STEIN ROE ADVISOR FUNDS
SEMIANNUAL REPORT
MARCH 31, 1999
PHOTO
STEIN ROE ADVISOR FUNDS
GROWTH FUND
STEIN ROE ADVISOR SPECIAL FUND
LOGO
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(R)
<PAGE>
CONTENTS
FUND PERFORMANCE.............................................................1
How Stein Roe Advisor Special Fund has done over time
MANAGEMENT DISCUSSION........................................................2
Portfolio Manager Interview and Growth of a $10,000
Investment Chart
PORTFOLIOS OF INVESTMENTS....................................................4
Complete lists of investments with market values
FINANCIAL STATEMENTS.........................................................8
Statements of assets and liabilities, operations
and changes in net assets
NOTES TO FINANCIAL STATEMENTS...............................................14
FINANCIAL HIGHLIGHTS........................................................16
Selected per-share data
Must be preceded or accompanied by a prospectus.
<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 (see below). 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).
SIX MONTH CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1999
Past 6 Past 1 Past 5 Past 10
Months Year Years Years
------------------------------------------
Stein Roe Advisor Special Fund 1.48% -21.47% 9.20% 12.21%
S&P Midcap 400 Index 20.02 0.45 18.20 17.43
Lipper Midcap Fund Average 23.42 0.24 15.79 14.49
Number of Funds in Peer Group 394 354 121 45
Source: Lipper, Inc., a monitor of mutual fund performance.
CHART
INVESTMENT COMPARISON
GROWTH OF A 10,000 INVESTMENT
ADVISOR SPECIAL FUND
ADVISOR
SPECIAL S&P MIDCAP LIPPER MIDCAP FUND
FUND 400 INDEX AVERAGE (45 FUNDS)
3/31/89 10000 10000 10000
3/31/90 12817 11987 11733
3/31/91 14280 14435 13552
3/31/92 16324 17532 16224
3/31/93 19481 20368 18251
3/31/94 20608 21619 19938
3/31/95 22304 23420 21701
3/31/96 27167 30119 28015
3/31/97 28833 33318 29039
3/31/98 41279 49656 41117
3/31/99 32123 49880 40380
Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of income and capital
gains distributions. The illustration assumes a $10,000 investment on March 31,
1989 and reinvestment of income and capital gains distributions. The S&P MidCap
400 Index is an unmanaged group of securities that differs from the composition
of each Stein Roe fund; they are not available for direct investment. The
Advisor currently limits annual expenses to 1.45% of average daily net assets of
the Stein Roe Advisor Special Fund; absent these limits, total returns would be
less. Historical performance for Class K shares for the period prior to Feb. 14,
1997 is based on the performance of the SR&F Special Portfolio, restated to
reflect 12b-1 fees and any other expenses applicable to that class, without
giving any effect to fee waivers and assuming reinvestment of dividends and
capital gains.
1
<PAGE>
Questions & Answers
AN INTERVIEW WITH GERRY SANDEL, PORTFOLIO
MANAGER OF ADVISOR SPECIAL FUND AND SR&F SPECIAL PORTFOLIO*
FUND DATA
INVESTMENT OBJECTIVE:
Stein Roe Advisor Special Fund seeks long-term growth by investing
primarily in the common stocks of midcapitalization companies. The Portfolio
generally purchases stocks of companies that the portfolio manager believes are
undervalued, underfollowed or out-of-favor.
Q: HOW DID THE FUND PERFORM FROM SEPTEMBER 30, 1998 TO MARCH 31, 1999?
SANDEL: In general, value investment disciplines remained out-of-favor with many
investors. Growth at any price seemed to be the market's dominant philosophy
during the period and the Fund's performance compared to that of the midcap fund
peer group - a group made up largely of growth funds - lagged.
We repositioned the portfolio last fall, adding many new stocks that we
thought were undervalued and appeared to offer long-term growth potential. This
helped further diversify the portfolio and helped the Fund generate better
results during the first calendar quarter of 1999. However, because of the
timing of the repositioning, the Fund's six-month results were lower than the
results achieved by the average midcap fund and lower than that of the Fund's
benchmark, the S&P MidCap 400 Index.
The repositioning also had a strong capital gain impact for
shareholders at the end of calendar year 1998. We had been stalling the
repositioning in the interest of managing the capital gain exposure deeply
embedded in the portfolio. We repositioned when we believed the time was right,
and although it caused a large realized capital gain for shareholders (in
calendar 1998), when we thought it was in the best interest of the Fund for the
long term.
Q: WHY DID YOU BELIEVE THE FUND NEEDED A SUBSTANTIAL REPOSITIONING LAST FALL?
SANDEL: We felt we needed to eliminate stocks that were not performing or did
not fit well with our midcap value strategy. In addition, we continued to
increase the number of stocks because we believed it could help reduce
volatility.
Q: WAS THE FUND IN A POSITION TO BENEFIT FROM THE MARKET RALLY IN NOVEMBER
AND DECEMBER?
SANDEL: We are a Fund that generally buys when others are selling and sells what
growth funds are buying. Our repositioning last fall resulted in our selling of
some stocks at lower prices than we would have liked. We aggressively sold
stocks in early November, before the large upward move in the market. This
adversely affected fourth quarter performance.
Most of the market's advance during the first half of fiscal 1999 was
generated by large-company growth stocks. To be true to our investment
parameters, we didn't buy any large-cap growth stocks just because this segment
of the market was doing well. We shop where the values are and have recently
been investing in smaller midcap companies.
With large caps outperforming other parts of the market, our job has
become more difficult. We'd rather focus on buying smaller undervalued stocks
that we believe offer ample opportunity to provide sustained, attractive
long-term performance. Some short-term oriented investors these days concentrate
on growth stocks with immediate capital appreciation prospects.
Q: WAS THERE A BIG DIFFERENCE IN THE TYPE OF STOCKS THAT DID WELL LAST FALL
COMPARED TO THE FIRST THREE MONTHS OF CALENDAR 1999?
SANDEL: The areas that hurt us at the end of last year helped us during the
first quarter of this year, including energy and technology. A rebound in oil
prices from $11 to $16 a barrel during this past winter helped energize stock
prices of major portfolio holdings such as Diamond Offshore (0.9% of net
assets), an offshore drilling company and Tidewater (1.1% of net assets), an
offshore boat and supply company.
2
<PAGE>
Q: WHAT HELPED PERFORMANCE TURN AROUND IN THE FIRST QUARTER OF 1999?
SANDEL: Product delays and pricing problems can sometimes cause stock price
volatility but also can create tremendous buying opportunity for a value fund
like ours. Last fall, we saw this happening in the technology sector, and we
purchased shares of Lam Research, Silicon Graphics and Seagate Technologies
(0.2%, 3.0% and 1.4% of net assets, respectively). These companies offered
substantial capital appreciation through March, and enhanced our six-month
results.
We've been watching office furniture makers because they were also hit
pretty hard. Though they are exposed to the economic cycle, they are not as
cyclical as some other areas. One furniture manufacturer, Steelcase, turned
around nicely for us (0.8% of net assets). We think they offer attractive
risk/reward opportunities at this time.
Q: WHERE ELSE DID YOU FOCUS PURCHASES DURING THE PERIOD?
Sandel: At this time last year, the vitamin nutrition supplement area was a
darling of Wall Street but these stocks were hit hard soon after. We found
opportunities there including stocks like Rexall Sundown and General Nutrition
Centers (0.5% and 1.1% of net assets, respectively), two companies with strong
turnaround potential.
Rexall Sundown has exclusive distribution rights in the United States
and select countries abroad for Cellasene, a product that reportedly helps
reduce cellulite. Our analysts anticipate Rexall's one-step, easy-to-use
products can attract substantial consumer demand as the company steps up its
U.S. marketing and distribution efforts.
Q: HOW WOULD YOU SUM UP THE PORTFOLIO'S CURRENT POSITIONING?
SANDEL: We are holding more stocks and we've diversified away from cyclicals
after their strong performance during the first quarter of calendar 1999. We've
kept some exposure in cyclicals and commodities. Offsetting our exposure in
those sectors, technology and energy helped balance the portfolio.
Past performance is no guarantee of future results. Share price and investment
returns will vary, so you may have gain or loss when you sell shares. Total
return includes changes in share price and reinvestment of all distributions.
Holdings are disclosed as a percentage of the SR&F Special Portfolio's total net
assets. Portfolio holdings are as of 3/31/99 and are subject to change.
Investments in smaller companies may experience greater market volatility. The
S&P MidCap 400 Index is an unmanaged group of securities that differs from the
composition of each Stein Roe fund; it is not available for direct investment.
The Advisor currently limits expenses to 1.45% of average daily net assets of
the Stein Roe Advisor Special Fund; absent these limits, total returns would be
less. Historical performance for Class K shares for the period prior to Feb. 14,
1997 is based on the performance of the SR&F Special Portfolio, restated to
reflect 12b-1 fees and any other expenses applicable to that class, without
giving any effect to fee waivers and assuming reinvestment of dividends and
capital gains.
* Effective May 6, 1999, the name of SR&F Special Portfolio has been changed to
SR&F Disciplined Stock Portfolio. On that date, Daniel K. Cantor was named
portfolio manager of the Fund and the Portfolio. Stein Roe Advisor Special Fund
will be liquidated on or before June 15, 1999.
3
<PAGE>
SR&F SPECIAL PORTFOLIO
Portfolio of Investments at March 31, 1999
(Dollar amounts in thousands)
(Unaudited)
NUMBER MARKET
COMMON STOCKS (87.9%) OF SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE (0.4%)
B. F. Goodrich............................................ 88,000 $ 3,020
Banks (4.4%)
Golden West Financial..................................... 153,900 14,697
Washington Mutual......................................... 382,600 15,639
-------
30,336
BUILDING - RESIDENTIAL/COMMERCIAL (0.3%)
Standard Pacific.......................................... 150,000 1,931
BUSINESS SERVICES (1.2%)
Interim Services (a)...................................... 550,000 8,250
CHEMICALS (0.9%)
Wellman................................................... 700,000 6,213
COMPUTER SERVICES (3.9%)
Creative Technology....................................... 367,000 4,198
Sequent Computer Systems.................................. 265,000 2,402
Silicon Graphics (a)...................................... 1,230,000 20,526
-------
27,126
DIVERSIFIED OPERATIONS (2.3%)
Aeroquip-Vickers.......................................... 40,500 2,321
Alexander & Baldwin....................................... 298,000 5,848
Eaton..................................................... 59,000 4,218
U.S. Industries........................................... 204,900 3,368
-------
15,755
DRUGS (2.8%)
Perrigo................................................... 2,621,500 19,006
ELECTRICAL EQUIPMENT (2.8%)
Littelfuse (a)............................................ 690,000 12,679
Littelfuse Warrants (a)................................... 547,200 6,703
-------
19,382
ELECTRONICS AND INSTRUMENTATION (3.0%)
AVX....................................................... 880,300 14,085
Kent Electronics (a)...................................... 511,000 5,078
Lam Research.............................................. 45,000 1,305
-------
20,468
ENERGY AND RELATED SERVICES (4.8%)
Cross Timbers Oil......................................... 1,766,225 12,474
Diamond Offshore Drilling................................. 192,000 6,072
Petroleum Geo-Services ADRs (a)........................... 447,400 6,823
Tidewater................................................. 291,000 7,530
-------
32,899
FINANCIAL SERVICES (0.3%)
The PMI Group............................................. 50,000 2,319
4
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SR&F SPECIAL PORTFOLIO CONTINUED
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH SERVICES AND EQUIPMENT (10.8%)
Acuson (a)............................................... 1,306,700 $19,519
Columbia/HCA Healthcare.................................. 604,900 11,455
First Health Group (a)................................... 895,200 14,379
HEALTHSOUTH.............................................. 210,000 2,178
Invacare................................................. 821,850 19,981
Mallinckrodt............................................. 262,700 6,994
-------
74,506
INDUSTRIAL PRODUCTS (2.3%)
Carlisle Companies....................................... 342,000 15,989
INSURANCE COMPANIES (3.5%)
20th Century Industries.................................. 1,091,700 17,740
IPC Holdings............................................. 175,000 3,478
Travelers Property Casualty - Class A.................... 73,000 2,610
-------
23,828
LEISURE AND ENTERTAINMENT (0.4%)
Brunswick................................................ 146,000 2,783
MACHINERY (4.4%)
AGCO..................................................... 500,000 3,281
Albany International - Class A........................... 256,840 4,816
Flowserve................................................ 315,000 4,902
Regal Beloit............................................. 106,000 1,915
Robbins & Myers.......................................... 139,300 2,403
Stewart & Stevenson Services............................. 1,724,400 13,256
-------
30,573
MANUFACTURING - GENERAL INDUSTRY (1.8%)
Dexter Corp. ............................................ 275,000 8,662
Smith (A.O.)............................................. 193,000 3,667
-------
12,329
METALS (2.9%)
Barrick Gold............................................. 550,000 9,384
Freeport-McMoRan Copper & Gold........................... 600,000 6,525
Newmont Mining........................................... 216,400 3,787
-------
19,696
METAL PROCESSORS (0.9%)
Timken................................................... 398,900 6,482
MINING AND AGRICULTURE (2.8%)
Cyprus Amax Minerals..................................... 715,000 8,669
Placer Dome.............................................. 947,300 10,597
-------
19,266
MOTOR VEHICLES (3.3%)
Dana..................................................... 150,000 5,700
Superior Industries International........................ 735,200 17,093
-------
22,793
OFFICE FURNISHINGS (0.9%)
Steelcase - Class A...................................... 384,000 5,832
PACKAGING (1.5%)
Crown Cork & Seal........................................ 336,000 9,597
PAPER & RELATED PRODUCTS (0.5%)
Glatfelter (P. H.)....................................... 308,000 3,446
5
<PAGE>
SR&F SPECIAL PORTFOLIO CONTINUED
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
STEEL (1.1%)
Carpenter Technology..................................... 300,000 $ 7,781
RETAIL (4.3%)
Borders Group (a)........................................ 310,000 4,359
Consolidated Stores (a).................................. 417,250 12,648
General Nutrition........................................ 535,800 7,501
Pier 1 Imports........................................... 375,000 3,047
Toys "R" Us.............................................. 121,000 2,276
-------
29,831
RUBBER (1.1%)
Bandag................................................... 85,000 2,391
Cooper Tire & Rubber..................................... 300,000 5,512
-------
7,903
SECURITY (1.8%)
Pittston Brink's Group................................... 540,200 12,695
SPECIALTY CHEMICALS (5.2%)
Imperial Chemical Industries ADRs........................ 375,400 13,444
Minerals Technologies.................................... 150,500 7,224
OM Group................................................. 459,500 15,164
-------
35,832
TECHNOLOGY SERVICES (1.4%)
Seagate Technology (a)................................... 335,800 9,927
Telecommunications (4.4%)
Andrew Corp. (a).........................................1,053,900 12,976
Telephone & Data Systems................................. 308,000 17,402
-------
30,378
TEXTILES AND APPAREL (4.5%)
Guilford Mills........................................... 220,000 1,925
Nautica Enterprises...................................... 165,000 1,867
Reebok International..................................... 211,000 3,350
Springs Industries - Class A............................. 126,000 3,410
Unifi.................................................... 785,475 10,015
Wolverine World Wide.....................................1,061,000 10,080
-------
30,647
VITAMINS & NUTRITION PRODUCTS (0.5%)
Rexall Sundown........................................... 175,000 3,358
WIRE & CABLE PRODUCTS (0.5%)
Belden................................................... 185,000 3,157
-------
TOTAL COMMON STOCKS (Cost $604,750) 605,334
-------
6
<PAGE>
SR&F SPECIAL PORTFOLIO CONTINUED
PRINCIPAL MARKET
SHORT-TERM OBLIGATIONS (12.2%) AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (12.2%)
Associates First Capital 5.000% 4/1/99.................... $32,040 $32,040
Safeway 5.150% 4/1/99..................................... 22,075 22,075
Volvo Treasury 5.100% 4/1/99.............................. 30,000 30,000
---------
Total Short-Term Obligations (Cost $84,115)............... 84,115 84,115
---------
- --------------------------------------------------------------------------------
Total Investments (100.1%)
(Cost $688,865) (b)....................................... 689,449
---------
Other Assets, Less Liabilities (-0.1%).................... (538)
---------
Total Net Assets (100.0%)................................. $688,911
=========
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
(a) Non-income producing security.
(b) At March 31, 1999, the cost of investments for federal income tax
purposes was $692,047. Net unrealized depreciation was $2,598,
consisting of gross unrealized appreciation of $91,604 and gross
unrealized depreciation of $94,202.
See accompanying Notes to Financial Statements.
7
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ADVISOR SPECIAL FUND
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1999
(All amounts in thousands, except per share data)
(Unaudited)
ASSETS
Investment in Portfolio, at value............................. $ 154
Cash.......................................................... 21
----------
Total assets ........................................ 175
----------
LIABILITIES
Payable to investment advisor................................. 29
Other liabilities............................................. 1
----------
Total liabilities.................................... 30
----------
Net assets........................................... $ 145
==========
ANALYSIS OF NET ASSETS
Paid-in capital.............................................. $ 516
Accumulated net realized loss on investments................. (372)
Accumulated net investment income............................ 1
----------
Net assets.......................................... $ 145
==========
Shares outstanding (unlimited number authorized.............. 14
==========
Net asset value per share.................................... $ 10.28
==========
See accompanying Notes to Financial Statements.
8
<PAGE>
ADVISOR SPECIAL FUND
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended March 31, 1999
(All amounts in thousands)
(Unaudited)
INVESTMENT INCOME
Dividends allocated from Portfolio............................ $ 1
Interest allocated from Portfolio............................. 1
------------
Total investment income.............................. 2
------------
EXPENSES
Accounting fees............................................... 13
SEC and state registration fees............................... 10
Audit and legal fees.......................................... 6
Trustee's fees................................................ 3
Printing and postage.......................................... 2
Transfer agent fees........................................... 1
Custodian fees................................................ 1
Administrative fees........................................... (a)
12b-1 distribution and service fees........................... (a)
------------
Total expenses....................................... 36
------------
Reimbursement of expenses by investment advisor............... (35)
------------
Net expenses......................................... 1
------------
Net investment income................................ 1
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments allocated from Portfolio..... 148
Net change in unrealized depreciation on
investments and foreign currency translations........ (147)
------------
Net gain on investments.............................. 1
------------
Net Increase in Net Assets Resulting from Operations.......... $ 2
============
(a) Rounds to less than one.
See accompanying Notes to Financial Statements.
9
<PAGE>
ADVISOR SPECIAL FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(All amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended Year Ended
March 31, September 30,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS
Net investment income.............................. $ 1 $ --
Net realized gain (loss) on investments............ 148 (516)
Net change in unrealized appreciation or
depreciation on investments........................ (147) 116
-------------- --------------
Net increase (decrease) in net assets
resulting from operations................. 2 (400)
-------------- --------------
SHARE TRANSACTIONS
Subscriptions to fund shares....................... -- 2,443
Redemptions of fund shares......................... -- (2,025)
-------------- --------------
Net increase from share transactions...... -- 418
-------------- --------------
Net increase in net assets................ 2 18
TOTAL NET ASSETS
Beginning of period................................ 143 125
-------------- --------------
End of period...................................... $ 145 $ 143
============== ==============
Accumulated Net Investment Income.................. $ 1 $ --
============== ==============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares....................... -- 204
Redemptions of fund shares......................... -- (200)
-------------- --------------
Net increase in fund shares............... -- 4
Shares outstanding at beginning of period.......... 14 10
-------------- --------------
Shares outstanding at end of period................ 14 14
============== ==============
See accompanying Notes to Financial Statements.
</TABLE>
10
<PAGE>
SR&F SPECIAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1999
(All amounts in thousands)
(Unaudited)
ASSETS
Investments, at market value (cost of $688,865)................. $689,449
Receivable for investments sold................................. 1,011
Dividends receivable............................................ 935
Cash............................................................ 5
----------
Total assets........................................... 691,400
----------
LIABILITIES
Payable for investments purchased.............................. 1,920
Payable to investment advisor.................................. 525
Other liabilities.............................................. 44
----------
Total liabilities..................................... 2,489
----------
Net assets applicable to investors' beneficial interest $688,911
==========
See accompanying Notes to Financial Statements.
11
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SR&F SPECIAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended March 31, 1999
(All amounts in thousands)
(Unaudited)
INVESTMENT INCOME
Dividends....................................................... $ 4,280
Interest........................................................ 3,913
------------
8,193
Foreign taxes withheld (15)
------------
Total investment income................................ 8,178
------------
Expenses
Management fees................................................. 3,077
Accounting fees................................................. 26
Trustees' fees.................................................. 17
Custodian fees.................................................. 15
Audit and legal fees............................................ 9
------------
Total expenses......................................... 3,144
------------
Net investment income.................................. 5,034
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments................................ 174,527
Net realized loss on foreign currency transactions.............. (524)
Net change in unrealized appreciation (depreciation) on investments
and foreign currency translations...................... (159,149)
------------
Net gain on investments and foreign currency transactions 14,854
------------
Net Increase in Net Assets Resulting from Operations............ $ 19,888
============
See accompanying Notes to Financial Statements.
12
<PAGE>
SR&F SPECIAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(All amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended Year Ended
March 31, September 30,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS
Net investment income........................................ $ 5,034 $ 7,424
Net realized gain (loss) on investments and
foreign currency transactions.......................... 174,003 211,299
Net change in unrealized depreciation on investments
and foreign currency translations................... (159,149) (441,553)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations...................... 19,888 (222,830)
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions................................................ 27,589 60,926
Withdrawals.................................................. (275,717) (249,583)
-------------- --------------
Net increase decrease from transactions in
investors' beneficial interest................. (248,128) (188,657)
-------------- --------------
Net decrease in net assets.......................... (228,240) (411,487)
TOTAL NET ASSETS
Beginning of period......................................... 917,151 1,328,638
-------------- --------------
End of period............................................... $ 688,911 $ 917,151
============== ==============
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(All amounts in thousands)
NOTE 1. ORGANIZATION
Stein Roe Advisor Special Fund (the `Fund') is a series
of Stein Roe Advisor Trust (the `Trust'), an open-end management investment
company organized as a Massachusetts business trust. Stein Roe Advisor Special
Fund invests substantially all of its assets in SR&F Special Portfolio (the
`Portfolio'). SR&F Special Portfolio seeks capital appreciation by investing
primarily in equity securities that are considered to have limited downside risk
relative to their potential for above-average growth.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common
law trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on February 3, 1997. At commencement,
Stein Roe Special Fund contributed $1,096,779 in securities and other assets to
SR&F Special Portfolio, in exchange for beneficial ownership of the Portfolio.
At February 14, 1997, Advisor Special Fund contributed cash of $100 to the
Portfolio. The Portfolio allocates income, expenses, realized and unrealized
gains and losses to each investor on a daily basis, based on the respective
percentage of ownership. At March 31, 1999, Advisor Special Fund owned .02
percent, of SR&F Special Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Fund and the
Portfolio. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date.
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.
SECURITY VALUATIONS
All securities are valued as of March 31, 1999. Securities are valued at,
depending on the security involved, the last reported sales price, last bid or
asked price, or the mean between last bid and asked prices as of the close of
the appropriate exchange or other designated time. A security that 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. 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.
CURRENCY TRANSLATIONS
For purposes of valuation, assets and liabilities are translated into U.S.
dollars using currency exchange rates that represent the midpoint between the
bid and asked rates as of 4 p.m., London time. Purchases and sales of securities
are translated into U.S. dollars using the prevailing exchange rate on the dates
of such transactions. The effect of changes in foreign exchange rates on
realized and unrealized security gains and losses is reflected as a component of
such gains and losses.
FORWARD CURRENCY EXCHANGE CONTRACTS
SR&F Special Portfolio may entered into forward foreign currency exchange
contracts under which the Portfolio is obligated to exchange currencies at
specified rates on 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 no outstanding contracts at
March 31, 1999.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elects to be
taxed as a `regulated investment company' and makes 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 the owners
based on their respective percentages of ownership.
The Fund intends to utilize provisions of federal income tax law, which
allows 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 30,1998, Advisor Special Fund had a capital loss carryforward of
$518, which expires in 2005 and 2006.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund annually declares and pays dividends of any net investment income and
net realized capital gains. Shareholder distributions are recorded on the
ex-dividend date. Dividends are determined in accordance with income tax
principles, which may treat certain transactions differently from generally
accepted accounting principles. Distributions in excess of tax basis earnings
are reported in the financial statements as a return of capital. 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 Fund and the Portfolio pay monthly management and administrative fees to
Stein Roe & Farnham Incorporated (the `Advisor'), an indirect, wholly-owned
subsidiary of Liberty Financial Companies, Inc. (`Liberty'), for its services as
investment advisor and administrator. 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. 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, .10 of 1
percent of the next $500 million, and .075 of 1 percent thereafter.
The Advisor also provides fund accounting services. For the six months
ended March 31, 1999, Advisor Special Fund and SR&F Special Portfolio incurred
charges of $13 and $26, respectively.
The Advisor has agreed to reimburse the Fund to the extent that annual
expenses exceed 1.45 percent of average daily net assets. The expense limitation
expires on January 31, 2000, subject to earlier termination by the Advisor 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 services and/or distribution, the Distributor
receives from the Fund a fee at an annual rate not to exceed 0.25 percent of
average daily net assets.
Transfer agent fees are paid to Liberty Funds Services, Inc., an
indirect, wholly-owned subsidiary of Liberty.
Certain officers and trustees of the Trust are also officers of the
Advisor. The compensation of trustees not affiliated with the Advisor for
Advisor Special Fund and SR&F Special Portfolio for the six months ended March
31, 1999, was $3 and $17, 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 the Portfolio maintain borrowing
arrangements under which they can borrow against portfolio securities. Neither
the Fund nor the Portfolio had borrowings during the six months ended March 31,
1999.
NOTE 5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and
proceeds from sales other than short-term obligations for the six months ended
March 31, 1999, were $258,327 and $384,786, respectively.
15
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Advisor Special Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997 (A)
--------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............. $10.13 $12.46 $10.00
--------- --------- ---------
Income From Investment Operations
Net investment income (loss)............ 0.03 -- (0.03)
Net realized and unrealized gain
(loss) on investments................ 0.12 (2.33) 2.49
--------- --------- ---------
Total from investment operations........ 0.15 (2.33) 2.46
--------- --------- ---------
Net Asset Value, End of Period................... $10.28 $10.13 $12.46
========= ========= =========
Ratio of net expenses to average net assets (b).. 1.45%(c) 1.45% 1.45%(c)
Ratio of net investment income
(loss) to average net assets (d)............. 0.63%(c) -- (0.46%)(c)
Total return (d)................................. 1.48% (18.70%) 24.60%
Net assets, end of period (000's)................ $145 $143 $125
</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 of expenses by the investment advisor, this ratio would
have been 48.66 percent for the six months ended March 31, 1999, and
12.56 percent for the year ended September 30, 1998, and 86.39 percent
for the period ended September 30, 1997.
(c) Annualized.
(d) Computed giving effect to the investment advisor's expense limitation
undertaking.
- --------------------------------------------------------------------------------
SR&F SPECIAL PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997 (A)
--------------- ---------------- ----------------
<S> <C> <C> <C>
Ratio of net expenses to average net assets... 0.75%(b) 0.73% 0.75%(b)
Ratio of net investment income to
average net assets....................... 1.20%(b) 0.60% 0.31%(b)
Portfolio turnover rate....................... 37% 46% 8%
</TABLE>
(a) From commencement of operations on February 3, 1997.
(b) Annualized.
16
<PAGE>
STEIN ROE ADVISOR TRUST
- --------------------------------------------------------------------------------
TRUSTEES
John A. Bacon Jr.
Private Investor
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 Director, William Blair Capital Partners
OFFICERS
Thomas W. Butch, President
William D. Andrews, Executive Vice President
Loren A. Hansen, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
David P. Brady, Vice President
Daniel K. Cantor, Vice President
Kevin M. Carome, Vice President,
Assistant Secretary
J. Kevin Connaughton, Vice President
Erik P. Gustafson, Vice President
James P. Haynie, Vice President
Harvey B. Hirschhorn, Vice President
Timothy Jacoby, Vice President
Michael T. Kennedy, Vice President
Gail Knudsen, Vice President
Stephen F. Lockman, Vice President
Eric S. Maddix, Vice President
Lynn C. Maddox, Vice President
Arthur J. McQueen, Vice President
Maureen Newman, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Brian D. Pollard, Vice President
Gita R. Rao, Vice President
Michael E. Rega, Vice President
M. Gerard Sandel, Vice President
Gloria J. Santella, Vice President
Sharlene A. Thomas, Vice President
Heidi J. Walter, Vice President, Secretary
Janet B. Rysz, Assistant Secretary
Scott E. Volk, Treasurer
AGENTS AND ADVISORS
Stein Roe & Farnham Incorporated
Investment Advisor
State Street Bank and Trust Company
Custodian
SteinRoe Services Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Trust
Arthur Andersen LLP
Independent Public Accountants
Stein Roe & Farnham
One South Wacker Drive
Chicago, IL 60606-1130
www.steinroe.com
Liberty Funds Distributor, Inc. 5/99
