STEIN ROE MUTUAL FUNDS
SEMIANNUAL REPORT
March 31, 1997
Photo of: globe
STEIN ROE EQUITY FUNDS
INTERNATIONAL FUNDS
International Fund
Emerging Markets Fund
STEIN ROE MUTUAL FUNDS
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Building Wealth for Generations(TM)
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Contents
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From the President................................................ 1
Tim Armour's thoughts on the international markets and investing
Performance....................................................... 3
How the Stein Roe international equity funds have done over time
Q&A
International Fund................................................ 6
Emerging Markets Fund............................................. 10
Interviews with the portfolio managers and a summary of
investment activity
Fund Highlights................................................... 13
Information about the Funds
Investments....................................................... 15
A complete list of investments with market values
Financial Statements.............................................. 22
Balance sheets, statements of operations and
changes in net assets
Notes to Financial Statements..................................... 29
Financial Highlights.............................................. 33
Selected per-share data
Must be accompanied or preceded by a prospectus.
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From the President
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To Our Shareholders
A look back at the performance of foreign stocks over the past few years isn't
exactly reassuring -- especially in light of the U.S. stock market's recent
returns. Nonetheless, we believe international markets are deserving of your
attention. That might seem odd, especially since the MSCI EAFE Index -- the most
watched measure of foreign stock performance -- has dramatically underperformed
the S&P 500 in each of the past three years. But that's just the point. Because
U.S. and foreign stock markets tend to experience growth spurts at different
times, it leads us to believe that the better performance of U.S. stocks can't
last forever, nor can the underperformance of foreign stocks.
Although past performance does not guarantee future results, a look back at
the markets at the end of 1993 helps support our view. Despite gaining more than
10 percent that year, the U.S. stock market finished last among the world's 43
major markets, while several foreign stock markets posted gains of 50 percent or
more.(a) This wasn't just isolated performance, either. In fact, despite its
recent stellar performance, during the past 10 years, the U.S. stock market has
never been the top- performing market and, what's more, it ranks only eighth
among the world's top-performing stock markets over that same time period.(a)
Is the tide about to turn? We think it could be. As economic recovery starts
to take hold in other parts of the world and many of the hardest-hit markets
start to rebound, we think it's only a matter of time before many foreign stock
markets regain their previous momentum. That's because, over the next several
years, the economies of many countries -- particularly those of developing
nations -- are expected to grow at a much faster pace than the U.S. economy, yet
we think many companies in these markets appear to be more attractively valued
than their U.S. counterparts. We think that, together, these factors could
translate into greater return potential for investors.
Of course, along with this greater return potential come increased risks.
Currency fluctuations and political upheavals are just some of the factors that
can make investing abroad a dangerous journey. The key is understanding -- and
accepting -- the risks involved so you can take the proper steps to help temper
the effects these risks might have on your portfolio. You might, for example,
want to spread your investments among several different countries and regions.
<PAGE>
This can help limit the effects of political instability or a currency
devaluation, as well as help reduce your risk of being dependent on the health
of a single economy.
It's also important to remember that, despite the risks, there's a world of
opportunity out there. A $16 trillion world, to be exact.(a) Although the U.S.
stock market currently comprises the lion's share of that figure -- $6.3
trillion, or 38 percent of the world's total market capitalization -- we think
that could change, especially as markets open and become more integrated, and
companies seek to improve their distribution channels and broaden their scope to
include an ever-increasing consumer base. As a result, we think ignoring foreign
markets could cause you to miss out on some of the world's best investment
opportunities. That too would be a risky strategy -- the risk of lost
opportunity.
Please call us at 800-338-2550 with your comments and suggestions. As always,
we look forward to serving your investment needs.
Sincerely,
/s/ Timothy K. Armour
Timothy K. Armour
President
April 15, 1997
(a) Source: Morgan Stanley Capital International, 1996.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The Morgan Stanley Capital
International Europe, Australia and Far East (MSCI EAFE) Index and the S&P 500
Index are unmanaged groups of stocks that differ from the composition of any
Stein Roe fund; they are not available for direct investment.
Photo of: Timothy K. Armour, President
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Fund Performance
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There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change or the growth of a hypothetical $10,000 investment. Each performance
figure includes changes in a fund's share price, plus reinvestment of any
dividends (net investment income) and capital gains (the profits the fund
earns when it sells stocks that have grown in value).
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Average Annual Total Returns
Periods ended March 31, 1997
PAST 1 LIFE
YEAR OF FUND(1)
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INTERNATIONAL FUND 6.17% 4.90%
MSCI EAFE 1.45 4.84
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The Morgan Stanley Capital International
Europe, Australia and Far East (MSCI EAFE) Index is an unmanaged group of stocks
that differs from the composition of any Stein Roe fund; it is not available for
direct investment.
1 Inception Date March 1, 1994. Index returns are calculated on a monthly
basis; therefore, index returns marked "Life of Fund" are calculated from the
month-end results that fell closest to the Fund's inception date. Because
Emerging Markets Fund has less than one quarter of operations, total return
information is not publicly available.
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<TABLE>
<CAPTION>
[line chart]
Investment Comparison
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COMPARISON of change in value of a $10,000 investment.
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International Fund
Date International MSCI EAFE
Fund Index
<S> <C> <C>
3/31/94 10000 10000
6/30/94 10236 10511
9/30/94 10871 10521
12/31/94 10344 10414
3/31/95 9769 10608
6/30/95 10241 10685
9/30/95 10732 11130
12/31/95 10746 11581
3/31/96 11181 11916
6/30/96 11859 12104
9/30/96 11615 12089
12/31/96 11644 12281
3/31/97 11871 12089
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. This
graph compares the performance of Stein Roe International Fund to the Morgan
Stanley Capital International Europe, Australia and Far East (MSCI EAFE) Index,
an unmanaged group of stocks that differs from the composition of any Stein Roe
fund; it is not available for direct investment. Total return performance
includes changes in share price and reinvestment of income and capital gains
distributions.
Because Emerging Markets Fund has less than one quarter of operations, total
return information is not publicly available.
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Investment Comparison continued
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Making the Most of Performance
The wide assortment of performance data available today can
be a mixed blessing. On one hand, a fund's performance results
can be a valuable source of information when considering an investment.
On the other hand, even seasoned investors may find the wide array of
data and the different methods of interpretation confusing.
That's why one of the most important pieces of advice we can give you
is to remember that a fund's past performance is just that -- past.
While a fund's past performance is not a guarantee of how it will
perform in the future, it can help you make rational decisions about
the funds you currently hold or about funds you might be considering.
Many foreign stock funds, for example, have a history of growth over
the long term, but will nonetheless experience occasional downturns in
the short term. The price and total return of a mutual fund will change
daily and if you sell your shares during a downturn in the market, you
might lose money. But if you can ride out the market's ups and downs,
your fund might achieve a gain.
When your fund experiences a temporary downturn, it's important to
remember why you chose that fund in the first place. If your fund has
an investment strategy in which you believe and which is properly
matched to your financial goals, there is probably no reason to change
course. It can be shortsighted to sell an investment at its lowest
point. In fact, we think that may be the time when you should be
investing more, to take advantage of a potential upturn.
No one can make your financial decisions better than you. We hope
this semiannual report helps you to better understand and evaluate your
fund's performance, and serves as a helpful aid in making intelligent,
appropriate investment decisions. If you have any questions, please
call a Stein Roe account representative at 800-338-2550.
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Q&A
An Interview with Bruno Bertocci and David Harris, Portfolio Managers of
SR&F International Portfolio and Emerging Markets Fund
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Fund Data
Investment Objective:
Seeks long-term growth of capital by investing primarily in a diversified
portfolio of foreign securities. Under normal market conditions, the
Portfolio will invest at least 65 percent of its total assets in foreign
securities of at least three countries outside of the United States.
Fund Inception:
March 1, 1994
Total Net Assets:
$140.1 million
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International Fund Q&A
Q: How has the Fund performed over the past six months?
A: For the six-month period ended March 31, 1997, the Fund's 2.20 percent return
outpaced the zero percent return of the Morgan Stanley International Europe,
Australia and Far East (MSCI EAFE) Index, but trailed the 4.75 percent median
return of its Lipper international fund peer group.
Q: What factors contributed to the Fund's performance?
A: Probably the biggest factor driving the Fund's performance this period was
our underweighting in Japan relative to the Index. At 29.1 percent, Japan is the
largest component of the MSCI EAFE Index, but it comprises only 18.3 percent of
the Portfolio. Although it has shown signs of improvement recently, the Japanese
market continues to suffer. We also benefited from the resurgence of many of the
markets in which we invest, such as continental Europe, where cyclical companies
have shown signs of improvement over the past six months, and Latin America.
Q: Although you have underweighted Japan, some of your peers have gone even
further, maintaining little, if any, exposure to Japan. Why is that?
A: Many of our competitors have nothing more than a token investment in Japan
right now. There are a number of arguments to support this view: The Japanese
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banking system is in need of restructuring; the economy is weak; the government
doesn't seem willing -- or able -- to make much-needed reforms; and, at 94 times
earnings and yielding less than 2 percent, many think the Japanese stock market
looks outrageously overpriced.
Nonetheless, we think a zero percent weighting is extreme. In fact, the
Japanese economy is showing some signs of life. Japan's real GDP, for example,
grew at an annualized rate of 3.9 percent in the fourth quarter of 1996, led by
a huge jump in exports. At the same time, low interest rates have spurred
capital spending and even household spending is starting to rebound. In
addition, MSCI reports that the market is selling for 11 times cash flow and
only twice book value. Consequently, we have chosen to invest in a handful of
companies that we think stand to benefit from the eventual recovery of the
Japanese economy.
Q: Where are you finding other investment ideas?
A: We think Europe, excluding the United Kingdom, looks promising. Many European
companies, faced with growing competition, have adopted some of the same cost-
cutting measures that U. S. companies instituted in the mid-1980s, which should
help to enhance their competitiveness and strengthen profits. Helping these
corporate makeovers take hold is the fact that many of these countries are at an
earlier stage of the business cycle. Unlike the United States, which emerged
from its last recession in early 1992, and Britain, which followed in 1993, many
countries in continental Europe didn't show signs of economic recovery until
1995. As a result, we are investing in sectors -- such as paper, steel and real
estate -- that we think could benefit from a continent-wide pickup in economic
growth.
Q: There are fewer than three months to go before Hong Kong switches from being
a British crown colony to a Chinese Special Administrative Region. How do you
think investors will react?
A: While the transition is set for midnight on June 30, 1997, the actual process
has been under way for quite some time. As a result, we don't think the
changeover will be momentous in and of itself; rather we think events in the
weeks prior to and immediately following will determine how investors will
respond. Nonetheless, although some problems could occur, we think things are
on track for a smooth transition, especially given the economic imperative for
reform in China.
One thing is certain: A lot of attention will be focused on the Hong Kong
and Chinese markets, which could be beneficial to investors. After all, both
<PAGE>
markets possess good long-term potential. China, for example, is one of the
world's most promising emerging markets. Nonetheless, it remains quite volatile.
What's more, foreign investors are restricted to holding certain classes of
shares. There are, for example, "A" shares, which only Chinese residents can
hold, that are traded on Chinese stock exchanges and denominated in local
currency; "B" shares, which are denominated in dollars and can be traded only
by nonresidents; "H" shares or "red-chip" stocks, which are Hong Kong-listed
companies controlled from China and also can be traded by anyone; and "N"
shares, which are similar to "H" shares but are listed in New York.
As a result, we think Hong Kong offers a good alternative for those looking
to participate in China's growth potential. Hong Kong already has relocated much
of its manufacturing capacity across the border to China in order to take
advantage of the lower wages there. This has not only allowed China's
manufacturing base to become more competitive, but it also has helped Hong
Kong's progress toward becoming a fully developed service economy.
Q: Many believe one reason the U.S. stock market has performed so well in recent
years is because many investors are interested in owning stocks. Is there a
similar trend toward increased stock ownership elsewhere in the world?
A: Definitely. In fact, we've already started to see many foreign governments
take tangible, proactive steps to encourage stock ownership. In Asia, Singapore
recently liberalized its Central Provident Fund -- a compulsory retirement
plan to which workers and employers must contribute -- by allowing citizens to
invest assets directly in the nation's stock market, while politicians in Hong
Kong are working to create a similar pension program.
Several countries in Latin America also have moved to replace state-run
pension plans with individually funded retirement accounts in which participants
can invest a portion of their retirement assets in domestic stocks. Chile
successfully launched a program in 1981, followed by Peru in 1993, Colombia and
Argentina in 1994 and Mexico in 1997.
What's more, many countries are moving to privatize government-run
industries. Germany, France and Finland, for example, recently have -- or are in
the process of -- privatizing their government-owned telephone systems.
We think this trend toward broader stock ownership could be a boon to stock
markets across the globe. That's because increased equity ownership implies
heightened demand for stocks worldwide, and thus potentially higher
<PAGE>
prices for stocks on a global basis. Moreover, it also could provide a more
efficient way for companies to raise cash, boosting their growth potential and
resulting in more liquid markets.
Q: Given the fact that instantaneous information is available to almost anyone
with a computer and a modem, do you think U.S. and foreign stock markets may
start to move more in line with one another?
A: Not at all. In spite of all the talk about technology drawing the world
closer together, we think markets are no more in sync today than they were two
decades ago. Granted, foreign markets briefly reacted to the Federal Reserve's
recent rate hike but, over time, we've found that U.S. and foreign markets tend
to move independently of one another.
To demonstrate this, Morgan Stanley recently conducted a study that compared
the five-year rolling returns of the S&P 500 Index with those of the MSCI EAFE
Index over a 26-year period. They found that the correlation coefficient -- a
measure of how closely two market indexes track each other -- between domestic
and foreign stock markets actually has fallen since the mid-1970s. Last year,
for instance, the correlation coefficient dropped to 0.35 -- which is not only
an indication that U.S. and foreign markets are not highly linked, but it's much
lower than the correlation of 0.60 recorded two decades ago. Consequently, we
believe most foreign markets will continue to more closely track internal
developments rather than move in tandem with the U.S. market.
Q: What's your outlook?
A: We're enthusiastic, especially since many conventional measures point to an
apparent valuation differential between U.S. and foreign equities. Also,
international markets have now underperformed for a record 11 consecutive
quarters, and we think it's about time for a turnaround.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of March 31, 1997, and are subject to change. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The MSCI EAFE Index and the S&P 500 are
unmanaged groups of stocks that differ from the composition of International
Fund; they are not available for direct investment. According to Lipper
Analytical Services, Inc., an independent monitor of mutual fund performance,
the median returns for the Fund's international fund peer group for the one-year
and Life of Fund periods ended March 31, 1997, were 7.27 percent and 7.30
percent, respectively. Because benchmark returns are calculated on a monthly
basis, those marked "Life of Fund" are from the month-end date that fell closest
to the Fund's inception date. Prior to February 1, 1997, International Fund's
Adviser limited expenses to 1.65 percent of average net assets.
Photo of: Bruno Bertocci and David Harris
<PAGE>
Q&A continued
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Fund Data
Investment Objective:
Invests in the stocks of companies in emerging markets around the world.
Fund Inception:
February 28, 1997
Total Net Assets:
$32.4 million
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Emerging Markets Fund Q&A
Q: How has the Fund performed since its launch on February 28, 1997?
A: Emerging Markets Fund's total return from inception through
March 31, 1997, was -1.00 percent.
Q: What was your start-up strategy?
A: We got invested slowly to help minimize the impact of high transaction costs
associated with investing in emerging markets, in particular. While this
strategy led us to invest in a fairly measured way, it worked to our advantage,
since we were able to purchase securities in several markets that were down, but
which recovered soon after. As of March 31, 1997, we were nearly fully invested.
Q: What were some of your initial purchases?
A: Our first purchase was Solidere (1.6 percent of total net assets), a Lebanese
property development company. This investment was based on our belief that high
demand for residential units and modern office space should make property
development a high-growth area in many emerging markets. Some of our other
property development-related holdings include IOI Properties, a Malaysian
company that owns a large tract of land strategically located near a major
expressway south of Kuala Lumpur; and Metro Pacific, which owns property
southwest of Manila, where a new downtown area is being developed (2.2 percent
and 2.5 percent of total net assets).
Q: Are you concentrating on any other investment themes?
A: One of our other main investment themes is telecommunications. Because a
top-notch communications system is essential to building a competitive economy,
we think tremendous opportunities exist for companies that can help satisfy the
developing world's appetite for phone service. As a result, we've purchased
stock in several telephone companies, including Telebras, Brazil's phone
company, and Telecom de Argentina (2.6 percent and 2.1 percent of total net
assets).
We also think that certain sectors are poised to benefit from demographic
factors that exist in developing countries. For instance, a 1996 study by the
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World Bank found that about half of the people who live in a developing nation
are under the age of 19. Consequently, we think many consumer-related companies
are well positioned to benefit from the spending habits of this segment of the
population.
Finally, we're also interested in companies that we think stand to benefit
from the development of the infrastructure needed to help modernize emerging
market countries. Asian countries alone are expected to spend more than $3
trillion on building and improving roads, rail and utilities over the next
decade. Consequently, we invested in Southern Peru Copper (2.3 percent of total
net assets), one of the world's largest copper producers. We think this company
could benefit from this building boom.
Q: In your opinion, which emerging markets show the most potential for rapid,
sustainable growth?
A: Based on traditional measures -- such as economic and political stability,
human capital, export outlook and foreign investment -- there are a number of
countries that we think could make big strides in today's integrated global
economy.
Looking regionally, we think the most difficult region to assess is probably
Eastern Europe -- partly because reforms are so new and instability remains
high. Still, we think the Czech Republic, Poland, Slovakia and Russia all have
good long-term prospects. What's more, we think the region's well-educated labor
force should prove invaluable once market reforms start to pay off.
Many African and Middle Eastern markets continue to lag the rest of the
world, as they have made scant progress in foreign investment, privatization and
financial sector reform. Still, we think the South African market shows promise
and Egypt looks like it could become an important market in the next five to 10
years. Even some of the smaller markets, like Morocco, look interesting, but
most markets in this region are just too illiquid and the companies are just too
small.
Despite being hampered by low savings rates, high payroll taxes and
inefficient government sectors, we think Latin America appears to be moving
rapidly toward investment- and export-generated growth. Of these markets, we are
most optimistic about Brazil. Since the beginning of this decade alone, it has
successfully made the transition from a socialized government to a democracy,
and embarked on a massive privatization and restructuring program that has
fundamentally changed the shape of Brazilian businesses. The government also
<PAGE>
instituted a new currency program in 1994 that has helped bring the country's
legendary inflation down from more than 2,000 percent in 1993 to only 8 percent
last year. The result: a doubling of share prices in dollar terms in 1991, 1993
and 1994 and a 53 percent gain in 1996.(1) Although it's unlikely that the
Brazilian market will enjoy the same returns over the next six years, we think
it will continue to be a strong performer over the long term.
We also are optimistic about markets in Asia, particularly in India, South
Korea and Thailand. Although these markets have experienced some problems
recently, we think each offers more upside potential than downside risk.
Q: Amid charges of corruption against its president, deteriorating economic
conditions and a widening loan scandal, there have been reports that Korea could
be on the brink of a Mexican-style crisis. Is there any truth to this?
A: We think many of Korea's problems have been exaggerated, causing what we
believe is an unjustifiable across-the-board decline. Exaggerated or not,
however, there are some similarities between what Korea is experiencing now and
what Mexico experienced in 1994. These include a widening of the current account
deficit, an expansion of foreign debt, a reduction in currency reserves and
capital outflows. While some would argue that these factors haven't been fully
played out, we believe that much of this already is reflected in stock prices.
In fact, relative to its growth rate, we think South Korea remains one of the
world's most undervalued stock markets. As a result, we've used this market
weakness as a buying opportunity.
Q: What's your outlook for emerging markets?
A: We are extremely optimistic. For one, we think there are a lot of good buying
opportunities, since stocks in emerging markets look more attractively valued
when compared to U.S. equities. What's more, gross domestic product in emerging
markets is expected to rise, on average, about 6 percent this year -- more than
twice the pace of industrialized nations.
1 Source: Morgan Stanley Capital International
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of March 31, 1997, and are subject to change. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The Adviser currently limits expenses to 2.0
percent of average net assets, subject to termination on 30 days' notice to the
Fund. Absent past limits, total return would have been less.
The Fund may be subject to certain market, political and currency risks not
generally associated with investing in either U.S. securities or more
developed international markets.
<PAGE>
Fund Highlights
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International Fund
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
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Telecom Italia 2.2% Generale des Eaux 1.7%
SSAB 2.0 Avesta Sheffield 1.7
Henkel 1.9 Mannesmann 1.7
Inchcape 1.9 Promise 1.6
Fortis AMEV 1.8 Generale de Banque 1.6
- ------------------------------------------------------------------------------
Total 18.1%
==============================================================================
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO MSCI EAFE
----------------------------------
Number of Holdings 99 1,093
Median Market Value ($ Mil.) $1,244 $1,968
==============================================================================
ECONOMIC SECTOR BREAKDOWN
As of March 31, 1997
<TABLE>
<CAPTION>
PIE CHARTS:
Equity Portfolio MSCI EAFE
<S> <C> <C>
Capital Equipment 15.2% 12.3%
Consumer Goods 13.8 21.3
Energy 11.7 10.7
Finance 18.0 24.0
Materials 13.8 9.4
Multi-Industry 7.5 3.5
Services 20.0 18.8
Total 100% 100%
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<CAPTION>
ASSET ALLOCATION
As of September 30, 1996 As of March 31, 1997
<S> <C> <C> <C> <C>
Equities $132.3 (97.7%) $137.6 (98.7%)
Cash & Equivalents $ 3.2 (2.3%) $ 2.4 (1.7%)
</TABLE>
<PAGE>
Fund Highlights
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Emerging Markets Fund
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- ------------------------------------------------------------------------------
Yukong GDR 2.9% Metro Pacific 2.5%
Jababeka 2.8 Jardine Matheson 2.5
Siam Commercial Bank 2.7 Koor Industries 2.5
Bladex 2.6 International Bank of Asia 2.5
Telebras 2.6 YPF 2.5
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Total 26.1%
==============================================================================
EQUITY PORTFOLIO HIGHLIGHTS
MSCI
PORTFOLIO EMERGING MARKETS
------------------------------------
Number of Holdings 56 1,023
Median Market Value ($ Mil.) $697 $364
==============================================================================
ECONOMIC SECTOR BREAKDOWN
As of March 31, 1997
<TABLE>
<CAPTION>
PIE CHARTS:
Equity Portfolio MSCI EM
<S> <C> <C>
Capital Equipment 7.3% 6.6%
Consumer Goods 7.7 14.3
Energy 6.6 11.3
Finance 27.1 23.5
Materials 18.4 19.8
Multi-Industry 5.2 6.0
Services 27.7 18.5
Total 100% 100%
==============================================================================
<CAPTION>
ASSET ALLOCATION
As of March 31, 1997
<S> <C> <C>
Equities $26.0 (80.5%)
Cash & Equivalents $ 6.2 (19.5%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
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Investments as of March 31, 1997
(Dollar Amounts in Thousands)
(Unaudited)
NUMBER MARKET
STOCKS (98.3%) OF SHARES VALUE
<S> <C> <C>
ARGENTINA (2.5%)
Telecom Argentina ADRs ......................... 32,600 $ 1,500
YPF Sociedad Anonima ADRs ...................... 76,000 2,014
-----------
3,514
AUSTRALIA (1.3%)
Reinsurance Australia Corp. .................... 559,000 1,879
BELGIUM (1.6%)
Generale de Banque ............................. 5,720 2,239
BRAZIL (2.1%)
Coteminas Pfd. ................................. 2,200,000 882
*Globex Utilidades S.A. Pfd. ................... 71,000 1,373
Perdigao S.A. Comercio e Industria Pfd. ........ 364,700,000 757
-----------
3,012
CHINA (0.7%)
Yizheng Chemical Fibre ......................... 4,502,000 964
FINLAND (5.2%)
Enso Gutzeit (Ordinary R Shares) ............... 240,000 2,065
Kemira Oy ..................................... 128,000 1,385
Metsa-Serla Oy (B Shares) ...................... 303,000 2,202
Neste Oy ....................................... 60,600 1,578
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7,230
FRANCE (6.1%)
Alcatel Alsthom ................................ 17,786 2,143
Generale Des Eaux .............................. 17,673 2,402
*Moulinex ...................................... 77,400 1,774
Total Petroles Class B ......................... 24,616 2,129
-----------
8,448
GERMANY (6.1%)
Agiv AG ........................................ 78,000 1,426
Friedrick Grohe ................................ 6,300 2,009
Henkel KGAA
Ordinary Shares ............................. 6,500 337
Preferred Shares ............................ 42,100 2,317
Mannesmann AG ................................. 6,100 2,331
-----------
8,420
HONG KONG (3.4%)
Companion Building ............................. 7,227,680 597
Hong Kong Ferry ................................ 530,000 947
International Bank of Asia ..................... 1,400,000 858
Jardine Matheson Holdings ...................... 163,853 950
Tian An China Investment
Ordinary Shares ............................. 5,072,000 530
Warrants .................................... 1,014,400 35
Vitasoy ........................................ 999,364 351
World Houseware Holdings ....................... 6,293,680 520
-----------
4,788
<PAGE>
<CAPTION>
SR&F International Portfolio continued
- ------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
<S> <C> <C>
INDIA (1.0%)
Indian Petrochem GDRs .......................... 92,000 $ 1,035
**Reliance Industries GDSs ..................... 29,000 442
---------
1,477
INDONESIA (3.5%)
CP Indonesia ................................... 415,000 467
Ever Shine Tex ................................. 2,019,688 757
Kawasan Industri Jababeka ...................... 1,133,333 1,546
Matahari Putra Prima ........................... 1,438,000 2,096
---------
4,866
ISRAEL (0.5%)
Koor Industries ................................ 39,500 711
ITALY (4.8%)
Banca Popolare di Milano ....................... 375,800 2,106
*Olivetti ...................................... 4,338,000 1,560
Telecom Italia Savings Shares .................. 1,466,000 3,124
---------
6,790
JAPAN (18.2%)
Canon Inc. ..................................... 86,000 1,841
DDI ............................................ 249 1,571
Hitachi ........................................ 212,000 1,884
Ito Yokado ..................................... 50,000 2,221
*Japan OTC Fund ................................ 840 441
Jusco Co. ...................................... 73,000 2,005
Kaneshita Construction ......................... 73,000 528
Kokusai Securities ............................. 123,000 964
Matsushita Electric Industrial ................. 138,000 2,151
Mori Seiki ..................................... 119,000 1,634
Murata Manufacturing ........................... 50,000 1,793
Promise Co. ................................... 54,000 2,259
Suzuki Motor ................................... 201,000 1,948
Tokyo Style .................................... 105,000 1,162
*World Equity Benchmark Shares ................. 134,000 1,541
Yamazen Corporation ........................... 521,000 1,629
---------
25,572
MALAYSIA (0.5%)
IOI Properties ................................. 230,000 761
MEXICO (0.7%)
Transportation Maritima Mexicana ADRs .......... 176,000 968
NETHERLANDS (3.4%)
Fortis AMEV .................................... 64,057 2,496
KPN ............................................ 43,306 1,605
Sphinx Kon CVA ................................. 56,427 614
---------
4,715
NEW ZEALAND (1.2%)
Brierley Investments ........................... 1,824,883 1,702
<PAGE>
<CAPTION>
SR&F International Portfolio continued
- ------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
<S> <C> <C>
NORWAY (4.2%)
Helikopter Service ............................. 129,000 $ 1,897
Norsk Hydro AS ................................. 42,800 2,141
Saga Petroleum A Free .......................... 109,500 1,892
---------
5,930
PANAMA (1.6%)
Bladex ADRs .................................... 46,200 2,183
PERU (0.5%)
Southern Peru Copper ADRs ...................... 43,000 731
PHILIPPINES (1.1%)
Metro Pacific .................................. 5,100,000 1,548
PORTUGAL (1.1%)
Portugal Telecom ADRs .......................... 42,157 1,549
RUSSIA (1.3%)
*Fleming Russia Securities Fund ................ 104,100 1,783
SOUTH KOREA (5.0%)
Korea Exchange Bank ............................ 186,295 1,175
LG Electronics ................................. 58,000 674
LG Securities .................................. 81,000 636
Samchully ...................................... 19,983 1,430
Samsung Electronics
GDRs ........................................ 15,000 307
Ordinary Shares ............................. 896 72
Preferred Shares ............................ 25,774 1,032
**Yukong GDRs .................................. 92,500 1,653
---------
6,979
SPAIN (1.3%)
Acerinox SA .................................... 12,600 1,773
SWEDEN (5.3%)
Avesta-Sheffield ............................... 221,000 2,391
*Biora ......................................... 32,200 644
SSAB Svenskt Stal AB (B shares) ................ 152,800 2,789
*Diligentia AB ................................. 138,500 1,609
---------
7,433
SWITZERLAND (2.7%)
*Bucher AG .................................... 774 661
Danzas Holding AG .............................. 1,020 999
Novartis AG .................................... 1,700 2,108
---------
3,768
THAILAND (2.2%)
Precious Shipping .............................. 347,100 935
Property Perfect ............................... 690,000 797
*Siam Commercial Bank .......................... 200,000 1,170
Sino Thai Engineering & Construction ........... 151,200 162
---------
3,064
<PAGE>
<CAPTION>
SR&F International Portfolio continued
- ------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
<S> <C> <C>
UNITED KINGDOM (9.2%)
British Gas Plc...................................... 699,000 $ 1,865
*Celsis International Plc............................ 487,905 837
*Centrica International Plc.......................... 699,000 729
Inchcape Plc......................................... 611,000 2,629
Intrum Justita Plc................................... 305,000 621
Powerscreen International Plc........................ 136,200 1,374
SmithKline Beecham Plc Class A....................... 131,164 1,945
*Tele-Communications International Plc............... 138,000 1,777
Transtec Plc......................................... 595,054 1,158
--------
12,935
--------
Total Stocks (Cost $131,277)......................... 137,732
- -------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATIONS (1.0%) AMOUNT
- -------------------------------------------------------------------------------
UNITED STATES
COMMERCIAL PAPER (1.0%)
UBS Finance 6.750% 4/01/97
(Amortized cost $1,435)........................... $ 1,435 1,435
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(Cost Basis $139,163) ........................................... 139,167
OTHER ASSETS, LESS LIABILITIES (0.7%)............................. 1,000
--------
TOTAL NET ASSETS (100.0%)......................................... $140,167
========
- -------------------------------------------------------------------------------
<FN>
* Non-income producing.
** These securities are subject to contractual or legal restrictions on their
resale. At March 31, 1997, the aggregate value of these securities represented
1.5 percent of net assets.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Emerging Markets Fund
- ------------------------------------------------------------------------------
Investments as of March 31, 1997
(Dollar Amounts In Thousands)
(Unaudited)
Number Market
STOCKS (80.5%) of Shares Value
<S> <C> <C>
ARGENTINA (4.6%)
Telecom Argentina ADRs ......................... 15,000 $ 690
YPF Sociedad Anonima ADRs ...................... 30,000 795
-----------
1,485
BRAZIL (7.7%)
Coteminas Pfd. ................................. 800,000 321
*Globex Utilidades S.A. Pfd. ................... 37,000 715
Perdigao S.A. Comercio e Industria Pfd. ........ 295,000,000 612
Telebras ADRs .................................. 8,300 850
-----------
2,498
CHINA (2.7%)
*,**Beijing Datung ............................. 1,500,000 600
*China Eastern Airlines ADRs ................... 2,300 66
*,**Shenzen Expressway ......................... 350,000 110
Yizheng Chemical Fibre ......................... 480,000 103
-----------
879
HONG KONG (7.5%)
Companion Building ............................. 500,000 41
Hong Kong Ferry ................................ 310,000 554
International Bank of Asia ..................... 1,300,000 797
Jardine Matheson Holdings ...................... 140,000 812
Tian An China Investment ....................... 1,077,000 112
Vitasoy ........................................ 270,000 95
World Houseware Holdings ....................... 180,000 15
-----------
2,426
INDIA (3.2%)
Indian Petrochem GDRs .......................... 35,000 394
**Reliance Industries GDSs ..................... 7,000 107
*,**Videsh Sanchar Nigam GDRs .................. 35,000 534
-----------
1,035
INDONESIA (6.3%)
CP Indonesia ................................... 180,000 202
Ever Shine Tex ................................. 720,000 270
Kawasan Industri Jababeka ...................... 670,000 914
Matahari Putra Prima ........................... 450,000 656
-----------
2,042
ISRAEL (2.5%)
Koor Industries ................................ 45,000 810
LEBANON (1.6%)
*Solidere GDRs ................................. 45,000 531
MALAYSIA (2.3%)
IOI Properties ................................. 220,000 728
MEXICO (1.2%)
Transportation Maritima Mexicana ADRs .......... 69,000 380
<PAGE>
<CAPTION>
Emerging Markets Fund continued
- ------------------------------------------------------------------------------
Number Market
of Shares Value
<S> <C> <C>
MIDDLE EAST / AFRICA (2.7%)
*The Foreign & Colonial Emerging Middle East Fund .... 10,000 $ 163
The Morgan Stanley Africa Investment Fund ............ 43,000 720
---------
883
PANAMA (2.6%)
Bladex ADRs .......................................... 18,000 851
PERU (5.9%)
Cementos Norte Pacasmayo ............................. 340,400 514
Southern Peru Copper ADRs ............................ 43,000 731
Telefonica del Peru ADRs ............................. 30,000 667
---------
1,912
PHILIPPINES (2.5%)
Metro Pacific ........................................ 2,700,000 819
PORTUGAL (2.1%)
Portugal Telecom ADRs ................................ 18,000 662
RUSSIA (1.7%)
*Fleming Russia Securities Fund ...................... 32,500 557
SOUTH KOREA (11.4%)
Korea Exchange Bank .................................. 114,000 719
Korean Air ........................................... 38,000 663
LG Electronics ....................................... 68,000 790
LG Securities ........................................ 5,500 43
Samchully ............................................ 4,502 322
Samsung Electronics
GDRs .............................................. 3,000 61
Ordinary Preferred ................................ 3,903 156
Yukong
**GDRs ............................................ 5,100 91
Ordinary Shares ................................... 200,000 830
---------
3,675
THAILAND (10.4%)
GSS Array Technology ................................. 200,000 298
*Land & House ........................................ 120,000 614
National Finance and Securities ...................... 370,000 495
The Pizza Company .................................... 70,000 493
Precious Shipping .................................... 200,000 539
Property Perfect ..................................... 43,000 50
*Siam Commercial Bank ................................ 150,000 878
Sino Thai Engineering & Construction ................. 58,000 62
---------
3,429
VENEZUELA (1.6%)
*Compania Anonima Nacional Telefonos
de Venezuela (CANTV) .............................. 18,000 524
---------
TOTAL STOCKS (Cost $26,427) .......................... 26,126
<PAGE>
<CAPTION>
Emerging Markets Fund continued
- ------------------------------------------------------------------------------
Principal Market
SHORT-TERM OBLIGATIONS (22.0%) Amount Value
COMMERCIAL PAPER (22.0%)
UNITED STATES (22.0%)
Bridgestone/Firestone 7.000% 4/01/97................. $ 1,600 $ 1,600
Conagra Inc. 6.100% 4/01/97.......................... 355 355
GTE Corp. 6.850% 4/01/97............................. 1,327 1,327
International Securitization 6.750% 4/01/97.......... 1,654 1,654
UBS Finance 6.750% 4/01/97........................... 1,200 1,200
Windmill Funding Inc. 6.750% 4/01/97................. 1,000 1,000
------- -------
TOTAL SHORT-TERM OBLIGATIONS (Amortized Cost $7,136).............. 7,136
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.5%)
(Cost Basis $33,563).............................................. 33,262
OTHER ASSETS, LESS LIABILITIES (-2.5%)............................ (813)
-------
TOTAL NET ASSETS (100.0%)......................................... $32,449
=======
- -------------------------------------------------------------------------------
<FN>
* Non-income producing.
** These securities are subject to contractual or legal restrictions on their
resale. At March 31, 1997, the aggregate value of these securities represented
4.4 percent of net assets.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
- ------------------------------------------------------------------------------
March 31, 1997
(All Amounts in Thousands, except per-share data)
(Unaudited)
EMERGING
INTERNATIONAL MARKETS
FUND FUND
--------- --------
<S> <C> <C>
ASSETS
Investment in SR&F International Portfolio, at market value $ 140,064 $ --
Investments, at market value .............................. -- 33,262
Receivable for investments and currencies sold ............ -- 847
Receivable for fund shares sold ........................... 194 137
Dividends and interest receivable ......................... 42 19
Receivable from investment adviser ........................ -- 13
Cash and other assets ..................................... 33 344
--------- ---------
Total Assets ........................................... $ 140,333 $ 34,622
========= =========
LIABILITIES
Payable for investments and currencies purchased .......... $ 12 $ 2,130
Payable for fund shares redeemed .......................... 155 --
Payable to investment adviser and transfer agent .......... 47 --
Other liabilities ......................................... 64 43
--------- ---------
Total Liabilities ...................................... 278 2,173
--------- ---------
CAPITAL
Paid-in capital ........................................... 130,241 32,749
Net unrealized appreciation (depreciation) of
investments and foreign currencies ..................... 6,411 (300)
Accumulated undistributed (overdistributed)
net investment income .................................. (116) 29
Accumulated undistributed net realized gains (losses)
on investments and foreign currency transactions ....... 3,519 (29)
--------- ---------
Total Capital (Net Assets) ............................. 140,055 32,449
--------- ---------
Total Liabilities and Capital .......................... $ 140,333 $ 34,622
========= =========
Shares Outstanding (Unlimited Number Authorized) .......... 12,770 3,277
========= =========
Net Asset Value (Capital) Per Share ....................... $ 10.97 $ 9.90
========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
- ------------------------------------------------------------------------------
For the Six Months Ended March 31, 1997
(All Amounts in Thousands)
(Unaudited)
EMERGING
INTERNATIONAL MARKETS
FUND FUND
------- ------
<S> <C> <C>
INVESTMENT INCOME
Dividends allocated from SR&F International Portfolio ......... $ 530 $ --
Dividends ..................................................... 428 19
Interest ...................................................... 103 56
Interest allocated from SR&F International Portfolio .......... 46 --
------- -------
1,107 75
Foreign taxes withheld allocated
from SR&F International Portfolio .......................... (52) --
Foreign taxes withheld ........................................ (25) --
------- -------
Total Investment Income .................................... 1,030 75
------- -------
EXPENSES
Management fees ............................................... 407 25
Expenses allocated from SR&F International Portfolio .......... 195 --
Transfer agent fees ........................................... 154 5
Administrative fees ........................................... 105 3
Custodian fees ................................................ 76 3
SEC and state registration fees ............................... 15 1
Accounting fees ............................................... 14 2
Legal and audit fees .......................................... 12 3
Trustees' fees ................................................ 7 2
Amortization of organization expenses ......................... 1 5
Other ......................................................... 93 8
------- -------
1,079 57
Reimbursement of expenses by investment adviser ............... -- (11)
------- -------
Total Expenses ............................................. 1,079 46
------- -------
Net Investment Income (Loss) ............................... (49) 29
------- -------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gains on investments ............................. 2,365 --
Net realized gains on investments allocated
from SR&F International Portfolio .......................... 2,060 --
Net realized losses on foreign currency transactions .......... (45) (29)
Net realized losses on foreign currency transactions
allocated from SR&F International Portfolio ................ (34) --
Net change in unrealized appreciation or depreciation of
investments and foreign currency transactions .............. (1,188) (300)
------- -------
Net Gains (Losses) on Investments and Foreign
Currency Transactions .................................... 3,158 (329)
------- -------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,109 $ (300)
======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------
For The Year Ended September 30, 1996
And Six Months Ended March 31, 1997
(All Amounts in Thousands)
(Unaudited)
EMERGING
MARKETS
INTERNATIONAL FUND FUND
1996 1997 1997*
---------------------- --------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss)..................................................... $ 1,114 $ (49) $ 29
Net realized gains (losses) on investments and foreign currency transactions..... 2,976 4,346 (29)
Net change in unrealized appreciation or depreciation of investments and
foreign currency transactions................................................... 4,858 (1,188) (300)
--------- --------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations............... 8,948 3,109 (300)
--------- --------- --------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income............................................. (1,075) (1,000) --
Capital gains distributions...................................................... -- (1,837) --
--------- --------- --------
Total Distributions to Shareholders........................................... (1,075) (2,837) --
--------- --------- --------
SHARE TRANSACTIONS
Subscriptions to fund shares..................................................... 62,994 21,071 32,792
Investment income dividends reinvested........................................... 760 724 --
Capital gains distributions reinvested........................................... -- 1,429 --
Redemptions of fund shares....................................................... (19,102) (18,986) (43)
--------- --------- --------
Net Increase from Share Transactions.......................................... 44,652 4,237 32,749
--------- --------- --------
Net Increase in Net Assets.................................................... 52,525 4,510 32,449
TOTAL NET ASSETS
Beginning of Period.............................................................. 83,020 135,545 --
--------- --------- -------
End of Period.................................................................... $135,545 $140,055 $32,449
========== ========== =========
Accumulated Undistributed (Overdistributed) Net Investment Income at
End of Period................................................................... $ 933 $ (116) $ 29
========== ========== =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares..................................................... 6,004 1,935 3,281
Investment income dividends reinvested........................................... 76 69 --
Capital gains distributions reinvested........................................... -- 135 --
--------- --------- --------
6,080 2,139 3,281
Redemptions of fund shares....................................................... (1,811) (1,738) (4)
--------- --------- --------
Net increase in fund shares...................................................... 4,269 401 3,277
Shares outstanding at beginning of period........................................ 8,100 12,369 --
--------- --------- --------
Shares outstanding at end of period.............................................. 12,369 12,770 3,277
========== ========== =========
<FN>
*From commencement of operations on February 28, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
- ------------------------------------------------------------------------------
Balance Sheet
(All Amounts in Thousands)
(Unaudited)
MARCH 31,
1997
--------
<S> <C>
ASSETS
Investments, at market value ..................................................... $139,164
Cash ............................................................................. 848
Dividends receivable ............................................................. 279
--------
Total Assets .................................................................. 140,291
========
LIABILITIES
Payable to investment adviser .................................................... $ 101
Other liabilities ................................................................ 27
--------
Total Liabilities ............................................................. 128
--------
Net Assets Applicable to Investors' Beneficial Interest .......................... $140,163
========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
- ------------------------------------------------------------------------------
Statement of Operations
(All Amounts in Thousands)
(Unaudited)
PERIOD
ENDED
MARCH 31,
1997(a)
----------
<S> <C>
INVESTMENT INCOME
Dividends .................................................................... $ 541
Interest Income .............................................................. 46
-------
587
Foreign taxes withheld ....................................................... (62)
-------
Total Investment Income ................................................... 525
EXPENSES
Management fees .............................................................. 187
Accounting fees .............................................................. 5
Audit and legal fees ......................................................... 4
-------
Total Expenses ............................................................ 196
-------
Net Investment Income ........................................................ 329
-------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gains on investments ............................................ 2,060
Net realized losses on foreign currency transactions ......................... (36)
Net change in unrealized appreciation or depreciation of
investments and foreign currency transactions ............................. 6,450
-------
Net Gains on Investments and Foreign Currency Transactions ................ 8,474
-------
Net Increase in Net Assets Resulting from Operations ......................... $ 8,803
======
<FN>
(a) The Portfolio commenced operations on February 3, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets
(All Amounts in Thousands)
(Unaudited)
PERIOD
ENDED
MARCH 31,
1997(a)
----------
<S> <C>
OPERATIONS
Net investment income........................................... $ 329
Net realized gains on investments and foreign currency transactions 2,024
Net change in unrealized appreciation or depreciation of investments 6,450
----------
Net Increase in Net Assets Resulting from Operations............ 8,803
----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions................................................ 139,079
Withdrawals..................................................... (7,719)
----------
Net Increase from Transactions in Investors' Beneficial Interests 131,360
----------
Net Increase in Net Assets................................ 140,163
TOTAL NET ASSETS
Beginning of Period............................................. --
----------
End of Period................................................... $140,163
==========
<FN>
(a) The Portfolio commenced operations on February 3, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- ------------------------------------------------------------------------------
NOTE 1. ORGANIZATION OF THE SR&F INTERNATIONAL PORTFOLIO
The SR&F International Portfolio (the "Portfolio") is a separate series of the
SR&F Base Trust, a Massachusetts common trust organized under an Agreement and
Declaration of Trust dated August 23, 1993. The Declaration of Trust permits the
Trustees to issue nontransferable interests in the Portfolio. The Portfolio
commenced operations on February 3, 1997. At commencement, Stein Roe
International Fund contributed $126,300 in securities and other assets. On
February 14, 1997, Stein Roe Advisor International Fund contributed cash of
$100.
The Portfolio allocates net asset value, income and expenses based
on respective percentage ownership of each investor on a daily basis. At March
31, 1997, Stein Roe International Fund and Stein Roe Advisor International Fund
owned 99.93 percent and .07 percent, respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of Stein Roe International
Fund and Stein Roe Emerging Markets Fund (the "Funds"), each a series of the
Stein Roe Investment Trust (a Massachusetts business trust), and the SR&F
International Portfolio (the "Portfolio"), a series of the SR&F Base trust (a
Massachusetts business trust). These policies are in conformity with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
SECURITY VALUATIONS
All securities are valued as of March 31, 1997. Securities are valued,
depending on the security involved, at the last reported sales price, last bid
or asked price, or the mean between last bid and asked priced 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 deter mined to be the primary exchange for such security. Other assets
and securities of the Funds and Portfolio are valued by a method that the
Board of Trustees believes represents a fair value.
<PAGE>
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 4:00 p.m., London time. Purchases and sales of
securities are translated into U.S. dollars using the prevailing exchange on
the dates of such transactions. The effect of changes in foreign exchanges
rates on realized and unrealized security gains and losses is reflected as a
component of such gains and losses.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Funds and Portfolio may enter into forward currency exchange contracts
under which each Fund and Portfolio is obligated to exchange currencies at
specified future dates. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
currency values. Neither the Funds nor the Portfolio had open contracts at March
31, 1997.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since each of the Funds elects
to be taxed as a "regulated investment company" and make such distributions to
its shareholders as to be relieved of all federal income taxes under provisions
of current federal tax law.
The Funds intend to utilize provisions of the federal income tax laws, which
allow them 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.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and capital gains, if any, are distributed
annually. Distributions in excess of tax basis earnings are reported in the
financial statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings
that result in temporary overdistributions are classified as distributions in
excess of net investment income or net realized gains, and any permanent
differences are reclassified to paid-in capital.
OTHER INFORMATION
The books and records of the Funds and Portfolio are maintained in U.S.
dollars. Dividend income is recognized on the ex-dividend date and interest
income is recognized on an accrual basis.
Realized gains or losses from sales of securities are determined on the
specific identified cost basis.
All amounts, except per-share amounts, are shown in thousands.
<PAGE>
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Funds and the Portfolio pay monthly management and administrative fees,
computed and accrued daily, to Stein Roe & Farnham Incorporated (the "Adviser"),
an indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, for
its services as investment adviser and manager. The management fees for SR&F
International Portfolio and Emerging Markets Fund are computed at an annual rate
of .85 percent and 1.10 percent of average daily net assets, respectively. The
administrative fees for the Funds are computed at an annual rate of .15 percent
of average daily net assets.
The administrative agreement for the Funds provide that the Adviser will
reimburse each Fund to the extent that annual expenses, excluding certain
expenses, exceed the applicable limits prescribed by any state in which the
Fund's shares are offered for sale. In addition, the Adviser has agreed to
reimburse Emerging Markets Fund to the extent that expenses exceed 2.00 percent
of average daily net assets. This expense limitation expires on February 2,
1998, subject to earlier termination by the Adviser on 30 days' notice.
The transfer agent fees are paid to SteinRoe Services Inc. (SSI), an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company. SSI has
entered into an agreement with Colonial Investors Service Center, Inc., an
indirect, majority-owned subsidiary of Liberty Mutual Insurance Company, to act
as sub-transfer agent for the Funds.
The Adviser also provides certain fund accounting services. For the period
ended March 31, 1997, International Fund, Emerging Markets Fund and the
Portfolio incurred charges of $14, $2 and $2, respectively.
Certain officers and trustees of the Trust are also officers of the Adviser.
The compensation of trustees not affiliated with the Adviser for International
Fund and Emerging Markets Fund and the Portfolio for the period ended March 31,
1997, was $7, $2 and $3, respectively. No remuneration was paid to any other
trustee or officer of the Trust.
The Board of Trustees of each Trust has adopted procedures permitting
securities transactions among the Funds and Portfolios, clients of Stein Roe and
other affiliated entities. The aggregate cost of purchases and proceeds from
sales from such securities transactions for the period ended March 31, 1997
were:
Fund Purchases Sales
International Fund (a).......... $1,529 $ --
Emerging Markets Fund........... 4,246 --
International Portfolio......... 1,109 800
(a) Prior to commencement of operations of the Portfolio
(see Note 1 to Financial Statements).
<PAGE>
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Funds and the Portfolio maintain
borrowing arrangements under which they can borrow against portfolio securities.
Neither the Funds nor the Portfolio had borrowings during the period ended March
31, 1997.
NOTE 5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the period ended March 31, 1997, were:
Fund Purchases Sales
International Fund (a)............................ $14,526 $15,772
Emerging Markets Fund............................. 11,987 --
International Portfolio........................... 10,272 7,334
At March 31, 1997, unrealized appreciation and depreciation on a tax basis and
the cost of investments for federal income tax purposes and for financial
reporting purposes were as follows:
<TABLE>
<CAPTION>
Cost of Investments
Net Federal
Appreciation Financial Income
Fund Appreciation Depreciation (Depreciation) Reporting Tax
------------ ------------ -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund....... $ 638 $ 939 $ (301) $ 33,563 $ 33,563
International Portfolio..... 21,737 15,286 6,451 132,712 132,712
<FN>
(a) Prior to commencement of operations of the Portfolio (see Note 1 to Financial Statements).
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------
SR&F International Portfolio
(Unaudited)
PERIOD
ENDED
MARCH 31,
1997 (a)
---------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Ratio of net investment income to average net assets............ 1.50%*
Ratio of net expenses to average net assets..................... 0.89%*
Portfolio turnover rate......................................... 5%
Average commissions (per share)................................. $0.0129
<FN>
*Annualized
(a) The Portfolio commenced operations on February 3, 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights continued
- ---------------------------------------------------------------------------------------------------------------------------------
International Fund
(Unaudited)
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
PERIOD SIX MONTHS
ENDED YEARS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1994 (a) 1995 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 10.00 $ 10.61 $ 10.25 $ 10.96
------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................................. 0.03 0.12 0.09 (0.01)
Net realized and unrealized gains (losses) on investments.......... 0.58 (0.26) 0.74 0.24
------- ------- -------- --------
Total from investment operations................................. 0.61 (0.14) 0.83 0.23
------- ------- -------- --------
DISTRIBUTIONS
Net investment income.............................................. -- (0.05) (0.12) (0.08)
Net realized capital gains......................................... -- (0.17) -- (0.14)
------- ------- -------- --------
Total distributions.............................................. -- (0.22) (0.12) (0.22)
------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD........................................ $ 10.61 $ 10.25 $ 10.96 $ 10.97
=========== ========== =========== ===========
Ratio of net expenses to average net assets........................... 1.61%* 1.59% 1.51% 1.55%*
Ratio of net investment income to average net assets.................. 0.61%* 1.41% 1.01% 0.00%*
Portfolio turnover rate............................................... 48% 59% 42% 11%(b)
Average commissions (per share)....................................... -- -- $ 0.0010 $ 0.0067(b)
Total return.......................................................... 6.10% (1.28)% 8.23% 2.20%
Net assets, end of period............................................. $74,817 $83,020 $135,545 $140,055
<FN>
* Annualized
(a) From commencement of operations on March 1, 1994.
(b) Prior to commencement of operations of the Portfolio (See Note 1 to
Financial Statements).
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights continued
- ------------------------------------------------------------------------------
Emerging Markets Fund
(Unaudited)
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
PERIOD
ENDED
MARCH 31,
1997 (a)
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................................ --
Net realized and unrealized gains (losses) on investments.... (0.10)
-------
Total from investment operations.......................... (0.10)
-------
DISTRIBUTIONS
Net investment income........................................ --
Net realized capital gains................................... --
-------
Total distributions....................................... --
-------
NET ASSET VALUE, END OF PERIOD.................................. $ 9.90
=======
Ratio of net expenses to average net assets..................... 2.00%*
Ratio of net investment income to average net assets............ 1.30%*
Portfolio turnover rate......................................... 0%
Average commissions (per share)................................. $ 0.0004
Total return.................................................... (1.00%)
Net assets, end of period....................................... $ 32,449
<FN>
*Annualized
(a) From commencement of operations on February 28, 1997.
</FN>
</TABLE>
<PAGE>
Investment Trust
- ------------------------------------------------------------------------------
TRUSTEES
Timothy K. Armour
President, Mutual Fund Division and Director,
Stein Roe & Farnham Incorporated
Kenneth L. Block
Chairman Emeritus, A.T. Kearney, Inc.
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial
Officer, United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation
Francis W. Morley
Chairman, Employer Plan Administrators
and Consultants Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
OFFICERS
Timothy K. Armour, President
Jilaine H. Bauer, Executive Vice President, Secretary
Thomas W. Butch, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Bruno Bertocci, Vice President
David P. Brady, Vice President
Daniel K. Cantor, Vice President
Philip J. Crosley, Vice President
E. Bruce Dunn, Vice President
Erik P. Gustafson, Vice President
David P. Harris, Vice President
Harvey B. Hirschhorn, Vice President
Eric S. Maddix, Vice President
Lynn C. Maddox, Vice President
Anne E. Marcel, Vice President
Arthur J. McQueen, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Cynthia A. Prah, Vice President
Richard B. Peterson, Vice President
Gloria J. Santella, Vice President
Thomas P. Sorbo, Vice President
Heidi J. Walter, Vice President
Stacy H. Winick, Vice President
Sharon R. Robertson, Controller
Judith E. Perrie, Treasurer
Margaret O. Zwick, Assistant Treasurer
Janet B. Rysz, Assistant Secretary
AGENTS AND ADVISERS
Stein Roe & Farnham Incorporated
Investment Adviser
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
<PAGE>
THE STEIN ROE FUNDS
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, Massachusetts 02205-8900
1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd Floor
Liberty Securities Corporation, Distributor
Member SIPC
IN12A 5/97
