.63%(a)
Ratio of net investment income to average net assets.... 0.31% 0.52%(a)
Portfolio turnover rate................................. 39% 22%
</TABLE>
(a) Annualized
(b) From commencement of operations on February 3, 1997.
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
To the Board of Trustees and Shareholders of:
Stein Roe Advisor Growth
Stock Fund
SR&F Growth Stock Portfolio
We have audited the accompanying statement of assets and liabilities of Stein
Roe Advisor Growth Stock Fund and the accompanying statement of assets and
liabilities, including the portfolio of investments, of SR&F Growth Stock
Portfolio as of September 30, 1998, 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 Growth Stock Portfolio included
confirmation of securities owned as of September 30, 1998, 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 Growth Stock Fund and SR&F Growth
Stock Portfolio at September 30, 1998, the results 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 6, 1998
24
<PAGE>
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Stein Roe Advisor Growth Stock fund is:
Liberty Funds Services, Inc.*
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Stein Roe Advisor Growth Stock Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call
1-800-426-3750 and additional reports will be sent to you.
This report has been prepared for shareholders of Stein Roe Advosor Growth Stock
fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the Fund, and with the most
recent copy of the Liberty Funds Distributor, Inc. Performance Update.
*Effective October 1, 1998, Colonial Investors Service Center, Inc. -- the
Transfer Agent for Colonial, Stein Roe Advisor, Crabbe Huson and Newport Funds
- -- changed its name to Liberty Services, Inc.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
HOW TO REACH US
BY PHONE OR BY MAIL
BY TELEPHONE
Customer Connection - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends and capital gains information .......... press 1
For account information ........................................... press 2
To speak to a service representative .............................. press 3
For yield and total return information ............................ press 4
For duplicate statements or new supply of checks .................. press 5
To order duplicate tax forms and year-end statements .............. press 6
(February through May)
To review your options at any time during your call ............... press *
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
Telephone Transaction Department - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
Literature - 1-800-426-3750
To request literature on any fund distributed by Liberty Financial Investments,
call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
- --------------------------------------------------------------------------------
26
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
account:
Transaction confirmations: Each time you make a purchase, sale or exchange, you
recieve a confirmation statement within just a few days.
Quarterly Statements: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends.) This statement
also provides year-to-date information.
Liberty funds Distributor Investor Opportunities: Mailed with your quarterly
account statements, this newsletter highlights timely investment strategies,
portfolio manager commentary and shareholder service updates.
Tax Forms and Year-End Tax Guide: Easy-to-use forms and timely information are
designed to make tax reporting simpler: (Usually mailed in January.)
Average Cost Basis Statements: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES
THOMAS W. BUTCH
President, Mutual Fund Division and Director, Stein Roe & Farnham Incorporated
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
CHARLES R. NELSON
Van Voorhis Professor of Political Economy, University of Washington
THOMAS C. THEOBALD
Managing Partner, William Blair Capital Partners
[LOGO] LIBERTY
COLONIAL . CRABBE HUSON . NEWPORT . STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1998
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com SG-02/109G-1098 (11/98) 98/1252
- --------------------------------------------------------------------------------
