STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
SEPT. 30, 1998
PHOTO OF: HANDS ON GLOBE
STEIN ROE EQUITY FUNDS
INTERNATIONAL FUNDS
INTERNATIONAL FUND
EMERGING MARKETS FUND
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(SM)
<PAGE>
Contents
- ----------------------------------------------------------------------
From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Performance....................................................... 3
How the Stein Roe international equity funds have done over time
Q&A
Interviews with the portfolio managers and summaries of
investment activity
International Fund................................................ 6
Emerging Markets Fund............................................. 9
Fund Highlights................................................... 12
Information about the Funds
Portfolios of Investments......................................... 16
A complete list of investments with market values
Financial Statements.............................................. 22
Statements of assets and liabilities, operations and
changes in net assets
Notes to Financial Statements..................................... 29
Financial Highlights.............................................. 34
Selected per-share data
Report of Independent
Public Accountants.............................................. 37
General Information............................................... 38
MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
<PAGE>
From the President
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
We're pleased to present this annual report for the Stein Roe international
funds -- International Fund and Emerging Markets Fund. This report covers the
fiscal year ended Sept. 30, 1998.
A WILD RIDE
As investors are no doubt aware, the environment for international
investing was extremely difficult over the past year, especially in Asia, and
most emerging markets around the globe. At the writing of this report, some of
the volatility has subsided, but the prospects for many international markets
remain uncertain.
WHAT HAPPENED
Prior to this fiscal year, many emerging market economies experienced
progressive growth cycles where banks would lend large amounts to fuel economic
expansion. This worked well until devaluation in the Thailand currency generated
fears among those investing in Asian economies. Investors, fearing that
countries with high levels of debt would suffer from higher debt payments when
other currencies devalued, fled heavily indebted Asian markets. This led to a
financial crisis throughout Asia and spread to other emerging markets. Although
the International Monetary Fund did provide some support, it also implemented
reforms that increased interest rates, which contributed to a sharp downturn in
economic activity throughout Asia.
Asian economic problems were aggravated by a recession in Japan and a
decrease in its import/export business, which supports many Asian economies.
Fallout reached broader international markets throughout the year, and many
international economies -- especially emerging markets -- suffered.
THE GOVERNMENTS TAKE ACTION
Recently, a number of governmental actions have taken place in various
countries, which may help set the stage for better fundamentals ahead. Perhaps
the most important moves have been the reductions in short-term interest rates
by several major central banks. Indeed, at the time of this writing, the Federal
Reserve in the United States has already reduced rates by 50 basis points, and
Britain, Japan, Spain and several other countries have reduced their rates as
well. More such moves seem likely in the weeks ahead as the central banks lower
lending rates to support world economic growth.
A second important development was the dedication of significant new funds by
IMF member nations to aid countries with financial problems.
Third, Japan's government seems to be taking long-awaited action improving
the state of that country's banking system. We believe this move is an important
step in the right direction and could help to provide the basis for the
beginning of some recovery from this globally important economy.
The effects of these and other actions have yet to be determined, but they
would appear to constitute steps in the right direction for certain of the
world's economies.
A REMINDER OF RISK
Foreign investing, especially in countries with developing markets, can be
extremely volatile. 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 adjusting your portfolio accordingly.
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
SPECIAL NOTE TO EMERGING MARKETS FUND SHAREHOLDERS
THE BOARD OF DIRECTORS OF STEIN ROE MUTUAL FUNDS VOTED TO LIQUIDATE THE STEIN
ROE EMERGING MARKETS FUND EFFECTIVE DEC. 7, 1998. THIS DECISION WAS BASED ON THE
SMALL ASSET SIZE OF EMERGING MARKETS FUND ($10.9 MILLION AT SEPT. 30, 1998) AND
UNFAVORABLE MARKET CONDITIONS. GIVEN THE TURBULENCE EXPERIENCED IN ASIA AND
OTHER EMERGING MARKETS OVER THE PAST YEAR, AND THE UNCERTAIN OUTLOOK FOR THE
WORLD'S DEVELOPING ECONOMIES, WE THINK IT IS UNLIKELY THAT THE FUND WILL BE ABLE
TO ATTRACT SIGNIFICANT NEW ASSETS IN THE NEAR FUTURE. THIS, IN TURN, WOULD MAKE
IT DIFFICULT FOR THE FUND TO BE COST-EFFECTIVE FOR SHAREHOLDERS. AS YOU MAY
KNOW, SMALLER FUNDS TEND TO HAVE HIGHER EXPENSE RATIOS AND LESS INVESTMENT
FLEXIBILITY; AS A RESULT, THEIR RETURNS TEND TO BE LOWER OVER THE LONG TERM.
WE REMAIN DEDICATED TO INTERNATIONAL INVESTING THROUGH OUR INTERNATIONAL
FUND. WE APPRECIATE YOUR INVESTMENT IN EMERGING MARKETS FUND AND HOPE YOU WILL
CHOOSE TO REDIRECT YOUR INVESTMENT TO STEIN ROE INTERNATIONAL FUND OR ANOTHER
STEIN ROE MUTUAL FUND. FOR FURTHER INFORMATION, PLEASE CONTACT A SHAREHOLDER
SERVICES REPRESENTATIVE.
PHOTO OF: THOMAS W. BUTCH
<PAGE>
Fund Performance
- --------------------------------------------------------------------------------
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change or the growth of a hypothetical $10,000 investment. 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).
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPT. 30, 1998
PAST 1 PAST 3 LIFE
YEAR YEARS OF FUND(1)
- --------------------------------------------------------------------------------
INTERNATIONAL FUND -16.67% -0.32% 0.81%
MSCI EAFE Index -8.34 3.75 3.86
- --------------------------------------------------------------------------------
PAST 1 LIFE
YEAR OF FUND(1)
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND -58.42% -41.52%
MSCI EM Index -48.77 -36.44
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. TOTAL
RETURN PERFORMANCE INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF INCOME
AND CAPITAL GAINS DISTRIBUTIONS. THE MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE, AUSTRALIA AND FAR EAST (MSCI EAFE) INDEX AND THE MORGAN STANLEY CAPITAL
INTERNATIONAL EMERGING MARKETS (MSCI EM) INDEX ARE UNMANAGED GROUPS OF STOCKS
THAT DIFFER FROM THE COMPOSITION OF ANY STEIN ROE FUND; THEY ARE NOT AVAILABLE
FOR DIRECT INVESTMENT.
1 INCEPTION DATES: INTERNATIONAL FUND -- MARCH 1, 1994; EMERGING MARKETS FUND --
FEB. 28, 1997. BECAUSE INDEX RETURNS ARE CALCULATED ON A MONTHLY BASIS, THE
INDEX RETURNS MARKED "LIFE OF FUND" ARE CALCULATED FROM THE MONTH-END RESULTS
THAT FALL CLOSEST TO THE FUNDS' INCEPTION DATES.
<PAGE>
Investment Comparison
- --------------------------------------------------------------------------------
COMPARISON of change in value of a $10,000 investment.
- --------------------------------------------------------------------------------
International Fund
Mountain Chart:
International Fund MSCI EAFE Index
3/31/94 10000 10000
9/30/94 10611 10068
3/31/95 9535 10151
9/30/95 10475 10651
3/31/96 10914 11402
9/30/96 11388 11568
3/31/97 11586 11568
9/30/97 12452 12977
3/31/98 12676 13721
9/30/98 10376 11895
COMPARISON of change in value of a $10,000 investment.
Emerging Markets Fund
Mountain Chart:
Emerging Markets Fund MSCI EM Index
2/28/97 10000 10000
3/31/97 9900 9727
6/30/97 11240 10540
9/30/97 10240 9524
12/31/97 6860 7669
3/31/98 7567 8187
6/30/98 5432 6202
9/30/98 4258 4879
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL
SHARES. THESE GRAPHS COMPARE THE PERFORMANCE OF THE STEIN ROE FUNDS TO THE
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST (MSCI EAFE)
AND EMERGING MARKETS (MSCI EM) INDICES, EACH AN UNMANAGED GROUP OF STOCKS THAT
DIFFERS FROM THE COMPOSITION OF EACH STEIN ROE FUND. THE INDICES ARE NOT
AVAILABLE FOR DIRECT INVESTMENT. TOTAL RETURN PERFORMANCE INCLUDES CHANGES IN
SHARE PRICE AND REINVESTMENT OF INCOME AND CAPITAL GAINS DISTRIBUTIONS.
<PAGE>
Making the Most of Performance
- --------------------------------------------------------------------------------
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. 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.
While some of the basic factors that affect returns of international
stocks are the same as for U.S. stocks--for example, corporate earnings
outlooks, market conditions, and inflation--some additional factors
affect international investments. International investments have
historically been more volatile because they involve economic,
political and currency risks that are not usually associated with the
U.S. stock market. Economic or political instability can cause weakness
in equity markets.
Currency conversion is another risk inherent to foreign investing.
Dollars must be converted to the local currency to purchase foreign
securities. Since foreign exchange rates fluctuate, this currency
translation can affect the dollar value of the investment.
Despite these risks and international markets' recent volatility, we
believe it's important to remember that foreign stocks can provide both
diversification and additional return potential to your portfolio.
Investment opportunities with dynamic companies overseas can be more
abundant than in the United States, especially in countries with
above-average growth rates.
Diversifying your investments internationally also helps reduce the
risk of being dependent on the health of a single country's economy.
Because U.S. and foreign markets seldom move in tandem, we believe that
investments in foreign countries can help diversify your portfolio and
enhance your portfolio's return potential.
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.
If you have any questions, please call a Stein Roe account representative
at 800-338-2550.
<PAGE>
Q&A
- --------------------------------------------------------------------------------
AN INTERVIEW WITH DAVID HARRIS, PORTFOLIO MANAGER OF STEIN ROE INTERNATIONAL
FUND, SR&F INTERNATIONAL PORTFOLIO AND EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
FUND DATA
INVESTMENT OBJECTIVE:
Seeks long-term growth of capital by investing primarily in a diversified
portfolio of foreign securities. Under normal market conditions, the
portfolio will invest at least 65 percent of its total assets in foreign
securities of at least three countries outside of the United States.
FUND INCEPTION:
March 1, 1994
TOTAL NET ASSETS:
$114.2 million
Photo of: David Harris
- --------------------------------------------------------------------------------
INTERNATIONAL FUND Q&A
EFFECTIVE OCT. 26, 1998, THE PORTFOLIO MANAGER FOR STEIN ROE INTERNATIONAL FUND
AND SR&F INTERNATIONAL PORTFOLIO IS GITA R. RAO.
Q: THE PAST YEAR WAS A VOLATILE PERIOD FOR INTERNATIONAL EQUITIES. HOW DID THE
FUND PERFORM?
A: The Fund's total return for the one-year period ended Sept. 30, 1998, was
- -16.67 percent. International markets as represented by the Morgan Stanley
Capital International Europe Australia Far East (MSCI EAFE) Index returned -8.34
percent. The Lipper international fund peer group median return was -10.01
percent.
Q: WHAT HAPPENED?
A: The International Fund's underperformance resulted from a difficult fourth
quarter of 1997 -- the first quarter of the Fund's fiscal year. The Asian
currency crisis erupted, and the Fund's performance suffered due to above
average emerging markets exposure. The developed markets recovered and performed
well during the first two quarters of 1998, as investors refocused on the
positive developments in Europe, including monetary unification, declining
interest rates, corporate restructurings, and good earnings reports. While the
poor performance was balanced out somewhat by these two favorable quarters, all
international markets declined sharply during the last quarter of the fiscal
year. Investors pulled out of global equities as fears of earnings slowdowns,
concerns about the global banking system and emerging markets jitters prompted
many to seek safer havens in bonds. The end result was a year of
poor-performance for international markets.
Q: WHERE DID YOU FIND STABILITY THIS YEAR?
A: European markets exhibited the most stability and the portfolio has a higher
exposure to that region than ever before. We initiated positions in a few
European companies including Michelin, Racal Electronics and Philips Electronics
(1.9 percent, 2.3 percent and 1.8 percent of total net assets, respectively) and
have added to existing holdings in Europe. We also added new positions in Grupo
Carso, a Mexican conglomerate and Nippon Telegraph & Telephone, Japan's largest
telecommunications company (0.5 percent and 2.0 percent of total net assets,
respectively). We have been investing in telecommunications because the industry
continues to grow around the world despite global economic turmoil. We've also
been investing in the financial services industry in Europe as low interest
rates have allowed financial services companies to perform well. European banks
did suffer during the fourth quarter of the fiscal year because of their
exposure to Russia. However, we believe the selloff of these stocks was dramatic
in relation to their real level of exposure. We have a positive outlook for our
European bank holdings and we have been adding to some positions there.
Q: ARE YOUR COUNTRY ALLOCATIONS DIFFERENT COMPARED TO LAST YEAR?
A: We sold holdings in Japan throughout the year and we now have the smallest
percentage of assets invested in Japan that we have ever had. We have been
gradually increasing our weighting in Latin America. While near-term volatility
is likely to continue in this region, projected future growth prospects may be
good. The portfolio has a low weighting in Asia, due to instability in those
markets. France and Germany now have a size advantage on Japan, and will likely
continue to have a larger place in the world markets. We believe Japan will have
to endure successful reforms before regaining its market leadership position.
We've invested only in Japanese companies that we believe can improve profits
through growth. For example, we purchased Nippon Telegraph & Telephone, Japan's
national telephone company and the world's largest cellular company. The
cellular industry continues to grow rapidly in Japan, as it does worldwide,
despite a weak economy.
Q: WHAT THEMES HAVE YOU FOCUSED ON?
A: We believe the sharp declines in Europe have created attractive
opportunities, so we have been adding to European holdings. We like financial
services stocks because they are thriving due to declining short-term interest
rates. We added to our positions in Merita Bank, the largest financial services
group in the Nordic region, and Banca Popolare di Milano, a midsized Italian
bank (2.7 percent and 2.7 percent of total net assets, respectively). Neither
institution is heavily exposed to emerging markets, and both are growing
earnings rapidly through cost cutting as well as new product introductions. We
continue to like telecommunications, a sector we find is especially resilient to
any economic slowdown as the use of wireless telecommunications continues to
grow rapidly. Our holdings include: Telecom Italia and Olivetti in Italy (3.7
percent and 3.6 percent of total net assets, respectively), Mannesman in Germany
(2.9 percent of total net assets), KPN in the Netherlands (1.2 percent of total
net assets), Racal in the United Kingdom, Nippon Telegraph & Telephone in Japan,
Portugal Telecom (0.8 percent of total net assets), Telecom Argentina and
Telebras in Latin America (0.8 percent and 2.1 percent of total net assets,
respectively).
One additional theme is European trade. We added Dutch holding TNT Post Groep
(1.0 percent of total net assets), one of Europe's leading providers of shipping
and logistics. We believe this company will benefit from increased trade when
there is a unified currency, which is slated for January. We also own
Swiss-based Danzas (1.4 percent of total net assets), another transportation
group that we believe will benefit from increased trade.
Q: WHAT IS YOUR OUTLOOK FOR INTERNATIONAL MARKETS GOING FORWARD?
A: We remain optimistic that international markets will rebound and reverse the
sharp losses that occurred in the last quarter of the fiscal year. We expect
that low interest rates, continued cost cutting and stability in the emerging
markets will support the recovery. If the emerging markets recover in tandem
with the developed markets, then returns should exceed these expectations.
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 INTERNATIONAL 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 MSCI EAFE INDEX IS AN UNMANAGED
GROUP OF STOCKS THAT DIFFERS FROM THE COMPOSITION OF STEIN ROE INTERNATIONAL
FUND; IT IS NOT AVAILABLE FOR DIRECT INVESTMENT. ACCORDING TO LIPPER ANALYTICAL
SERVICES, INC., A MONITOR OF MUTUAL FUND PERFORMANCE, THE MEDIAN RETURNS FOR THE
FUND'S INTERNATIONAL FUND PEER GROUP FOR THE ONE-YEAR AND LIFE OF FUND PERIODS
ENDED SEPT. 30, 1998, WERE -10.01 PERCENT AND 4.87 PERCENT, RESPECTIVELY.
BECAUSE BENCHMARK RETURNS ARE CALCULATED ON A MONTHLY BASIS, THOSE MARKED "LIFE
OF FUND" ARE FROM THE MONTH-END DATE THAT FELL CLOSEST TO THE FUND'S INCEPTION
DATE.
FOREIGN INVESTMENTS INVOLVE MARKET, POLITICAL AND CURRENCY RISKS NOT GENERALLY
ASSOCIATED WITH U.S. INVESTMENTS. EMERGING MARKET INVESTMENTS INVOLVE MARKET,
POLITICAL AND CURRENCY RISKS NOT GENERALLY ASSOCIATED WITH INVESTING IN EITHER
U.S. SECURITIES OR MORE DEVELOPED INTERNATIONAL MARKETS.
<PAGE>
Q&A CONTINUED
- --------------------------------------------------------------------------------
FUND DATA
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
Seeks long-term growth of capital through emerging market investment
opportunities. Under normal market conditions, the Fund will invest at least
65 percent of its total assets in the equity securities of emerging markets.
FUND INCEPTION:
Feb. 28, 1997
TOTAL NET ASSETS:
$10.9 million
EMERGING MARKETS FUND Q&A
EFFECTIVE OCT. 26, 1998, THE PORTFOLIO MANAGER FOR STEIN ROE EMERGING MARKETS
FUND IS GITA R. RAO.
SALES OF EMERGING MARKET FUND SHARES WERE SUSPENDED AS OF NOV. 5, 1998, AND THE
FUND WILL BE LIQUIDATED BY DEC. 7, 1998. THE FUND'S SMALL ASSET SIZE AND CURRENT
MARKET CONDITIONS PROMPTED THIS MOVE. FOR MORE INFORMATION SEE NOTE #6 IN THE
NOTES TO FINANCIAL STATEMENTS SECTION OF PAGE 33.
Q: EMERGING MARKETS HAVE EXPERIENCED A REVERSAL OF FORTUNE THIS YEAR. CAN YOU
RECAP WHAT HAPPENED?
A: Prior to this fiscal year, emerging market economies had been in a long-term
growth cycle, with corporations borrowing heavily to finance growth. As long as
the economies were expanding at a rapid pace, this model of development worked
well. However, once Thailand devalued its currency in July 1997, investors fled
Asian markets where growth was fueled by borrowing, including Korea, Indonesia
and Malaysia. This led to a financial crisis throughout Asian economies and
spread to neighboring emerging markets. The International Monetary Fund (IMF)
subsequently provided support packages to those markets suffering the greatest
currency instability. Although IMF reforms helped stabilize falling currencies,
they instituted painfully high interest rates. High interest rates contributed
to a sharp downturn in economic activity throughout Asia. The economic distress
was aggravated by Japan's recession since Japan is a major trading partner of
developing Asia. Asian economic troubles indirectly hurt the Russian economy by
putting downward pressure on commodity prices. Then Latin America suffered as
emerging market investors demanded higher interest rates for investing in
developing economies that were experiencing turmoil.
Q: HOW DID THE CRISIS AFFECT THE FUND'S PERFORMANCE?
A: The Fund had a total return of -58.42 percent for the year ended Sept. 30,
1998. The benchmark Morgan Stanley Capital International Emerging Markets Index
posted a -48.77 percent return and the Lipper emerging markets peer group median
return was -47.78 percent for the same period.
Q: HOW DID YOU POSITION THE FUND IN RESPONSE TO THESE EVENTS?
A: First of all, there was no "safe" place to invest in emerging markets. Most
emerging market stocks significantly declined in value over the year. Our
strategy was and is to invest in those companies that we believed had the best
recovery prospects once their respective economies rebounded.
We have substantially reduced the Fund's exposure to Hong Kong -- a market
that is dominated by economically sensitive stocks such as property developers
and banks. We recently sold most of our holding in HSBC -- which is in the
banking sector -- because we think the industry will continue to be under
pressure for some time. At Sept. 30, 1998, we held a negligible amount of that
stock.
We kept the Fund fully invested, positioned in companies that we believe will
emerge strongly from the downturn. We purchased Grupo Carso (2.7 percent of
total net assets), a large Mexican retailer. We added to our position in Telesp
Celular, a provider of wireless telecommunications services in Sao Paolo, Brazil
(4.2 percent of total net assets). The cellular industry appears to be the most
resistant to economic downturns in the emerging markets as it is often the only
option in countries that have limited phone service. We bought Telebras (5.0
percent of total net assets), the Brazilian national telephone utility, which is
being spun-off into 12 subsidiary companies, much like AT&T was spun-off into
the "baby bells" in 1984. The Brazilian government recently sold its stake in
Telebras to a group of experienced telecommunications companies in Europe, the
United States and Asia at prices that were, in many cases, several times higher
than the subsidiary companies are selling for today.
Q: WHY DID YOU UNDERPERFORM THE PEER GROUP?
A: Significant underperformance occurred in the last quarter of 1997, a time
when we were optimistic that the Asian markets would recover in a few months --
a situation we believed was comparable to the Latin American crisis recovery in
1995. We prefer to stay fully invested and are reluctant to raise cash because
emerging markets have had large rallies in extremely brief periods. Although
performance of the markets and the Fund was weak into 1998, performance relative
to the peer group has improved.
Q&A CONTINUED
Q: WHEN IS A RECOVERY PREDICTED?
A: It has been difficult to pinpoint when a recovery will successfully take
place. We believe it may take a few years. However, there is anecdotal evidence
that some economies have stabilized. Specifically, there is a major pending
budget reform in Brazil that will be a key to restoring investor confidence in
that region. We are optimistic that Brazil will take the necessary steps to cut
its budget deficit and when it does, this may prompt a rally in Latin American
stocks.
Many investors are staying away from emerging markets after seeing
unprecedented losses. Before the emerging markets crashed, there was a lot of
money chasing investments as investors poured money into a variety of emerging
markets funds. With the sharp sell-off, the attractive investment opportunities
in the emerging markets probably exceeds the dollars investors have dedicated to
the asset class, which may provide for better investment opportunities going
forward.
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 ADVISER CURRENTLY LIMITS EXPENSES TO 2.0
PERCENT OF AVERAGE NET ASSETS, SUBJECT TO TERMINATION ON 30 DAYS' NOTICE TO THE
FUND. ABSENT PAST LIMITS, TOTAL RETURN WOULD HAVE BEEN LESS. THE MSCI EM INDEX
IS AN UNMANAGED GROUP OF STOCKS THAT DIFFERS FROM THE COMPOSITION OF STEIN ROE
EMERGING MARKETS FUND; IT IS NOT AVAILABLE FOR DIRECT INVESTMENT. ACCORDING TO
LIPPER ANALYTICAL SERVICES, INC., A MONITOR OF MUTUAL FUND PERFORMANCE, THE
MEDIAN RETURN FOR THE LIPPER EMERGING MARKETS FUND PEER GROUP FOR THE ONE-YEAR
AND LIFE OF FUND PERIODS ENDED SEPT. 30, 1998, WAS -47.78 PERCENT AND -31.33
PERCENT, RESPECTIVELY. LIFE OF FUND IS FROM FUND INCEPTION ON FEB. 28, 1997.
EMERGING MARKET INVESTMENTS INVOLVE MARKET, POLITICAL AND CURRENCY RISKS NOT
GENERALLY ASSOCIATED WITH INVESTING IN EITHER U.S. SECURITIES OR MORE DEVELOPED
INTERNATIONAL MARKETS.
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
SR&F International Portfolio
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Telecom Italia 3.7% BG 2.8%
Olivetti 3.6 Total 2.8
Henkel 3.2 Deutsche Bank 2.8
Mannesmann 2.9 Banco Popolare di Milano 2.7
Vivendi 2.9 Merita 2.7
- --------------------------------------------------------------------------------
Total 30.1%
================================================================================
EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO MSCI EAFE
- --------------------------------------------------------------------------------
Number of Holdings 92 1,027
Median Market Value ($ Mil.) $5,643 $19,901
- --------------------------------------------------------------------------------
ECONOMIC SECTOR BREAKDOWN
PIE CHART:
As of Sept. 30, 1998
Equity Portfolio MSCI EAFE
Capital Equipment 17.1% 10.2%
Consumer Goods 13.8% 22.7%
Energy 14.9% 11.8%
Finance 20.9% 23.0%
Materials 10.9% 6.1%
Multi-Industry 2.3% 1.3%
Services 20.1% 24.9%
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 88.7% 99.3%
Cash & Equivalents 11.3% 0.7%
<PAGE>
- --------------------------------------------------------------------------------
Fund Highlights CONTINUED
International Fund MSCI EAFE Index
France 12.4% 9.5%
Germany 12.2% 11.1%
United Kingdom 12.1% 23.1%
Japan 11.8% 20.4%
Italy 10.0% 4.8%
Benelux 8.3% 7.5%
Latin America 7.2%
Finland 7.0% 1.1%
Other Europe 5.1% 13.3%
Sweden 4.3% 2.9%
Other Asia 3.4% 2.9%
Norway 3.1% 0.5%
Australia/New Zealand 1.2% 2.9%
Middle East/Africa 1.2%
Cash & Equivalents 0.7%
NOTE: HOLDINGS ARE DISCLOSED AS A PERCENTAGE OF SR&F INTERNATIONAL PORTFOLIO'S
TOTAL NET ASSETS. THE MSCI EAFE INDEX IS AN UNMANAGED GROUP OF INTERNATIONAL
SECURITIES THAT DIFFERS FROM THE COMPOSITION OF ANY STEIN ROE FUND; IT IS NOT
AVAILABLE FOR DIRECT INVESTMENT.
<PAGE>
Fund Highlights
Emerging Markets Fund
TOP 10 EQUITY HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Telebras 5.1% Southern Peru Copper 3.0%
YPF Sociedad Anonima 3.6 Telecom Argentina 2.9
IOI Properties 3.5 CANTV 2.8
Satyam Computer Services 3.1 Billiton 2.8
Samchully 3.0 Orbotech 2.8
- --------------------------------------------------------------------------------
Total 32.6%
================================================================================
EQUITY PORTFOLIO HIGHLIGHTS
MSCI
PORTFOLIO EMERGING MARKETS
- --------------------------------------------------------------------------------
Number of Holdings 56 967
Median Market Value ($ Mil.) $433 $174
PIE CHART:
ECONOMIC SECTOR BREAKDOWN
As of Sept. 30, 1998
Equity Portfolio MSCI EM
Capital Equipment 8.5% 8.8%
Consumer Goods 8.5% 16.4%
Energy 11.2% 13.6%
Finance 14.5% 21.3%
Materials 11.6% 16.5%
Multi-Industry 15.0% 3.2%
Services 30.7% 20.2%
PIE CHART:
ASSET ALLOCATION
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 90.7% 96.2%
Cash & Equivalents 9.3% 3.8%
<PAGE>
Fund Highlights CONTINUED
- --------------------------------------------------------------------------------
COUNTRY ALLOCATIONS
Emerging Markets MSCI EM
Brazil 14.3% 12.5%
South Korea 10.8% 4.9%
Argentina 8.8% 4.6%
Thailand 8.0% 1.7%
India 6.8% 8.2%
Israel 5.0% 3.3%
Hong Kong 4.7%
Other Africa 4.3% 2.8%
Peru 4.2% 1.0%
Philippines 4.1% 1.7%
Malaysia 3.5% 3.4%
Venezuela 2.8% 0.9%
Multi-Market 2.8%
Mexico 2.7% 10.6%
Panama 2.7%
China 2.4% 0.7%
Lebanon 2.3%
Indonesia 1.9% 0.7%
Turkey 1.6% 1.9%
Portugal 1.3%
Poland 1.2% 0.9%
Taiwan 18.7%
South Africa 10.6%
Greece 5.2%
Chile 4.0%
Hungary 1.2%
Czech Republic 1.1%
Russia 0.8%
Columbia 0.6%
Pakistan 0.5%
Jordan 0.2%
Sri Lanka 0.1%
Cash & Equivalents 3.8%
NOTE: HOLDINGS ARE DISCLOSED AS A PERCENTAGE OF TOTAL NET ASSETS. THE MSCI
EM INDEX IS AN UNMANAGED GROUP OF INTERNATIONAL SECURITIES THAT DIFFERS FROM THE
COMPOSITION OF ANY STEIN ROE FUND; IT IS NOT AVAILABLE FOR DIRECT INVESTMENT.
<PAGE>
<TABLE>
<CAPTION>
SR&F International Portfolio
- --------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
NUMBER MARKET
EQUITY SECURITIES (99.3%) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA (2.8%)
Telecom Argentina ADRs............................... 32,700 $ 971
YPF Sociedad Anonima ADRs............................ 86,900 2,259
--------
3,230
AUSTRALIA (1.1%)
Brierley Investments Limited......................... 1,824,883 324
Reinsurance Australia................................ 401,009 950
--------
1,274
BELGIUM (2.0%)
Fortis............................................... 9,292 2,290
Fortis Strips VVPR (a)............................... 12,992 1
Generale de Banque................................... 2 1
--------
2,292
BRAZIL (2.9%)
Globex Utilidades, preference shares................. 71,000 174
Perdigao, preference shares ......................... 364,700,000 342
SABESP............................................... 6,262,500 388
Telebras ADRs........................................ 34,500 2,380
--------
3,284
FINLAND (7.0%)
Enso, R shares ...................................... 253,100 1,790
Kemira .............................................. 176,000 1,159
Merita, A shares..................................... 599,100 3,049
Metsa-Serla, B shares................................ 293,800 2,078
--------
8,076
FRANCE (12.4%)
Alcatel ............................................. 19,066 1,694
Banque Nationale de Paris............................ 53,897 2,885
Michelin, B shares................................... 56,850 2,231
Moulinex (a)......................................... 52,300 793
Vivendi.............................................. 16,730 3,331
Vivendi warrants (a)................................. 17,673 27
Total, B shares...................................... 25,496 3,212
--------
14,173
GERMANY (12.2%)
AGIV ................................................ 79,400 1,853
Deutsche Bank........................................ 61,550 3,178
Friedrich Grohe...................................... 6,800 1,880
Henkel KGaA
Ordinary shares................................... 6,500 470
Preferred shares.................................. 42,200 3,195
Mannesmann .......................................... 36,640 3,354
--------
13,930
HONG KONG (0.9%)
Companion Building Materials Holdings................ 11,118,752 122
Hong Kong Ferry...................................... 633,000 376
Vitasoy International Holdings....................... 1,530,455 533
--------
1,031
INDIA (0.6%)
Indian Petrochemicals GDRs........................... 92,000 334
Reliance Industries GDRs............................. 58,000 312
--------
646
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
SR&F International Portfolio CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA (0.1%)
Charoen Pokphand Indonesia........................... 1,037,500 $ 14
Ever Shine Textile (a)............................... 2,019,688 38
Matahari Putra Prima (a)............................. 6,083,000 57
--------
109
ISRAEL (1.2%)
Koor Industries ADRs................................. 37,400 612
Orbotech (a)......................................... 22,500 724
--------
1,336
ITALY (10.0%)
Banca Popolare di Milano............................. 435,500 3,136
Olivetti (a)......................................... 1,944,320 4,100
Telecom Italia, savings shares....................... 886,325 4,235
--------
11,471
JAPAN (11.8%)
Canon ............................................... 45,000 916
Ito-Yokado........................................... 26,000 1,242
JF Japan OTC Fund (a)................................ 840 234
Kaneshita Construction............................... 73,000 284
Matsushita Electric Industrial....................... 170,000 2,317
Murata Manufacturing................................. 54,000 1,829
Nippon Telegraph & Telephone........................ 307 2,244
Promise.............................................. 45,800 2,069
Tokyo Style.......................................... 134,000 1,147
World Equity Benchmark Shares - Japan Index Series... 72,300 574
Yamazen ............................................. 476,000 713
--------
13,569
MALAYSIA (0.1%)
IOI Properties (b)................................... 298,000 156
MEXICO (0.5%)
Grupo Carso, series A1............................... 198,000 591
NETHERLANDS (6.3%)
Fortis Amev.......................................... 41,079 2,306
Koninklijke Sphinx Gustavsberg (a)................... 55,227 410
KPN.................................................. 44,232 1,366
Philips Electronics ADRs............................. 38,300 2,044
TNT Post Groep ...................................... 44,905 1,143
--------
7,269
NEW ZEALAND (0.1%)
Brierley Investments................................. 710,000 128
NORWAY (3.1%)
Helicopter Services Group............................ 113,800 815
Norsk Hydro ......................................... 40,600 1,478
Saga Petroleum ...................................... 127,000 1,304
--------
3,597
PANAMA (0.6%)
Banco Latinoamericano de Exportaciones, E shares..... 43,200 694
PERU (0.4%)
Southern Peru Copper ADRs............................ 43,600 480
PHILIPPINES (0.3%)
Metro Pacific........................................ 11,451,460 160
Southeast Asia Cement Holdings (a)................... 15,000,000 120
--------
280
<PAGE>
<CAPTION>
SR&F International Portfolio CONTINUED
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PORTUGAL (0.8%)
Portugal Telecom ADRs................................ 25,857 $ 931
SOUTH KOREA (1.2%)
Samchully ........................................... 31,443 520
Samsung Electronics
GDRs.............................................. 6,834 94
Ordinary shares................................... 6,428 176
Preferred shares.................................. 59,374 553
SK Telecom........................................... 107 50
--------
1,393
SWEDEN (4.3%)
Asticus (a).......................................... 98,950 985
Avesta-Sheffield..................................... 237,900 756
Biora ADRs (a)....................................... 29,100 607
Diligentia........................................... 189,900 1,612
SSAB, B shares....................................... 98,475 1,018
--------
4,978
SWITZERLAND (4.3%)
Bucher Holding....................................... 1,681 1,506
Danzas Holding....................................... 6,405 1,603
Novartis............................................. 1,143 1,832
--------
4,941
THAILAND (0.2%)
IFCT................................................. 851,100 170
UNITED KINGDOM (12.1%)
Billiton ............................................ 879,400 1,954
BG .................................................. 465,264 3,210
Celsis International (a)............................. 551,405 253
Centrica (a)......................................... 638,000 1,231
Inchcape............................................. 862,002 1,699
Powerscreen International ........................... 514,916 779
Racal Electronics.................................... 452,300 2,629
SmithKline Beecham .................................. 194,553 2,147
--------
13,902
--------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(Cost $120,654) (c)............................... 113,931
OTHER ASSETS, LESS LIABILITIES (0.7%)................ 779
--------
TOTAL NET ASSETS (100.0%)............................ $114,710
========
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security is illiquid. At September 30, 1998, the value of this security was
0.1 percent of total net assets.
(c) At September 30, 1998, the cost of investments for federal income tax
purposes was $121,164. Net unrealized depreciation was $7,233, consisting of
gross unrealized appreciation of $26,190 and gross unrealized depreciation
of $33,423.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Emerging Markets Fund
- --------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
<CAPTION>
NUMBER MARKET
EQUITY SECURITIES (96.2%) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA (8.8%)
Banco Rio de La Plata ADRs........................... 30,000 $ 255
Telecom Argentina ADRs............................... 10,600 315
YPF Sociedad Anonima ADRs........................... 15,000 390
--------
960
BRAZIL (14.3%)
Globex Utilidades, preference shares................. 37,000 91
Perdigao, preference shares.......................... 295,000,000 276
SABESP............................................... 3,000,000 186
Telebras ADRs........................................ 8,000 552
Telerj Celular, preference B shares (a).............. 11,000,000 241
Telesp Celular, preference B shares (a).............. 5,000,000 215
--------
1,561
CHINA (2.4%)
Beijing Datang Power Generation...................... 750,000 179
Yanzhou Coal Mining ADRs ............................ 10,000 86
--------
265
HONG KONG (4.7%)
Companion Building Materials Holdings................ 700,000 8
Dairy Farm International Holdings ADRs............... 23,179 25
Hong Kong Ferry...................................... 310,000 184
HSBC Holdings........................................ 275 5
Vitasoy International Holdings....................... 837,500 292
--------
514
INDIA (6.8%)
Reliance Industries GDRs............................. 24,000 129
Satyam Computer Services............................. 25,000 342
Videsh Sanchar Nigam GDRs ........................... 25,000 275
--------
746
INDONESIA (1.9%)
Charoen Pokphand Indonesia........................... 1,367,500 19
Ever Shine Textile (a)............................... 1,220,400 23
Lautan Luas.......................................... 1,400,000 101
Matahari Putra Prima (a)............................. 6,960,000 65
--------
208
ISRAEL (5.0%)
Koor Industries ADRs................................ 15,000 246
Orbotech (a)......................................... 9,400 303
--------
549
LEBANON (2.3%)
SOLIDERE GDRs ...................................... 25,000 249
MALAYSIA (3.5%)
IOI Properties (b)................................... 723,000 379
MEXICO (2.7%)
Grupo Carso, series A1............................... 100,000 298
MIDDLE EAST / AFRICA (4.3%)
Foreign & Colonial Emerging Middle East Fund........ 18,000 250
Morgan Stanley Africa Investment Fund............... 23,000 214
--------
464
<PAGE>
<CAPTION>
Emerging Markets Fund CONTINUED
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PANAMA (2.7%)
Banco Latinoamericano de Exportaciones, E shares.... 18,000 $ 289
PERU (4.2%)
Cementos Norte Pacasmayo............................. 100,244 128
Southern Peru Copper ADRs........................... 30,000 330
-------
458
PHILIPPINES (4.1%)
Digitel (a).......................................... 11,470,000 115
Metro Pacific........................................ 4,017,240 56
Southeast Asia Cement Holdings (a)................... 26,950,000 216
Universal Robina..................................... 1,500,000 58
-------
445
POLAND (1.2%)
@Entertainment (a).................................. 15,000 128
PORTUGAL (1.3%)
Portugal Telecom ADRs................................ 4,000 144
SOUTH KOREA (10.8%)
Korea Circuit Company
Preferred shares.................................. 9,680 61
Ordinary shares................................... 8,000 196
LG Electronics, preferred shares .................... 21,960 40
Samchully ........................................... 19,964 330
Samsung Electronics
Ordinary shares................................... 806 22
Preferred shares.................................. 3,903 36
GDRs.............................................. 316 4
SK Telecom........................................... 428 201
SK Corporation GDRs (a).............................. 243,900 285
-------
1,175
THAILAND (8.0%)
GSS Array Technology (a)............................. 200,000 230
IFCT ................................................ 430,900 86
National Finance..................................... 801,000 81
Pizza Company........................................ 83,000 229
Precious Shipping (a)................................ 859,700 239
-------
865
TURKEY (1.6%)
Haci Omer Sabanci Holding ........................... 11,250,000 172
UNITED KINGDOM (2.8%)
Billiton ............................................ 136,400 303
VENEZUELA (2.8%)
CANTV ADRs........................................... 18,000 306
-------
TOTAL EQUITY SECURITIES (Cost $24,077)............... 10,478
-------
- --------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Emerging Markets Fund CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
SHORT-TERM OBLIGATION (2.8%) AMOUNT VALUE
<S> <C> <C>
UNITED STATES (2.8%)
COMMERCIAL PAPER (2.8%)
Associates Corp. of North America 5.750% 10/1/98
(Cost $310).......................................... $310 $ 310
-------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.0%)
(Cost $24,387) (c)................................... 10,788
OTHER ASSETS, LESS LIABILITIES (1.0%)................ 111
-------
TOTAL NET ASSETS (100.0%)............................ $10,899
=======
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security is illiquid. At September 30, 1998, the value of this security was
3.5 percent of total net assets.
(c) At September 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized depreciation was
$13,599, consisting of gross unrealized appreciation of $201 and gross
unrealized depreciation of $13,800.
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>
EMERGING
INTERNATIONAL MARKETS
FUND FUND
--------- --------
<S> <C> <C>
ASSETS
Investments in SR&F International Portfolio, at value $114,418 $ --
Investments, at market value (cost $24,387)....... -- 10,788
Dividends receivable.............................. -- 132
Cash.............................................. 25 65
Receivable for fund shares sold................... 11 7
Other assets...................................... 31 4
--------- --------
Total assets................................... 114,485 10,996
--------- --------
LIABILITIES
Payable to investment adviser and transfer agent.. 39 29
Payable for fund shares redeemed.................. 37 --
Other liabilities................................. 165 68
--------- --------
Total liabilities.............................. 241 97
--------- --------
Net assets..................................... $114,244 $10,899
======== =======
ANALYSIS OF NET ASSETS
Paid-in capital................................... $128,439 $35,021
Undistributed net investment income............... 745 112
Accumulated net realized losses on investments ... (8,375) (10,637)
Net unrealized depreciation on investments and foreign
currency translations.......................... (6,565) (13,597)
--------- --------
Net assets..................................... $114,244 $10,899
======== =======
Shares outstanding (unlimited number authorized).. 12,474 3,072
======== =======
Net asset value per share......................... $ 9.16 $ 3.55
======== =======
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1998
(All amounts in thousands)
<CAPTION>
EMERGING
INTERNATIONAL MARKETS
FUND FUND
------- ------
<S> <C> <C>
INVESTMENT INCOME
Dividends allocated from SR&F International Portfolio $ 3,271 $ --
Dividends......................................... -- 678
Interest allocated from SR&F International Portfolio 355 --
Interest.......................................... -- 113
--------- ---------
3,626 791
Foreign taxes withheld allocated from
SR&F International Portfolio................... (443) --
Foreign taxes withheld............................ -- (43)
--------- ---------
Total investment income........................ 3,183 748
--------- ---------
EXPENSES
Expenses allocated from SR&F International Portfolio 1,509 --
Management fees................................... -- 241
Transfer agent fees............................... 325 48
Administrative fees............................... 222 33
Printing and postage.............................. 58 66
SEC and state registration fees................... 28 22
Accounting fees................................... 27 26
Audit and legal fees.............................. 16 31
Trustees' fees.................................... 7 8
Custodian fees.................................... 2 53
Other............................................. 70 49
--------- ---------
Total expenses................................. 2,264 577
Reimbursement of expenses by investment adviser... -- (140)
--------- ---------
Net expenses................................... 2,264 437
--------- ---------
Net investment income.......................... 919 311
--------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses on
investments allocated from SR&F
International Portfolio........................ (7,478) --
Net realized losses on investments................ -- (9,903)
Net realized gains on foreign currency transactions allocated
from SR&F International Portfolio.............. 125 --
Net realized losses on foreign currency transactions -- (94)
Net change in unrealized appreciation or depreciation on
investments and foreign currency translations.. (18,814) (11,318)
--------- ---------
Net losses on investments...................... (26,167) (21,315)
--------- ---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(25,248) $(21,004)
========== ==========
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>
International Fund Emerging Markets Fund
1998 1997 1998 1997(a)
----------------------- ---------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ........................................................ $ 919 $ 802 $ 311 $ 233
Net realized gains (losses) on investments and
foreign currency transactions ....................................... (7,353) 8,273 (9,997) 2,407
Net change in unrealized appreciation or depreciation on investments
and foreign currency translations ................................... (18,814) 4,650 (11,318) (2,279)
--------- --------- -------- --------
Net increase (decrease) in net assets resulting from operations ..... (25,248) 13,725 (21,004) 361
--------- --------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ..................................... (1,450) (1,000) (550) --
Distributions from net capital gains ......................................... (8,026) (1,837) (2,929) --
--------- --------- -------- --------
Total distributions to shareholders ................................. (9,476) (2,837) (3,479) --
--------- --------- -------- --------
SHARE TRANSACTIONS
Subscriptions to fund shares ................................................. 61,513 55,775 7,741 46,204
Value of distributions reinvested ............................................ 7,003 2,154 2,754 --
Redemptions of fund shares ................................................... (85,636) (38,274) (16,730) (4,948)
--------- --------- -------- --------
Net increase (decrease) from share transactions ..................... (17,120) 19,655 (6,235) 41,256
--------- --------- -------- --------
Net increase (decrease) in net assets ............................... (51,844) 30,543 (30,718) 41,617
TOTAL NET ASSETS
Beginning of period .......................................................... 166,088 135,545 41,617 --
--------- --------- -------- --------
End of period ................................................................ $ 114,244 $ 166,088 $ 10,899 $ 41,617
========= ========= ======== ========
Undistributed Net Investment Income .......................................... $ 745 $ 554 $ 112 $ 146
========= ========= ======== ========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares ................................................. 5,773 4,883 1,192 4,529
Issued in reinvestment of distributions ...................................... 738 203 498 --
Redemptions of fund shares ................................................... (8,127) (3,365) (2,680) (467)
--------- --------- -------- --------
Net increase (decrease) in fund shares .............................. (1,616) 1,721 (990) 4,062
Shares outstanding at beginning of period .................................... 14,090 12,369 4,062 --
--------- --------- -------- --------
Shares outstanding at end of period .......................................... 12,474 14,090 3,072 4,062
========= ========= ======== ========
(a) From commencement of operations on February 28, 1997.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F International Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 1998
(All amounts in thousands)
<CAPTION>
<S> <C>
ASSETS
Investments, at market value (cost $120,654).................... $113,931
Receivable for investments sold................................. 2,137
Dividends receivable............................................ 653
Cash ........................................................... 3
--------
Total assets................................................. 116,724
--------
LIABILITIES
Loan payable.................................................... 1,900
Payable to investment adviser................................... 88
Other liabilities............................................... 26
--------
Total liabilities............................................ 2,014
--------
Net assets applicable to investors' beneficial interest...... $114,710
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F International Portfolio
- -------------------------------------------------------------------------------
Statement of Operations
For the Year Ended September 30, 1998
(All amounts in thousands)
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends....................................................... $ 3,296
Interest........................................................ 356
---------
3,652
Foreign taxes withheld.......................................... (446)
---------
Total investment income...................................... 3,206
---------
EXPENSES
Management fees................................................. 1,267
Custodian fees.................................................. 107
Accounting fees................................................. 27
Audit and legal fees............................................ 18
Trustees' fees.................................................. 15
Other........................................................... 85
---------
Total expenses............................................... 1,519
---------
Net investment income........................................ 1,687
---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized losses on investments.............................. (7,812)
Net realized gains on foreign currency transactions............. 115
Net change in unrealized appreciation or depreciation on investments
and foreign currency translations............................ (18,940)
---------
Net losses on investments and foreign currency transactions.. (26,637)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(24,950)
==========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F International Portfolio
- ----------------------------------------------------------------------------------
Statements of Changes in Net Assets
For The Year Ended September 30, 1998 and
the Period Ended September 30, 1997
(All amounts in thousands)
<CAPTION>
1998 1997 (A)
-------- ----------
<S> <C> <C>
OPERATIONS
Net investment income............................. $ 1,687 $ 1,563
Net realized gains (losses) on investments and foreign
currency transactions.......................... (7,697) 5,995
Net change in unrealized appreciation or depreciation
on investments and foreign currency translations (18,940) 5,615
---------- ----------
Net increase (decrease) in net assets resulting
from operations.............................. (24,950) 13,173
---------- ----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions..................................... 39,808 171,752
Withdrawals....................................... (66,578) (18,495)
---------- ----------
Net increase (decrease) from transactions in investors'
beneficial interest.......................... (26,770) 153,257
---------- ----------
Net increase (decrease) in net assets.......... (51,720) 166,430
TOTAL NET ASSETS
Beginning of period............................... 166,430 --
---------- ----------
End of period..................................... $114,710 $166,430
========== ==========
(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 International Fund and Stein Roe Emerging Markets Fund (the "Funds")
are series of Stein Roe Investment Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust. International
Fund invests substantially all of its assets in SR&F International Portfolio
(the "Portfolio"), which seeks long-term growth of capital by investing
primarily in a diversified mix of foreign securities. Emerging Markets Fund
seeks long-term growth of capital through emerging market investment
opportunities.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on February 3, 1997. At commencement,
Stein Roe International Fund contributed $132,942 in securities and other assets
in exchange for beneficial ownership of the Portfolio. On February 14, 1997,
Stein Roe Advisor International Fund contributed cash of $100. The Portfolio
allocates income, expenses, realized and unrealized gains and losses to each
investor on a daily basis, based on their respective percentage of ownership. At
September 30, 1998, Stein Roe International Fund and Stein Roe Advisor
International Fund owned 99.75 percent and .25 percent, respectively, of the
Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Funds and
the Portfolio. These policies are in conformity with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The books and records of the Funds and Portfolio are maintained in
U.S. dollars.
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 the last bid and asked prices as of the
close of the appropriate exchange or other designated time. A security that is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary exchange for such security. Securities and
other assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees.
CURRENCY TRANSLATIONS
For purposes of valuation, assets and liabilities are translated into U.S.
dollars using currency exchange rates that represent the midpoint between the
bid and asked rates as of 4 p.m., London time. Purchases and sales of securities
are translated into U.S. dollars using the prevailing exchange rate on the dates
of such transactions. The effect of changes in foreign exchange rates on
realized and unrealized security gains and losses is reflected as a component of
such gains and losses.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Funds and Portfolio may enter into forward foreign currency exchange
contracts under which each Fund or Portfolio is obligated to exchange currencies
at specified rates on specified future dates. Risks arise from the possible
inability of counterparties to meet the terms of their contracts and from
movements in currency values. Neither the Funds nor the Portfolio had open
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 Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on their respective percentages of ownership.
The 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, International Fund had a capital loss carryforward of
$8,255, which expires in 2006.
DISTRIBUTIONS TO SHAREHOLDERS
On November 3, 1998, the Board of Trustees declared a dividend from net
investment income of 6 cents per share for Emerging Markets Fund, payable
November 20, 1998, to shareholders of record on November 10, 1998.
Each Fund annually declares and pays dividends of any net investment income
and net realized capital gains, which are recorded on the ex-dividend date.
Dividends are determined in accordance with income tax principles, which may
treat certain transactions differently from generally accepted accounting
principles. 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 treatment of investments in
passive foreign investment companies and foreign currency gains and losses.
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Funds and the Portfolio pay monthly management and administrative fees,
computed and accrued daily, to Stein Roe & Farnham Incorporated (the "Adviser"),
an indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), for its services as investment adviser and manager. The management
fees for SR&F International Portfolio and Emerging Markets Fund are computed at
an annual rate of .85 percent and 1.10 percent of average daily net assets,
respectively. The administrative fees for the Funds are computed at an annual
rate of .15 percent of average daily net assets.
The Adviser also provides fund accounting services. For the year ended
September 30, 1998, International Fund, Emerging Markets Fund and the Portfolio
incurred charges of $27, $26 and $27, respectively.
The Adviser has agreed to reimburse Emerging Markets Fund to the extent that
its annual expenses exceed 2.00 percent of average daily net assets. This
expense limitation 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.
The compensation of trustees not affiliated with the Adviser for International
Fund, Emerging Markets Fund and the Portfolio for the year ended September 30,
1998, was $7, $8 and $15, respectively. No remuneration was paid to any other
trustee or officer of the Trust.
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Funds and Portfolio maintain borrowing
arrangements under which they can borrow against portfolio securities. On
September 30, 1998, the Portfolio borrowed $1,900 in order to pay withdrawals
and meet other obligations. The annualized interest rate charged to the
Portfolio on that date was 6.25 percent. There were no other 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:
<TABLE>
<CAPTION>
Purchases Sales
-------- --------
<S> <C> <C>
SR&F International Portfolio...................... $44,815 $50,696
Emerging Markets Fund............................. 15,326 21,421
</TABLE>
The Board of Trustees has adopted procedures permitting securities transactions
among the Funds and Portfolio, clients of the Adviser and other affiliated
entities. No commissions are paid on such transactions. The aggregate cost of
purchases and proceeds from sales, included above, related to such transactions
for the year ended September 30, 1998, were:
<TABLE>
<CAPTION>
Purchases Sales
-------- --------
<S> <C> <C>
SR&F International Portfolio...................... $5,723 $8,050
Emerging Markets Fund............................. 765 351
</TABLE>
<PAGE>
NOTE 6. SUBSEQUENT EVENT
The Board of Trustees voted on November 3, 1998, to liquidate Emerging Markets
Fund. The Board directed that sales of fund shares be suspended as of November
5, 1998, and that the Fund be liquidated on December 7, 1998, or sooner if all
shareholders have redeemed their interests in the Fund.
The Board's decision to liquidate the Fund was prompted by the Fund's
relatively small size and the belief that, under current conditions, the Fund
would not be likely to attract significant new assets in the near future. Funds
of nominal asset size generally tend to be inefficient for shareholders. Such
funds may have higher expense ratios and less investment flexibility and,
consequently, lower rates of return over the long term.
Adoption of the liquidation basis of accounting had no material affect on the
financial statements of Emerging Markets Fund as assets and liabilities are
already stated at fair value.
<PAGE>
<TABLE>
Financial Highlights
- --------------------------------------------------------------------------------
International Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
Period
Ended
Years Ended September 30, September 30,
1998 1997 1996 1995 1994 (b)
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................. $ 11.79 $ 10.96 $ 10.25 $ 10.61 $ 10.00
----------- ----------- ----------- ---------- ----------
Income From Investment Operations
Net investment income ....................... 0.07 0.06 0.09 0.12 0.03
Net realized and unrealized gains (losses)
on investments............................. (2.01) 0.99 0.74 (0.26) 0.58
----------- ----------- ----------- ---------- ----------
Total from investment operations .......... (1.94) 1.05 0.83 (0.14) 0.61
----------- ----------- ----------- ---------- ----------
Distributions
Net investment income ....................... (0.11) (0.08) (0.12) (0.05) --
Net realized capital gains .................. (0.58) (0.14) -- (0.17) --
----------- ----------- ----------- ---------- ----------
Total distributions ....................... (0.69) (0.22) (0.12) (0.22) --
----------- ----------- ----------- ---------- ----------
Net Asset Value, End of Period ....................... $ 9.16 $ 11.79 $ 10.96 $ 10.25 $ 10.61
=========== =========== =========== ========== ==========
Ratio of net expenses to average net assets .......... 1.53% 1.55% 1.51% 1.59% 1.61%(c)
Ratio of net investment income to average net assets . 0.62% 0.55% 1.01% 1.41% 0.61%(c)
Portfolio turnover rate .............................. N/A 11% (a) 42% 59% 48%
Total return ......................................... (16.67%) 9.84% 8.23% (1.28%) 6.10%
Net assets, end of period (000's) .................... $ 114,244 $ 166,088 $ 135,545 $ 83,020 $ 74,817
(a) Prior to commencement of operations of the Portfolio.
(b) From commencement of operations on March 1, 1994.
(c) Annualized
</TABLE>
<TABLE>
SR&F International Portfolio
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (A)
---------- -------
<S> <C> <C>
Ratio of net expenses to average net assets ...... 1.02% 0.98%(b)
Ratio of net investment income to average net assets 1.13% 1.58%(b)
Portfolio turnover rate........................... 32% 18%
(a) From commencement of operations on February 3, 1997.
(b) Annualized
</TABLE>
<PAGE>
<TABLE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
Emerging Markets Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (C)
----------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 10.24 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income....................... 0.11 0.06
Net realized and unrealized gains (losses)
on investments............................ (5.70) 0.18
------- -------
Total from investment operations......... (5.59) 0.24
------- -------
DISTRIBUTIONS
Net investment income....................... (0.17) --
Net realized gains.......................... (0.93) --
------- -------
Total distributions...................... (1.10) --
------- -------
NET ASSET VALUE, END OF PERIOD................. $ 3.55 $ 10.24
======= =======
Ratio of net expenses to average net assets (a) 2.00% 2.00% (d)
Ratio of net investment income to average net assets (b) 1.42% 1.04% (d)
Portfolio turnover rate........................ 75% 30%
Total return (b)............................... (58.42%) 2.40%
Net assets, end of period (000's).............. $10,899 $41,617
(a)If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this ratio would have been 2.64 percent for the year ended
September 30, 1998, and 2.27 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 February 28, 1997.
(d) Annualized
</TABLE>
<PAGE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and
Shareholders of:
Stein Roe Investment Trust
Stein Roe International Fund
Stein Roe Emerging Markets Fund
SR&F Base Trust
SR&F International Portfolio
We have audited the accompanying statements of assets and liabilities of Stein
Roe International Fund and the accompanying statements of assets and
liabilities, including the portfolio of investments, of SR&F International
Portfolio and Stein Roe Emerging Markets Fund (in the process of liquidation;
see Note 6) 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 Portfolio's management. Our responsibility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures for Stein Roe Emerging Markets Fund and SR&F
International Portfolio included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian. 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 International Fund, Stein Roe Emerging
Markets Fund and SR&F International 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 16, 1998
<PAGE>
A Guide to Stein Roe Services
- --------------------------------------------------------------------------------
We encourage you to take advantage of our free shareholder services. If you
would like additional information about how to establish or use a Stein Roe
service, just call us at 800-338-2550.
PURCHASES
In addition to sending us a check or wire to purchase additional fund shares,
you can take advantage of these convenient automatic services:
o AUTOMATIC INVESTMENT PLAN -- Make regular investments ($50 minimum) in your
Stein Roe account directly from your bank checking account. You select
monthly, quarterly, semiannual or annual purchases.
o SPECIAL INVESTMENTS -- Purchase shares by telephone and pay for them by
electronic transfer from your bank checking account.
EXCHANGES
o TELEPHONE EXCHANGE -- Call us to exchange $50 or more from your existing
account in one Stein Roe fund to an identically registered existing account
in another Stein Roe fund. You receive this service when you open a Stein
Roe fund account, unless you elect not to.*
o AUTOMATIC EXCHANGE -- Stein Roe will regularly exchange shares from your
account in one Stein Roe fund to your account in another. You select
twice-monthly, monthly, quarterly, semiannual or annual exchanges.
REDEMPTIONS
o TELEPHONE REDEMPTION BY CHECK -- Call to redeem $1,000 or more from your
account. A check will be sent to your registered address. You automatically
receive this service when you open a Stein Roe account, unless you elect
not to.
o TELEPHONE REDEMPTION BY WIRE -- Redeem shares by phone from your account
($1,000 minimum) and wire the proceeds to your bank checking account. A
small fee for wiring proceeds will be deducted from the amount wired.
o SPECIAL REDEMPTION OPTION -- If you do not want to pre-schedule your
redemptions, you can redeem shares by telephone ($50 minimum/ $100,000
maximum) and have the proceeds sent directly to your bank checking account.
o AUTOMATIC REDEMPTION PLAN -- Redeem either a fixed dollar or share amount,
or a fixed percentage of your account automatically on a schedule you
establish. You select monthly, quarterly, semiannual or annual withdrawals
($50 minimum/ $100,000 maximum), and the proceeds are sent either to your
bank checking account or to an address you specify.
o MONEY MARKET FUND CHECK WRITING-- Write checks for $50 or more on your
money market fund account.
* STEIN ROE RESERVES THE RIGHT TO DISCONTINUE OR MODIFY THE EXCHANGE PRIVILEGE,
AND CERTAIN RESTRICTIONS APPLY. PLEASE REFER TO YOUR PROSPECTUS FOR DETAILS.
<PAGE>
DISTRIBUTIONS
Most investors like to reinvest their dividends and capital gains distributions
and put them back to work. If, however, you do not want them reinvested,
consider these alternatives:
o DIVIDEND PURCHASE OPTION -- Use the distributions from one Stein Roe fund
account ($25 minimum) to automatically purchase shares of another Stein Roe
fund.
o AUTOMATIC DIVIDEND DEPOSIT -- Instead of receiving your dividends by check,
your distributions are deposited automatically into your bank checking
account.
RECORDKEEPING
o SUMMARY OF INVESTMENTS -- Consolidates quarterly transaction and investment
information for any or all of your household's Stein Roe accounts on one
easy-to-read statement. At year end, Stein Roe provides a complete summary
of all account activity for the year.
<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, Roth and Education 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(R)
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 Fund 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 fund 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 Traditional, Roth and Education IRA plans, 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: comments @steinroe.com 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 Fund investments or
provide you with information about any of the Stein Roe Funds and retirement
plans. Stop by weekdays between 8 a.m. and 5:15 p.m.
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 PARTNER, 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
Sharon R. Robertson, CONTROLLER
Janet B. Rysz, ASSISTANT SECRETARY
Scott E. Volk, TREASURER
Margaret O. Zwick, ASSISTANT TREASURER
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.
IN11A 11/98
<PAGE>
