Stein Roe Mutual Funds
Annual Report
Sept. 30, 1998
Photo of: small girl.
Stein Roe Equity Fund
Young Investor Fund
LOGO:
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(SM)
<PAGE>
Contents
From the President............................................... 1
Tom Butch's thoughts on the markets and investing
The Companies We Invest In....................................... 4
Top 10 holdings
Q&A.............................................................. 6
An interview with the portfolio managers and a summary of
investment activity
Fund Highlights.................................................. 10
Information about the Fund
Portfolio of Investments......................................... 12
A complete list of investments with market values
Financial Statements............................................. 18
Statements of assets and liabilities, operations and changes
in net assets
Notes to Financial Statements.................................... 24
Financial Highlights............................................. 27
Selected per-share data
Report of Independent Public
Accountants.................................................... 30
General Information.............................................. 31
A guide to products and services
Must be preceded or accompanied by a prospectus.
<PAGE>
To Our Shareholders
Dear Investor,
The Young Investor Fund was created in April 1994 based on the belief that a
competitive long-term investment could be used to help individuals learn more
about investing. Four and a half years later, this belief has become an industry
success story. From inception through Sept. 30, 1998, the Fund posted an average
annual total return of 22.96 percent, beating the S&P 500 Index* return of 22.90
percent, along with only seven percent of the 412 mutual funds in the Lipper
Analytical Services, Inc. growth fund peer group.+ The Fund also earned a place
on Money magazine's 1998 list of the top 100 mutual funds. And our Dollar
Digest(R) newsletter recently earned the Mutual Fund Education Alliance's top
award - the Star Award for outstanding shareholder newsletter. Just as
important, we believe the Fund is fulfilling its mission of helping to educate
investors - especially younger investors - about personal finance and investing.
On the following pages you will find your Fund's annual report. This report
covers the fiscal year ended Sept. 30, 1998 - a year of significant change. For
the first 10 months, stock market activity was positive and was supported by low
inflation and a stable, growing U.S. economy. Through its high point on July 17
the equity market was up 25.54 percent for the fiscal year as measured by the
S&P 500 Index. By the end of August, however, troubles in other countries
created an uncertain environment in the United States, which caused equity
markets to lose all of their gains. In fact, at the end of September (again, the
end of the Fund's fiscal year), the equity markets were at about the same point
they were twelve months before.
While market declines are unpleasant (and at the time of this writing in
late October, the markets have rallied a good bit), they are normal. The stock
market does not always go up over short periods of time. But it has historically
gone up over the long term. According to Ibbotson Associates,** growth investors
have not lost money in any 15-year period of the stock market's existence, as
represented by the S&P 500. That's why we believe it's so important to keep a
long-term perspective and to remain invested during the market's ups and downs.
We hope this report helps you to better understand Young Investor Fund's
performance. Please call us at 800-338-2550 with any comments or suggestions.
We're here seven days a week to serve our shareholders.
Sincerely,
Thomas W. Butch
President
Photo of: Thomas W. Butch
* The S&P 500 Index is an unmanaged group of stocks that is not associated with
any Stein Roe 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 ended Sept. 30, 1998, was 17.23 percent.
** 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.]
<PAGE>
The Companies We Invest In
Ballon text: A stock's symbol is like a nickname for the company used by the
exchange on which it is traded. For example, when a trader is filling a trade
order for a Young Investor Fund manager, he could say "I bought 10 shares of
MSFT," rather than "I bought 10 shares of Microsoft."
When kids invest, they typically have a long-term investment horizon. For
example, many kids invest to help pay college tuition costs. That could mean
they're investing for something they will need to pay for in 10 or more years.
As the portfolio managers of Young Investor Fund, we believe having a long-term
investment horizon is the smartest way to invest in stocks. Stocks historically
have fluctuated the most, but have delivered the greatest returns over the
long-term.
We look for stocks with strong long-term growth potential. Ideally,
these companies are leaders in their industries or they are companies that have
the potential to become leaders in their industries. Microsoft is a good
example. We invest in Microsoft because it's a world-leading software company,
and because we believe global demand for computer software will continue to grow
into the future.
We usually own around 50 to 70 stocks, and we seek to invest most of our
assets in companies that kids can relate to or that affect their lives in some
way.
On the following page is a list of the portfolio's top 10 holdings as of
Sept. 30, 1998. The value of these holdings may change every day depending on
the performance of the market. A more complete list of the portfolio's holdings
can be found on pages 12 through 17.
<PAGE>
<TABLE>
<CAPTION>
% of Total
Net Assets
on 9/30/98 Symbol Exchange
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Cisco Systems 2.7% CSCO Nasdaq*
- -----------------------------------------------------------------------------
2 Microsoft 2.2 MSFT Nasdaq
- -----------------------------------------------------------------------------
3 Outdoor Systems 2.2 OSI NYSE+
- -----------------------------------------------------------------------------
4 MCI WorldCom 2.1 WCOM Nasdaq
- -----------------------------------------------------------------------------
5 Freddie Mac 2.1 FRE NYSE
- -----------------------------------------------------------------------------
6 American Tower 2.0 ATOWV Nasdaq
- -----------------------------------------------------------------------------
7 Fannie Mae 2.0 FNM NYSE
- -----------------------------------------------------------------------------
8 Paychex 2.0 PAYX Nasdaq
- -----------------------------------------------------------------------------
9 Johnson & Johnson 1.9 JNJ NYSE
- -----------------------------------------------------------------------------
10 Household International 1.9 HI NYSE
- -----------------------------------------------------------------------------
* National Association of Securities Dealers Automated Quotation
+ New York Stock Exchange
Holdings are disclosed as a percentage of SR&F Growth Investor Portfolio's total
net assets as of Sept. 30, 1998, and are subject to change.
</TABLE>
<PAGE>
Balloon text:
The market capitalization of a corporation is determined by multiplying the
market price of stock by the number of shares outstanding. Based on this value,
companies qualify for different levels of capitalization. Depending on the value
of this figure, companies can fit into three different categories: Small-cap,
midcap or large-cap companies. Stocks in different categories have different
investment characteristics. Because large-cap companies often are global
franchises and participate in large markets, these companies are considered to
have the greatest element of safety. On the other hand, small-cap companies may
be local or specialized types of companies and are therefore considered more
risky investments. For example, a local engraver may close if economic or market
conditions become unfavorable, where Coca-Cola will likely continue to have a
market for its products.
Photo of: Erik Gustafson and David Brady
An Interview with the Portfolio Managers
Q&A with Dave Brady and Erik Gustafson, portfolio managers of Young Investor
Fund and SR&F Growth Investor Portfolio.
How did the Fund perform?
For the year ended Sept. 30, 1998, Young Investor Fund gained 1.14 percent. The
Lipper growth fund peer group gained 0.67 percent and the S&P 500 Index gained
9.08 percent for the same time period.
What affected performance?
We invest a portion of the portfolio's assets in what we believe are strong
small- and midsized companies, while holding a core position in
large-capitalization, high-quality growth stocks. This has been an effective
long-term strategy for the Fund since its inception. The evidence is the Fund's
average annual return of 22.96 percent since inception on April 29, 1994, which
is in line with the S&P 500 Index return of 22.90 for the same time period.
However, at certain points during this past fiscal year, the portfolio's 40
percent allocation to small- and midcap stocks hurt performance because
large-company stocks continued to outperform all other stock types. For example,
in the most recent quarter ended Sept. 30, 1998, the S&P 500 Index, which
represents the performance of large companies, lost 9.92 percent, while the
small-cap index, the S&P 600, lost more than twice that -- 20.90 percent. The
midcap index, the S&P 400, lost 14.25 percent. Nonetheless, we believe small-
and midsized growth companies may offer higher growth potential than large
companies going forward. In our opinion, large companies returned better
performance this year because investors preferred the safety and stability of
this asset class over other asset classes in an uncertain market environment.
What stocks performed well?
Two holdings that returned solid performance were Intel, the leading
manufacturer of computer microprocessors, and Clear Channel Communications, a
rapidly growing media company (1.8 percent and 1.8 percent of total net assets,
respectively). These companies are benefiting from consistent growth based on
continued strong demand for their products.
Our investments in the consumer sector also supported performance this
year. Holdings that contributed to performance in this sector include Cedar
Fair, an amusement park operator, and Walgreen Co., a drugstore chain (1.1
percent and 1.8 percent of total net assets, respectively). Health care was
another sector that performed well, and Pfizer and Eli Lilly (1.8 percent and
1.6 percent of total net assets, respectively) were strong contributors.
Which holdings did not perform as well?
Cambridge Technology Partners (0.7 percent of total net assets), a technology
services company; Loral Space and Communications (0.8 percent of total net
assets), a satellite company; and Callaway Golf (0.5 percent of total net
assets), a manufacturer of golf clubs. These are small companies and we
attribute much of their negative performance to the market's sell-off of smaller
companies.
Investments in the energy sector also hurt performance as oil and gas
prices dropped due to slowing global economic activity. Investments in the
financial services sector that did business with countries affected by the
global turmoil also underperformed.
Did you sell anything because market conditions deteriorated?
No. We sell only when business fundamentals disappoint us. For example, we sold
Analog Devices when the analog business started to slow down. We also sold
Tupperware because sales in its international divisions were suffering due to
global recession.
What are some new purchases?
We bought American Home Products (1.8 percent of total net assets), which makes
products for the health care industry and the stock has already delivered good
performance. Another new purchase was WorldCom, a leading telecommunications
company with good growth characteristics. This company performed well based on
its growth prospects from a merger with MCI Communications, a provider of long
distance services. The company is now called MCI WorldCom (2.1 percent of total
net assets).
What do you expect going forward?
We believe the market will continue to be volatile until there is confirmation
that the economic problems in emerging markets have reached a bottom. We do not
foresee a repeat of the 20-30 percent annual returns achieved by the U.S. equity
market between 1995 and 1997, but we do believe stocks will continue to
outperform cash and fixed income investments over the long term. We have been
finding attractive purchases in small- and midsized companies. Stocks of
companies in these categories have underperformed larger-company stocks over the
past two years and are at price levels that would appear to support strong
performance 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. Holdings
are disclosed as a percentage of the SR&F Growth Investor 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. Previously, the Adviser limited
expenses. Absent this limit, total return would have been less. The S&P 400, 500
and 600 Indices are unmanaged groups of stocks that differ from the composition
of Growth Investor Portfolio; they are 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-year and Life of Fund periods ended Sept. 30, 1998, were 0.67 percent and
17.23 percent, respectively.
Investments in smaller companies may experience greater volatility.
<PAGE>
Fund Highlights
As of Sept. 30, 1998
Average Annual Total Returns
- ------------------------------------------------------------------
Life
One-Year Three-Years of Fund*
- ------------------------------------------------------------------
Young Investor Fund 1.14% 20.10% 22.96%
S&P 500 9.08 22.61 22.90
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.
* April 29, 1994, through Sept. 30, 1998
Fund Data
- ------------------------------------------------------------------
Investment Objective:
Seeks to achieve long-term capital appreciation by investing in a portfolio
primarily made up of common stocks and other equity-type securities that we
believe have long-term appreciation potential. The Fund also has an educational
objective to teach investors about basic economic principles and personal
finance through a variety of educational materials prepared and paid for by
the Fund.
Fund Inception: April 29, 1994
Total Net Assets: $686.0 million
Balloon text:
Companies in the basic materials industry make items that we use in everyday
life such as paint, metal and paper.
<PAGE>
Economic Sector Breakdown
- ------------------------------------------------------------------
Portfolio S&P 500
- ------------------------------------------------------------------
Technology 24% 18%
Consumer Noncyclical 21 24
Consumer Cyclical 20 13
Financial 18 16
Utilities 8 10
Industrial 5 8
Basic Materials 3 3
Energy 1 8
- ------------------------------------------------------------------
Total 100% 100%
- ------------------------------------------------------------------
Mountain Chart:
Comparison of change in value of a $10,000 investment
- ------------------------------------------------------------------
Young Investor Fund S&P 500
4/30/94 10000 10000
9/30/94 10240 10399
3/31/95 11414 11408
9/30/95 14395 13488
3/31/96 16466 15066
9/30/96 19512 16228
3/31/97 19293 18052
9/30/97 24658 22789
3/31/98 28908 26711
9/30/98 24940 24859
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. This
graph compares the performance of Young Investor Fund to the S&P 500 Index, an
unmanaged group of stocks that differs from the composition of the Fund. The S&P
500 is not available for direct investment. Total return performance includes
changes in share price and reinvestment of income and capital gains
distributions.
<PAGE>
<TABLE>
<CAPTION>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1998
(Dollar amounts in thousands)
NUMBER MARKET
EQUITY SECURITIES (90.6%) OF SHARES VALUE
-------- -------
<S> <C> <C>
Automobiles/Vehicles (1.1%)
Volvo ADRs
(Manufactures cars, trucks, buses, marine engines
and aerospace equipment) 320,000 $ 7,720
Banks (1.1%)
Texas Regional Bancshares, class A
(Commercial bank operating in the Rio Grande
Valley of Texas) 350,000 7,919
Commercial Services (2.0%)
Paychex
(Provides computerized payroll accounting services
to businesses) 280,000 14,438
Computer Software and Services (8.2%)
Cambridge Technology Partners (a)
(Designs, develops, and deploys client/server and
Internet applications) 225,000 5,020
Cisco Systems (a)
(Produces, markets and supports multiprotocol
internetworking systems) 316,500 19,563
Comdisco
(Provides solutions that help organizations reduce
technology cost and risk) 590,000 8,039
Microsoft (a)
(Manufactures software products) 145,000 15,959
Transaction Systems Architects (a)
(Develops, markets and supports a broad line of software
products and services) 300,000 10,650
-------
59,231
Consumer Products (2.3%)
Gillette
(Manufactures and markets shaving and personal
care products) 200,000 7,650
Procter & Gamble
(Produces personal-care products, pharmaceuticals,
food and beverages) 125,000 8,867
-------
16,517
<PAGE>
<CAPTION>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(Dollar amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
-------- -------
<S> <C> <C>
Diamonds/Precious Stones (0.7%)
De Beers Consolidated Mines
(Holding company for exploration, trade and production
of diamonds) 400,000 $ 5,025
Distribution - Retail (4.5%)
Hasbro
(Manufactures and sells children's toys) 320,000 9,440
Mattel
(Designs, manufactures and markets children's toys) 350,000 9,800
Walgreen Co.
(Large retail drugstore chain) 300,000 13,219
-------
32,459
Electrical Equipment (5.5%)
General Electric
(Appliances, broadcasting, communications and
transportation) 130,000 10,343
Intel
(Produces and sells microcomputer components and
related products) 150,000 12,862
Maxim Integrated Products (a)
(Develops, manufactures and markets integrated circuits) 300,000 8,363
Motorola
(Producer of electronic and telecommunications
equipment) 200,000 8,538
-------
40,106
Electrical Generation (1.7%)
AES
(Provider of electricity to U.S. and international
customers) 325,000 12,045
Entertainment (3.4%)
Cedar Fair L.P.
(Owns and operates amusement theme parks) 315,000 7,718
News Corporation Limited ADRs
(Production and distribution of motion pictures) 350,000 7,831
Walt Disney
(Operates theme parks and resorts, and produces
motion pictures) 370,000 9,366
-------
24,915
<PAGE>
<CAPTION>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(Dollar amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
-------- -------
<S> <C> <C>
Financial Institutions (6.0%)
Fannie Mae
(Purchases mortgages and issues guaranteed
mortgage-backed securities) 225,000 $ 14,456
Freddie Mac
(Purchases mortgages from lenders and resells
in pools or packages) 300,000 14,831
Household International
(Provides financial and banking services) 375,000 14,063
-------
43,350
Financial Services (5.3%)
Alliance Capital Management L.P.
(Provides investment services to pension funds,
endowments, insurance companies, banks and
individual investors) 350,000 8,072
American Express
(Provides a variety of diversified travel and
financial services) 125,000 9,703
Heller Financial (a)
(Provides financial products and services) 450,000 10,800
Travelers Group
(Provides investment, consumer finance
and insurance services) 250,000 9,375
-------
37,950
Food and Beverage (7.5%)
Coca-Cola
(Producer and distributor of soft drink products) 175,000 10,084
Groupe Danone ADRs
(Produces packaged foods and beverages) 240,000 12,555
Kellogg
(Producer of cereal and specialty foods) 250,000 8,234
Quaker Oats
(Markets foods & beverages internationally) 175,000 10,325
Wm. Wrigley Jr.
(Manufactures chewing gum) 175,000 13,289
-------
54,487
Health Care (4.3%)
American Home Products
(Discovers, develops, manufactures, distributes and sells
health care products) 250,000 13,094
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(Dollar amounts in thousands)
<PAGE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
-------- -------
<S> <C> <C>
Health Care (Continued)
Johnson & Johnson
(Manufactures and markets a broad range of health care
and other products) 180,000 $ 14,085
Orthodontic Centers of America (a)
(Provides management and consulting services to
orthodontic practices) 250,000 4,172
-------
31,351
Insurance (2.7%)
CMAC Investment Corp.
(Provides private mortgage insurance coverage) 150,000 6,525
HCC Insurance Holdings
(Underwrites property and casualty insurance) 400,000 7,750
MGIC Investment Corp.
(Provides private mortgage insurance coverage) 150,000 5,531
-------
19,806
Leisure Products (0.5%)
Callaway Golf
(Produces and markets golf clubs) 350,000 3,784
Machinery (1.5%)
McDermott International
(Manufacturer of steam generating and environmental
machinery) 400,000 10,775
Medical - Pharmaceutical (4.9%)
Eli Lilly & Company
(Creates and delivers pharmaceutical-based health care
solutions) 150,000 11,747
Pfizer
(Researches and provides global health care products) 125,000 13,242
Watson Pharmaceuticals (a)
(Develops, produces, markets and distributes
pharmaceutical products) 200,000 10,150
-------
35,139
Medical - Instruments (1.7%)
Medtronic
(Manufactures various cardiovascular
medical instruments) 210,000 12,154
<PAGE>
<CAPTION>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(Dollar amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
-------- -------
<S> <C> <C>
Oil - Exploration and Production (1.0%)
R & B Falcon (a)
(Operates marine drilling rigs for the international
oil and gas industry) 600,000 $ 7,200
Publishing, Broadcasting and Media (7.1%)
Clear Channel Communications (a)
(Owns, operates and manages radio and television stations) 280,000 13,300
Heftel Broadcasting, class A (a)
(Spanish language radio broadcasting company) 300,000 11,325
Outdoor Systems (a)
(Provides outdoor advertising mediums) 800,000 15,600
Petersen Companies (a)
(Publishes special-interest magazines, and provides
television programming) 400,000 11,400
-------
51,625
Restaurant/Hotel (1.7%)
McDonald's
(Develops, licenses, leases and services a worldwide
system of restaurants) 205,000 12,236
Specialty Chemicals (1.7%)
Minerals Technologies
(Develops, produces and markets specialty minerals,
mineral-based and synthetic mineral products) 270,000 11,897
Telecommunications (13.2%)
ADC Telecommunications (a)
(Designs, manufactures and markets a variety of
transmission and networking systems) 350,000 7,394
American Tower, class A (a)
(Operator of wireless telecommunication sites) 570,000 14,535
Frontier
(Offers integrated communications services for business
and residential customers) 400,000 10,950
Intermedia Communications (a)
(Provides telecommunications solutions for business and
government customers) 250,000 6,141
Loral Space & Communications (a)
(High technology company concentrated on
satellite manufacturing and satellite-based
communication services) 400,000 5,900
<PAGE>
<CAPTION>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(Dollar amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
-------- -------
<S> <C> <C>
Telecommunications (Continued)
Lucent Technologies
(Produces public and private networks, communication
systems and software) 180,000 $ 12,431
MCI WorldCom (a)
(Provides facilities-based and fully integrated local, long
distance, international and Internet services) 305,000 14,907
Qwest Communications International (a)
(Provides communication services to interexchange
carriers, businesses and consumers) 291,525 9,128
Tellabs (a)
(Designs, assembles, markets and services voice and data
networking products) 250,000 9,953
Uniphase (a)
(Designs, develops and markets fiber optic
communications equipment) 100,000 4,100
-------
95,439
Travel Services (1.0%)
Sabre Group Holdings (a)
(Provider of a travel reservation system) 250,000 7,500
-------
Total Equity Securities (Cost $582,424) 655,068
-------
<CAPTION>
PRINCIPAL
SHORT-TERM OBLIGATIONS (10.1%) AMOUNT
--------
<S> <C> <C>
Commercial Paper (10.1%)
Associates Corp. of North America 5.75% 10/1/98 $ 35,775 35,775
Asset Securitization Cooperative 5.55% 10/1/98 27,000 27,000
Enron 5.88% 10/1/98 10,000 10,000
-------
Total Short-Term Obligations (Cost $72,775) 72,775
-------
Total Investments (100.7%)
(Cost $655,199) (b) 727,843
Other Assets, Less Liabilities (-0.7%) (5,173)
-------
Total Net Assets (100%) $722,670
========
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 $655,197. Net unrealized appreciation was $72,646, consisting of
gross unrealized appreciation of $137,622 and gross unrealized depreciation of
$64,976.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Stein Roe Young Investor Fund
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(All amounts in thousands, except per-share data)
<CAPTION>
Assets
<S> <C>
Investment in SR&F Growth Investor Portfolio, at value $686,067
Receivable for fund shares sold 806
Cash 25
Other assets 24
--------
Total assets 686,922
--------
Liabilities
Payable for fund shares redeemed 274
Payable to investment adviser and transfer agent 225
Other liabilities 399
--------
Total liabilities 898
--------
Net assets $686,024
========
Analysis of Net Assets
Paid-in capital $595,652
Net unrealized appreciation on investments 72,217
Accumulated net realized gains on investments 18,155
Undistributed net investment income --
--------
Net assets $686,024
========
Shares outstanding (unlimited number authorized) 30,245
========
Net asset value per share $ 22.68
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Young Investor Fund
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(All amounts in thousands)
<S> <C>
Investment Income
Dividends allocated from SR&F Growth Investor Portfolio $ 4,239
Interest allocated from SR&F Growth Investor Portfolio 2,204
--------
Total investment income 6,443
--------
Expenses
Expenses allocated from SR&F Growth Investor Portfolio 3,854
Transfer agent fees 1,375
Administrative fees 1,186
Printing and postage 981
SEC and state registration fees 45
Accounting fees 39
Legal and audit fees 14
Trustees' fees 7
Other 688
--------
Total expenses 8,189
--------
Net investment loss (1,746)
--------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains on investments allocated from SR&F Growth
Investor Portfolio 18,158
Net change in unrealized appreciation or depreciation on investments (31,047)
--------
Net losses on investments (12,889)
--------
Net decrease in net assets resulting from operations $(14,635)
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Young Investor Fund
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(All amounts in thousands)
1998 1997
-------- --------
<S> <C> <C>
Operations
Net investment loss $ (1,746) $ (864)
Net realized gains on investments 18,158 7,157
Net change in unrealized appreciation or depreciation
on investments (31,047) 80,646
-------- --------
Net increase (decrease) in net assets resulting
from operations (14,635) 86,939
-------- --------
Distributions to Shareholders
Distributions from net investment income -- (250)
Distributions from net capital gains (7,157) (8,295)
-------- --------
Total distributions to shareholders (7,157) (8,545)
-------- --------
Share Transactions
Subscriptions to fund shares 452,618 391,442
Value of distributions reinvested 7,013 8,091
Redemptions of fund shares (227,321) (181,510)
-------- --------
Net increase from share transactions 232,310 218,023
-------- --------
Net increase in net assets 210,518 296,417
Total Net Assets
Beginning of period 475,506 179,089
-------- --------
End of period $686,024 $475,506
======== ========
Undistributed Net Investment Income at End of Period $ -- --
======== ========
Analyses of Changes in Shares of Beneficial Interest
Subscriptions to fund shares 18,030 20,131
Issued in reinvestment of distributions 315 446
Redemptions of fund shares (8,999) (9,287)
-------- --------
Net increase in fund shares 9,346 11,290
Shares outstanding at beginning of period 20,899 9,609
-------- --------
Shares outstanding at end of period 30,245 20,899
======== ========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F Growth Investor Portfolio
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(All amounts in thousands)
<S> <C>
Assets
Investments, at market value (cost $655,199) $727,843
Dividends receivable 743
Cash 3
--------
Total assets 728,589
--------
Liabilities
Payable for investments purchased 5,510
Payable to investment adviser 351
Other liabilities 58
--------
Total liabilities 5,919
--------
Net assets applicable to investors' beneficial interest $722,670
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F Growth Investor Portfolio
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(All amounts in thousands)
<S> <C>
Investment Income
Dividends $ 4,335
Interest 2,259
--------
Total investment income 6,594
--------
Expenses
Management fees 3,758
Accounting fees 40
Trustees' fees 22
Audit and legal fees 22
Custodian fees 11
Other 82
--------
Total expenses 3,935
--------
Net investment income 2,659
--------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains on investments 12,629
Net change in unrealized appreciation or depreciation on investments (30,644)
--------
Net losses on investments (18,015)
--------
Net decrease in net assets resulting from operations $(15,356)
========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SR&F Growth Investor 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)
1998 1997(a)
--------- ---------
<S> <C> <C>
Operations
Net investment income $ 2,659 $ 1,418
Net realized gains on investments 12,629 5,460
Net change in unrealized appreciation or depreciation
on investments (30,644) 61,915
--------- ---------
Net increase (decrease) in net assets resulting from
operations (15,356) 68,793
--------- ---------
Transactions in Investors' Beneficial Interest
Contributions 389,527 452,937
Withdrawals (127,041) (46,190)
--------- ---------
Net increase from transactions in investors'
beneficial interest 262,486 406,747
--------- ---------
Net increase in net assets 247,130 475,540
Total Net Assets
Beginning of period 475,540 --
--------- ---------
End of period $ 722,670 $ 475,540
========= =========
(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 Young Investor Fund (the "Fund") is a series of Stein Roe
Investment Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust. The Fund invests
substantially all of its assets in SR&F Growth Investor Portfolio (the
"Portfolio"), which seeks to achieve long-term capital appreciation by
investing primarily in common stocks and other equity-type securities
that are believed to have long-term appreciation potential. The Fund
also has an educational objective to teach investors, especially young
people, about basic economic principles and personal finance through a
variety of educational materials prepared and paid for by the Fund.
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 February 3,
1997. At commencement, the Fund contributed $292,104 in securities and
other assets in exchange for beneficial ownership of the Portfolio. At
February 14, 1997, Stein Roe Advisor Young Investor 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 Young Investor Fund and Stein Roe Advisor Young Investor Fund owned
94.9 percent and 5.1 percent, respectively, of the Portfolio.
Note 2. Significant Accounting Policies
- --------------------------------------------------------------------------------
The following summarizes the significant accounting policies of the
Fund and Portfolio. The 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.
Certain prior-year amounts have been reclassified to conform to
current-year presentation.
Security Valuations
All securities are valued as of September 30, 1998, the last business
day of the period. Securities traded on national securities exchanges
are valued at the last reported sales price or, if there are no sales,
at the latest bid quotation. Each over-the-counter security for which
the last sale price is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable quotations are
available are valued at the latest bid quotation. 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 Trust's Board of Trustees.
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.
Federal Income Taxes
No provision is made for federal income taxes since (a) the Fund elects
to be taxed as a "regulated investment company" and make distributions
to its shareholders to be relieved of all federal income taxes under
provisions of current federal tax law; and (b) the Portfolio is treated
as a partnership for federal income tax purposes and all of its income
is allocated to its owners based on their respective percentages of
ownership.
Distribution to Shareholders
The 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 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 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.
Note 3. Trustees' Fees and Transactions with Affiliates
- --------------------------------------------------------------------------------
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee 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 fee for the Portfolio is computed at an annual rate
of .60 of 1 percent of average daily net assets up to $500 million, .55
of 1 percent of the next $500 million, and .50 of 1 percent thereafter.
The administrative fee for the Fund is computed at an annual rate of
.20 of 1 percent of average daily net assets up to $500 million, .15 of
1 percent of the next $500 million, and .125 of 1 percent thereafter.
Prior to January 31, 1998, the Adviser agreed to reimburse the
Fund to the extent that its annual expenses exceeded 1.50 percent of
average daily net assets. Prior to February 1, 1997, the Adviser
limited annual expenses to 1.25 percent of average daily net assets.
The Adviser also provides fund accounting services. For the year
ended September 30, 1998, the Fund and Portfolio incurred charges of
$39 and $40, respectively.
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 Fund.
Certain officers and trustees of the Trust are also officers of
the Adviser. The compensation of trustees not affiliated with the
Adviser for the Fund and the Portfolio for the year ended September 30,
1998, was $7 and $22, respectively. No remuneration was paid to any
other trustee or officer of the Trust.
Note 4. Short-Term Debt
- --------------------------------------------------------------------------------
To facilitate portfolio liquidity, the Fund and Portfolio maintain
borrowing arrangements under which they can borrow against portfolio
securities. Neither the Fund nor the Portfolio had borrowings during
the period ended September 30, 1998.
Note 5. Investment Transactions
- --------------------------------------------------------------------------------
The Portfolio's aggregate cost of purchases and proceeds from sales
other than short-term obligations for the year ended September 30,
1998, were $483,340 and $263,465, respectively.
<PAGE>
<TABLE>
SR&F Growth Investor Portfolio
<CAPTION>
Financial Highlights
Year Ended Period Ended
September 30, September 30,
1998 1997(a)
----------- -----------
<S> <C> <C>
Ratio of net expenses to average net assets 0.62% 0.63%(b)
Ratio of net investment income to average net assets 0.42% 0.54%(b)
Portfolio turnover rate 45% 38%
(a) From commencement of operations on February 3, 1997.
(b) Annualized
</TABLE>
<PAGE>
<TABLE>
Stein RoeYoung Investor Fund
Financial Highlights
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 (d)
----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 22.75 $ 18.64 $ 14.29 $ 10.24 $ 10.00
----------- ----------- ----------- ---------- ---------
Income From Investment Operations
Net investment income (loss) (0.06) (0.04) 0.05 0.06 0.03
Net realized and unrealized gains
on investments 0.31 4.79 4.86 4.07 0.21
----------- ----------- ----------- ---------- ---------
Total from investment operations 0.25 4.75 4.91 4.13 0.24
----------- ----------- ----------- ---------- ---------
Distributions
Net investment income -- (0.02) (0.05) (0.08) --
Net realized capital gains (0.32) (0.62) (0.51) -- --
----------- ----------- ----------- ---------- ---------
Total distributions (0.32) (0.64) (0.56) (0.08) --
----------- ----------- ----------- ---------- ---------
Net Asset Value, End of Period $ 22.68 $ 22.75 $ 18.64 $ 14.29 $ 10.24
=========== =========== =========== ========== =========
Ratio of net expenses to average net assets (a) 1.31% 1.43% 1.21% 0.99% 0.99%(e)
Ratio of net investment income to average
net assets (b) (0.28%) (0.25%) 0.30% 0.47% 1.07%(e)
Portfolio turnover rate N/A 22%(c) 98% 55% 12%
Total return (b) 1.14% 26.37% 35.55% 40.58% 2.40%
Net assets, end of period (000's) $ 686,024 $ 475,506 $ 179,089 $ 31,401 $ 8,176
(a)If the Fund had paid all of its expenses and there had been no reimbursement
of expenses by the investment adviser, this ratio would have been 1.49
percent, 2.04 percent and 2.87 percent for the years ended September 30,
1997, 1996 and 1995, respectively, and 4.58 percent for the period ended
September 30, 1994.
(b) Computed giving effect to the investment adviser's expense limitation
undertaking.
(c) Prior to commencement of operations of the Portfolio (See Note 1 to
Financial Statements).
(d) From commencement of operations on April 29, 1994.
(e) Annualized
</TABLE>
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of:
Stein Roe Young Investor Fund
SR&F Growth Investor Portfolio
We have audited the accompanying statement of assets and liabilities of Stein
Roe Young Investor Fund and the accompanying statement of assets and
liabilities, including the portfolio of investments, of SR&F Growth Investor
Portfolio 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 Fund's 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 the SR&F Growth Investor Portfolio 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 Young Investor Fund and SR&F Growth Investor
Portfolio at 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
Ballon text: Independent public account-ants who are not employees of Stein Roe
audit the financial statements to ensure that they are free of material errors.
This letter tells you that they have performed their audits.
<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 fund 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 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
IRAs, 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 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.
<PAGE>
Stein Roe 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
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>
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
Balloon text:
Almost all of the officers listed here do work for your Fund. Some are
portfolio managers who manage your fund or other Stein Roe funds. Others see to
it that your Fund operates properly every day.
<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.
YI11A 11/98
