Stein Roe Mutual Funds
ANNUAL REPORT
SEPT. 30, 1997
PHOTO OF HAND ON GLOBE
Stein Roe Equity Funds
INTERNATIONAL FUNDS
INTERNATIONAL FUND
EMERGING MARKETS FUND
LOGO: STEIN ROE MUTUAL FUNDS
BUILDING WEALTH FOR GENERATIONS(SM)
<PAGE>
Contents
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From the President................................................ 1
Tim Armour's thoughts on the markets and investing
Performance....................................................... 4
How the Stein Roe international equity funds have done over time
Q&A
International Fund................................................ 6
Emerging Markets Fund............................................. 9
Interviews with the portfolio managers and summaries of
investment activity
Fund Highlights................................................... 11
Information about the Funds
Investments....................................................... 13
A complete list of investments with market values
Financial Statements.............................................. 20
Balance sheets, statements of operations and
changes in net assets
Notes to Financial Statements..................................... 27
Financial Highlights.............................................. 31
Selected per-share data
Report of Independent
Public Accountants.............................................. 35
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
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To Our Shareholders
We're pleased to present this annual report for the Stein Roe international
funds -- International Fund and Emerging Markets Fund. This report covers the
fiscal year ended Sept. 30, 1997.
Like the two years that preceded it, the fiscal year ended Sept. 30, 1997,
was sensational for the U.S. equity market. Rarely in any three-year period in
the history of the U.S. stock exchanges have consecutive annual gains of more
than 20 percent been reported. The cumulative total return of the S&P 500 Index
for the three-year period was 119 percent,* providing investors with the
potential to more than double their money in the stock market in three years'
time.
The Equity Markets: A Tale of Two Periods
The story of the past 12 months, however, is a tale of two periods. The first
half of the fiscal year, which ran from Sept. 30, 1996, through March 31, 1997,
belonged to large-cap, multinational growth stocks. Worldwide markets were
strong, and many of the companies that have international operations were
reporting greater-than-expected earnings. Subsequently, investors rushed in
hoping to take advantage of further returns. Later in the fiscal year, however,
many international economies retreated, causing several of these same companies
to report lower-than-expected earnings.
In addition, the Federal Reserve in March raised the federal funds rate -- the
rate banks charge each other to borrow money -- in an effort to slow down
rampant economic growth and tame inflation fears. Combined, these factors caused
turbulence in the U.S. investment markets, resulting in a major drop in indices,
as evidenced by the Dow Jones Industrial Average's (DJIA) plunge of nearly 300
points over two days in April.
This retreat, however, was short-lived. The Federal Reserve's tightening in
late March successfully slowed economic growth and calmed inflation fears, and
the DJIA rapidly recouped its April losses. This slowdown in economic activity
did temporarily affect the performance of smaller growth companies, which
operate primarily in this country. Investors slowly began to realize that
small-and mid-cap stocks offered good earnings growth potential at attractive
valuations. As a result, small-caps rallied in August and eclipsed large-cap
stocks for the second half of the year.
Photo of Tim Armour
<PAGE>
From the President
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Other Markets
In the midst of the tremendous bull market that has propelled U.S. equity
investments to new highs, bond investments have taken a back seat. On an
absolute basis, however, bonds did perform well in the 12 months ended Sept. 30,
1997, and bond markets even enjoyed a few strong rallies when investors sought
shelter from the turbulent equity arenas.
International stocks continued to underperform domestic investments for the
fiscal year, primarily reflecting the troubled nature of Japan's economy and, by
extension, its investment markets. As Japan is the second largest market in the
world, international investors still tend to focus their investments there; for
example, the Morgan Stanley Capital International Europe, Australia and Far East
Index (MSCI EAFE) held 29 percent of its investments in Japan on Sept. 30, 1997.
Japan continued to underperform during the fiscal year, accounting for a lot of
the underperformance in international mutual fund investments. Most of the other
large international markets are up through the fiscal year end, but their
currencies are weak against the dollar, lessening the gains when translated.
Latin America and some of the smaller European countries posted solid returns
this year as well, and despite continued currency crises we continue to see some
good values in select issues there.
Asia Feints...and America Blinks
Recently, in late 1997, a sharp selloff in markets around the world -- panicky
investors' response to currency crises and economic uncertainties that spread
through Southeast Asia -- culminated in a surprisingly severe crash in Hong
Kong. This sequence of events finally unnerved investors in the developed
countries, which resulted in sharp declines in all of the major markets --
including the United States, where stocks tumbled 7 percent in one day of
trading and have continued to be volatile. While unsettling, such corrections
are a normal part of investing. No one can predict market events with any
certainty, yet despite the unease caused by the sharp and unexpected selloff, we
believe there is no reason to panic. Not only are interest rates relatively
stable and, in our opinion, likely to remain free of Federal Reserve
manipulation, but domestic economic growth is strong and inflation is low as
well. As a result, we believe the impact on the U.S. economy of the market's
recent confusion will not be large, and may even be moderately positive. In
Asia, we believe the currency crisis still needs time to heal, but that some
necessary corrections are under way. We are on the lookout for attractive
valuations that we believe Asia has the potential to produce in time.
<PAGE>
From the President
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Responding to A Market Correction
As recent events show, investing can be -- and often is -- more like a walk
on the wild side than a cakewalk. If the market's recent ups and downs have made
you a little nervous, we think it's important to keep things in perspective. If
your mutual fund was appropriate to your investing objectives yesterday, it
still is today. Moreover, Standard & Poor's historical performance statistics
show that there have been six market corrections of 20 percent or more during
the past 30 years. While unsettling, such setbacks are normal. If you're tempted
to exit the market completely, remember this: history has shown that investors
tend to lose opportunities when they bail out of the market. In fact, about the
only thing worse than experiencing a bear market is missing out on the potential
bull market that follows. That's because, on average, based on the 12 bear
markets since 1933, a bear market tends to be followed by a dramatic advance,
averaging 121 percent.+
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
Nov. 10, 1997
* Stein Roe, 1997. Stock market performance is measured by the S&P 500, an
unmanaged group of stocks generally representative of the U.S. stock market. The
S&P 500 differs in composition from any Stein Roe fund; it is not available for
direct investment.
+ Computed using Stocks, Bonds, Bills and Inflation 1997 Yearbook,TM Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex
Sinquefield). Used with permission. (C)1997 Ibbotson Associates, Inc. All rights
reserved.
<PAGE>
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 Sept. 30, 1997
PAST 1 PAST 3 LIFE
YEAR YEARS OF FUND(1)
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INTERNATIONAL FUND 9.84% 5.48% 6.32%
MSCI EAFE Index 12.18 8.83 7.54
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SINCE LIFE
INCEPTION OF FUND(1)
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EMERGING MARKETS FUND 2.40% --%
MSCI EM Index -3.36 -3.36
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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 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 and the
Morgan Stanley Capital International Emerging Markets (MSCI EM) Index are
unmanaged groups of stocks that differ from the composition of any Stein Roe
fund; they are not available for direct investment.
1 Inception dates: International Fund -- March 1, 1994; Emerging Markets
Fund -- Feb. 28, 1997. Because index returns are calculated on a monthly basis,
the index returns marked "Life of Fund" are calculated from the month-end
results that fall closest to the Funds' inception dates.
<PAGE>
Investment Comparison
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Comparison of change in value of a $10,000 investment.
LINE CHARTS:
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International Fund
INTERNATIONAL MSCI EAFE Index
FUND
3/31/94 10000 10000
6/30/94 10236 10058
9/30/94 10872 10068
12/31/94 10346 9965
3/31/95 9770 10150
6/30/95 10241 10224
9/30/95 10734 10650
12/31/95 10749 11082
3/31/96 11183 11402
6/30/96 11862 11582
9/30/96 11618 11568
12/31/96 11646 11752
3/31/97 11873 11568
6/30/97 13248 13069
9/30/97 12760 12977
Comparison of change in value of a $10,000 investment.
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Emerging Markets Fund
EMERGING
MARKET
FUND MSCI EM INDEX
2/28/97 10000 10000
3/31/97 10000 9755
4/30/97 10000 9824
5/31/97 10000 10067
6/30/97 10000 10649
7/31/97 10000 10843
8/31/97 10000 9591
9/30/97 10240 9664
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. These graphs compare the performance of the Stein Roe funds to the
Morgan Stanley Capital International Europe, Australia and Far East (MSCIEAFE)
and Emerging Markets Indices, both of which are unmanaged groups of stocks that
differ from the composition of each Stein Roe fund. The indices are not
available for direct investment. Total return performance includes changes in
share price and reinvestment of income and capital gains distributions.
<PAGE>
Q&A
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An Interview with Bruno Bertocci and David Harris, Portfolio Managers of SR&F
International Portfolio and Emerging Markets Fund
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:
$166.1 million
photo: Bruno Bertocci and David Harris
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International Fund Q&A
Q: How did the Fund perform during the past year?
A: For the fiscal year ended Sept. 30, 1997, the Fund returned 9.84 percent.
That trailed the Morgan Stanley International Europe, Australia and Far East
Index (MSCI EAFE) return of 12.18 percent and the 18.59 percent return of the
Lipper peer group median, for the same time period. The Fund's long-term return
of 5.39 percent for the three years ended Sept. 30, 1997, trailed the MSCI EAFE
by 3.44 percent and the peer group by 4.77 percent.
Q: What factors caused the Fund to underperform?
A: A number of factors hampered Fund performance. First, although the portfolio
is very underweighted in Japan versus its index, the Fund does hold shares of
companies that would have benefited from an economic recovery that did not
occur. Although the Japanese economy did show intermittent signs of improvement,
a domestic expansion didn't happen and these shares did not help the portfolio's
performance. Second, the portfolio does not own many of the very largest
capitalization companies in Europe that were the dominant performers over the
past year. We have felt for some time that many of these shares were less
attractive than some of the smaller- to mid-cap stocks that we own in Europe.
However, investor attention has been concentrated on the largest European
companies. Finally, the portfolio has had a weighting in emerging markets,
especially Asian emerging markets, which have suffered from economic and
political turmoil.
<PAGE>
Q&A continued
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Q: What was your investment strategy during the past year?
A: In Europe the portfolio invested in a broad variety of companies, including
some mid-capitalization companies that we felt would benefit from economic
recovery in Europe and continued strength in the United States. The portfolio
also invested in some companies that have been restructuring their businesses to
become more efficient and competitive. Many of these shares have done well in
1997. However, the largest blue chip companies in Europe have had the best
performance, and while the portfolio does own some of these, such as Deutsche
Bank, Mannesman and BNP (1.7 percent, 1.7 percent and 1.8 percent of total net
assets, respectively), we don't own them exclusively. During the year, just
under 20 percent of the portfolio's assets were invested in Japan, which is both
our biggest underweighting versus the index and our largest sector weighting. We
expected that the lowest interest rates since World War II would give Japan's
economy the boost it needed to begin to recover. While Japan did periodically
experience strong relative performance, a sustained economic recovery has not
happened. Despite this, we still believe that a recovery may eventually take
place and are maintaining our weighting for now.
Q: What can you tell us about the Fund's holdings in the emerging markets?
A: We like developing markets because we think they can offer strong economic
growth at very attractive valuations. Unfortunately, the portfolio's holdings in
emerging markets didn't add to performance during the past fiscal year. The
portfolio was especially hurt by the selloff in Asian emerging markets in which
the Fund is concentrated. However, we think the valuations of many of the
emerging markets, especially in Asia, are attractive and we see many long-term
investment opportunities. As for the portfolio's investments in Latin America,
stocks such as YPF and Telecom de Argentina (1.7 percent and 1.2 percent of
total net assets, respectively) performed well.
Q: What markets have strong prospects going forward?
A: Although it has been struck by currency volatility, real estate and banking
troubles and political turmoil, we're enthusiastic about Southeast Asia. We
believe that the economic news is already reflected in attractive share prices
there. Even though the Asian economies are likely to slow down, and some, such
as Thailand, will be in recession, we think the future is still very bright.
Asia has been investing heavily in modern infrastructure, savings rates are
high, worker productivity is excellent, and its country's industrial plants are
modern. We believe that Asia is in much better shape than Latin America after
its crisis and that share prices will rise fairly soon in anticipation of a
recovery.
<PAGE>
Q&A continued
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Q: Where else did you find value during the past year?
A: Low inflation across Europe and the widely held belief that world economies
are improving helped cyclical stocks perform well. Two paper manufacturing
companies in Finland, Enso and Metsa-Serla (1.6 percent and 1.8 percent of total
net assets, respectively), are among the most efficient in their industry and
added to the Fund's performance. SSAB (1.4 percent of total net assets), a
Swedish steel company that is one of the lowest-cost carbon steel manufacturers
in the world, also contributed to performance.
Q: What's your outlook for the year ahead?
A: We think that emerging markets, especially in Asia, and companies with
attractive valuations will come back into favor. We think that the emerging
markets have better valuations than developed markets. We also believe that
investors will move away from a narrow selection of the largest blue chip
companies that are on relatively high valuations and focus more on some of the
mid-cap names the portfolio owns.
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. Portfolio
holdings are as of Sept. 30, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The MSCI EAFE Index is an unmanaged group of stocks
that differs from the composition of Stein Roe International Fund; it is not
available for direct investment. According to Lipper Analytical Services, Inc.,
an independent monitor of mutual fund performance, the median returns for the
Fund's international fund peer group for the one-year and Life of Fund periods
ended Sept. 30, 1997, were 18.59 percent and 8.13 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 Feb. 1, 1997, International Fund's Adviser limited expenses to 1.65
percent of average net assets. Absent this limit, total return would have
been less.
Foreign investments involve market, political and currency risks not generally
associated with U.S. investments. Emerging market investments involve market,
political and currency risks not generally associated with investing in either
U.S. securities or more developed international markets.
<PAGE>
Q&A CONTINUED
Emerging Markets Fund Q&A
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Fund Data
Investment Objective:
Seeks long-term growth of capital through emerging market investment
opportunities. Under nomal market conditions, the Fund will invest at least
65 percent of its total assets in the equity securities of emerging markets.
Fund Inception:
Feb. 28, 1997
Total Net Assets:
$41.6 million
- -------------------------------------------------------------------------------
Q: How did the Fund perform?
A: The Fund's inception was Feb. 28, 1997. The emerging markets were generally
strong until August when the Asian markets began to sell off. From inception
through Sept. 30, 1997, the Fund rose 2.40 percent while emerging markets as
measured by the MSCI Emerging Markets Index returned -3.36 percent.
Q: Can you describe the Fund's investment strategy?
A: We have used a period of volatility in the Asian emerging markets to
gradually become fully invested. Emerging Markets Fund's investment strategy is
typically not based on classic measures of value or growth, because these are
rapidly growing economies and businesses. However, we do like to invest in
markets that are out of favor, with high quality companies with good earnings
prospects selling at low valuations. We believe that market movements are
especially exaggerated in the emerging markets and often view large market
declines as attractive buying opportunities.
Q: Specifically, where did you find attractive investment opportunities during
the past several months?
A: We've continued to use the portfolio's cash balance to increase investments
in Korea, Indonesia, Thailand, the Philippines and Malaysia. We believe many
stocks in those countries have very attractive valuations following substantial
market declines of more than 50 percent. We believe these markets will have
strong recoveries, as did the Mexican market after the peso devaluation. We
think the portfolio is positioned to take advantage of inevitable market
rebounds.
Q: Do the Fund's holdings reflect any common investment themes throughout the
emerging markets?
A: Yes. The portfolio made selected investments in the telecommunications
industry. It's an attractive growth industry in many emerging markets and we own
telecommunications stocks in Argentina, Brazil, Peru, Greece, Korea, India, the
Philippines and Malaysia. Other good businesses in the emerging markets include
banks and property companies. The portfolio owns property companies in the
Philippines, Malaysia, Thailand, Indonesia and Lebanon. These companies are
integral to developing the modern office buildings, factories and housing that
are essential in rapidly expanding economies.
Q: What's ahead?
A: We're very optimistic about how we've positioned the portfolio going forward,
having taken advantage of some huge swings in the emerging markets. Some of the
markets that we are positive about are at nine-year lows despite having
economies that have more than doubled in real terms. In addition, a tremendous
amount of money has been spent in development and infrastructure, people are
more educated and savings rates are high. We know these markets can perform well
when investors become enthusiastic about them and we'll be able to benefit from
it when they do.
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. Portfolio
holdings are as of Sept. 30, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The MSCI EM Index is an unmanaged group of stocks
that differs from the composition of Stein Roe Emerging Markets Fund; it is not
available for direct investment. According to Lipper Analytical Services, Inc.,
an independent monitor of mutual fund performance, the median return for the
Fund's Emerging Markets Fund peer group for the Life of Fund was 4.58 percent.
Life of Fund is from fund inception on Feb. 28, 1997 through Sept. 30, 1997. 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.
Emerging market investments involve 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)
- -------------------------------------------------------------------------------
Telecom Italia 2.0% Metsa-Serla 1.8%
Promise Co. 1.9 Mannesmann 1.7
Inchcape Plc 1.8 Total Petroles 1.7
BG Plc 1.8 YPF 1.7
Banque National de Paris 1.8 Deutsche Bank 1.7
- -------------------------------------------------------------------------------
Total 17.9%
- -------------------------------------------------------------------------------
Equity Portfolio Highlights
PORTFOLIO MSCI EAFE
- -------------------------------------------------------------------------------
Number of Holdings 96 1,077
Median Market Value ($ Mil.) $1,294 $1,988
- -------------------------------------------------------------------------------
PIE CHART
ECONOMIC SECTOR BREAKDOWN
AS OF SEPT. 30, 1997
EQUITY PORTFOLIO MSCI EAFE
Capital Equipment 16.6% 11.9%
Consumer Goods 11.6% 21.5%
Energy 13.4% 11.0%
Finance 21.9% 25.3%
Materials 12.1% 7.8%
Multi-Industry 6.5% 2.9%
Services 17.9% 19.6%
PIE CHART
ASSET ALLOCATION
AS OF SEPT. 30, 1996 AS OF SEPT. 30, 1997
Equities 97.7% 88.7%
Cash & Equivalents 2.3% 11.3%
<PAGE>
Fund Highlights
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Emerging Markets Fund
Top 10 Equity Holdings (% of Total Net Assets)
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LG Electronics 3.2% IFCT 2.6%
Korea Exchange Bank 3.0 Solidere 2.4
Jardine Matheson 3.0 Guoco Group Ltd. 2.3
Dairy Farm 2.7 Koor Industries 2.2
YPF 2.7 Telecom Argentina 2.2
- -------------------------------------------------------------------------------
Total 26.3%
- -------------------------------------------------------------------------------
Equity Portfolio Highlights
MSCI
PORTFOLIO EMERGING MARKETS
- -------------------------------------------------------------------------------
Number of Holdings 62 1,011
Median Market Value ($ Mil.) $809 $382
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PIE CHART
ECONOMIC SECTOR BREAKDOWN
AS OF SEPT. 30, 1997
EQUITY PORTFOLIO MSCI EM
Capital Equipment 5.4% 8.8%
Consumer Goods 6.1% 14.9%
Energy 9.1% 13.2%
Finance 24.0% 20.3%
Materials 10.2% 18.7%
Multi-Industry 17.7% 5.0%
Services 27.5% 19.1%
PIE CHART
ASSET ALLOCATION
AS OF SEPT. 30, 1997
Equities 90.7%
Cash & Equivalents 9.3%
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
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Investments as of September 30, 1997
(Dollar amounts in thousands)
NUMBER MARKET
STOCKS (88.8%) OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA (2.9%)
Telecom Argentina ADRs............................... 65,200 $ 1,985
YPF Sociedad Anonima ADRs............................ 76,000 2,803
--------
4,788
AUSTRALIA (1.0%)
Reinsurance Australia ............................... 585,617 1,595
BELGIUM (1.4%)
Generale de Banque................................... 5,720 2,323
BRAZIL (1.0%)
*Globex Utilidades S.A. Pfd.......................... 71,000 859
*Perdigao S.A. ...................................... 364,700,000 732
--------
1,591
FINLAND (6.7%)
Enso Gutzeit (Ordinary R Shares)..................... 252,000 2,584
Kemira Oy........................................... 128,000 1,245
Merita LTD........................................... 542,000 2,573
Metsa-Serla Oy (B Shares)............................ 318,000 2,930
Neste Oy............................................. 66,600 1,812
--------
11,144
FRANCE (6.9%)
Alcatel Alsthom...................................... 17,786 2,366
Banque Nationale De Paris............................ 60,100 3,028
Generale Des Eaux.................................... 17,940 2,111
*Generale Des Eaux Warrants.......................... 17,673 10
*Moulinex............................................ 48,700 1,170
Total Petroles CIass B............................... 24,616 2,818
--------
11,503
GERMANY (7.3%)
AGIV AG.............................................. 83,100 2,019
*Deutsche Bank AG.................................... 39,800 2,794
Friedrick Grohe ..................................... 6,300 1,794
Henkel KGAA
Ordinary Shares................................... 6,500 324
Preferred Shares.................................. 42,100 2,372
Mannesmann AG....................................... 6,100 2,901
--------
12,204
HONG KONG (2.1%)
Companion Building................................... 10,118,752 654
Hong Kong Ferry...................................... 530,000 1,096
Jardine Matheson Holdings ........................... 165,805 1,343
Vitasoy.............................................. 999,364 436
--------
3,529
INDIA (1.0%)
Indian Petrochem GDRs................................ 92,000 943
+Reliance Industries GDSs............................ 29,000 664
--------
1,607
<PAGE>
<CAPTION>
SR&F International Portfolio CONTINUED
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA (1.2%)
CP Indonesia......................................... 1,037,500 $ 174
*Ever Shine Tex...................................... 2,019,688 447
Kawasan Industri Jababeka............................ 1,438,333 902
Matahari Putra Prima................................. 1,361,000 468
--------
1,991
ISRAEL (0.5%)
Koor Industries...................................... 39,500 815
ITALY (4.2%)
Banca Popolare di Milano............................. 375,800 2,199
*Olivetti............................................ 2,776,320 1,528
Telecom Italia Savings Shares........................ 852,326 3,317
--------
7,044
JAPAN (16.6%)
Canon ............................................... 86,000 2,515
DDI.................................................. 281 1,410
Hitachi.............................................. 212,000 1,843
Ito Yokado........................................... 50,000 2,708
*Japan OTC Fund...................................... 840 410
Jusco ............................................... 86,000 1,959
Kaneshita Construction............................... 73,000 459
Kokusai Securities................................... 123,000 932
Matsushita Electric Industrial....................... 138,000 2,492
Mori Seiki........................................... 119,000 1,390
Murata Manufacturing................................. 54,000 2,335
Promise Co.......................................... 61,400 3,204
Suzuki Motor......................................... 201,000 1,931
Tokyo Style.......................................... 116,000 1,163
*World Equity Benchmark Shares - Japan............... 134,000 1,667
Yamazen Corporation................................. 521,000 1,260
--------
27,678
MALAYSIA (0.2%)
IOI Properties ...................................... 298,000 287
MEXICO (0.4%)
Transportation Maritima Mexicana ADRs................ 78,500 618
NETHERLANDS (3.0%)
Fortis AMEV.......................................... 65,586 2,740
KPN.................................................. 45,069 1,772
Sphinx Kon Gustavsberg............................... 56,427 524
--------
5,036
NEW ZEALAND (1.0%)
Brierley Investments................................. 1,824,883 1,612
NORWAY (4.0%)
Helikopter Service................................... 129,000 1,565
Norsk Hydro AS....................................... 44,800 2,675
Saga Petroleum ...................................... 117,500 2,486
--------
6,726
PANAMA (1.3%)
Bladex ADRs.......................................... 50,200 2,246
<PAGE>
<CAPTION>
SR&F International Portfolio CONTINUED
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
PERU (0.5%)
Southern Peru Copper ADRs............................ 43,000 $ 782
PHILIPPINES (0.5%)
Metro Pacific........................................ 7,220,000 872
PORTUGAL (1.1%)
*Portugal Telecom ADRs............................... 42,157 1,831
RUSSIA (0.7%)
*Fleming Russia Securities Fund...................... 40,400 1,172
SOUTH KOREA (4.7%)
Kookmin Bank......................................... 500 6
Korea Exchange Bank.................................. 279,995 1,506
*LG Electronics...................................... 58,000 1,153
LG Securities........................................ 52,950 625
Samchully ........................................... 23,843 1,147
Samsung Electronics
GDRs.............................................. 15,248 369
Ordinary Shares................................... 1,337 125
Preferred Shares.................................. 25,774 1,038
SK Telecom........................................... 104 64
+Yukong GDRs......................................... 92,500 1,720
--------
7,753
SWEDEN (4.6%)
Avesta-Sheffield..................................... 252,000 2,410
*Biora .............................................. 32,200 603
SSAB Svenskt Stal AB B shares........................ 109,800 2,273
*Diligentia AB....................................... 172,500 2,321
--------
7,607
SWITZERLAND (2.6%)
Bucher AG........................................... 1,368 1,399
Danzas Holding AG.................................... 5,100 1,090
Novartis AG.......................................... 1,200 1,843
--------
4,332
THAILAND (1.3%)
IFCT ................................................ 696,100 906
Precious Shipping ................................... 347,100 316
*Property Perfect ................................... 690,000 86
Siam Commercial Bank................................. 200,000 650
Sino Thai Engineering & Construction................. 151,200 250
--------
2,208
UNITED KINGDOM (10.1%)
*Billiton Plc........................................ 261,400 1,009
BG Plc............................................... 699,000 3,043
*Celsis International Plc............................ 487,905 812
*Centrica International Plc.......................... 699,000 1,050
Inchcape Plc......................................... 655,902 3,046
Intrum Justita Plc................................... 305,000 374
Powerscreen International Plc........................ 137,730 1,649
SmithKline Beecham Plc .............................. 265,054 2,576
*Tele-Communications International Plc............... 138,000 2,260
Transtec Plc......................................... 595,054 1,062
--------
16,881
<PAGE>
<CAPTION>
SR&F International Portfolio CONTINUED
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Total Stocks (Cost $135,520)...................................... $147,775
- -------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS (12.0%)
UNITED STATES (12.0%)
COMMERCIAL PAPER (12.0%)
Associates Corp of North America
6.400% 10/01/97................................... $ 7,925 7,925
Enron 5.750% 10/01/97................................ 6,000 6,000
Goldman Sachs Group 5.750% 10/02/97.................. 6,000 5,999
--------
(Amortized cost $19,924)....................................... 19,924
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.8%)
(Cost Basis $155,444) ......................................... 167,699
OTHER ASSETS, LESS LIABILITIES (-0.8%)............................ (1,269)
--------
TOTAL NET ASSETS (100.0%)......................................... $166,430
========
- -------------------------------------------------------------------------------
<FN>
* Non-income producing.
+ These securities are subject to contractual or legal restrictions on their
resale. At September 30, 1997, the aggregate value of these securities
represented 1.4 percent of net assets.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Emerging Markets Fund
- -------------------------------------------------------------------------------
Investments as of September 30, 1997
(Dollar amounts in thousands)
Number Market
STOCKS (90.8%) of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA (4.9%)
Telecom Argentina ADRs............................... 30,000 $ 913
YPF Sociedad Anonima ADRs............................ 30,000 1,106
--------
2,019
BRAZIL (6.2%)
Globex Utilidades.................................... 37,000 448
Perdigao S.A. Comercio e Industria Pfd............... 295,000,000 592
*Sabesp.............................................. 3,000,000 780
Telebras - Sponsored ADRs............................ 6,000 773
--------
2,593
CHINA (2.0%)
+*Beijing Datung..................................... 1,500,000 843
GREECE (1.9%)
Hellenic Telecommunication Organization S.A.......... 32,000 802
HONG KONG (12.4%)
Companion Building................................... 700,000 45
Dairy Farm International............................. 1,200,000 1,140
Guoco Group Ltd...................................... 240,000 958
Hong Kong Ferry...................................... 310,000 641
Jardine Matheson Holdings............................ 153,515 1,243
Peregrine Investments................................ 500,000 850
Vitasoy.............................................. 670,000 292
--------
5,169
INDIA (3.2%)
Indian Petrochem GDRs................................ 35,000 359
+Reliance Industries GDSs............................ 17,000 389
+*Videsh Sanchar Nigam GDRs.......................... 35,000 588
--------
1,336
INDONESIA (7.7%)
CP Indonesia......................................... 487,500 82
Ever Shine Tex....................................... 1,220,000 270
HM Sampoerna......................................... 220,000 454
Kawasan Industri Jababeka............................ 755,000 473
*Lautan Luas......................................... 700,000 557
Matahari Putra Prima................................. 2,003,000 689
*Putra Surya Multidana............................... 1,443,000 662
--------
3,187
ISRAEL (2.2%)
Koor Industries...................................... 45,000 928
LEBANON (2.4%)
*Solidere GDRs....................................... 60,000 1,011
MALAYSIA (2.7%)
IOI Corporation...................................... 240,000 243
IOI Properties....................................... 451,000 434
*Telekom Malaysia.................................... 150,000 456
--------
1,133
<PAGE>
Emerging Markets Fund CONTINUED
- -------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
MEXICO (0.6%)
Transportation Maritima Mexicana ADRs................ 30,900 $ 243
MIDDLE EAST / AFRICA (2.6%)
*The Foreign & Colonial Emerging Middle East Fund.... 20,000 363
The Morgan Stanley Africa Investment Fund............ 43,000 731
--------
1,094
PANAMA (1.9%)
Bladex ADRs.......................................... 18,000 806
PERU (5.1%)
Cementos Norte Pacasmayo............................. 414,520 625
Southern Peru Copper ADRs............................ 43,000 782
Telefonica del Peru ADRs............................. 30,000 709
--------
2,116
PHILIPPINES (5.3%)
*Digital Telecom..................................... 11,470,000 768
Metro Pacific........................................ 6,028,000 728
*Southeast Asia Cement............................... 41,950,000 708
--------
2,204
PORTUGAL (1.9%)
Portugal Telecom ADRs............................... 18,000 782
RUSSIA (1.9%)
*Fleming Russia Securities Fund...................... 27,800 806
SOUTH KOREA (14.3%)
*Housing & Commercial Bank GDRs...................... 20,000 398
Kookmin Bank......................................... 125 1
Korea Exchange Bank.................................. 232,900 1,253
*Korean Air.......................................... 65,000 889
*LG Electronics...................................... 68,000 1,352
Samchully............................................ 14,992 721
Samsung Electronics
GDRs.............................................. 3,048 73
Ordinary Preferred................................ 3,967 160
SK Telecom........................................... 286 175
Yukong
*GDRs............................................. 165,000 817
Ordinary Shares................................... 5,100 95
--------
5,934
THAILAND (8.6%)
*GSS Array........................................... 200,000 361
IFCT Finance & Securities............................ 830,900 1,082
Land & House......................................... 364,843 490
*National Finance and Securities..................... 801,000 679
The Pizza Company.................................... 83,000 352
Precious Shipping.................................... 219,400 199
*Property Perfect.................................... 80,000 10
Siam Commercial Bank................................. 89,000 289
*Sino Thai Engineering & Construction................ 66,300 110
--------
3,572
UNITED KINGDOM (1.0%)
*Billiton Plc........................................ 105,400 407
<PAGE>
<CAPTION>
Emerging Markets Fund CONTINUED
- -------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
VENEZUALA (2.0%)
Compania Anonima Nacional Telefonos
de Venezuela (CANTV).............................. 18,000 $ 824
--------
Total Stocks (Cost $40,088).......................... 37,809
<CAPTION>
- -------------------------------------------------------------------------------
Principal
Amount
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM OBLIGATIONS (9.9%)
UNITED STATES (9.9%)
COMMERCIAL PAPER (9.9%)
Associates Corp. of North America 6.400% 10/01/97.... $ 2,045 2,045
UBS Finance 6.350% 10/01/97.......................... 2,060 2,060
--------
TOTAL SHORT-TERM OBLIGATIONS
(Amortized Cost $4,105)........................................ 4,105
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.7%)
(Cost Basis $44,193).............................................. 41,914
OTHER ASSETS, LESS LIABILITIES (-0.7%)............................ (297)
-------
TOTAL NET ASSETS (100.0%)......................................... $41,617
=======
- -------------------------------------------------------------------------------
<FN>
* Non-income producing.
+ These securities are subject to contractual or legal restrictions on their
resale. At September 30, 1997 the aggregate value of these securities
represented 4.4 percent of net assets.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
- -----------------------------------------------------------------------------------------
September 30, 1997
(All amounts in thousands, except per-share data)
EMERGING
INTERNATIONAL MARKETS
FUND FUND
--------- --------
ASSETS
<S> <C> <C>
Investment in SR&F International Portfolio,
at value..................................... $166,323 $ --
Investments, at market value...................... -- 41,914
Receivable for investments sold................... -- 179
Dividends and interest receivable................. -- 52
Receivable for fund shares sold................... 240 5
Cash ............................................. -- 2
Other assets...................................... 28 18
--------- --------
Total Assets................................... $ 166,591 $42,170
========= ========
LIABILITIES
Payable for fund shares redeemed.................. $ 330 $ 54
Payable for investments purchased................. -- 355
Payable to investment adviser and transfer agent.. 53 85
Other liabilities................................. 120 59
--------- --------
Total Liabilities.............................. 503 553
--------- --------
CAPITAL
Paid-in capital................................... 145,658 41,256
Net unrealized appreciation (depreciation) of
investments and foreign currencies............. 12,249 (2,279)
Accumulated undistributed net investment income... 554 146
Accumulated undistributed net realized
gains on investments........................... 7,627 2,494
--------- --------
Total Capital (Net Assets)..................... 166,088 41,617
--------- --------
Total Liabilities and Capital.................. $ 166,591 $42,170
========= ========
Shares Outstanding (Unlimited Number Authorized).. 14,090 4,062
========= ========
Net Asset Value (Capital) Per Share............... $ 11.79 $ 10.24
========= ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
- -----------------------------------------------------------------------------------------
For the Year Ended September 30, 1997
(All amounts in thousands)
EMERGING
INTERNATIONAL MARKETS
FUND FUND(A)
------- ------
<S> <C> <C>
INVESTMENT INCOME
Dividends allocated from SR&F International
Portfolio.................................... $ 2,586 $ --
Dividends......................................... 481 462
Interest allocated from SR&F International
Portfolio.................................... 269 --
Interest.......................................... 103 247
-------- -------
3,439 709
Foreign taxes withheld allocated from
SR&F International Portfolio................... (322) --
Foreign taxes withheld............................ (47) (26)
-------- -------
Total Investment Income........................ 3,070 683
-------- -------
EXPENSES
Expenses allocated from SR&F International
Portfolio.................................... 971 --
Management fees................................... 407 248
Transfer agent fees............................... 322 50
Administrative fee................................ 220 34
Custodian fees.................................... 66 63
Printing and postage.............................. 53 28
Trustees' fees.................................... 10 6
Amortization of organization expenses............. 1 28
Other............................................. 218 54
-------- -------
2,268 511
Reimbursement of expenses by investment adviser... -- (61)
-------- -------
Total Expenses................................. 2,268 450
-------- -------
Net Investment Income.......................... 802 233
-------- -------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gains on investments allocated
from SR&F International Portfolio.............. 6,089 --
Net realized gains on investments................. 2,365 2,494
Net realized losses on foreign currency transactions
allocated from SR&F International Portfolio.... (93) --
Net realized losses on foreign currency
transactions................................. (88) (87)
Net change in unrealized appreciation or
depreciation of investments and foreign
currency transactions........................ 4,650 (2,279)
-------- -------
Net Gains on Investments and Foreign
Currency Transactions....................... 12,923 128
-------- -------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................ $ 13,725 $ 361
======== =======
<FN>
(a) From commencement of operations on February 28, 1997.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------
For The Years Ended September 30, 1996 and 1997
(All amounts in thousands)
EMERGING MARKETS
INTERNATIONAL FUND FUND
1996 1997 1997(A)
-------------------------- --------
<S> <C> <C> <C>
OPERATIONS
Net investment income............................................................ $ 1,114 $ 802 $ 233
Net realized gains on investments and foreign currency transactions............. 2,976 8,273 2,407
Net change in unrealized appreciation or depreciation of investments............ 4,858 4,650 (2,279)
--------- --------- --------
Net Increase in Net Assets Resulting from Operations......................... 8,948 13,725 361
--------- --------- --------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income............................................. (1,075) (1,000) --
Capital gain distributions....................................................... -- (1,837) --
--------- --------- --------
Total Distributions to Shareholders........................................... (1,075) (2,837) --
--------- --------- --------
SHARE TRANSACTIONS
Subscriptions to fund shares.................................................... 62,994 55,775 46,204
Investment income dividends reinvested........................................... 760 725 --
Capital gain distributions reinvested............................................ -- 1,429 --
Redemptions of fund shares...................................................... (19,102) (38,274) (4,948)
--------- --------- --------
Net Increase from Share Transactions.......................................... 44,652 19,655 41,256
--------- --------- --------
Net Increase in Net Assets................................................... 52,525 30,543 41,617
TOTAL NET ASSETS
Beginning of Period............................................................. 83,020 135,545 --
--------- --------- --------
End of Period.................................................................... $135,545 $166,088 $41,617
========= ========= ========
Accumulated Undistributed Net Investment Income at End of Period................. $ 933 $ 554 $ 146
========= ========= ========
ANALYSES OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares..................................................... 6,004 4,883 4,529
Investment income dividends reinvested........................................... 76 68 --
Capital gain distributions reinvested............................................ -- 135 --
--------- --------- --------
6,080 5,086 4,529
Redemptions of fund shares...................................................... (1,811) (3,365) (467)
--------- --------- --------
Net increase in fund shares...................................................... 4,269 1,721 4,062
Shares outstanding at beginning of period....................................... 8,100 12,369 --
--------- --------- --------
Shares outstanding at end of period............................................. 12,369 14,090 4,062
========= ========= ========
<FN>
(a) From commencement of operations on February 28, 1997.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SR&F International Portfolio
- -------------------------------------------------------------------------------
Balance Sheet
September 30, 1997
(All amounts in thousands)
<S> <C>
ASSETS
Investments, at market value.................................... $167,699
Receivable for investments sold................................. 458
Dividends receivable............................................ 233
Cash............................................................ 4
Other assets.................................................... 2
----------
Total Assets................................................. 168,396
----------
LIABILITIES
Payable for investments purchased............................... 1,830
Payable to investment adviser................................... 118
Other liabilities............................................... 18
----------
Total Liabilities............................................ 1,966
----------
Net Assets applicable to investors' beneficial interest......... $166,430
==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SR&F International Portfolio
- -------------------------------------------------------------------------------
Statement of Operations
For the Period Ended September 30, 1997 (a)
(All amounts in thousands)
<S> <C>
INVESTMENT INCOME
Dividends....................................................... $2,588
Interest Income................................................. 269
--------
2,857
Foreign taxes withheld.......................................... (322)
--------
Total Investment Income...................................... 2,535
EXPENSES
Management fees................................................. 839
Accounting fees................................................. 18
Audit and legal fees............................................ 18
Other Expense................................................... 97
--------
Total Expenses............................................... 972
--------
Net Investment Income........................................... 1,563
--------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gains on investments .............................. 6,092
Net realized losses on foreign currency transactions............ (97)
Net change in unrealized appreciation or depreciation of
investments and foreign currency transactions................ 5,615
--------
Net Gains on Investments and Foreign Currency Transactions... 11,610
--------
Net Increase in Net Assets Resulting from Operations............ $13,173
=======
<FN>
(a) From commencement of operations on February 3, 1997.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Period Ended September 30, 1997 (a)
(All amounts in thousands)
<S> <C>
OPERATIONS
Net investment income........................................... $ 1,563
Net realized gains on investments and foreign
currency transactions...................................... 5,995
Net change in unrealized appreciation or depreciation
of investments............................................. 5,615
----------
Net Increase in Net Assets Resulting from Operations............ 13,173
----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions................................................... 171,752
Withdrawals..................................................... (18,495)
----------
Net Increase from Transactions in Investors'
Beneficial Interests.................................... 153,257
----------
Net Increase in Net Assets................................... 166,430
TOTAL NET ASSETS
Beginning of Period............................................. --
----------
End of Period................................................... $166,430
==========
<FN>
(a) From commencement of operations on February 3, 1997.
See accompanying notes to financial statements.
</FN>
</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, the Stein Roe
International Fund contributed $132,942 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 September
30, 1997, Stein Roe International Fund and Stein Roe Advisor International Fund
owned 99.94 percent and .06 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 Portfolio.
These policies are in conformity with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
Security Valuations
All securities are valued as of September 30, 1997. Securities are valued at,
depending on the security involved, 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
determined 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>
Notes to Financial Statements CONTINUED
- -------------------------------------------------------------------------------
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 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
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 September 30, 1997.
Federal Income Taxes
No provision is made for federal income taxes since (a) the Funds elect to be
taxed as "regulated investment companies" and make distri butions to their
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on respective percentages of ownership.
Distributions to Shareholders
Each Fund annually declares and pays dividends of any net investment income and
net realized capital gains, which are recorded on the ex-dividend date.
Dividends are determined in accordance with income tax principles, which may
treat certain transactions differently from generally accepted accounting
principles. These differences are primarily due to differing treatments for
certain transactions, such as foreign currency transactions. Distributions in
excess of tax basis earnings are reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings that result in temporary
overdistributions are classified as distributions in excess of net investment
income or net realized gains. Permanent differences are reclassified to the
appropriate capital account.
Other Information
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.
<PAGE>
Notes to Financial Statements CONTINUED
- -------------------------------------------------------------------------------
Realized gains or losses from sales of securities are determined on the
specific identified cost basis.
All amounts, except per-share amounts, are shown in thousands.
Note 3. Trustees' Fees and Transactions with Affiliates
The 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 agreements 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 subtransfer agent for the Funds.
The Adviser also provides certain fund accounting services. For the period
ended September 30, 1997, International Fund, Emerging Markets Fund and the
Portfolio incurred charges of $27, $14, and $18, 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 September
30, 1997, was $10, $6 and $11, respectively. No remuneration was paid to any
other trustee or officer of the Trust.
<PAGE>
Notes to Financial Statements CONTINUED
- -------------------------------------------------------------------------------
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
September 30, 1997.
Note 5. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the period ended September 30, 1997, were:
FUND Purchases Sales
-------- --------
International Fund (a)........................ $14,526 $15,772
Emerging Markets Fund......................... 47,649 10,056
International Portfolio....................... 28,503 25,340
(a) Prior to commencement of operations of the Portfolio (see Note 1 to
Financial Statements).
At September 30, 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....... $ 3,943 $ 6,534 $(2,591) $ 44,193 $ 44,505
International Portfolio..... 30,162 18,804 11,358 155,444 156,341
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------
SR&F International Portfolio
PERIOD
ENDED
SEPTEMBER 30,
1997 (a)
---------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Ratio of net investment income to average net assets............ 1.58%*
Ratio of net expenses to average net assets..................... 0.98%*
Portfolio turnover rate......................................... 18%
Average commissions (per share) (b)............................. $0.0002
<FN>
*Annualized
(a) From commencement of operations on February 3, 1997
(b) Foreign commissions usually are lower than U.S. commissions when
expressed as cents per share due to the lower per share price of
many non-U.S. securities.
</FN>
</TABLE>
<PAGE>
<TABLE>
Financial Highlights CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
International Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
PERIOD
ENDED
SEPTEMBER 30, YEARS ENDED SEPTEMBER 30,
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 0.06
Net realized and unrealized gains (losses) on investments.......... 0.58 (0.26) 0.74 0.99
------- ------- -------- --------
Total from investment operations................................. 0.61 (0.14) 0.83 1.05
------- ------- -------- --------
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 $ 11.79
======= ======= ======== ========
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% 0.55%
Portfolio turnover rate............................................... 48% 59% 42% 11% (b)
Average Commissions (Per Share) (c)................................... -- -- $ 0.0010 $ 0.0067 (b)
Total return ......................................................... 6.10% (1.28%) 8.23% 9.84%
Net assets, end of period............................................. $74,817 $83,020 $135,545 $166,088
<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)
(c) Foreign commissions usually are lower than U.S. commissions when expressed
as cents per share due to the lower per share price of many non-U.S.
securities.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights CONTINUED
- -------------------------------------------------------------------------------
Emerging Markets Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
PERIOD
ENDED
SEPTEMBER 30,
1997 (a)
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................................ 0.06
Net realized and unrealized gains (losses) on investments.... 0.18
-------
Total from investment operations.......................... 0.24
-------
NET ASSET VALUE, END OF PERIOD.................................. $ 10.24
========
Ratio of net expenses to average net assets (b)................. 2.00%*
Ratio of net investment income to average net assets (c)........ 1.04%*
Portfolio turnover rate......................................... 30%
Average Commissions (Per Share) (d)............................. $0.0007
Total return ................................................... 2.40%
Net assets, end of period....................................... $41,617
<FN>
*Annualized
(a) From commencement of operations on February 28, 1997.
(b) If the Fund had paid all of its expenses and there had been no reimbursement
by the Advisor, this ratio would have been 2.27 percent for the period ended
September 30, 1997.
(c) Computed giving effect to Advisor's expense limitation undertaking.
(d) Foreign commissions usually are lower than U.S. commissions when expressed
as cents per share due to the lower per share price of many non-U.S.
securities.
</FN>
</TABLE>
<PAGE>
Report of Independent Public Accountants
- -------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of:
Stein Roe Investment Trust
Stein Roe International Fund
Stein Roe Emerging Markets Fund
SR&F Base Trust
SR&F International Portfolio
We have audited the accompanying balance sheet of Stein Roe International Fund
and the accom panying balance sheets, including the schedules of invest ments,
of SR&F International Portfolio and Stein Roe Emerging Markets Fund as of
September 30, 1997, and the related statements of operations, state ments of
changes in net assets and financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Funds' and Portfolio's manage ment. Our responsi bility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial state ments and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures for the Stein Roe Emerging Markets Fund and SR&F
International Portfolio included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmation from brokers
and, when replies were not received, we carried out alternative auditing
procedures. An audit also includes assessing the estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stein Roe International Fund,
Stein Roe Emerging Markets Fund and SR&F International Portfolio, as of
September 30, 1997, the results of their operations, the changes in their net
assets and the financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 11, 1997
<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
William D. Andrews, Executive Vice President
Jilaine H. Bauer, Executive Vice President, Secretary
Thomas W. Butch, Executive Vice President
Loren A. Hansen, Executive Vice President
Hans P. Ziegler, Executive Vice President
Gary A. Anetsberger, Senior Vice President,
Chief Financial Officer
Bruno Bertocci, Vice President
David P. Brady, Vice President
Daniel K. Cantor, Vice President
Philip J. Crosley, Vice President
Erik P. Gustafson, Vice President
David P. Harris, Vice President
Harvey B. Hirschhorn, Vice President
Eric S. Maddix, Vice President
Lynn C. Maddox, Vice President
John S. McLandsborough, Vice President
Anne E. Marcel, Vice President
Arthur J. McQueen, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Richard B. Peterson, Vice President
M. Gerard Sandel, Vice President
Gloria J. Santella, Vice President
Heidi J. Walter, Vice President
Stacy H. Winick, Vice President
Sharon R. Robertson, Controller
Scott E. Volk, Treasurer
Margaret O. Zwick, Assistant Treasurer
Janet B. Rysz, Assistant Secretary
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 MUTUAL FUNDS
Stein Roe Cash Reserves 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 Growth Opportunities 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
Effective Jan. 1, 1998, the Funds will be distributed by
Liberty Financial Investments, Inc.
Member SIPC
IN11A 11/97
<PAGE>
