STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
SEPT. 30, 1998
PHOTO OF: HANDS HOLDING LEAVES
STEIN ROE EQUITY FUNDS
GROWTH FUNDS
GROWTH STOCK FUND
GROWTH OPPORTUNITIES FUND
SPECIAL FUND
LARGE COMPANY FOCUS FUND
SPECIAL VENTURE FUND
CAPITAL OPPORTUNITIES FUND
LOGO:
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(SM)
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Contents
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From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Performance....................................................... 3
How the Stein Roe growth funds have done over time
Making the Most of Performance.................................... 6
Q&A
Interviews with the portfolio managers and a summary of
investment activity
Growth Stock Fund................................................. 7
Growth Opportunities Fund......................................... 11
Special Fund...................................................... 15
Large Company Focus Fund.......................................... 19
Special Venture Fund.............................................. 22
Capital Opportunities Fund........................................ 26
Portfolios of Investments......................................... 30
A complete list of investments with market values
Financial Statements.............................................. 44
Statements of assets and liabilities, operations and
changes in net assets
Notes to Financial Statements..................................... 56
Financial Highlights.............................................. 61
Selected per-share data
Report of Independent
Public Accountants.............................................. 73
MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
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Photo of: Thomas W. Butch
From the President
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TO OUR SHAREHOLDERS
We're pleased to present this annual report for the Stein Roe growth funds --
Growth Stock Fund, Growth Opportunities Fund, Special Fund, Large Company Focus
Fund, Special Venture Fund and Capital Opportunities Fund. This report covers
the fiscal year ended Sept. 30, 1998.
WHAT GOES UP...
Until July, it appeared as if the equity markets were set to deliver another
year of record gains. Growth was supported by low inflation, consumer confidence
and a strong dollar. Money flooded the equity markets as domestic and
international investors sought to participate in what they hoped would be
another record year for the U.S. stock market. Through its high point on July 17
of the fiscal year, the equity market was up 25.54 percent as measured by the
S&P 500 Index,* following a period of average annual gains of more than 30
percent for the past three fiscal years.
By the end of August, however, we were reminded that what goes up comes down,
as equity markets gave back all of their gains for the year, much during a
dramatic one-day drop of 512 points, or 6.4 percent on August 31. At the end of
September (again, the end of the Fund's fiscal year), the Dow Jones Industrials
Average at 7842.62, was -0.3 percent below where it was twelve months before.
WHAT HAPPENED
The reason for the retreat had its roots in overseas events. Southeast Asia
continued to suffer economic and financial crises throughout the year. Then in
August, Asian woes spread to other developing nations as Latin American markets
suffered and the Russian ruble devalued. This created selling pressure in U.S.
markets as investors feared that economic crises in developing nations could
stifle our economy, which is dependent, in part, on healthy markets for
exported goods. Moreover, concerns about the sustainability of U.S. companies'
earnings and the level of interest rates heightened fears about continued
growth. The confluence of these negative forces overwhelmed U.S. markets in
August and September, creating the resulting weak market returns noted above.
BACK FROM THE DEPTHS
Then on Oct. 15, 1998, the Federal Reserve took the unusual step of lowering
two key interest rates in between its regular meetings. This catalyzed a
significant market rally, which was sustained by generally better-than-expected
third quarter financial results reported by many major U.S. companies. As of the
writing of this letter, markets have recovered considerably from their
August 31 lows, although not to the levels reached prior to that date.
LOOKING FORWARD
No one knows for certain what lies ahead for the U.S. equity markets. What we
can assess is that the Asian problems appear to have a ways to go before they
are fully resolved and that the durability of corporate earnings may have
further implications for the equity markets. In addition, many market observers
believe that, following extraordinary gains in 1995, 1996 and 1997, U.S. equity
markets will likely begin to deliver results more in line with
historical returns.
A REMINDER OF RISK
We believe one of the keys to investment success is your perspective. If
your mutual fund was appropriate to your investing objectives yesterday, it
probably still is today. However, at the end of the day, you need to feel
comfortable with your portfolio. If the recent market turmoil has unnerved you
to the point where it is weighing on you emotionally, you might want to consider
reassessing your risk tolerance and adjust your portfolio accordingly. In our
experience, while unsettling, market declines are normal. While the recent
market volatility has reminded us of the significance of market downturns, it
also should remind us that history has shown that investors can lose
opportunities when they bail out of the market. In fact, about the only thing
worse than experiencing a bear market is missing out on the potential bull
market that follows. Long-term growth investors have not lost money in any
15-year period of the stock market's existence, as represented by the S&P 500.+
Please call us at 800-338-2550 with any comments or suggestions. As always,
we look forward to serving your investment needs.
Sincerely,
Thomas W. Butch
President
Oct. 26, 1998
*THE S&P 500 INDEX IS AN UNMANAGED GROUP OF STOCKS NOT ASSOCIATED WITH ANY
STEIN ROE FUND. IT IS NOT AVAILABLE FOR DIRECT INVESTMENT.
+ USED WITH PERMISSION. (C) 1997 IBBOTSON ASSOCIATES, INC. ALL RIGHTS
RESERVED. [CERTAIN PORTIONS OF THIS WORK WERE DERIVED FROM COPYRIGHTED WORKS OF
ROGER G. IBBOTSON AND REX SINQUEFIELD].
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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 SEPT. 30, 1998
PAST 1 PAST 3 PAST 5 PAST 10
YEAR YEARS YEARS YEARS
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GROWTH STOCK FUND 4.69% 19.03% 17.16% 16.61%
SPECIAL FUND -19.17 8.40 8.29 13.31
CAPITAL OPPORTUNITIES FUND -13.23 6.75 11.34 12.29
S&P 500 9.08 22.61 19.91 17.27
S&P 400 MidCap -6.07 14.21 13.74 16.71
Nasdaq Industrials -24.98 1.67 5.75 10.27
Russell 2000 -19.02 6.86 9.09 11.16
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PAST 1 PAST 3 LIFE
YEAR YEARS OF FUND(1)
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SPECIAL VENTURE FUND -32.05% 2.92% 8.57%
Russell 2000 -19.02 6.86 11.13
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PAST 1 LIFE
YEAR OF FUND(1)
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GROWTH OPPORTUNITIES FUND -3.34% 3.27%
S&P 500 Index 9.08 17.25
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SINCE LIFE
INCEPTION OF FUND(1)
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LARGE COMPANY FOCUS FUND -12.70% N/A
S&P 500 Index -9.92 N/A
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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. A FUND'S PERFORMANCE, ESPECIALLY FOR VERY SHORT TIME PERIODS, SHOULD NOT
BE THE SOLE FACTOR IN MAKING YOUR INVESTMENT DECISION. TOTAL RETURN PERFORMANCE
INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME AND CAPITAL GAINS
DISTRIBUTIONS. THE S&P 500, THE S&P 400 MIDCAP, THE NASDAQ INDUSTRIALS AND THE
RUSSELL 2000 ARE UNMANAGED GROUPS OF STOCKS THAT DIFFER FROM THE COMPOSITION OF
ANY STEIN ROE FUND; THEY ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
(1) INCEPTION DATE: SPECIAL VENTURE FUND -- OCT. 17, 1994; GROWTH
OPPORTUNITIES FUND -- JUNE 30, 1997; LARGE COMPANY FOCUS FUND -- JUNE 26, 1998.
BECAUSE INDEX RETURNS ARE CALCULATED ON A MONTHLY BASIS, THE INDEX RETURNS
MARKED "LIFE OF FUND" ARE CALCULATED FROM THE MONTH-END RESULTS THAT FELL
CLOSEST TO THE FUND'S INCEPTION DATE.
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Investment Comparison
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COMPARISON of change in value of a $10,000 investment.
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Growth Stock Fund
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Mountain Chart:
S&P 500 Growth Stock Fund
9/30/88 10000 10000
9/30/89 13295 13386
9/30/90 12067 12828
9/30/91 15819 17528
9/30/92 17565 20047
9/30/93 19843 21067
9/30/94 20573 21509
9/30/95 26685 27571
9/30/96 32108 33372
9/30/97 45087 44418
9/30/98 49182 46504
Special Fund and Capital Opportunities Fund
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Mountain Chart:
Capital
Opportunities
Fund S&P 500 Special Fund S&P 400 MidCap
9/30/88 10000 10000 10000 10000
9/30/89 13668 13295 14000 13729
9/30/90 8541 12067 12771 11749
9/30/91 13111 15819 16880 17658
9/30/92 13897 17565 18393 19858
9/30/93 18623 19843 23423 24630
9/30/94 19053 20573 23897 25025
9/30/95 26191 26685 27385 31475
9/30/96 39168 32108 32285 35881
9/30/97 36720 45087 43155 49913
9/30/98 31861 49182 34887 46765
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 S&P 500 AND THE S&P
400, EACH AN UNMANAGED GROUP OF STOCKS THAT DIFFERS FROM THE COMPOSITION OF ANY
STEIN ROE FUND; THEY ARE NOT AVAILABLE FOR DIRECT INVESTMENT. TOTAL RETURN
PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME AND
CAPITAL GAINS DISTRIBUTIONS.
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Investment Comparison
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COMPARISON of change in value of a $10,000 investment.
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Special Venture Fund
Mountain Chart:
Special Venture Fund Russell 2000
10/31/94 10000 10000
3/31/95 11064 10804
9/30/95 12697 12399
3/31/96 14375 14036
9/30/96 16737 16343
3/31/97 15808 15436
9/30/97 20372 19893
3/31/98 20179 15436
9/30/98 13844 19893
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Growth Opportunities Fund
Mountain Chart:
Growth
Opportunities
Fund S&P 500
6/30/97 10000 10000
9/30/97 10770 10749
12/31/97 10960 11058
3/31/98 12659 12599
6/30/98 12749 13017
9/30/98 10410 11725
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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. THESE
GRAPHS COMPARE THE PERFORMANCE OF THE STEIN ROE FUNDS TO THE S&P 500 AND THE
RUSSELL 2000, EACH AN UNMANAGED GROUP OF STOCKS THAT DIFFERS FROM THE
COMPOSITION OF ANY STEIN ROE FUND; THEY ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
TOTAL RETURN PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF
INCOME AND CAPITAL GAINS DISTRIBUTIONS.
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Making the Most of Performance
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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 equity 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, 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
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
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AN INTERVIEW WITH ERIK GUSTAFSON, PORTFOLIO MANAGER OF GROWTH STOCK FUND
SR&F GROWTH STOCK PORTFOLIO
FUND DATA
INVESTMENT OBJECTIVE:
Seeks long-term capital appreciation by investing in a diversified portfolio.
Under normal conditions, the portfolio will invest at least 65 percent of its
total assets in common stocks and other equity-type securities that are
believed to have long-term appreciation possibilities.
FUND INCEPTION:
July 1, 1958
TOTAL NET ASSETS:
$615.3 million
Photo of: Erik Gustafson
GROWTH STOCK FUND CLOSED TO NEW INVESTORS ON OCT. 15, 1997, SUBJECT TO THE
TERMS SET FORTH IN THE PROSPECTUS.
Q: HOW DID THE FUND PERFORM?
A: The Fund had a total return of 4.69 percent for this fiscal year ended Sept.
30, 1998, outperforming the Lipper growth fund peer group return of 0.67
percent.
Q: WHAT INFLUENCED THE FUND'S PERFORMANCE?
A: For most of the year, large-cap growth companies produced strong returns. The
S&P 500 gained 22 percent from Sept. 30, 1997, through mid-July. Then the
markets corrected due to continued emerging market concerns, political problems
surrounding President Clinton and general global deflation worries. Although
large-cap growth stocks continued to perform ahead of all other equity groups,
all equity markets suffered.
Q: DO YOU BELIEVE THE RECENT CORRECTION WILL CHANGE INVESTOR SENTIMENT?
A: The markets often react strongly to short-term events. Markets are
forward-looking which means they react according to the way investors believe
the economy will grow and function in future months. Historically, when the
economy has looked uncertain or slow, the markets have gone down. However, with
no significant indications of recession in the United States and firm prospects
for economic growth over the long term, investor sentiment should remain intact.
Q: IN WHAT SECTORS ARE THE PORTFOLIO'S INVESTMENTS FOCUSED?
A: We continue to find what we think are attractive investment opportunities in
large-cap U.S. growth companies. We favor sectors that will benefit from the
demographic aging of the U.S. populace -- mainly health care and financial
services. The health care companies we have the most confidence in are American
Home Products, Eli Lilly and Pfizer (3.2 percent, 3.7 percent and 3.6 percent of
total net assets, respectively). In financial services, we favor Travelers Group
and American International Group (2.6 percent and 3.2 percent, respectively). We
have faith that these companies will be able to meet their earnings expectations
and continue to grow for the next several years. We also continue to favor
certain technology companies -- specifically tele com mu nications and
information services companies such as Cisco Systems, Lucent Technologies,
Tellabs and Microsoft (5.1 percent, 3.8 percent, 2.4 percent and 3.8 percent of
total net assets, respectively). We believe that the Internet and global
networking will continue to shape the world and that companies in these
industries will benefit from demand for new products.
Q: DID ANY OF THE PORTFOLIO'S HOLDINGS SUFFER FROM INTERNATIONAL TURMOIL?
A: Many of the portfolio's leading U.S. multinational holdings have a
substantial presence in Asia and therefore have been negatively influenced by
the crisis in that region. For example, Coca-Cola (2.1 percent of total net
assets) earns about 75 percent of its profits overseas. When global economies
are under pressure, a company with this level of exposure will inevitably
suffer. Financial services holdings with direct exposure to Asia were also hurt,
and technology companies that rely on trade with Asia lost value due to slower
demand.
However, we balance out global exposure with strong positions in domestic
companies that are less affected by world economic crises. For example, one of
the portfolio's largest sectors -- drug and health care companies -- continued
to provide strong returns because people's need for medicine is constant. And as
baby boomers age, their demand for health care products and services should
increase.
Q: DID YOU SELL HOLDINGS WHEN THE MARKETS DECLINED?
A: We did not participate in the sell-off. We believe that the strength of the
companies in our portfolio may allow for a strong rebound when markets come
back.
Q: ANY THOUGHTS ABOUT WHAT LIES AHEAD?
A: Economic growth is slowing around the world. This should support a further
interest rate reduction by the Federal Reserve Board. Historically, lower
interest rates have improved the valuations of large-cap growth stocks.
Therefore, we remain optimistic about the growth prospects of large-cap
companies.
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. HOLDINGS ARE DISCLOSED AS A PERCENTAGE OF SR&F GROWTH STOCK PORTFOLIO'S
TOTAL NET ASSETS. PORTFOLIO HOLDINGS ARE AS OF SEPT. 30, 1998, AND ARE SUBJECT
TO CHANGE. TOTAL RETURN PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF INCOME AND CAPITAL GAINS DISTRIBUTIONS. THE S&P 500 IS AN
UNMANAGED GROUP OF STOCKS THAT DIFFERS FROM THE FUND; IT IS NOT AVAILABLE FOR
DIRECT INVESTMENT. ACCORDING TO LIPPER ANALYTICAL SERVICES, INC., A MONITOR OF
MUTUAL FUND PERFORMANCE, THE MEDIAN RETURNS FOR THE FUND'S GROWTH FUND PEER
GROUP FOR THE ONE-, FIVE- AND 10-YEAR PERIODS ENDED SEPT. 30, 1998, WERE 0.67
PERCENT, 15.09 PERCENT AND 14.77 PERCENT, RESPECTIVELY.
<PAGE>
Fund Highlights
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SR&F Growth Stock Portfolio
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
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Cisco Systems 5.1% MCI WorldCom 3.7%
Paychex 4.2 Pfizer 3.6
Lucent Technologies 3.8 Time Warner 3.6
Microsoft 3.8 Intel 3.5
Eli Lilly 3.7 Fannie Mae 3.5
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Total 38.5%
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EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO S&P 500
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Number of Holdings 31 500
Dollar Weighted Median Market
Capitalization ($ Mil.) $69,245 $47,086
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PIE CHART:
ECONOMIC SECTOR BREAKDOWN
As of Sept. 30, 1998
Equity Portfolio S&P 500
Basic Materials 0% 3%
Consumer Cyclical 13% 13%
Consumer Noncyclical 25% 24%
Energy 2% 8%
Financial 19% 16%
Industrial 10% 8%
Technology 27% 18%
Utilities 4% 10%
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PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 95.6% 90.7%
Cash & Equivalents 4.4% 9.3%
<PAGE>
Q&A
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AN INTERVIEW WITH GLORIA SANTELLA, ERIC MADDIX AND ART MCQUEEN, PORTFOLIO
MANAGERS OF GROWTH OPPORTUNITIES FUND
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FUND DATA
INVESTMENT OBJECTIVE:
Seeks long-term capital appreciation by investing in the stocks of companies
believed to offer substantial long-term earnings growth.
FUND INCEPTION:
June 30, 1997
TOTAL NET ASSETS:
$50.0 million
Photo of : GLORIA SANTELLA, ERIC MADDIX AND ART MCQUEEN
Q: HOW DID THE FUND PERFORM?
A: The Fund returned -3.34 percent for the year ended Sept. 30, 1998, compared
to the Lipper growth fund peer group return of 0.67 percent.
Q: WHAT HURT PERFORMANCE?
A: The Fund invests for growth across market capitalization segments and has
exposure to companies of all sizes. While large company stocks continued to
deliver strong performance, small- and midcap company stocks continued to
underperform. Since we have a majority of the Fund's assets invested in small-
and midcap stocks, the performance of these stocks relative to larger names hurt
the Fund's total return. The divergence of performance among capitalization
ranges is well reflected in returns of the following indices. Large-cap stocks,
as represented by the S&P 500 Index, returned 9.06 percent for the fiscal year,
while midcap stocks, as represented by the S&P 400 Index, returned -6.07 percent
and small-cap stocks, as represented by the S&P 600 Index, returned -18.67
percent.
Q: WHAT SUPPORTED PERFORMANCE?
A: Performance for the Fund was led by large-cap holdings. And despite this
difficult environment, several of the Fund's small- and midcap holdings aided
the performance of the Fund as well. Our holdings in less-economically sensitive
sectors, such as health care, performed exceptionally well. Additionally, stocks
in the media and retail sectors performed well as their domestic focus shielded
them from the negative impact of faltering international economies.
Q: CAN YOU NAME SOME HOLDINGS THAT WORKED PARTICULARLY WELL FOR YOU?
A: Boron, LePore & Associates (1.4 percent of total net assets), a small-cap
contract sales company in the health care field, was one of the Fund's strongest
performers. A midcap company that performed particularly well for the Fund was
Outdoor Systems (1.2 percent of total net assets). This media company owns
billboards and is benefiting from the trend in advertising away from newspapers.
So even though small- and midcap companies in general have underperformed, the
Fund is invested in companies that exhibit good growth potential regardless of
size. In the large-cap sector, Cisco Systems (1.5 percent of total net assets)
was one of the top contributors to the Fund's performance. Despite the mixed
performance of the technology sector, this company continued to thrive due to
demand for its Internet routers. Larger-cap health care holdings Pfizer,
Warner-Lambert and HBO & Co. (1.5 percent, 1.8 percent and 2.0 percent of total
net assets, respectively) were top performers for the Fund. Our largest sector
weighting continues to be health care as it has been insulated from global
economic turmoil.
Q: YOU SEEM TO FAVOR BUSINESS SERVICES. HOW HAVE COMPANIES IN THIS SECTOR
PERFORMED?
A: The Fund's best-performing holding was in this sector. The company, INSpire
Insurance Solutions (1.2 percent of total net assets), provides outsourced
claims and policy administration services to insurance companies. The increase
in demand by corporations to outsource non-core functions is well documented. We
like business services because their operations benefit from the predictability
of recurring revenue streams. Additionally, similar to our basic premise for
investing in health care companies, business services companies derive growth
primarily from domestic opportunities.
Q: WHAT'S YOUR OUTLOOK?
A: Current data suggests that economic growth is slowing. The markets have
already reacted to this in what we believe was an exaggerated manner.
Nevertheless, Growth Opportunities Fund invests in companies that have the
potential to grow regardless of economic conditions. This is reflected in the
fact that, after the recent market sell-off, the growth prospects of the Fund's
holdings have not significantly changed. In addition, we do not believe the
disparity in performance between market capitalization segments will continue.
Small- and midcap markets are at a point where their valuations are attractive
in comparison to large-cap markets. We also believe large-cap companies can
continue to provide solid appreciation. With that in mind, our balance of
holdings across market capitalization segments should provide good performance
for the Fund over the long-term.
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. A FUND'S
PERFORMANCE, ESPECIALLY FOR VERY SHORT TIME PERIODS, SHOULD NOT BE THE SOLE
FACTOR IN MAKING YOUR INVESTMENT DECISION. PORTFOLIO HOLDINGS ARE AS OF SEPT.
30, 1998, 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 1.25 PERCENT OF AVERAGE NET ASSETS; ABSENT
THIS LIMIT, TOTAL RETURN WOULD BE LESS. THE S&P 400, S&P 500 AND S&P 600 INDICES
ARE UNMANAGED GROUPS OF STOCKS THAT DIFFER FROM THE COMPOSITION OF ANY STEIN ROE
FUND. THEY ARE NOT AVAILABLE FOR DIRECT INVESTMENT. LIFE OF FUND IS FROM FUND
INCEPTION ON JUNE 30, 1997. ACCORDING TO LIPPER ANALYTICAL SERVICES, INC., A
MONITOR OF MUTUAL FUND PERFORMANCE, THE MEDIAN RETURNS FOR THE FUND'S GROWTH
FUND PEER GROUP FOR THE ONE-YEAR AND LIFE OF FUND PERIODS ENDED SEPT. 30, 1998,
WERE 0.67 PERCENT AND 10.29 PERCENT, RESPECTIVELY.
FUNDS THAT EMPHASIZE INVESTMENTS IN SMALLER COMPANIES MAY EXPERIENCE GREATER
VOLATILITY.
<PAGE>
Fund Highlights
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Growth Opportunities Fund
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
HBO & Co. 2.0% Fiserv 1.8%
Freddie Mac 2.0 Warner-Lambert 1.8
Univision Communications 2.0 Monsanto 1.8
MCI WorldCom 2.0 Home Depot 1.7
Iron Mountain 1.9 Fannie Mae 1.7
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Total 18.7%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO S&P 500
- --------------------------------------------------------------------------------
Number of Holdings 72 500
Median Market Value ($ Mil.) $3,206 $47,086
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PIE CHART:
ECONOMIC SECTOR BREAKDOWN
As of Sept. 30, 1998
Equity Portfolio S&P 500
Basic Materials 2% 3%
Consumer Cyclical 23% 13%
Consumer Noncyclical 24% 24%
Energy 0% 8%
Financial 12% 16%
Industrial 14% 8%
Technology 21% 18%
Utilities 4% 10%
- --------------------------------------------------------------------------------
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 90.5% 92.0%
Cash & Equivalents 9.5% 8.0%
<PAGE>
Q&A
- --------------------------------------------------------------------------------
AN INTERVIEW WITH GERRY SANDEL, PORTFOLIO MANAGER OF SPECIAL FUND AND
SR&F SPECIAL PORTFOLIO
- --------------------------------------------------------------------------------
PHOTO OF: GERRY SANDEL
FUND DATA
INVESTMENT OBJECTIVE:
Seeks to achieve capital appreciation by investing primarily in a diversified
portfolio of equity securities that are considered to have limited downside
risk relative to their potential for above-average growth, including
securities of undervalued, underfollowed or out-of-favor companies.
FUND INCEPTION:
May 22, 1968
TOTAL NET ASSETS:
$911.7 million
Q: HOW DID THE FUND PERFORM?
A: The Fund performed poorly for the fiscal year ended Sept. 30, 1998, returning
- -19.17 percent compared to the midcap peer group return of -11.32 percent.
Q: WHAT AFFECTED PERFORMANCE?
A: The market for value stocks -- or stocks priced low compared to their growth
potential -- was unfavorable. When markets are uncertain, investors have a
tendency to back away from companies exhibiting any sort of problem, which is a
typical characteristic of value stocks. This situation enhanced
underperformance.
Q: WHAT SECTORS HURT PERFORMANCE?
A: Although stocks in many sectors lost value, our energy holdings declined the
most due to reduced oil prices. We also held companies that are sensitive to
economic activity such as chemical producers or distributors of capital goods
and these stocks declined when the market corrected. Additionally, any company
that wasn't completely problem-free declined in value. For example, Columbia/HCA
Healthcare (0.5 percent of total net assets) lost value in the fourth quarter of
the fiscal year, during the market sell off, not because of exposure to Asia or
economic conditions, but because of some minor operations issues.
Q: WHEN WILL VALUE STOCKS REBOUND?
A: We believe value stocks are going to trade at current depressed levels until
the market turns around. With lower interest rates we believe investors'
perceptions of the market may stabilize and become more positive. If this
occurs, midcap value stocks should gain the favor of investors looking for
growth at attractive valuations.
Q: HOW DID YOU REPOSITION THE PORTFOLIO THIS YEAR?
A: When the market was up early in the year, we sold some of our holdings,
including Boston Scientific and Cardinal Healthcare, at prices higher than our
purchase price. When the market declined in August, the type of companies we
like to purchase -- solid companies priced at low valuation levels -- expanded
dramatically, so we added about 12 new stocks to the portfolio. Since we usually
buy what others are selling, the recent market correction provided us with some
great buying opportunities.
For example, we purchased Andrew Corp. (1.7 percent of total net assets), an
antenna maker benefiting from the growth in wireless communications. Growth
investors sold-off the company during the unsteady market. However, we believe
global growth in this industry is firm; the company has high return on equity,
low debt and a dominant market position. Another company we purchased is Crown
Cork & Seal (0.7 percent of total net assets), one of the largest makers of cans
and bottles. This strong global business also was sold off and now is
attractively priced. Six months ago we would not have been able to purchase such
high quality names.
Q: WHAT STOCKS HELPED THE PORTFOLIO DURING THE RECENT PERIOD OF VOLATILITY?
A: We bought Barrick Gold (1.2 percent of total net assets) earlier in the year
after gold prices experienced a steep decline. This company and other precious
metals holdings supported performance with favorable earnings prospects in an
environment where most other companies are suffering from reduced earnings.
Q: ARE THERE ANY SECTORS YOU FAVOR GOING FORWARD?
A: Chemical companies lost a lot of their value during the year in response to
slowing economic activity. The prices on these stocks are so low that they are
trading at levels below what they were during the last recession. We believe
that companies in this sector will rebound and deliver strong price increases.
Q: WHAT IS YOUR OUTLOOK?
A: This Fund's performance should react to changes in the economy. Value stocks
are often economically sensitive companies, so performance may continue to
suffer if the market continues to be volatile. However, when the market rebounds
our holdings may recover stronger than non-economically sensitive stocks. If
interest rates continue to move lower, we believe this will stimulate stronger
economic growth and investors will look to invest in companies with good growth
potential and low valuations to make the most of a strong rebound. If this
happens, we believe the Fund's performance will benefit.
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. HOLDINGS ARE DISCLOSED AS A PERCENTAGE OF THE SR&F SPECIAL PORTFOLIO'S
TOTAL NET ASSETS. PORTFOLIO HOLDINGS ARE AS OF SEPT. 30, 1998, AND ARE SUBJECT
TO CHANGE. TOTAL RETURN PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF INCOME AND CAPITAL GAINS DISTRIBUTIONS. THE ADVISER REDUCED ITS
MANAGEMENT FEE BY .05 PERCENT THROUGH JUNE 30, 1997; ABSENT THIS LIMIT, TOTAL
RETURN WOULD BE LESS. ACCORDING TO LIPPER ANALYTICAL SERVICES, INC., A MONITOR
OF MUTUAL FUND PERFORMANCE, THE MEDIAN RETURNS FOR THE FUND'S MIDCAP FUND PEER
GROUP FOR THE ONE-, FIVE- AND 10-YEAR PERIODS WERE -11.32 PERCENT, 10.42 PERCENT
AND 13.41 PERCENT, RESPECTIVELY.
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
SR&F Special Portfolio
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Molex 3.3% Carlisle Companies 2.5%
Invacare 3.1 Progressive Corp. 2.4
Cross Timbers Oil 2.9 Acuson 2.2
20th Century Industries 2.8 Stewart & Stevenson Services 2.1
Perrigo 2.6 Seagate Technologies 2.0
- --------------------------------------------------------------------------------
Total 25.9%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO S&P 400
- --------------------------------------------------------------------------------
Number of Holdings 65 400
Median Market Value ($ Mil.) $1,435 $2,638
- --------------------------------------------------------------------------------
PIE CHART:
ECONOMIC SECTOR BREAKDOWN
As of Sept. 30, 1998
Equity Portfolio S&P 400
Basic Materials 11% 5%
Consumer Cyclical 20% 14%
Consumer Noncyclical 19% 15%
Energy 6% 4%
Financial 14% 13%
Industrial 16% 12%
Technology 12% 20%
Utilities 2% 17%
- --------------------------------------------------------------------------------
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 89.4% 78.1%
Cash & Equivalents 10.6% 21.9%
<PAGE>
Q&A
- --------------------------------------------------------------------------------
AN INTERVIEW WITH DAVE BRADY, PORTFOLIO MANAGER OF LARGE COMPANY FOCUS FUND
- --------------------------------------------------------------------------------
PHOTO OF: DAVE BRADY
FUND DATA
INVESTMENT OBJECTIVE:
Seeks long-term growth of capital by investing in a non-diversified portfolio
of equity securities. The Fund invests in a limited number of large-cap
companies, defined as those with capitalizations in excess of $5 billion that
are believed to have above-average growth potential. Under normal conditions,
the Fund will hold between 15-25 common stocks and will invest at least 65
percent of its total assets in common stocks of larger-cap companies.
FUND INCEPTION:
June 26, 1998
TOTAL NET ASSETS:
$44.7 million
Q: HOW HAS THE FUND PERFORMED SINCE ITS LAUNCH ON JUNE 26, 1998?
A: We launched the Fund at a time when U.S. equity markets experienced their
worst performance in eight years. The environment for equity investing was
difficult, causing the Fund to decline with the market during its first few
months of operation. Since its inception on June 26, 1998, the Fund's total
return was -12.70 percent. For the same time period, the Lipper growth fund peer
group returned -12.81 percent.
Q: HOW DID YOU STRUCTURE THE PORTFOLIO?
A: Large Company Focus Fund was built on the premise that concentrating on a
limited number of holdings with strong growth potential may provide superior
long-term performance. The Fund currently owns 21 stocks. All have above-average
projected earnings per-share (EPS) and sales growth. Several of the stocks have
a projected EPS growth rate twice that of the S&P 500. Another part of our
strategy is to provide diversification. Our 21 initial investments were in 10 of
the 11 sectors represented by the S&P 500 Index.
Q: WHAT ARE YOUR FAVORITE SECTORS?
A: The most heavily weighted sectors were financial services, health care and
technology. We believe technology companies have high growth potential based on
their ability to create cutting edge products. We think financial services
companies should thrive in the low interest rate environment and health care
companies should continue to grow revenues, as they have in the past, despite
economic conditions.
Some examples include financial services holdings SouthTrust (6.7 percent of
total net assets), a leading Southwest regional bank that we believe has
outstanding management, and Associates First Capital (6.7 percent of total net
assets), a leading consumer finance company.
Q: WHAT SECTORS OR HOLDINGS PERFORMED WELL FOR THE FUND?
A: The portfolio's holdings in the consumer staples and technology sectors have
performed the best during the period. Consumer staple companies such as Walgreen
Co., a leading drugstore chain (5.0 percent of total net assets), performed well
amid strong consumer buying in the United States. Strong performers in the
technology sector included Intel and Microsoft (6.6 percent and 5.6 percent of
total net assets, respectively). We believe these companies continue to exhibit
strong growth potential as the Internet and com puter networking activities
continue to shape and improve the world.
Health care holding American Home Products (6.0 percent of total net assets)
also supported performance.
Q: WHAT HOLDINGS WERE DISAPPOINTMENTS?
A: Our major disappointment was United Healthcare. The company's share price
dropped rapidly in early August after management announced operations
difficulties. After the announcement we reevaluated this company and determined
shareholders would be better served if we sold it. We reinvested the capital in
Becton Dickinson, a hospital supply company, and Eli Lilly, a major
pharmaceutical concern (3.2 percent and 3.5 percent of total net assets,
respectively). We believe both are more stable businesses.
Q: WHAT'S YOUR OUTLOOK FOR THE FUND?
A: Given the uncertainty in some world economies and the apparent lack of global
liquidity, we expect market volatility to continue over the near term. We will
watch closely for signs of stabilization in emerging economies because we
believe this may be the catalyst for stability in corporate profits worldwide.
We continue to believe investing in growing, high-quality companies over the
long term can provide rewarding, risk-adjusted returns.
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. A FUND'S PERFORMANCE, ESPECIALLY FOR SHORT TIME PERIODS, SHOULD NOT BE
THE SOLE FACTOR IN MAKING YOUR INVESTMENT DECISION. PORTFOLIO HOLDINGS ARE AS OF
SEPT. 30, 1998, AND ARE SUBJECT TO CHANGE. TOTAL RETURN PERFORMANCE INCLUDES
CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME AND CAPITAL GAINS
DISTRIBUTIONS. LIFE OF FUND IS FROM FUND INCEPTION ON JUNE 26, 1998; BENCHMARK
PERFORMANCE IS FROM JUNE 30, 1998. THE ADVISOR CURRENTLY LIMITS EXPENSES TO 1.50
PERCENT OF AVERAGE NET ASSETS. ABSENT THIS LIMIT, RETURNS WOULD BE LESS. THE S&P
500 INDEX IS AN UNMANAGED GROUP OF STOCKS THAT DIFFERS FROM THE COMPOSITION OF
THE FUND; IT IS NOT AVAILABLE FOR DIRECT INVESTMENT. ACCORDING TO LIPPER
ANALYTICAL SERVICES, INC., A MONITOR OF MUTUAL FUND PERFORMANCE, THE MEDIAN
RETURN FOR THE FUND'S GROWTH FUND PEER GROUP FOR THE LIFE OF FUND PERIOD WAS
- -12.81 PERCENT.
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Large Company Focus Fund
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Associates First Capital 6.7% Microsoft 5.6%
SouthTrust 6.7 Interpublic Group of Companies 5.4
Intel 6.6 Dover 5.3
American Home Products 6.0 Walgreen Co. 5.0
Household International 5.9 Clorox 4.3
- --------------------------------------------------------------------------------
Total 57.5%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO S&P 500
- --------------------------------------------------------------------------------
Number of Holdings 21 500
Median Market Value ($ Mil.) $22,595 $47,086
- --------------------------------------------------------------------------------
PIE CHART:
ECONOMIC SECTOR BREAKDOWN
AS OF SEPT. 30, 1998
EQUITY PORTFOLIO S&P 500
Basic Materials 3% 3%
Consumer Cyclical 15% 13%
Consumer Noncyclical 18% 24%
Energy 7% 8%
Financial 20% 16%
Industrial 6% 8%
Technology 20% 18%
Utilities 11% 10%
- --------------------------------------------------------------------------------
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1998
Equities 94.9%
Cash & Equivalents 5.1%
<PAGE>
- --------------------------------------------------------------------------------
Q&A
- --------------------------------------------------------------------------------
AN INTERVIEW WITH DICK PETERSON AND JOHN MCLANDSBOROUGH, PORTFOLIO MANAGERS FOR
SPECIAL VENTURE FUND AND SR&F SPECIAL VENTURE PORTFOLIO.
PHOTO OF: DICK PETERSON AND JOHN MCLANDSBOROUGH
FUND DATA
INVESTMENT OBJECTIVE:
Seeks to achieve long-term capital appreciation with a diversified portfolio
that invests in entrepreneurially managed companies. The portfolio emphasizes
investments in financially strong small- and medium-sized companies based
principally on management appraisal and stock valuation. Funds that emphasize
investments in smaller companies may experience greater volatility.
FUND INCEPTION:
Oct. 17, 1994
TOTAL NET ASSETS:
$116.1 million
EFFECTIVE OCT. 7, 1998, THE PORTFOLIO MANAGERS OF STEIN ROE SPECIAL VENTURE
FUND AND SR&F SPECIAL VENTURE PORTFOLIO ARE JAMES P. HAYNIE AND MICHAEL E. REGA.
Q: HOW DID THE FUND PERFORM?
A: The Fund had a total return of -32.05 percent for the year ended Sept. 30,
1998, underperforming the Lipper small-cap fund peer group return of -21.01
percent.
Q: WHAT HAPPENED IN THE SMALL-CAP MARKET THIS YEAR?
A: Negative influences from international currency and economic crises plagued
the small-cap market. Investors fled higher-risk stocks in favor of more liquid
larger-cap stocks. During this uncharacteristically prolonged period where
large-cap stocks outperformed small- and midcap stocks, many small companies
suffered severely -- losing more than 70 percent of their value. We believe the
extent of these declines was extreme, as companies were negative recipients of
the flight to quality by many investors.
Q: WHAT CAUSED THE FUND TO UNDERPERFORM ITS PEER GROUP?
A: Our current concentration of under 50 stocks is less defensive than the broad
range of small-cap stocks many of our competitors hold. A concentrated strategy
should allow us to take greater advantage of market upswings, while it can have
the opposite affect in a down market.
Our underexposure to the utilities sector, given its defensive nature in a
down market, affected the Fund's performance relative to its peer group. The
Russell 2000, for example, has a five percent weighting in this sector, as do
many of the funds in the peer group. We held about one percent of the
portfolio's assets in utilities.
Q: WHAT SPECIFIC INDUSTRIES OR HOLDINGS UNDERPERFORMED?
A: From an industry perspective, technology and energy holdings underperformed
the most due to their exposure to the global economic crisis. As oil prices
declined, energy companies lost value. Technology companies suffered from lack
of demand in Asian markets. For example, CMP Media (2.2 percent of total net
assets), a technology magazine publisher, lost advertising revenues as
technology companies restricted their advertising due to declining Asian demand
for their products.
Several of our other holdings, including Triarc and Black Box (3.3 percent
and 3.2 percent of total net assets, respectively), are sound businesses, but
suffered as investors favored larger-cap, higher-quality investments.
Q: WHICH HOLDINGS PERFORMED WELL?
A: Metro Networks (5.0 percent of total net assets), an information report
provider for television and radio stations, was a strong-performing holding for
the Fund throughout the year. Xomed Surgical Products (5.1 percent of total net
assets), a less-invasive surgical equipment manufacturer, also performed well.
Many of the stocks we had the greatest amount of confidence in have been the
best performers this year. These two companies were among the portfolio's
largest holdings.
Q: DID YOU SELL ANY HOLDINGS?
A: We spend a lot of time researching the companies we own and we only buy
companies where we have confidence in the management, their business plans and
growth potential. Because of that, we don't sell stocks based solely on price
disappointments. However, we will sell a company when its business fundamentals
change, or if it fails or disappoints us in any other way. Unfortunately, we had
a few such situations this year. We sold two holdings that had deteriorating
fundamentals -- Paula Financial and Sola International.
Q: WHERE DID YOU MAKE PURCHASES?
A: We added positions in School Specialty and National Computer Systems (2.6
percent and 3.8 percent of total net assets), two companies that do business in
the education industry. We believe the education sector is healthy and will
continue to show demand regardless of market conditions.
Q: WHAT'S YOUR OUTLOOK FOR THE SMALL-CAP MARKET?
A: Small-cap stocks are now exhibiting their lowest-valuations and their highest
relative earnings-per-share growth potential that we've seen in 20 years. This
indicates that the small-cap market has the potential to outperform other asset
classes if equity markets rebound. In addition, small-cap stocks are projected
to achieve earnings growth of 10 percent in the next two quarters, compared with
three to five percent for the large-cap S&P 500 Index. However, it appears that
investors who have been weary of smaller-cap names for some time will need an
extended period of stability before moving away from the big name stocks. On the
positive side, because large-cap stocks make up 80 to 85 percent of the equity
market, it won't take a lot of money coming into small-cap stocks to give the
group a boost. Another reason for our optimism is that the last two times the
Russell 2000 was down 30 percent -- in 1979 and in 1990 -- a strong rally
followed and we're hopeful this will happen again.
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. HOLDINGS
ARE DISCLOSED AS A PERCENTAGE OF THE SR&F SPECIAL VENTURE PORTFOLIO'S TOTAL NET
ASSETS. PORTFOLIO HOLDINGS ARE AS OF SEPT. 30, 1998, AND ARE SUBJECT TO CHANGE.
TOTAL RETURN PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF
INCOME AND CAPITAL GAINS DISTRIBUTIONS. LIFE OF FUND IS FROM FUND INCEPTION ON
OCT. 17, 1994; BENCHMARK PERFORMANCE IS FROM OCT. 31, 1994. THE RUSSELL 2000
INDEX IS AN UNMANAGED GROUP OF STOCKS THAT DIFFERS FROM THE COMPOSITION OF THE
FUND; IT IS NOT AVAILABLE FOR DIRECT INVESTMENT. ACCORDING TO LIPPER ANALYTICAL
SERVICES, INC., A MONITOR OF MUTUAL FUND PERFORMANCE, THE MEDIAN RETURNS FOR THE
FUND'S SMALL-CAP FUND PEER GROUP FOR THE ONE-YEAR AND LIFE OF FUND PERIODS WERE
- -21.01 PERCENT AND 11.25 PERCENT, RESPECTIVELY.
FUNDS THAT EMPHASIZE INVESTMENTS IN SMALLER COMPANIES MAY EXPERIENCE GREATER
VOLATILITY.
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
SR&F Special Venture Portfolio
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Meadowbrook Insurance 6.2% National Computer Systems 3.8%
Xomed Surgical Products 5.1 Ballantyne of Omaha 3.7
Metro Networks 5.0 SPSS 3.3
CB Richard Ellis Services 4.7 Triarc 3.3
Regis 4.4 Artesyn Technologies 3.3
- --------------------------------------------------------------------------------
Total 42.8%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO RUSSELL 2000
- --------------------------------------------------------------------------------
Number of Holdings 40 2,000
Median Market Value ($ Mil.) $383 $605
- --------------------------------------------------------------------------------
PIE CHART:
ECONOMIC SECTOR BREAKDOWN
As of Sept. 30, 1998
Equity Portfolio Russell 2000
Basic Materials 0% 0%
Consumer Cyclical 28% 4%
Consumer Noncyclical 16% 17%
Energy 3% 24%
Financial 15% 25%
Industrial 19% 6%
Technology 19% 20%
Utilities 0% 4%
- --------------------------------------------------------------------------------
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 91.1% 94.9%
Cash & Equivalents 8.9% 5.1%
<PAGE>
Q&A
- --------------------------------------------------------------------------------
AN INTERVIEW WITH GLORIA SANTELLA AND ERIC MADDIX, PORTFOLIO MANAGERS OF
CAPITAL OPPORTUNITIES FUND
FUND DATA
INVESTMENT OBJECTIVE:
Seeks long-term capital appreciation by investing in aggressive growth
companies, including securities of smaller emerging companies as well as
securities of any size that offer strong earnings growth potential. Funds
that emphasize investments in smaller companies may experience greater
volatility.
FUND INCEPTION:
Sept. 30, 1969
TOTAL NET ASSETS:
$681.1 million
Photo of: GLORIA SANTELLA, ERIC MADDIX
Q: HOW DID THE FUND PERFORM?
A: Capital Opportunities Fund returned -13.23 percent for the year ended Sept.
30 1998, underperforming the Lipper capital appreciation fund peer group which
had a total return of -8.86 for the same time period.
Q: UNTIL JUNE THE FUND WAS PERFORMING STRONGLY AND AHEAD OF THE PEER GROUP. WHAT
HAPPENED?
A: For the first nine months of the Fund's fiscal year -- October 1997 through
June 1998 -- we outperformed the S&P 400 MidCap Index with a return of 15.91
percent compared to the Index return of 9.00 percent. We were encouraged by this
performance and by the performance of the aggressive growth sector in general,
following the 15-month period of underperformance the sector had experienced
since July 1996. This past summer, global economic turmoil, the political
scandal in Washington and the well-publicized losses of a prominent hedge fund
combined to cause a panic in financial markets. Consequently, during the last
quarter of the Fund's fiscal year, stocks retreated from their July highs at
rates not seen since the market's sharp decline in 1974. Although all stocks
experienced declines, the performance of the small- and midcap sectors was worse
than that of the broader market, as is typical in severe market corrections.
Furthermore, stocks in the high-growth segment of the market were hit
particularly hard as this segment came under increased scrutiny and skepticism.
Q: WHAT SUPPORTED PERFORMANCE?
A: Our better-performing stocks were businesses that historically have
demonstrated predictable earnings growth. These companies escaped the negative
earnings-related rumors that plagued so many high-growth companies. For example,
our best-performing stock, Paychex (5.6 percent of total net assets), has
generated earnings growth in excess of 25 percent for 26 straight quarters.
Despite market turmoil, investors demonstrated a willingness to pay a premium
for quality and consistency in a company's earnings.
Q: DID THIS YEAR'S SLOWING-GROWTH ECONOMY RESTRICT YOUR UNIVERSE OF COMPANIES
WITH STRONG CONSISTENT EARNINGS?
A: We invest in many companies where growth is not necessarily tied to economic
conditions. Companies derive growth from many sources besides growth in the
economy. For example, a small company can grow by winning market share from a
larger competitor. With the exception of economically sensitive companies --
such as those in the technology and industrial sectors -- we have not seen
company earnings deteriorate. In fact, the market sell off has given us the
opportunity to make new investments in long-term growth companies at attractive
prices in relation to their growth potential.
Q: WHAT ARE SOME EXAMPLES OF RECENT INVESTMENTS THAT YOU ARE EXCITED ABOUT?
A: We initiated a position in Shire Pharmaceuticals (1.1 percent of total net
assets), an emerging pharmaceutical manufacturer. The company has an attractive
product pipeline including an improved drug for Attention Deficit Disorder and a
drug for treating Alzheimer's disease.
We also purchased Dollar Tree (1.4 percent of total net assets), a leading
participant in the "value retailing" sector. This company is expanding units at
an aggressive pace, and is currently a beneficiary of cheaper prices on goods
bought in Asia.
Q: WHAT SECTORS LOOK GOOD GOING FORWARD?
A: We believed the market overreacted to concerns about economic growth and
affected the earnings of companies in certain sectors. For example, radio stocks
sold off based on concerns that ad revenues would slow in a recession. While
growth may slow somewhat for this sector, the radio industry has historically
weathered recessions exceptionally well, experiencing only one negative year in
its entire history. This is likely due to the fact that radio advertising is
attractively priced relative to other forms of advertising such as television
and newspaper. We believe this sector represents an attractive investment at
current levels.
Q: WHAT'S YOUR OUTLOOK?
A: We believe the outlook for the aggressive growth sector is particularly
attractive. Going forward, the high earnings growth rate of these companies
should remain well above that of the general economy -- particularly when
positioned against a backdrop of moderating corporate profit growth for the
large-cap sector. We believe this will be the catalyst that will eventually
drive the aggressive growth sector to the premium valuation levels experienced
in the past. We are confident the future will bring a more rational market
environment and we have positioned the Fund in what we believe are attractive
long-term investment opportunities.
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, 1998, AND ARE SUBJECT TO CHANGE. TOTAL RETURN
PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME AND
CAPITAL GAINS DISTRIBUTIONS. THE S&P 400 MIDCAP INDEX IS AN UNMANAGED GROUP OF
STOCKS THAT DIFFERS FROM THE COMPOSITION OF THE FUND; IT IS NOT AVAILABLE FOR
DIRECT INVESTMENT. ACCORDING TO LIPPER ANALYTICAL SERVICES, INC., A MONITOR OF
MUTUAL FUND PERFORMANCE, THE MEDIAN RETURNS FOR THIS CAPITAL APPRECIATION FUND
CATEGORY FOR THE ONE-, FIVE- AND 10-YEAR PERIODS ENDED SEPT. 30, 1998, WERE
- -8.86 PERCENT, 12.11 PERCENT AND 13.43 PERCENT, RESPECTIVELY.
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Capital Opportunities Fund
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Paychex 5.6% Fiserv 3.4%
Clear Channel Communications 4.6 Omnicare 3.3
HBO & Co. 4.2 MSC Industrial Direct 3.2
Carnival 3.9 Quintiles Transnational 3.2
Papa John's International 3.6 Heftel Broadcasting 3.2
- --------------------------------------------------------------------------------
Total 38.2%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO S&P 400
- --------------------------------------------------------------------------------
Number of Holdings 45 400
Median Market Value ($ Mil.) $3,152 $3,260
PIE CHART:
ECONOMIC SECTOR BREAKDOWN
As of Sept. 30, 1998
Equity Portfolio S&P 400
Basic Materials 0% 5%
Consumer Cyclical 33% 14%
Consumer Noncyclical 27% 15%
Energy 0% 4%
Financial 0% 13%
Industrial 16% 12%
Technology 21% 20%
Utilities 3% 17%
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 90.2% 93.2%
Cash & Equivalents 9.8% 6.8%
<PAGE>
<TABLE>
SR&F Growth Stock Portfolio
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
<CAPTION>
NUMBER MARKET
COMMON STOCKS (90.7%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (2.9%)
NationsBank 400,000 $ 21,400
BUSINESS SERVICES (4.2%)
Paychex 600,000 30,938
COMPUTERS AND COMPUTER SOFTWARE (12.4%)
Cisco Systems (a) 600,000 37,087
Intel 300,000 25,725
Microsoft (a) 250,000 27,516
--------
90,328
CONSUMER-RELATED (4.8%)
Gillette 450,000 17,213
Procter & Gamble 250,000 17,734
--------
34,947
DISTRIBUTION - RETAIL (6.5%)
Home Depot 600,000 23,700
Kohl's (a) 500,000 19,500
Walgreen Co. 100,000 4,406
--------
47,606
ELECTRICAL EQUIPMENT (3.1%)
General Electric 280,000 22,278
FINANCIAL SERVICES (9.0%)
American Express 250,000 19,406
Fannie Mae 400,000 25,700
Household International 550,000 20,625
--------
65,731
FOOD, BEVERAGE AND TOBACCO (2.1%)
Coca-Cola 270,000 15,559
HEALTH CARE (5.9%)
American Home Products 450,000 23,569
Johnson & Johnson 250,000 19,562
--------
43,131
INSURANCE (5.7%)
American International Group 300,000 23,100
Travelers Group 500,000 18,750
--------
41,850
LEISURE AND ENTERTAINMENT (5.1%)
Walt Disney 450,000 11,391
Time Warner 300,000 26,269
--------
37,660
MEDICAL SUPPLIES (3.2%)
Medtronic 400,000 23,150
OIL AND GAS (1.7%)
Schlumberger Limited 250,000 12,578
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SR&F Growth Stock Portfolio CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
PHARMACEUTICAL (10.0%)
Eli Lilly & Company 350,000 $ 27,409
Merck & Company 150,000 19,434
Pfizer 250,000 26,484
--------
73,327
RUBBER, PLASTIC AND RELATED (2.2%)
Illinois Tool Works 300,000 16,350
TELECOMMUNICATIONS (11.9%)
LM Ericsson Telecommunications ADRs, class B 800,000 14,700
Lucent Technologies 400,000 27,625
MCI WorldCom (a) 550,000 26,881
Tellabs (a) 450,000 17,916
--------
87,122
--------
TOTAL COMMON STOCKS (Cost $365,916) 663,955
--------
- ----------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATIONS (9.4%) AMOUNT
- ----------------------------------------------------------------------------------------
COMMERCIAL PAPER (9.4%)
Associates Corp. of North America 5.750% 10/1/98 $ 38,635 38,635
Safeway 5.750% 10/2/98 30,000 29,995
--------
TOTAL SHORT-TERM OBLIGATIONS (Cost $68,630) 68,630
--------
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(Cost $434,546) 732,585
OTHER ASSETS, LESS LIABILITIES (-0.1%) (1,042)
--------
TOTAL NET ASSETS (100.0%) $731,543
========
- ----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$298,039, consisting of gross unrealized appreciation of $319,003 and gross
unrealized depreciation of $20,964.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Growth Opportunities Fund
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
NUMBER MARKET
COMMON STOCKS (92.0%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (10.8%)
ABR Information Services (a) 40,000 $ 548
AHL Services (a) 20,000 655
Bright Horizons Family Solutions (a) 25,000 531
Cintas 7,000 351
Gartner Group, class A (a) 18,000 376
INSpire Insurance Solutions (a) 25,000 591
Iron Mountain (a) 31,500 945
Romac International 30,000 540
Select Appointments Holdings ADRs 20,000 348
Sylvan Learning Systems (a) 22,000 514
--------
5,399
COMPUTERS AND COMPUTER SOFTWARE (2.5%)
Microsoft (a) 7,000 770
SunGard Data Systems (a) 15,000 473
--------
1,243
CONSUMER PRODUCTS AND SERVICES (4.4%)
Blyth Industries (a) 17,000 466
Newell 13,000 599
ServiceMaster 37,000 809
Wolverine World Wide 29,000 315
--------
2,189
DATA PROCESSING SERVICES (1.8%)
Fiserv (a) 20,000 921
FINANCIAL SERVICES (10.8%)
Associates First Capital, class A 11,000 718
Citicorp 5,000 465
Fannie Mae 13,000 835
Freddie Mac 20,000 989
HCC Insurance Holdings 30,000 581
Kansas City Southern Industries 19,000 665
Norwest 18,000 645
Washington Mutual 15,000 506
--------
5,404
HEALTH CARE (22.6%)
ALZA (a) 15,000 651
Biomet 23,000 798
Boron, LePore & Associates (a) 19,000 720
Cardinal Health 8,000 826
Forest Laboratories, class A (a) 22,000 756
HBO & Company 35,000 1,011
Health Management Associates, class A (a) 28,000 511
IMS Health 10,000 619
Monsanto 16,000 902
Orthodontic Centers of America (a) 31,000 517
PAREXEL International (a) 21,000 819
Pfizer 7,000 741
Shire Pharmaceuticals Group (a) 36,000 788
Sofamor Danek Group (a) 8,000 712
Warner-Lambert 12,000 906
--------
11,277
<PAGE>
<CAPTION>
Growth Opportunities Fund CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL PRODUCTS (3.2%)
Barnett (a) 18,000 $ 153
Ecolab 18,000 512
Pameco (a) 30,000 465
Wilmar Industries (a) 23,000 489
--------
1,619
LEISURE AND ENTERTAINMENT (4.2%)
Carnival, class A 25,000 795
Coach USA (a) 18,000 444
Royal Caribbean Cruises Limited 8,000 213
Sunterra (a) 40,000 260
Vistana (a) 30,000 386
--------
2,098
MEDIA (9.1%)
Chancellor Media (a) 21,000 701
Cox Communications, class A (a) 13,000 710
Getty Images (a) 42,000 730
Outdoor Systems (a) 32,000 624
Time Warner 9,000 788
Univision Communications, class A (a) 33,000 982
--------
4,535
RETAIL (7.4%)
Dollar General 20,000 532
Dollar Tree Stores (a) 16,500 517
Home Depot 22,000 869
Kohl's (a) 16,000 624
Papa John's International (a) 23,000 759
TJX 24,000 427
--------
3,728
TECHNOLOGY SERVICES (9.0%)
Cambridge Technology Partners (a) 19,000 424
Cisco Systems (a) 12,000 742
Documentum (a) 14,000 555
HNC Software (a) 14,000 569
PeopleSoft (a) 22,000 718
Solectron (a) 16,000 768
Sterling Commerce (a) 20,000 692
--------
4,468
TELECOMMUNICATIONS (6.2%)
American Tower, class A (a) 29,000 739
IDT (a) 34,000 782
International Telecommunication Data Systems (a) 20,000 580
MCI WorldCom (a) 20,000 977
--------
3,078
--------
TOTAL COMMON STOCKS (Cost $43,179) 45,959
--------
<CAPTION>
- ----------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATIONS (7.9%) AMOUNT
- ----------------------------------------------------------------------------------------
COMMERCIAL PAPER (7.9%)
Associates Corp. of North America 5.750% 10/1/98 $ 1,915 1,915
Rite Aid 5.880% 10/1/98 2,000 2,000
--------
TOTAL SHORT-TERM OBLIGATIONS (Cost $3,915) 3,915
--------
- ----------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Growth Opportunities Fund CONTINUED
- ----------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(Cost $47,094) (b) $ 49,874
OTHER ASSETS, LESS LIABILITIES (0.1%) 100
--------
TOTAL NET ASSETS (100.0%) $ 49,974
========
- ----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for federal income tax
purposes was $47,153. Net unrealized appreciation was $2,721, consisting of
gross unrealized appreciation of $7,786 and gross unrealized depreciation of
$5,065.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Special Portfolio
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
<CAPTION>
NUMBER MARKET
COMMON STOCKS (78.1%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ADVERTISING (0.9%)
Interpublic Group of Companies 147,800 $ 7,972
BANKS (2.5%)
Golden West Financial 227,900 18,645
Washington Mutual 122,600 4,138
--------
22,783
BROADCASTING (0.5%)
Grupo Radio Centro ADRs 185,000 1,179
Scandinavian Broadcasting System (a) 181,600 3,859
--------
5,038
BUSINESS SERVICES (3.0%)
Danka Business Systems ADRs 903,500 5,703
Interim Services (a) 550,000 11,309
Unitog 514,950 10,814
--------
27,826
CHEMICALS (0.7%)
Wellman 500,000 6,375
COMPUTER SERVICES (0.9%)
Silicon Graphics (a) 870,000 8,156
CONSUMER-RELATED (2.0%)
Newell 183,000 8,429
Saks (a) 433,200 9,720
--------
18,149
DIVERSIFIED OPERATIONS (0.1%)
Alexander & Baldwin 25,800 513
DRUGS (4.9%)
Novartis 13,000 20,839
Perrigo (a) 2,621,500 23,921
--------
44,760
ELECTRICAL EQUIPMENT (2.3%)
Littelfuse (a) 690,000 13,714
Littelfuse warrants (a) 547,200 7,592
--------
21,306
ELECTRONICS AND INSTRUMENTATION (5.1%)
AVX 758,300 11,280
Kent Electronics (a) 511,000 5,110
Molex, class A 1,129,916 30,649
--------
47,039
ENERGY AND RELATED SERVICES (4.8%)
Cross Timbers Oil 1,766,225 26,604
Diamond Offshore Drilling 100,000 2,600
Ocean Energy (a) 5,300 70
Petroleum Geo-Services ADRs (a) 647,400 10,277
R & B Falcon (a) 185,000 2,220
Tidewater 100,000 2,075
--------
43,846
<PAGE>
<CAPTION>
SR&F Special Portfolio CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
FINANCIAL SERVICES (1.9%)
American Express 97,700 $ 7,584
Household International 270,000 10,125
--------
17,709
HEALTH SERVICES AND EQUIPMENT (12.4%)
Acuson (a) 1,206,700 20,589
Columbia/HCA Healthcare 244,900 4,913
First Health Group (a) 712,200 17,271
Invacare 1,228,650 28,873
Mallinckrodt 340,000 6,906
STERIS (a) 232,000 6,554
Stryker 392,100 13,331
Sybron International (a) 800,000 15,300
--------
113,737
INDUSTRIAL PRODUCTS (2.5%)
Carlisle Companies 595,200 23,176
INSURANCE COMPANIES (6.2%)
National Mutual Asia Limited 19,014,000 9,263
Progressive Corp. 198,200 22,347
20th Century Industries 992,700 25,438
--------
57,048
LEISURE AND ENTERTAINMENT (0.9%)
Carnival, class A 86,700 2,758
CBS 242,300 5,876
--------
8,634
MACHINERY - GENERAL INDUSTRY (2.4%)
Robbins & Myers 139,300 2,951
Stewart & Stevenson Services 1,654,400 19,439
--------
22,390
MANUFACTURING - GENERAL INDUSTRY (0.5%)
Dexter Corp. 173,400 4,248
METALS (1.9%)
Barrick Gold 550,000 11,000
Freeport-McMoran Copper & Gold 400,000 4,750
Newmont Mining 51,400 1,247
--------
16,997
MINING AND AGRICULTURE (2.7%)
Cyprus Amax Minerals 895,000 11,859
Placer Dome 947,300 13,085
--------
24,944
MOTOR VEHICLES (3.0%)
Harley-Davidson 400,700 11,771
Superior Industries International 700,200 16,017
--------
27,788
PACKAGING (0.7%)
Crown Cork & Seal 250,000 6,688
RETAIL (3.1%)
Borders Group (a) 460,000 10,235
Consolidated Stores (a) 456,250 8,954
Zale Corp. (a) 347,500 8,905
--------
28,094
<PAGE>
<CAPTION>
SR&F Special Portfolio CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
SECURITY (2.1%)
Pittston Brink's Group 540,200 $ 18,907
SPECIALTY CHEMICALS (3.9%)
Imperial Chemical Industries ADRs 225,400 7,156
Minerals Technologies 250,500 11,038
OM Group 609,500 17,180
--------
35,374
TECHNOLOGY SERVICES (2.0%)
Seagate Technology (a) 735,800 18,441
TELECOMMUNICATIONS (3.3%)
AirTouch Communications (a) 123,800 7,057
Andrew Corp. (a) 1,181,900 15,660
Telephone & Data Systems 224,000 7,812
--------
30,529
TEXTILES AND APPAREL (0.9%)
Unifi 513,475 7,927
--------
TOTAL COMMON STOCKS (Cost $556,681) 716,394
--------
<CAPTION>
- ----------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATIONS (19.6%) AMOUNT
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER (19.6%)
Associates Corp. of North America 5.750% 10/1/98 $ 39,850 39,850
Enron 5.720% 10/5/98 30,000 29,981
Sunstrand 5.900% 10/1/98 45,000 45,000
Texas Utilities 5.820% 10/1/98 40,000 40,000
Union Carbide 5.650% 10/1/98 25,000 25,000
--------
TOTAL SHORT-TERM OBLIGATIONS (Cost $179,831) 179,831
--------
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.7%)
(Cost $736,512) (b) 896,225
OTHER ASSETS, LESS LIABILITIES (2.3%) 20,926
--------
TOTAL NET ASSETS (100.0%) $917,151
========
- ----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for federal income tax
purposes was $739,712. Net unrealized appreciation was $156,513, consisting
of gross unrealized appreciation of $222,272 and gross unrealized
depreciation of $65,759.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Large Company Focus Fund
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
<CAPTION>
NUMBER MARKET
COMMON STOCKS (94.9%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (8.8%)
Avery Dennison 35,100 $ 1,533
Interpublic Group of Companies 44,800 2,416
--------
3,949
COMPUTER SOFTWARE AND SERVICES (8.8%)
Cisco Systems (a) 23,250 1,437
Microsoft (a) 22,800 2,509
--------
3,946
ELECTRONICS (6.6%)
Intel 34,600 2,967
ENERGY SERVICES (2.8%)
Schlumberger Limited 24,600 1,238
FINANCIAL SERVICES (19.3%)
Associates First Capital 46,000 3,002
Household International 69,800 2,618
SouthTrust 85,800 2,998
--------
8,618
HEALTH SERVICES AND EQUIPMENT (3.2%)
Becton, Dickinson & Company 35,000 1,439
MACHINERY (5.3%)
Dover 76,400 2,359
MAJOR CHEMICALS (8.0%)
Clorox 23,100 1,906
E.I. du Pont de Nemours 29,900 1,678
--------
3,584
UTILITIES (3.4%)
AES 41,200 1,527
PETROLEUM (3.7%)
Exxon 23,300 1,635
PHARMACEUTICALS (9.5%)
American Home Products 51,000 2,671
Eli Lilly & Company 20,000 1,566
--------
4,237
PUBLISHING AND BROADCASTING (3.5%)
New York Times 56,400 1,551
RETAIL (5.1%)
Walgreen Co. 51,200 2,256
TELECOMMUNICATIONS (3.4%)
AirTouch Communications (a) 26,800 1,528
<PAGE>
<CAPTION>
Large Company Focus Fund CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONE (3.5%)
MCI WorldCom (a) 32,400 $ 1,584
--------
TOTAL COMMON STOCKS (Cost $46,977) 42,418
--------
<CAPTION>
- ----------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATION (5.2%) AMOUNT
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMERICAL PAPER (5.2%)
Associates Corp. of North America 5.750% 10/1/98
(Cost $2,340) $ 2,340 2,340
--------
TOTAL INVESTMENTS (100.1%)
(Cost $49,317) (b) 44,758
OTHER ASSETS, LESS LIABILITIES (-0.1%) (42)
--------
TOTAL NET ASSETS (100.0%) $ 44,716
========
- ----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized depreciation was
$4,559, consisting of gross unrealized appreciation of $789 and gross
unrealized depreciation of $5,348.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Special Venture Portfolio
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
<CAPTION>
NUMBER MARKET
COMMON STOCKS (92.7%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BROADCAST AND MEDIA (6.8%)
Central European Media Enterprises, class A (a) 224,600 $ 2,162
Metro Networks (a) 157,500 5,768
--------
7,930
BUILDING SUPPLIES (1.3%)
Fastenal 62,000 1,550
BUSINESS SERVICES (6.5%)
Alternative Resources (a) 410,400 2,616
Interim Services (a) 123,000 2,529
Metamor Worldwide (a) 86,100 2,368
--------
7,513
COMMERCIAL BANKS (1.7%)
National Bancorp of Alaska 61,000 1,998
COMPUTER SERVICES (12.7%)
Artesyn Technologies (a) 224,600 3,874
BARRA (a) 121,200 2,485
National Computer Systems 151,400 4,466
SPSS (a) 170,400 3,898
--------
14,723
COSMETICS (1.7%)
Nu Skin Enterprises, class A (a) 177,900 1,957
DISTRIBUTION (5.8%)
Henry Schein (a) 79,800 2,773
School Specialty (a) 194,000 2,983
U.S.A. Floral Products (a) 166,000 1,017
--------
6,773
DIVERSIFIED OPERATIONS (5.6%)
Fisher Companies 38,700 2,641
Triarc Companies (a) 250,300 3,895
--------
6,536
DRUGS (1.0%)
Ligand Pharmaceuticals, class B (a) 128,700 1,174
ELECTRICAL EQUIPMENT (7.8%)
Ballantyne of Omaha (a) 522,450 4,278
Black Box (a) 153,500 3,723
Kent Electronics (a) 110,600 1,106
--------
9,107
HEALTH SERVICES AND EQUIPMENT (10.5%)
BioSource International (a) 112,000 350
National Dentex (a) 108,200 1,948
Urologix (a) 172,300 1,034
Uroquest Medical (a) 181,700 295
Xomed Surgical Products (a) 143,900 5,918
Young Innovations (a) 190,400 2,666
--------
12,211
INSURANCE (6.2%)
Meadowbrook Insurance Group 290,300 7,256
<PAGE>
<CAPTION>
SR&F Special Venture Portfolio CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
MARKETING (2.9%)
Catalina Marketing (a) 73,000 $ 3,431
OIL AND GAS (2.8%)
Meridian Resource Corp. (a) 497,900 2,147
Petroleum Geo-Services ADRs (a) 70,000 1,111
--------
3,258
PUBLISHING (3.4%)
CMP Media, class A (a) 237,900 2,557
IDG Books Worldwide, class A (a) 88,200 970
Information Holdings (a) 39,900 424
--------
3,951
REAL ESTATE SERVICES (5.7%)
CB Richard Ellis Services (a) 272,000 5,457
LaSalle Partners (a) 34,700 1,134
--------
6,591
RETAIL (7.0%)
Regis 161,700 5,094
Saks (a) 93,000 2,087
Video Update, class A (a) 933,000 991
--------
8,172
TEXTILE AND APPAREL (3.3%)
Columbia Sportswear (a) 232,200 3,805
--------
TOTAL COMMON STOCKS ($133,292) 107,936
--------
<CAPTION>
- ----------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATIONS (8.3%) AMOUNT
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER (8.3%)
Associates Corp. of North America 5.750% 10/1/98 $ 4,650 4,650
Conagra 5.670% 10/1/98 3,000 3,000
Rite Aid 5.880% 10/1/98 2,000 2,000
--------
TOTAL SHORT-TERM OBLIGATIONS (Cost $9,650) 9,650
--------
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.0%)
(Cost $142,942) 117,586
OTHER ASSETS, LESS LIABILITIES (-1.0%) (1,201)
--------
TOTAL NET ASSETS (100.0%) $116,385
========
- ----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for federal income tax
purposes was $143,913. Net unrealized depreciation was $26,327 consisting of
gross unrealized appreciation of $10,004 and gross unrealized depreciation
of $36,331.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Capital Opportunities Fund
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
<CAPTION>
NUMBER MARKET
COMMON STOCKS (93.2%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (19.0%)
ABR Information Services (a) 1,000,000 $ 13,687
American Tower, class A (a) 540,000 13,770
CBT Group ADRs (a) 460,000 6,210
Cintas 100,000 5,013
Gartner Group, class A (a) 580,000 12,108
IDT (a) 800,000 18,400
Iron Mountain (a) 315,000 9,450
Paychex 740,000 38,156
Romac International (a) 700,000 12,600
---------
129,394
CONSUMER PRODUCTS AND SERVICES (5.0%)
Cendant (a) 800,000 9,300
Jones Apparel Group (a) 600,000 13,763
Steiner Leisure (a) 440,000 6,875
Wolverine World Wide 360,000 3,915
---------
33,853
DATA PROCESSING SERVICES (6.6%)
BISYS Group (a) 360,000 15,885
Fiserv (a) 510,000 23,492
SunGard Data Systems (a) 180,000 5,670
---------
45,047
ENERGY SERVICES (0.9%)
Stolt Comex Seaway ADRs (a) 700,000 6,037
HEALTH CARE (22.2%)
Cardinal Health 120,000 12,390
HBO & Company 1,000,000 28,875
Health Management Associates, class A (a) 900,000 16,425
Omnicare 630,000 22,207
PAREXEL International (a) 500,000 19,500
Quintiles Transnational (a) 500,000 21,875
Shire Pharamaceuticals Group ADRs (a) 330,000 7,219
STERIS (a) 600,000 16,950
Theragenics (a) 400,000 5,675
---------
151,116
INDUSTRIAL PRODUCTS (7.1%)
Gentex (a) 1,080,000 16,200
MSC Industrial Direct, class A (a) 1,100,000 22,000
Wilmar Industries (a) 480,000 10,200
---------
48,400
LEISURE AND ENTERTAINMENT (5.6%)
Carnival, class A 840,000 26,723
Promus Hotel (a) 340,000 9,371
Sunterra (a) 400,000 2,600
---------
38,694
MEDIA (10.0%)
Chancellor Media (a) 450,000 15,019
Clear Channel Communications (a) 660,000 31,350
Heftel Broadcasting, class A (a) 570,000 21,517
---------
67,886
<PAGE>
<CAPTION>
Capital Opportunities Fund CONTINUED
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
RESTAURANTS (3.6%)
Papa John's International (a) 750,000 $ 24,750
RETAIL (5.3%)
Bed Bath & Beyond (a) 180,000 4,207
Dollar Tree Stores (a) 300,000 9,394
Kohl's (a) 400,000 15,600
Staples (a) 240,000 7,050
---------
36,251
TECHNOLOGY (7.9%)
Aspen Technology (a) 280,000 7,490
Cambridge Technology Partners (a) 540,000 12,049
PeopleSoft (a) 540,000 17,617
Sterling Commerce (a) 100,000 3,463
Tellabs (a) 330,000 13,138
---------
53,757
---------
TOTAL COMMON STOCKS (Cost $496,325) 635,185
---------
- ----------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM OBLIGATIONS (7.1%) AMOUNT
- ----------------------------------------------------------------------------------------
COMMERCIAL PAPER (7.1%)
Associates Corp. of North America 5.750% 10/1/98 $ 34,825 34,825
Reynolds Metals 5.630% 10/7/98 9,007 8,999
Rite Aid 5.880% 10/1/98 4,720 4,720
---------
TOTAL SHORT-TERM OBLIGATIONS (Cost $48,544) 48,544
---------
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(Cost $544,869) (b) 683,729
OTHER ASSETS, LESS LIABILITIES (-0.3%) (2,596)
---------
TOTAL NET ASSETS (100.0%) $ 681,133
=========
- ----------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for federal income tax
purposes was $546,528. Net unrealized appreciation was $137,201, consisting
of gross unrealized appreciation of $199,817 and gross unrealized
depreciation of $62,616.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Assets and Liabilities
September 30, 1998
(All amounts in thousands, except per-share data)
<CAPTION>
Growth Growth
Stock Opportunities Special
Fund Fund Fund
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Investments in Portfolio, at value ...................................... $ 615,756 $ -- $ 917,000
Investments, at market value (cost $47,094, $49,317
and $544,869, respectively) ........................................... -- 49,874 --
Receivable for investments sold ......................................... -- 161 --
Receivable for fund shares sold ......................................... 237 51 215
Dividends receivable .................................................... -- 5 --
Cash .................................................................... 25 26 25
Other assets ............................................................ 55 5 121
--------- --------- ---------
Total assets ................................................... 616,073 50,122 917,361
--------- --------- ---------
LIABILITIES
Payable for investments purchased ....................................... -- 29 --
Payable for fund shares redeemed ........................................ 292 13 4,779
Payable to investment adviser and transfer agent ........................ 190 68 276
Other liabilities ....................................................... 246 38 656
--------- --------- ---------
Total liabilities .............................................. 728 148 5,711
--------- --------- ---------
Net assets ..................................................... $ 615,345 $ 49,974 $ 911,650
========= ========= =========
ANALYSIS OF NET ASSETS
Paid-in capital ......................................................... $ 323,268 $ 49,005 $ 591,705
Net unrealized appreciation (depreciation) on investments and
foreign currency translations ......................................... 295,666 2,780 159,561
Accumulated undistributed net investment income (loss) .................. -- (26) 2,198
Accumulated net realized gains (losses) on investments .................. (3,589) (1,785) 158,186
--------- --------- ---------
Net assets ..................................................... $ 615,345 $ 49,974 $ 911,650
========= ========= =========
Shares outstanding (unlimited number authorized) ........................ 17,730 4,802 37,241
========= ========= =========
Net asset value per share ............................................... $ 34.71 $ 10.41 $ 24.48
========= ========= =========
<PAGE>
<CAPTION>
Large
Company Special Capital
Focus Venture Opportunities
Fund Fund Fund
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Investments in Portfolio, at value .................................... $ -- $ 116,302 $ --
Investments, at market value (cost $47,094, $49,317
and $544,869, respectively) ......................................... 44,758 -- 683,729
Receivable for investments sold ....................................... -- -- 9,456
Receivable for fund shares sold ....................................... 23 2 6,364
Dividends receivable .................................................. 31 -- 34
Cash .................................................................. 4 25 2
Other assets .......................................................... 27 7 111
--------- --------- ---------
Total assets ................................................. 44,843 116,336 699,696
--------- --------- ---------
LIABILITIES
Payable for investments purchased ..................................... -- -- 16,172
Payable for fund shares redeemed ...................................... 15 27 996
Payable to investment adviser and transfer agent ...................... 86 38 620
Other liabilities ..................................................... 26 192 775
--------- --------- ---------
Total liabilities ............................................ 127 257 18,563
--------- --------- ---------
Net assets ................................................... $ 44,716 $ 116,079 $ 681,133
========= ========= =========
ANALYSIS OF NET ASSETS
Paid-in capital ....................................................... $ 51,272 $ 148,402 $ 551,069
Net unrealized appreciation (depreciation) on investments
and foreign currency translations ................................... (4,559) (25,255) 138,860
Accumulated undistributed net investment income (loss) ................ -- -- --
Accumulated net realized gains (losses) on investments ................ (1,997) (7,068) (8,796)
--------- --------- ---------
Net assets ................................................... $ 44,716 $ 116,079 $ 681,133
========= ========= =========
Shares outstanding (unlimited number authorized) ...................... 5,122 11,046 26,962
========= ========= =========
Net asset value per share ............................................. $ 8.73 $ 10.51 $ 25.25
========= ========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
For the Year Ended September 30, 1998
(All amounts in thousands, except per-share data)
<CAPTION>
Growth Growth
Stock Opportunities Special
Fund Fund Fund
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends allocated from Portfolio ........................................... $ 4,698 $ -- $ 7,434
Dividends .................................................................... -- 137 --
Interest allocated from Portfolio ............................................ 1,399 -- 9,114
Interest ..................................................................... -- 194 --
--------- --------- ---------
6,097 331 16,548
Foreign taxes withheld allocated from Portfolio .............................. -- -- (72)
--------- --------- ---------
Total investment income ............................................. 6,097 331 16,476
--------- --------- ---------
EXPENSES
Expenses allocated from Portfolio ............................................ 4,039 -- 9,057
Management fees .............................................................. -- 407 --
Transfer agent fees .......................................................... 1,446 119 2,712
Administrative fees .......................................................... 947 81 1,606
Printing and postage ......................................................... 148 32 353
Accounting fees .............................................................. 40 25 55
SEC and state registration fees .............................................. 43 24 28
Audit and legal fees ......................................................... 16 28 16
Trustees' fees ............................................................... 7 11 7
Custodian fees ............................................................... 1 -- 1
Other ........................................................................ 62 54 79
--------- --------- ---------
Total expenses ...................................................... 6,749 781 13,914
Reimbursement of expenses by investment adviser .............................. -- (103) --
--------- --------- ---------
Net expenses ........................................................ 6,749 678 13,914
--------- --------- ---------
Net investment income (loss) ........................................ (652) (347) 2,562
--------- --------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments allocated from Portfolio .......... (894) -- 213,353
Net realized gains (losses) on investments ................................... -- (1,412) 501
Net realized losses on foreign currency transactions allocated from Portfolio -- -- (1,539)
Net change in unrealized appreciation or depreciation on investments
and foreign currency translations ................................... 29,857 (942) (441,669)
--------- --------- ---------
Net gains (losses) on investments ................................... 28,963 (2,354) (229,354)
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .............. $ 28,311 $ (2,701) $(226,792)
========= ========= =========
<PAGE>
<CAPTION>
Large
Company Special Capital
Focus Venture Opportunities
Fund (a) Fund Fund
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends allocated from Portfolio ........................................... $ -- $ 813 $ --
Dividends .................................................................... 110 -- 860
Interest allocated from Portfolio ............................................ -- 778 --
Interest ..................................................................... 53 -- 3,662
--------- --------- ---------
163 1,591 4,522
Foreign taxes withheld allocated from Portfolio .............................. -- -- --
--------- --------- ---------
Total investment income ............................................. 163 1,591 4,522
--------- --------- ---------
EXPENSES
Expenses allocated from Portfolio ............................................ -- 1,673 --
Management fees .............................................................. 89 -- 6,828
Transfer agent fees .......................................................... 26 448 2,069
Administrative fees .......................................................... 18 306 1,298
Printing and postage ......................................................... 18 51 530
Accounting fees .............................................................. 6 29 47
SEC and state registration fees .............................................. 3 27 38
Audit and legal fees ......................................................... 21 22 28
Trustees' fees ............................................................... 3 7 36
Custodian fees ............................................................... 1 1 12
Other ........................................................................ 5 51 427
--------- --------- ---------
Total expenses ...................................................... 190 2,615 11,313
Reimbursement of expenses by investment adviser .............................. (13) -- --
--------- --------- ---------
Net expenses ........................................................ 177 2,615 11,313
--------- --------- ---------
Net investment income (loss) ........................................ (14) (1,024) (6,791)
--------- --------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments allocated from Portfolio .......... -- 910 --
Net realized gains (losses) on investments ................................... (1,997) -- 110,560
Net realized losses on foreign currency transactions allocated from Portfolio -- -- --
Net change in unrealized appreciation or depreciation on investments
and foreign currency translations ................................... (4,559) (67,561) (195,885)
--------- --------- ---------
Net gains (losses) on investments ................................... (6,556) (66,651) (85,325)
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .............. $ (6,570) $ (67,675) $ (92,116)
========= ========= =========
(a) From commencement of operations on June 26, 1998.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
For the Years Ended September 30, 1998 and 1997
(All amounts in thousands)
<CAPTION>
Growth
Growth Stock Fund Opportunities Fund
1998 1997 1998 1997(a)
------------------------- --------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ................................ $ (652) $ 198 $ (347) $ 2
Net realized gains (losses) on investments and
foreign currency transactions ........................... (894) 34,268 (1,412) (373)
Net change in unrealized appreciation or depreciation
on investments and foreign currency translations ........ 29,857 107,140 (942) 3,722
--------- --------- --------- ---------
Net increase (decrease) in net assets resulting
from operations ................................ 28,311 141,606 (2,701) 3,351
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income .................... -- (1,100) -- --
Distributions from net capital gains ........................ (36,957) (33,200) -- --
--------- --------- --------- ---------
Total distributions to shareholders ................ (36,957) (34,300) -- --
--------- --------- --------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares ................................ 110,244 196,106 26,168 50,017
Value of distributions reinvested ........................... 29,289 27,151 -- --
Redemptions of fund shares .................................. (123,211) (140,858) (23,323) (3,538)
--------- --------- --------- ---------
Net increase (decrease) from share transactions .... 16,322 82,399 2,845 46,479
--------- --------- --------- ---------
Net increase (decrease) in net assets .............. 7,676 189,705 144 49,830
TOTAL NET ASSETS
Beginning of period ......................................... 607,669 417,964 49,830 --
--------- --------- --------- ---------
End of period ............................................... $ 615,345 $ 607,669 $ 49,974 $ 49,830
========= ========= ========= =========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) ...... $ -- $ 55 $ (26) $ 2
========= ========= ========= =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares ................................ 2,955 6,268 2,178 4,965
Issued in reinvestment of distributions ..................... 876 1,011 -- --
Redemptions of fund shares .................................. (3,319) (4,578) (2,001) (340)
--------- --------- --------- ---------
Net increase (decrease) in fund shares ............. 512 2,701 177 4,625
Shares outstanding at beginning of period ................... 17,218 14,517 4,625 --
--------- --------- --------- ---------
Shares outstanding at end of period ......................... 17,730 17,218 4,802 4,625
========= ========= ========= =========
<PAGE>
<CAPTION>
Special Fund
1998 1997
-------------------------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ......................................................... $ 2,562 $ (1,983)
Net realized gains (losses) on investments and foreign currency transactions ......... 212,315 113,915
Net change in unrealized appreciation or depreciation on investments and
foreign currency translations .................................................... (441,669) 232,265
----------- -----------
Net increase (decrease) in net assets resulting from operations ............. (226,792) 344,197
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ............................................. -- --
Distributions from net capital gains ................................................. (130,064) (86,856)
----------- -----------
Total distributions to shareholders ......................................... (130,064) (86,856)
----------- -----------
SHARE TRANSACTIONS
Subscriptions to fund shares ......................................................... 197,598 170,964
Value of distributions reinvested .................................................... 115,138 76,025
Redemptions of fund shares ........................................................... (371,808) (335,250)
----------- -----------
Net increase (decrease) from share transactions ............................. (59,072) (88,261)
----------- -----------
Net increase (decrease) in net assets ....................................... (415,928) 169,080
TOTAL NET ASSETS
Beginning of period .................................................................. 1,327,578 1,158,498
----------- -----------
End of period ........................................................................ $ 911,650 $ 1,327,578
=========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) ............................... $ 2,198 $ --
=========== ===========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares ......................................................... 6,671 6,195
Issued in reinvestment of distributions .............................................. 4,013 3,016
Redemptions of fund shares ........................................................... (12,731) (12,222)
----------- -----------
Net increase (decrease) in fund shares ...................................... (2,047) (3,011)
Shares outstanding at beginning of period ............................................ 39,288 42,299
----------- -----------
Shares outstanding at end of period .................................................. 37,241 39,288
=========== ===========
(a) From commencement of operations on June 30, 1997.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
For the Years Ended September 30, 1998 and 1997
(All amounts in thousands)
<CAPTION>
Large
Company
Focus Fund Special Venture Fund
1998 (a) 1998 1997
--------- -------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) .................................................. $ (14) $ (1,024) $ (330)
Net realized gains (losses) on investments and foreign currency transactions .. (1,997) 910 22,532
Net change in unrealized appreciation or depreciation on investments and
foreign currency translations ............................................ (4,559) (67,561) 17,242
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations ...... (6,570) (67,675) 39,444
--------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ...................................... -- -- --
Distributions from net capital gains .......................................... -- (24,530) (14,445)
--------- --------- ---------
Total distributions to shareholders .................................. -- (24,530) (14,445)
--------- --------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares .................................................. 55,706 52,678 112,054
Value of distributions reinvested ............................................. -- 22,807 13,220
Redemptions of fund shares .................................................... (4,420) (102,956) (59,046)
--------- --------- ---------
Net increase (decrease) from share transactions ...................... 51,286 (27,471) 66,228
--------- --------- ---------
Net increase (decrease) in net assets ................................ 44,716 (119,676) 91,227
TOTAL NET ASSETS
Beginning of period ........................................................... -- 235,755 144,528
--------- --------- ---------
End of period ................................................................. $ 44,716 $ 116,079 $ 235,755
========= ========= =========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) ........................ $ -- $ -- $ --
========= ========= =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares .................................................. 5,607 3,547 7,337
Issued in reinvestment of distributions ....................................... -- 1,653 931
Redemptions of fund shares .................................................... (485) (7,665) (3,863)
--------- --------- ---------
Net increase (decrease) in fund shares ............................... 5,122 (2,465) 4,405
Shares outstanding at beginning of period ..................................... -- 13,511 9,106
--------- --------- ---------
Shares outstanding at end of period ........................................... 5,122 11,046 13,511
========= ========= =========
<PAGE>
<CAPTION>
Capital
Opportunities Fund
1998 1997
--------------------------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ..........................................................$ (6,791) $ (8,808)
Net realized gains (losses) on investments and foreign currency transactions .......... 110,560 (110,932)
Net change in unrealized appreciation or depreciation on investments and
foreign currency translations .................................................... (195,885) (7,539)
----------- -----------
Net increase (decrease) in net assets resulting from operations .............. (92,116) (127,279)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income .............................................. -- --
Distributions from net capital gains .................................................. -- --
----------- -----------
Total distributions to shareholders .......................................... -- --
----------- -----------
SHARE TRANSACTIONS
Subscriptions to fund shares .......................................................... 264,307 543,838
Value of distributions reinvested ..................................................... -- --
Redemptions of fund shares ............................................................ (601,700) (990,455)
----------- -----------
Net increase (decrease) from share transactions .............................. (337,393) (446,617)
----------- -----------
Net increase (decrease) in net assets ........................................ (429,509) (573,896)
TOTAL NET ASSETS
Beginning of period ................................................................... 1,110,642 1,684,538
----------- -----------
End of period .........................................................................$ 681,133 $ 1,110,642
=========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) ................................$ -- $ --
=========== ===========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares .......................................................... 8,722 19,657
Issued in reinvestment of distributions ............................................... -- --
Redemptions of fund shares ............................................................ (19,933) (35,746)
----------- -----------
Net increase (decrease) in fund shares ....................................... (11,211) (16,089)
Shares outstanding at beginning of period ............................................. 38,173 54,262
----------- -----------
Shares outstanding at end of period ................................................... 26,962 38,173
=========== ===========
(a) From commencement of operations on June 26, 1998.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Assets and Liabilities
September 30, 1998
(All amounts in thousands)
<CAPTION>
SR&F SR&F
GROWTH SR&F SPECIAL
STOCK SPECIAL VENTURE
PORTFOLIO PORTFOLIO PORTFOLIO
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Investments, at market value
(cost of $434,546, $736,512
and $142,942, respectively) ............. $732,585 $896,225 $117,586
Receivable for investments sold ............ -- 24,754 491
Dividends receivable ....................... 380 751 19
Cash ....................................... 1 3 49
Other assets ............................... -- -- 10
-------- -------- --------
Total assets ............................ 732,966 921,733 118,155
-------- -------- --------
LIABILITIES
Payable for investments purchased .......... 961 3,889 1,618
Payable to investment adviser .............. 358 558 76
Other liabilities .......................... 104 135 76
-------- -------- --------
Total liabilities ....................... 1,423 4,582 1,770
-------- -------- --------
Net assets applicable to investors'
beneficial interest ................... $731,543 $917,151 $116,385
======== ======== ========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
- --------------------------------------------------------------------------------
<CAPTION>
For the Year Ended September 30, 1998
(All amounts in thousands)
SR&F SR&F
GROWTH SR&F SPECIAL
STOCK SPECIAL VENTURE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ................................................. $ 5,194 $ 7,439 $ 814
Interest .................................................. 1,544 9,120 779
--------- --------- ---------
6,738 16,559 1,593
Foreign taxes withheld .................................... -- (73) --
--------- --------- ---------
Total investment income ................................ 6,738 16,486 1,593
--------- --------- ---------
EXPENSES
Management fees ........................................... 4,252 8,772 1,533
Accounting fees ........................................... 42 55 29
Trustees' fees ............................................ 24 34 14
Audit and legal fees ...................................... 19 18 18
Custodian fees ............................................ 10 30 2
Other ..................................................... 123 153 79
--------- --------- ---------
Total expenses ......................................... 4,470 9,062 1,675
--------- --------- ---------
Net investment income (loss) ........................... 2,268 7,424 (82)
--------- --------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments ................ (7,814) 212,838 823
Net realized losses on foreign
currency transactions .................................. -- (1,539) --
Net change in unrealized appreciation
or depreciation on investments and
foreign currency translations .......................... 32,197 (441,553) (67,684)
--------- --------- ---------
Net gains (losses) on investments and
foreign currency transactions ........................ 24,383 (230,254) (66,861)
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .............................. $ 26,651 $(222,830) $ (66,943)
========= ========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
For the Year Ended September 30, 1998 and the Period Ended September 30, 1997
(All amounts in thousands)
<CAPTION>
SR&F Growth
Stock Portfolio SR&F Special Portfolio
1998 1997 (a) 1998 1997 (a)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ......................................... $ 2,268 $ 1,842 $ 7,424 $ 2,236
Net realized gains (losses) on investments and
foreign currency transactions ..................................... (7,814) 26,585 211,299 92,652
Net change in unrealized appreciation or depreciation on investments
and foreign currency translations ................................ 32,197 53,294 (441,553) 190,726
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations .......................................... 26,651 81,721 (222,830) 285,614
----------- ----------- ----------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions ........................................................ 151,248 571,598 60,926 1,189,884
Withdrawals .......................................................... (54,727) (44,948) (249,583) (146,860)
----------- ----------- ----------- -----------
Net increase (decrease) from transactions in investors'
beneficial interest ...................................... 96,521 526,650 (188,657) 1,043,024
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ....................... 123,172 608,371 (411,487) 1,328,638
TOTAL NET ASSETS
Beginning of period .................................................. 608,371 -- 1,328,638 --
----------- ----------- ----------- -----------
End of period ........................................................ $ 731,543 $ 608,371 $ 917,151 $ 1,328,638
=========== =========== =========== ===========
<PAGE>
<CAPTION>
SR&F Special
Venture Portfolio
1998 1997 (a)
--------------------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ............................................................ $ (82) $ 387
Net realized gains (losses) on investments and
foreign currency transactions ........................................................ 823 7,866
Net change in unrealized appreciation or depreciation on investments and
foreign currency translations ........................................................ (67,684) 27,038
--------- ---------
Net increase (decrease) in net assets resulting from operations ................ (66,943) 35,291
--------- ---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions ........................................................................... 25,934 218,483
Withdrawals ............................................................................. (78,647) (17,733)
--------- ---------
Net increase (decrease) from transactions in investors' beneficial interest .... (52,713) 200,750
--------- ---------
Net increase (decrease) in net assets .......................................... (119,656) 236,041
TOTAL NET ASSETS
Beginning of period ..................................................................... 236,041 --
--------- ---------
End of period ........................................................................... $ 116,385 $ 236,041
========= =========
(a) From commencement of operations on February 3, 1997.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(All amounts in thousands)
NOTE 1. ORGANIZATION
Stein Roe Growth Stock Fund, Stein Roe Growth Opportunities Fund, Stein Roe
Special Fund, Stein Roe Large Company Focus Fund, Stein Roe Special Venture Fund
and Stein Roe Capital Opportunities Fund (the "Funds") are series of Stein Roe
Investment Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust. Growth Stock Fund, Special Fund and
Special Venture Fund invest substantially all of their assets in SR&F Growth
Stock Portfolio, SR&F Special Portfolio and SR&F Special Venture Portfolio (the
"Portfolios"), respectively.
The Portfolios are series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolios commenced operations on February 3, 1997. At commencement,
Growth Stock Fund, Special Fund and Special Venture Fund contributed $474,861,
$1,096,779 and $160,940 in securities and other assets to SR&F Growth Stock
Portfolio, SR&F Special Portfolio and SR&F Special Venture Portfolio,
respectively, in exchange for beneficial ownership of those Portfolios. At
February 14, 1997, Stein Roe Advisor Growth Stock Fund, Stein Roe Advisor
Special Fund and Stein Roe Advisor Special Venture Fund each contributed cash of
$100 to their respective Portfolios. The Portfolios allocate income, expenses,
realized and unrealized gains and losses to each investor on a daily basis,
based on their respective percentage of ownership. At September 30, 1998, Growth
Stock Fund and Advisor Growth Stock Fund owned 84.17 percent and 15.83 percent,
respectively, of the SR&F Growth Stock Portfolio; Special Fund and Advisor
Special Fund owned 99.98 percent and .02 percent, respectively, of the SR&F
Special Portfolio; and Special Venture Fund and Advisor Special Venture Fund
owned 99.93 percent and .07 percent, respectively, of SR&F Special Venture
Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Funds and
Portfolios. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, and interest income is recorded on the accrual
basis. Interest income includes discount accretion on fixed income securities.
Realized gains and losses from investment transactions are reported on an
identified cost basis.
SECURITY VALUATIONS
All securities are valued as of September 30, 1998. Securities are valued at,
depending on the security involved, the last reported sales price, last bid or
asked price, or the mean between last bid and asked prices as of the close of
the appropriate exchange or other designated time. A security that is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary exchange for such security. Securities and other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board
of Trustees.
CURRENCY TRANSLATIONS
For purposes of valuation, assets and liabilities are translated into
U.S. dollars using currency exchange rates that represent the midpoint between
the bid and asked rates as of 4:00 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.
<PAGE>
FORWARD CURRENCY EXCHANGE CONTRACTS
During the year ended September 30, 1998, SR&F Special Portfolio entered into
forward foreign currency exchange contracts under which it was obligated to
exchange currencies at specified rates on specified future dates. Risks arise
from the possible inability of counterparties to meet the terms of their
contracts and from movements in currency values. There were no outstanding
contracts at September 30, 1998.
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 distributions to their
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolios are treated as partnerships for
federal income tax purposes and all of their income is allocated to their owners
based on their respective percentages of ownership.
The Funds intend to utilize provisions of federal income tax law, 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. At
September 30, 1998, Growth Opportunities Fund had a capital loss carryforward of
$1,727, which expires in 2005 and 2006; Large Company Focus Fund had a capital
loss carryforward of $1,997 which expires in 2006; and Capital Opportunities
Fund had a capital loss carryforward of $7,137 which expires in 2005.
DISTRIBUTIONS TO SHAREHOLDERS
Each Fund declares and pays dividends of any net investment income and
net realized capital gains annually, which are recorded on the ex-dividend date.
Dividends are determined in accordance with income tax principles, which may
treat certain transactions differently than generally accepted accounting
principles. Distributions in excess of tax basis earnings are reported in the
financial statements as a return of capital. Permanent differences in the
recognition or classification of income between the financial statements and tax
earnings are reclassified to paid-in capital.
Reclassifications in the Funds' accompanying analysis of net assets were made
in 1998 in order to reflect differences between financial reporting and income
tax results. The differences primarily related to reclassification of current-
and prior-year net operating losses.
During the year ended September 30, 1998, Special Fund distributed $34,693 of
net long-term capital gains through equalization payments to redeeming
shareholders.
<PAGE>
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Funds and Portfolios pay monthly management and administrative fees to Stein
Roe & Farnham Incorporated (the "Adviser"), an indirect, wholly-owned subsidiary
of Liberty Financial Companies, Inc. ("Liberty"), for its services as investment
adviser and manager. The annual rates, as a percentage of average daily net
assets, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEE ADMINISTRATIVE FEE
<S> <C> <C>
Growth Stock Fund N/A .150% up to $500,000,
.125% of the next $500,000,
.100% thereafter
SR&F Growth Stock Portfolio .600% up to $500,000, N/A
.550% of the next $500,000,
.500% thereafter
Special Fund N/A .150% up to $500,000,
.125% of the next $500,000,
.100% of the next $500,000,
.075% thereafter
SR&F Special Portfolio .750% up to $500,000, N/A
.700% of the next $500,000,
.650% of the next $500,000,
.600% thereafter
Special Venture Fund N/A .150%
SR&F Special Venture Portfolio .750% N/A
Growth Opportunities Fund .750% up to $500,000, .150% up to $500,000,
Large Company Focus Fund .700% of the next $500,000, .125% of the next $500,000,
Capital Opportunities Fund .650% of the next $500,000, .100% of the next $500,000,
.600% thereafter .075% thereafter
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Adviser also provides fund accounting services.
The Adviser has agreed to reimburse Growth Opportunities Fund and Large
Company Focus Fund for their operating expenses to the extent that annual
expenses exceed 1.25 percent and 1.50 percent, respectively, of average daily
net assets. This commitment expires on January 31, 2000, subject to earlier
termination by the Adviser on 30 days notice.
Transfer agent fees are paid to SteinRoe Services Inc. (SSI), a direct,
wholly-owned subsidiary of Liberty. SSI has entered into an agreement with
Liberty Funds Services, Inc., an indirect, wholly-owned subsidiary of Liberty,
to act as subtransfer agent for the Funds.
Certain officers and trustees of the Trust are also officers of the Adviser.
No remuneration was paid to any trustee or officer of the Trust who is
affiliated with the Adviser.
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Funds and Portfolios maintain borrowing
arrangements under which they can borrow against portfolio securities. Neither
the Funds nor the Portfolios had borrowings during the year ended September 30,
1998.
NOTE 5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the year ended September 30, 1998, were:
Purchases Sales
--------- ---------
SR&F Growth Stock Portfolio....................... $327,934 $269,847
Growth Opportunities Fund......................... 40,924 37,671
SR&F Special Portfolio............................ 487,478 729,593
Large Company Focus Fund.......................... 57,921 8,948
SR&F Special Venture Portfolio.................... 171,391 211,542
Capital Opportunities Fund........................ 408,244 689,081
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------
Growth Opportunities Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (c)
------------ -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 10.77 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss............................... (0.07) --
Net realized and unrealized gains (losses)
on investments................................. (0.29) 0.77
------- -------
NET ASSET VALUE, END OF PERIOD....................... $ 10.41 $ 10.77
======= =======
Ratio of net expenses to average net assets (a)...... 1.25% 1.25%(d)
Ratio of net investment income (loss) to average
net assets (b).................................... (0.64%) 0.02%(d)
Portfolio turnover rate.............................. 75% 3%
Total return (b)..................................... (3.34%) 7.70%
Net assets, end of period (000's).................... $49,974 $49,830
(a) If the Fund had paid all of its expenses and there had been no reimbursement
by the investment adviser, this ratio would have been 1.44 percent for the
year ended September 30, 1998, and 1.74 percent for the period ended
September 30, 1997.
(b) Computed giving effect to investment adviser's expense limitation
undertaking.
(c) From commencement of operations on June 30, 1997.
(d) Annualized
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Continued
Growth Stock Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
Years Ended September 30,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................................... $ 35.29 $ 28.79 $ 26.13
----------- ----------- -----------
Income From Investment Operations
Net investment income (loss) .................................. (0.04) 0.01 0.08
Net realized and unrealized gains on investments .............. 1.61 8.79 5.01
----------- ----------- -----------
Total from investment operations ........................... 1.57 8.80 5.09
----------- ----------- -----------
Distributions
Net investment income ......................................... -- (0.07) (0.10)
Net realized capital gains .................................... (2.15) (2.23) (2.33)
----------- ----------- -----------
Total distributions ........................................ (2.15) (2.30) (2.43)
----------- ----------- -----------
Net Asset Value, End of Period ......................................... $ 34.71 $ 35.29 $ 28.79
=========== =========== ===========
Ratio of net expenses to average net assets ............................ 1.03% 1.07% 1.08%
Ratio of net investment income (loss) to average net assets ............ (0.10%) 0.04% 0.32%
Portfolio turnover rate ................................................ N/A 5%(a) 39%
Total return ........................................................... 4.69% 33.10% 21.04%
Net assets, end of period (000's) ...................................... $ 615,345 $ 607,699 $ 417,964
<PAGE>
<CAPTION>
Years Ended September 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period .................................... $ 23.58 $ 24.89
----------- -----------
Income From Investment Operations
Net investment income (loss) ................................... 0.12 0.13
Net realized and unrealized gains on investments ............... 5.60 0.4
----------- -----------
Total from investment operations ............................ 5.72 0.54
----------- -----------
Distributions
Net investment income .......................................... (0.15) (0.12)
Net realized capital gains ..................................... (3.02) (1.73)
----------- -----------
Total distributions ......................................... (3.17) (1.85)
----------- -----------
Net Asset Value, End of Period .......................................... $ 26.13 $ 23.58
=========== ===========
Ratio of net expenses to average net assets ............................. 0.99% 0.94%
Ratio of net investment income (loss) to average net assets ............. 0.56% 0.50%
Portfolio turnover rate ................................................. 36% 27%
Total return ............................................................ 28.18% 2.10%
Net assets, end of period (000's) ....................................... $ 360,336 $ 321,502
(a) Prior to commencement of operations of the Portfolio.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
<CAPTION>
Special Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
Years Ended September 30,
1998 1997 1996
----------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................................. $ 33.79 $ 27.39 $ 25.26
----------- ------------- -------------
Income From Investment Operations
Net investment income (loss) ................................. 0.07 (0.06) 0.01
Net realized and unrealized gains (losses) on investments .... (6.06) 8.57 4.14
----------- ------------- -------------
Total from investment operations .......................... (5.99) 8.51 4.15
----------- ------------- -------------
Distributions
Net investment income ........................................ -- -- (0.11)
Net realized capital gains ................................... (3.32) (2.11) (1.91)
----------- ------------- -------------
Total distributions ....................................... (3.32) (2.11) (2.02)
----------- ------------- -------------
Net Asset Value, End of Period ........................................ $ 24.48 $ 33.79 $ 27.39
=========== ============= =============
Ratio of net expenses to average net assets ........................... 1.13% 1.14% 1.18%
Ratio of net investment income (loss) to average net assets ........... 0.21% (0.17%) 0.03%
Portfolio turnover rate ............................................... N/A 7%(a) 32%
Total return .......................................................... (19.17%) 33.67% 17.89%
Net assets, end of period (000's) ..................................... $ 911,650 $ 1,327,578 $ 1,158,498
<PAGE>
<CAPTION>
Years Ended September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................. $ 23.54 $ 25.04
------------- -------------
Income From Investment Operations
Net investment income (loss) ................................ 0.13 0.15
Net realized and unrealized gains (losses) on investments ... 3.05 0.33
------------- -------------
Total from investment operations ......................... 3.18 0.48
------------- -------------
Distributions
Net investment income ....................................... (0.15) (0.21)
Net realized capital gains .................................. (1.31) (1.77)
------------- -------------
Total distributions ...................................... (1.46) (1.98)
------------- -------------
Net Asset Value, End of Period ....................................... $ 25.26 $ 23.54
============= =============
Ratio of net expenses to average net assets .......................... 1.02% 0.96%
Ratio of net investment income (loss) to average net assets .......... 0.56% 0.91%
Portfolio turnover rate .............................................. 41% 58%
Total return ......................................................... 14.60% 2.02%
Net assets, end of period (000's) .................................... $ 1,201,469 $ 1,243,885
(a) Prior to commencement of operations of the Portfolio.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights CONTINUED
Large Company Focus Fund
Selected per-share data (for a share outstanding throughout the period), ratios
and supplemental data.
<CAPTION>
PERIOD ENDED
SEPTEMBER 30,
1998 (a)
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss........................................... --
Net realized and unrealized losses on investments............. (1.27)
-------
NET ASSET VALUE, END OF PERIOD................................... $ 8.73
=======
Ratio of net expenses to average net assets (b).................. 1.50%(d)
Ratio of net investment loss to average net assets (c)........... (0.12%)(d)
Portfolio turnover rate.......................................... 21%
Total return (c)................................................. (12.70%)
Net assets, end of period (000's)................................ $44,716
(a) From commencement of operations on June 26, 1998.
(b) If the Fund had paid all of its expenses and there had been no reimbursement
by the investment adviser, this ratio would have been 1.61 percent for the
period ended September 30, 1998.
(c) Computed giving effect to investment adviser's expense limitation undertaking.
(d) Annualized
</TABLE>
<PAGE>
<TABLE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
<CAPTION>
Special Venture Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
PERIOD
ENDED
YEARS ENDED SEPTEMBER 30, SEPT. 30,
1998 1997 1996 1995 (d)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 17.45 $ 15.87 $ 12.60 $ 10.00
----------- ----------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) ....................... (0.09) (0.02) (0.02) 0.01
Net realized and unrealized gains (losses)
on investments .................................. (5.08) 3.12 3.86 2.67
----------- ----------- ----------- ----------
Total from investment operations ................ (5.17) 3.10 3.84 2.68
----------- ----------- ----------- ----------
DISTRIBUTIONS
Net investment income .............................. -- -- -- (0.03)
Net realized capital gains ......................... (1.77) (1.52) (0.57) (0.05)
----------- ----------- ----------- ----------
Total distributions ............................. (1.77) (1.52) (0.57) (0.08)
----------- ----------- ----------- ----------
NET ASSET VALUE, END OF PERIOD ........................ $ 10.51 $ 17.45 $ 15.87 $ 12.60
=========== =========== =========== ==========
Ratio of net expenses to average
net assets (a) ..................................... 1.28% 1.29% 1.25% 1.25%(e)
Ratio of net investment income (loss) to
average net assets (b) ............................. (0.50%) (0.18%) (2.19%) 0.12%(e)
Portfolio turnover rate ............................... N/A 44%(c) 72% 84%
Total return (b) ...................................... (32.05%) 21.73% 31.81% 26.96%
Net assets, end of period (000's) .................... $ 116,079 $ 235,755 $ 144,528 $ 60,533
(a) If the Fund had paid all of its expenses and there had been no reimbursement
by the investment advisor, this ratio would have been 1.34 percent for the year
ended September 30, 1996, and 2.87 percent for the period ended September 30,
1995.
(b) Computed giving effect to investment adviser's expense limitation
undertaking.
(c) Prior to commencement of operations of the Portfolio.
(d) From commencement of operations on October 17, 1994.
(e) Annualized
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Continued
Capital Opportunities Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
Years Ended September 30,
1998 1997 1996
----------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 29.10 $ 31.04 $ 21.69
----------- ------------- -------------
Income From Investment Operations
Net investment income (loss) ............................... (0.25) (0.17) (0.06)
Net realized and unrealized gains (losses) on investments .. (3.60) (1.77) 10.41
----------- ------------- -------------
Total from investment operations ........................ (3.85) (1.94) 10.35
----------- ------------- -------------
Distributions
Net investment income ...................................... -- -- (0.01)
Net realized capital gains ................................. -- -- (0.99)
----------- ------------- -------------
Total distributions ..................................... -- -- (1.00)
----------- ------------- -------------
Net Asset Value, End of Period ...................................... $ 25.25 $ 29.10 $ 31.04
=========== ============= =============
Ratio of net expenses to average net assets ......................... 1.20% 1.17% 1.22%
Ratio of net investment income (loss) to average net assets ......... (0.72%) (0.69%) (0.40%)
Portfolio turnover rate ............................................. 47% 35% 22%
Total return ........................................................ (13.23%) (6.25%) 49.55%
Net assets, end of period (000's) ................................... $ 681,133 $ 1,110,642 $ 1,684,538
<PAGE>
<CAPTION>
Years Ended September 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period ......................................... $ 15.79 $ 15.44
----------- -----------
Income From Investment Operations
Net investment income (loss) ........................................ 0.01 0.02
Net realized and unrealized gains (losses) on investments ........... 5.91 0.34
----------- -----------
Total from investment operations ................................. 5.92 0.36
----------- -----------
Distributions
Net investment income ............................................... (0.02) (0.01)
Net realized capital gains .......................................... -- --
----------- -----------
Total distributions .............................................. (0.02) (0.01)
----------- -----------
Net Asset Value, End of Period ............................................... $ 21.69 $ 15.79
=========== ===========
Ratio of net expenses to average net assets .................................. 1.05% 0.97%
Ratio of net investment income (loss) to average net assets .................. 0.08% 0.04%
Portfolio turnover rate ...................................................... 60% 46%
Total return ................................................................. 37.46% 2.31%
Net assets, end of period (000's) ............................................ $ 242,381 $ 175,687
All per-share amounts reflect a two-for-one stock split effective August 25,
1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights CONTINUED
SR&F Growth Stock Portfolio
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (a)
----------- -----------
<S> <C> <C>
Ratio of net expenses to average net assets....... 0.61% 0.63%(b)
Ratio of net investment income to average net assets 0.31% 0.52%(b)
Portfolio turnover rate........................... 39% 22%
(a) From commencement of operations on February 3, 1997.
(b) Annualized
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights CONTINUED
SR&F Special Portfolio
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (a)
----------- -----------
<S> <C> <C>
Ratio of net expenses to average net assets....... 0.73% 0.75%(b)
Ratio of net investment income to average net assets 0.60% 0.31%(b)
Portfolio turnover rate........................... 46% 8%
(a) From commencement of operations on February 3, 1997.
(b) Annualized
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights CONTINUED
SR&F Special Venture Portfolio
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (a)
----------- -----------
<S> <C> <C>
Ratio of net expenses to average net assets....... 0.82% 0.82%(b)
Ratio of net investment income (loss) to average
net assets...................................... (0.04%) 0.31%(b)
Portfolio turnover rate........................... 91% 58%
(a) From commencement of operations on February 3, 1997.
(b) Annualized
</TABLE>
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of:
Stein Roe Investment Trust
Stein Roe Growth Stock Fund
Stein Roe Growth Opportunities Fund
Stein Roe Special Fund
Stein Roe Large Company Focus Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
SR&F Base Trust
SR&F Growth Stock Portfolio
SR&F Special Portfolio
SR&F Special Venture Portfolio
We have audited the accompanying statements of assets and liabilities of Stein
Roe Growth Stock Fund, Stein Roe Special Fund, Stein Roe Special Venture Fund
and the accompanying statements of assets and liabilities, including the
portfolio of invest ments, of SR&F Growth Stock Portfolio, Stein Roe Growth
Opportunities Fund, SR&F Special Portfolio, Stein Roe Large Company Focus Fund,
SR&F Special Venture Portfolio and Stein Roe Capital Opportunities Fund as of
September 30, 1998, and the related statements of operations, changes in net
assets and the financial highlights for the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Funds' and Portfolios' management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures for the SR&F Growth Stock Portfolio, Stein Roe Growth
Opportunities Fund, SR&F Special Portfolio, Stein Roe Large Company Focus Fund,
SR&F Special Venture Portfolio and Stein Roe Capital Opportunities Fund included
confirmation of securities owned as of September 30, 1998, by correspondence
with the custodian and brokers. As to securities purchased but not received, we
requested confirmation from brokers and, when replies were not received, we
carried out alternative auditing procedures. An audit also includes assessing
the estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly the
financial position of the Stein Roe Growth Stock Fund, Stein Roe Growth
Opportunities Fund, Stein Roe Special Fund, Stein Roe Large Company Focus Fund,
Stein Roe Special Venture Fund, Stein Roe Capital Opportunities Fund, SR&F
Growth Stock Portfolio, SR&F Special Portfolio and SR&F Special Venture
Portfolio as of September 30, 1998, the results of their operations, the changes
in their net assets and their financial highlights for the periods indicated
thereon, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 6, 1998
<PAGE>
To Contact Us. . .
BY PHONE 800-338-2550
You can discuss your investment questions with a Stein Roe account
representative by calling us toll free. We'll be happy to answer questions about
your current account, or to provide you with information about opening a Stein
Roe account, including Stein Roe Traditional, Education and Roth IRAs. We're
available seven days a week, from 7 a.m. to 8 p.m. weekdays and from 9 a.m. to 2
p.m.
Saturday and Sunday (Central time).
STEIN ROE'S FUNDS-ON-CALL
24-HOUR SERVICE LINE
Using a touch-tone phone, call our toll-free number, day or night, for your
current account balance, the latest Stein Roe prices and yields, and other
information. In addition, if you have a Personal Identification Number (PIN),
you may place orders for the following transactions 24 hours a day:
o Exchange shares between your Stein Roe accounts;
o Purchase shares by electronic transfer;
o Order additional account statements and money market fund checks; o Redeem
shares by check, wire or electronic transfer.
RETIREMENT PLAN ACCOUNTS
Call us for information about how we can assist you with your defined
contribution plan, including 401(k) plans. You can reach us toll free at
800-322-1130.
For information on IRA plans, including the new Roth and Education IRA, call
us toll free at 800-338-2550.
BY MAIL OR E-MAIL
If you prefer to contact us by mail, please address all correspondence to:
P.O. Box 8900, Boston, MA 02205-8900. To contact us by e-mail, send
correspondence directly to [email protected] or visit us at
www.steinroe.com on the Internet.
IN PERSON
If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive, 32nd Floor. Our account
representatives can answer questions about your current Stein Roe investments or
provide you infor mation about any of the Stein Roe funds and retirement plans.
Stop by weekdays between 8 a.m. and 5:15 p.m.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
<PAGE>
Investment Trust
TRUSTEES
Thomas W. Butch
PRESIDENT, MUTUAL FUND DIVISION AND DIRECTOR,
STEIN ROE & FARNHAM INCORPORATED
William W. Boyd
CHAIRMAN AND DIRECTOR, STERLING PLUMBING
GROUP INC.
Lindsay Cook
SENIOR VICE PRESIDENT, LIBERTY FINANCIAL
COMPANIES, INC.
Douglas A. Hacker
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, UNITED AIRLINES
Janet Langford Kelly
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL
COUNSEL, SARA LEE CORPORATION
Charles R. Nelson
VAN VOORHIS PROFESSOR OF POLITICAL ECONOMY,
UNIVERSITY OF WASHINGTON
Thomas C. Theobald
MANAGING DIRECTOR, WILLIAM BLAIR CAPITAL PARTNERS
OFFICERS
Thomas W. Butch, PRESIDENT
William D. Andrews, EXECUTIVE VICE PRESIDENT
Loren A. Hansen, EXECUTIVE VICE PRESIDENT
Hans P. Ziegler, EXECUTIVE VICE PRESIDENT
Gary A. Anetsberger, SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
David P. Brady, VICE PRESIDENT
Daniel K. Cantor, VICE PRESIDENT
Kevin M. Carome, VICE PRESIDENT,
ASSISTANT SECRETARY
Erik P. Gustafson, VICE PRESIDENT
James P. Haynie, VICE PRESIDENT
Harvey B. Hirschhorn, VICE PRESIDENT
Eric S. Maddix, VICE PRESIDENT
Lynn C. Maddox, VICE PRESIDENT
Arthur J. McQueen, VICE PRESIDENT
Nicolette D. Parrish, VICE PRESIDENT,
ASSISTANT SECRETARY
Gita R. Rao, VICE PRESIDENT
Michael E. Rega, VICE PRESIDENT
M. Gerard Sandel, VICE PRESIDENT
Gloria J. Santella, VICE PRESIDENT
Heidi J. Walter, VICE PRESIDENT, SECRETARY
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 Large Company Focus 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, MA 02205-8900
800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd Floor
Liberty Funds Distributor, Inc.
EQ11A 11/98
