Stein Roe Mutual Funds
Annual Report
Sept. 30, 1998
PHOTO OF: CORN IN FIELD
Stein Roe Equity Funds
Growth and Income Funds
Balanced Fund
Growth & Income Fund
LOGO:
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(SM)
<PAGE>
Contents
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From the President................................................ 1
Tom Butch's thoughts on the markets and investing
Performance....................................................... 3
How the Stein Roe growth and income funds have done over time
Q&A
Interviews with the portfolio managers and summaries of
investment activity
Balanced Fund..................................................... 5
Growth & Income Fund.............................................. 9
Portfolios of Investments......................................... 12
A complete list of investments with market values
Financial Statements.............................................. 20
Statements of assets and liabilities, operations
and changes in net assets
Notes to Financial Statements..................................... 28
Financial Highlights.............................................. 32
Selected per-share data
Report of Independent
Public Accountants.............................................. 36
Must be preceded or accompanied by a prospectus.
<PAGE>
Photo of: Thomas W. Butch
From the President
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To Our Shareholders
We're pleased to present this annual report for the Stein Roe growth and income
funds -- Balanced Fund and Growth & Income Fund. This report covers the fiscal
year ended Sept. 30, 1998.
What goes up...
Until July, it appeared as if the equity markets were set to deliver another
year of record gains. Low inflation, consumer confidence and a strong dollar
supported growth. Money flooded the equity markets as domestic and international
investors sought to participate in what they hoped would be another record year
for the U.S. stock market. Through its high point on July 17 of the fiscal year,
the equity market was up 25.54 percent as measured by the S&P 500 Index,*
following a period of average annual gains of more than 30 percent for the past
three fiscal years.
By the end of August, however, we were reminded that what goes up comes down,
as equity markets gave back all of their gains for the year, much during a
dramatic one-day drop of 512 points, or 6.4 percent on August 31. At the end of
September (again, the end of the Fund's fiscal year), the Dow Jones Industrials
Average at 7842.62, was -0.3 percent below where it was twelve months before.
What happened
The reason for the retreat had its roots in overseas events. Southeast Asia
continued to suffer economic and financial crises throughout the year. Then in
August, Asian woes spread to other developing nations as Latin American markets
suffered and the Russian ruble devalued. This created selling pressure in U.S.
markets as investors feared that economic crises in developing nations could
stifle our economy, which is dependent, in part, on healthy markets for exported
goods. Moreover, concerns about the sustainability of U.S. companies' earnings
and the level of interest rates heightened fears about continued growth. The
confluence of these negative forces overwhelmed U.S. markets in August and
September, creating weak market returns.
Back from the depths
Then on Oct. 15, 1998, the Federal Reserve took the unusual step of
lowering two key interest rates in between its regular meetings. This catalyzed
a significant market rally, which was sustained by generally better than
expected third quarter financial results reported by many major U.S. companies.
As of the writing of this letter, markets have recovered considerably from their
August 31 lows, although not to the levels reached prior to that date.
Looking forward
No one knows for certain what lies ahead for the U.S. equity markets. What we
can assess is that the Asian problems appear to have a ways to go before they
are fully resolved and that the durability of corporate earnings may have
further implications for the equity markets. In addition, many market observers
believe that, following extraordinary gains in 1995, 1996 and 1997, the S&P 500
Index will likely begin to deliver results more in line with historical returns.
A Reminder of risk
We believe one of the keys to investment success is your perspective. If your
mutual fund was appropriate to your investing objectives yesterday, it probably
still is today. However, at the end of the day, you need to feel comfortable
with your portfolio. If the recent market turmoil has unnerved you to the point
where it is weighing on you emotionally, you might want to consider reassessing
your risk tolerance and adjust your portfolio accordingly. In our experience,
while unsettling, market declines are normal. While the recent market volatility
has reminded us of the significance of market downturns, it also should remind
us that history has shown that investors can lose opportunities when they bail
out of the market. In fact, about the only thing worse than experiencing a bear
market is missing out on the potential bull market that follows. Long-term
growth investors have not lost money in any 15-year period of the stock market's
existence, as represented by the S&P 500.+
Please call us at 800-338-2550 with any comments or suggestions. As always,
we look forward to serving your investment needs.
Sincerely,
Thomas W. Butch
President
Oct. 26, 1998
*The S&P 500 Index is an unmanaged group of stocks not associated with any Stein
Roe fund. It is not available for direct investment.
+Used with permission. (C)1997 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
<PAGE>
Fund Performance
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There are several ways to evaluate a fund's historical performance. You can look
at the total percentage change in value, the average annual percentage change or
the growth of a hypothetical $10,000 investment. Each performance figure
includes changes in a fund's share price, plus reinvestment of any dividends
(net investment income) and capital gains (the profits the fund earns when it
sells stocks that have grown in value).
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Average Annual Total Returns
Periods ended Sept. 30, 1998
PAST 1 PAST 3 PAST 5 PAST 10
YEAR YEARS YEARS YEARS
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Balanced Fund 0.14% 12.43% 10.31% 11.73%
Growth & Income Fund 3.45 18.41 15.90 15.76
S&P 500 9.08 22.61 19.91 17.27
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Past performance is no guarantee of future results. Share price and
investment return will vary, so you may have a gain or loss when you sell
shares. Total return performance includes changes in share price and
reinvestment of income and capital gains distributions. The S&P 500 is an
unmanaged group of stocks that differs from the composition of any Stein Roe
fund; it is not available for direct investment.
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Investment Comparison
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Comparison of change in value of a $10,000 investment.
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Mountain Chart:
Balanced Fund
Balanced Fund S&P 500
9/30/88 10000 10000
9/30/89 12076 13295
9/30/90 11248 12067
9/30/91 14585 15819
9/30/92 16208 17565
9/30/93 18570 19843
9/30/94 18636 20573
9/30/95 21337 26685
9/30/96 24501 32018
9/30/97 30283 45087
9/30/98 30326 49182
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Mountain Chart:
Growth & Income Fund
Growth &
Income Fund S&P 500
9/30/88 10000 10000
9/30/89 13063 13295
9/30/90 12377 12067
9/30/91 15363 15819
9/30/92 17513 17565
9/30/93 20662 19843
9/30/94 21495 20573
9/30/95 26035 26685
9/30/96 31937 32018
9/30/97 41776 45087
9/30/98 43221 49182
Past performance is no guarantee of future results. Share price and investment
return will vary, so you may have a gain or loss when you sell shares. These
graphs compare the performance of the Stein Roe funds to the S&P 500, an
unmanaged group of stocks that differs from the composition of any Stein Roe
fund; it is not available for direct investment. Total return performance
includes changes in share price and reinvestment of income and capital gains
distributions.
<PAGE>
Q&A
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An Interview with Harvey Hirschhorn, Portfolio Manager of Stein Roe Balanced
Fund and SR&F Balanced Portfolio
Fund Data
Investment Objective:
Seeks long-term growth of capital and current income, consistent with
reasonable investment risk by investing primarily in a diversified portfolio
of equities, debt securities and cash.
Fund Inception:
Aug. 25, 1949
Total Net Assets:
$247.9 million
Photo of: Harvey Hirschhorn
Q: How did the Fund perform?
A: The Fund posted a total return of 0.14 percent for the year ended Sept. 30,
1998, underperforming the Lipper balanced fund peer group return of 3.24
percent.
Q: What affected performance?
A: We maintain holdings in domestic equities, international equities and bonds.
Going into this fiscal year, the portfolio was overweighted in international
equities and underweighted in domestic equities, as relative valuations appeared
more attractive for foreign stocks. However, the performance of international
stocks was negative due to the spreading global financial crisis. On the other
hand, U.S. stocks, as represented by the S&P 500 Index, performed well, buoyed
by continued economic expansion and strong capital inflows. Within our U.S.
equity holdings, we had investments in certain sectors -real estate investment
trusts (REITs) and energy -- that continued to underperform. On the positive
side, our fixed income investments supported the Fund's performance throughout
the year.
Q: Where did you invest domestically?
A: We had large positions in health care stocks, which supported the Fund's
performance this year. Specific holdings include Eli Lilly and Pfizer (1.7
percent and 1.2 percent of total net assets, respectively). As growth in the
U.S. economy slows, we believe drug companies stand to have better relative
profitability as their sales exhibit a tendency to remain firm in difficult
times. We also believe the new product pipelines for our drug company holdings
make them attractive stocks to own. Based on our continued favorable outlook for
this sector, we added Abbott Labs (1.0 percent of total net assets) in the
fourth quarter of the fiscal year.
Retail holdings also helped the Fund's performance. Specific holdings include
Wal-Mart and Home Depot (1.8 percent and 1.6 percent of total net assets,
respectively). We also added Kohl's and Dollar General (0.8 percent and 0.9
percent of total net assets, respectively) because we have confidence that
consumer spending will continue to support the economy into 1999.
Large-cap growth companies in the technology sector, including Intel, Cisco
Systems and Microsoft (1.2 percent, 1.2 percent and 1.2 percent of total net
assets, respectively) performed well this year, too. Telephone stocks Ameritech,
AirTouch Communications and MCI WorldCom (1.3 percent, 1.2 percent and 1.4
percent of total net assets, respectively) also aided performance.
Q: What hurt performance?
A: Our REIT holdings worked against performance. We thought REITs were
attractive investments based on their domestic exposure, high yields and above
average earnings growth. However, concerns about new development, overpaying for
acquisitions and new government regulations worked against us in that market and
the stocks dropped sharply. We sold most of our REIT holdings during the spring
prior to further sharp declines. The other disappointment was our energy
exposure. With U.S. and European economies expanding, we thought energy prices
would hold up better than they did. As economic conditions began to deteriorate
in many regions of the world, we reduced our energy position later in the year.
Setbacks to performance came from telecommunications equipment companies that
suffered when the market declined in August. Specific holdings were Alcatel,
Lucent Technologies, Tellabs and LM Ericsson Telecommunications (0.4 percent,
0.6 percent, 0.4 percent and 1.0 percent of total net assets, respectively).
U.S. bank holdings BankAmerica and Citicorp also suffered due to their exposure
to Latin America and Russia (1.1 percent and 1.3 percent of total net assets,
respectively).
Q: What was your fixed income position this year?
A: Approximately 40 percent of the portfolio's assets were invested in fixed
income throughout the year. In general, we maintained a modestly extended
duration in fixed income holdings as we anticipated lower interest rates.
Q: What is your current international position?
A: The international equity markets have been more volatile and generally less
favorable than the U.S. market given the intensification of financial crises
around the globe. We scaled back our positions in international stocks,
redeploying the assets in U.S. stocks. We remain committed to investing a
portion of the Fund's assets internationally and are searching for opportunities
to raise our exposure in the coming months.
Q: What's your outlook for the U.S. economy?
A: We continue to expect modest economic growth in the United States. Although
our trade imbalance is restricting economic growth and lower capital spending
may further reduce growth, consumer confidence and spending habits could keep
economic growth positive. Consumer confidence eased somewhat at the end of this
fiscal year due to tumultuous global financial markets and the White House
scandal. However, economic data supports a low inflation, low interest rate
environment that we believe should provide for solid consumer spending going
forward.
Q: How are you positioning the portfolio going forward?
A: We believe lower short-term rates will cause other rates to fall. The middle
of the yield curve -- 2- to 10-year maturities -- is where we see the most
performance potential and is where we're focusing our fixed income investments.
We're also investing in stocks that have historically reacted positively to
interest rate decreases such as banks and retail companies.
Past performance is no guarantee of future results. Share price and investment
returns will vary, so you may have a gain or loss when you sell shares. Holdings
are disclosed as a percentage of SR&F Balanced Portfolio's total net assets.
Long security positions are disclosed net of short security positions. Portfolio
holdings are as of Sept. 30, 1998, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The S&P 500 is an unmanaged group of stocks that
differs from the composition of SR&F Balanced Portfolio; 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 balanced fund peer
group for the one-, five- and 10-year periods ended Sept. 30, 1998, were 3.24
percent, 11.77 percent and 12.00 percent, respectively.
Foreign investments involve market, political and currency risks not
generally associated with U.S. investments.
<PAGE>
Fund Highlights
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SR&F Balanced Portfolio
Top 10 Equity Holdings (% of Total Net Assets)
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Wal-Mart Stores 1.8% Freddie Mac 1.5%
Emerson Electric 1.8 Elan 1.5
Eli Lilly 1.7 American Home Products 1.4
Bristol-Myers Squibb 1.6 MCI WorldCom 1.4
General Electric 1.5 AES 1.3
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Total 15.5%
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Equity Portfolio Highlights
PORTFOLIO S&P 500
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Number of Holdings 55 500
Median Market Value ($ Mil.) $47,086 $47,086
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Economic Sector Breakdown
Pie Chart:
As of Sept. 30, 1998
Equity Portfolio S&P 500
Basic Materials 1% 3%
Consumer Cyclical 12% 13%
Consumer Noncyclical 19% 24%
Energy 8% 8%
Financial 19% 16%
Industrial 14% 8%
Technology 16% 18%
Utilities 11% 10%
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Asset Allocation
Pie Chart:
As of Sept. 30, 1997 As of Sept. 30, 1998
Equities 48.5% 54.7%
Convertibles 11.2% 2.8%
Bonds 31.5% 40.2%
Cash & Equivalents 8.8% 2.3%
<PAGE>
Q&A
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An Interview with Dan Cantor, Portfolio Manager of Stein Roe Growth & Income
Fund and SR&F Growth & Income Portfolio
Fund Data
Investment Objective:
Seeks capital growth by investing primarily in a diversified portfolio of
common stocks, convertible securities and other equity-type investments
issued by well-established companies. In an effort to limit volatility, the
portfolio will normally emphasize investments in the equity securities of
companies with market capitalizations greater than $1 billion. The Fund is
designed to provide more dividend income than a portfolio focused exclusively
on growth.
Fund Inception:
March 24, 1987
Total Net Assets:
$351.1 million
Photo of: Dan Cantor
Q: How did the Fund perform?
A: Growth & Income Fund performed solidly throughout the fiscal year. The Fund's
total return for the year ended Sept. 30, 1998, was 3.45 percent, while the
Lipper growth and income fund peer group returned -0.45 percent.
Q: What happened to the Fund during the market sell off?
A: Up until recently, some of the portfolio's holdings were up significantly and
the Fund's performance was particularly favorable. However, in the summer
months, the markets declined sharply and several of the portfolio's financial
services holdings sold off. Through July, financial services holdings were the
strongest performers. Now, two months later after the financial services sector
suffered from global turmoil, these stocks are among the weaker performers. For
example, Kansas City Southern Industries (2.6 percent of total net assets) was
one of the portfolio's best-performing stocks throughout much of the year, as
the market began to appreciate the value of its different businesses. But when
the market turned down, this stock suffered due to the company's exposure to
declining capital markets.
Some of our cyclical stocks declined due to a softened outlook for U.S.
economic growth as well. For example, investors stayed away from airline stocks
fearing that the global crisis would eventually affect future bookings. Although
we think some of the concern was warranted, we believe the sell off in this
industry was exaggerated. Our holding in Continental Airlines (1.9 percent of
total net assets) was affected by the sell off.
Q: What stocks performed well this year?
A: Drug and retail companies performed well throughout the fiscal year and we
maintained large positions in each of these sectors. One example is
Warner-Lambert (3.8 percent of total net assets), a company whose performance
reflects the strength of its pharmaceutical products sales. Other strong
performing health care and health care-related companies were Abbott Labs,
Bristol-Myers Squibb, Monsanto and SmithKline Beecham (1.4 percent, 2.5 percent,
3.1 percent and 0.6 percent of total net assets, respectively). Three retailers
that performed particularly well were TJX, Walgreen Co. and Wal-Mart Stores (1.6
percent, 2.4 percent and 2.8 percent of total net assets, respectively). Late in
the year, we reduced our holdings in TJX and Walgreen Co.
Q: Did you restructure the portfolio after the market downswing?
A: We bought a small position in Dupont (0.7 percent of total net assets) after
the stock was severely beaten down in the market sell off. We believe this
company is undergoing a positive business transformation and we were able to buy
it at a price we thought was attractive. We also modestly increased our position
in auto parts manufacturer Federal Mogul (0.8 percent of total net assets),
because its shares were trading at an attractive price.
Q: How do you plan to invest going forward?
A: We plan to continue to look for good investments in beaten down sectors such
as financial services and other cyclical areas, while still trying to make
opportunistic purchases in sectors such as health care and retail. As always, we
will continue to structure the portfolio in a way that we believe will help to
maximize risk-adjusted returns.
Past performance is no guarantee of future results. Share price and investment
returns 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 & Income 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. According to Lipper Analytical Services,
Inc., a monitor of mutual fund performance, the median returns for the Fund's
growth and income fund peer group for the one-, five- and 10-year periods ended
Sept. 30, 1998, were -0.45 percent, 15.61 percent and 14.15 percent,
respectively.
<PAGE>
Fund Highlights
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SR&F Growth & Income Portfolio
Top 10 Equity Holdings (% of Total Net Assets)
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Warner-Lambert 3.8% Burlington Northern Santa Fe 2.8%
Monsanto 3.1 Bell Atlantic 2.6
Fannie Mae 2.9 Kansas City Southern Industries 2.6
Wal-Mart Stores 2.8 Philip Morris 2.6
Ecolab 2.8 Bristol-Myers Squibb 2.5
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Total 28.5%
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Equity Portfolio Highlights
PORTFOLIO S&P 500
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Number of Holdings 57 500
Median Market Value ($ Mil.) $35,427 $47,086
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Economic Sector Breakdown
As of Sept. 30, 1998
Equity Portfolio S&P500
Pie Chart:
Basic Materials 7% 3%
Consumer Cyclical 17% 13%
Consumer Noncyclical 24% 24%
Energy 5% 8%
Financial 16% 16%
Industrial 19% 8%
Technology 8% 18%
Utilities 4% 10%
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Asset Allocation
As of Sept. 30, 1997 As of Sept. 30, 1998
Pie Chart:
Equities* 83.3% 84.2%
Bonds 0.9% 0.9%
Cash & Equivalents 15.8% 14.9%
*Excludes S&P futures *Excludes S&P futures
(long) = 6.4% (long) = 5.4%
<PAGE>
<TABLE>
<CAPTION>
SR&F Balanced Portfolio
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Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
NUMBER MARKET
Common Stocks (62.1%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Automotive (1.6%)
Honda Motor ADRs..................................... 27,000 $ 1,639
Ford Motor........................................... 52,000 2,441
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4,080
Banks (9.9%)
Banc One............................................. 50,000 2,131
BankAmerica.......................................... 106,000 6,373
Bayerische Hypo-Und Vereinsbank...................... 29,000 2,134
Citicorp............................................. 64,000 5,948
Freddie Mac.......................................... 73,000 3,609
Royal Bank of Scotland Group......................... 185,000 2,138
U.S. Bancorp......................................... 60,000 2,134
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24,467
Building Products (0.9%)
Masco Corp........................................... 70,000 1,724
Royal Group Technologies Limited (a)................. 25,000 419
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2,143
Chemicals (1.1%)
E. I. du Pont de Nemours............................. 47,000 2,638
Computers (2.3%)
International Business Machines...................... 21,000 2,688
Microsoft (a)........................................ 27,000 2,972
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5,660
Consumer Products (1.0%)
Unilever, NY shares.................................. 42,000 2,573
Drugs and Health Products (9.1%)
Abbott Laboratories.................................. 60,000 2,606
American Home Products............................... 68,000 3,561
Bristol-Myers Squibb................................. 39,000 4,051
Elan ADRs (a)........................................ 50,000 3,603
Eli Lilly & Company.................................. 72,500 5,678
Pfizer............................................... 29,000 3,072
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22,571
Electrical Equipment (6.9%)
Emerson Electric..................................... 91,000 5,665
General Electric..................................... 117,000 9,309
Hubbell, class B..................................... 60,000 2,130
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17,104
Electronics (2.1%)
Intel................................................ 43,000 3,687
Sony ADRs............................................ 21,000 1,444
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5,131
Energy Services (2.6%)
AES (a).............................................. 90,000 3,336
Kinder Morgan Energy Partners L.P.................... 95,441 3,161
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6,497
Financial Services (0.7%)
Heller Financial (a)................................. 78,000 1,872
<PAGE>
<CAPTION>
SR&F Balanced Portfolio Continued
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NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Food, Beverage and Tobacco (2.5%)
General Mills........................................ 26,000 $ 1,820
PepsiCo.............................................. 45,000 1,325
Philip Morris........................................ 65,000 2,994
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6,139
Funeral Services (0.8%)
Service Corporation International.................... 60,000 1,913
Insurance (0.7%)
American International Group......................... 24,000 1,848
Medical Information Systems (1.0%)
IMS Health........................................... 40,000 2,478
Networking (1.2%)
Cisco Systems (a).................................... 48,000 2,967
Oil and Natural Gas (3.7%)
British Petroleum ADRs............................... 58,000 5,060
Chevron.............................................. 27,000 2,270
Enron................................................ 33,000 1,743
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9,073
Real Estate (0.8%)
Reckson Associates................................... 89,000 2,091
Retail (5.0%)
Dollar General....................................... 80,000 2,130
Home Depot........................................... 61,000 2,409
Kohl's (a)........................................... 53,000 2,067
Saks................................................. 64,400 1,445
Wal-Mart Stores...................................... 82,000 4,479
-------
12,530
Telecommunications (6.4%)
AirTouch Communications (a).......................... 53,000 3,021
Alcatel.............................................. 61,000 1,037
Ameritech............................................ 70,000 3,316
Lucent Technologies.................................. 23,000 1,588
MCI WorldCom (a)..................................... 69,000 3,372
Telebras ADRs (a).................................... 37,000 2,606
Tellabs (a).......................................... 27,000 1,075
-------
16,015
Transportation (0.3%)
Canadian National Railway............................ 17,000 759
Utilities - Electric (0.9%)
Endesa ADRs.......................................... 98,000 2,156
Water Treatment Systems (0.6%)
U.S. Filter (a)...................................... 95,000 1,520
-------
Total Common Stocks (Cost $104,195).................. 154,225
-------
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<PAGE>
<CAPTION>
SR&F Balanced Portfolio Continued
- ----------------------------------------------------------------------------------------
NUMBER MARKET
Convertible Securities (2.8%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Securities (2.1%)
Building Products (0.4%)
RYG DECS Trust II 6.875% 11/15/00.................... 50,000 $ 938
Telecommunications (1.7%)
LM Ericsson Telecommunications 4.250% 6/30/00........ 450,000 2,419
TCI Pacific Communications 5.000% 7/31/06............ 9,000 1,874
-------
4,293
-------
Total Convertible Preferred Securities (Cost $3,571). 5,231
-------
<CAPTION>
PRINCIPAL
Convertible Debt Securities (0.7%)................... AMOUNT
------
<S> <C> <C>
Retail (0.7%)
Home Depot 3.250% 10/1/01
(Cost $950).......................................... $ 950 1,653
-------
Total Convertible Securities (Cost $4,521)........... 6,884
-------
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<PAGE>
<CAPTION>
SR&F Balanced Portfolio Continued
- ----------------------------------------------------------------------------------------
PRINCIPAL MARKET
Bonds and Notes (40.9%) AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations (22.1%)
U.S. Treasury Bonds
8.125% 8/15/19.................................... $ 7,350 $ 10,070
7.250% 8/15/22.................................... 4,300 5,492
U.S. Treasury Notes
6.375% 5/15/00.................................... 9,200 9,471
7.875% 8/15/01.................................... 6,850 7,487
6.500% 8/31/01.................................... 2,750 2,907
5.750% 8/15/03.................................... 4,500 4,774
7.250% 8/15/04.................................... 5,200 5,964
6.500% 10/15/06................................... 4,350 4,943
6.250% 2/15/07.................................... 3,300 3,709
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54,817
U.S. Government Agency Mortgage-Backed Securities (5.9%)
FHLMC Gold
6.500% 2/1/11..................................... 1,388 1,418
6.500% 4/1/11..................................... 755 771
6.500% 10/1/11.................................... 1,524 1,556
6.500% 4/1/26..................................... 850 866
6.500% 6/1/26..................................... 872 889
FHLMC
6.500% 4/1/11..................................... 1,326 1,355
6.500% 4/1/26..................................... 862 878
6.500% 2/1/27..................................... 2,572 2,619
6.500% 3/1/27..................................... 2,626 2,676
GNMA
8.000% 7/15/25.................................... 919 955
8.000% 3/15/26.................................... 560 582
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14,565
Air Transportation (2.3%)
Federal Express 1994 Pass-Through Certificates
Series A310-A1 7.530% 9/23/06..................... 1,575 1,749
Lockheed Martin 6.550% 5/15/99 ...................... 2,500 2,519
United Airlines 1991 Pass-Through Certificates
Series A1 9.200% 3/22/08.......................... 1,284 1,546
-------
5,814
Chemicals (1.0%)
BOC Group 5.875% 1/29/01............................. 2,500 2,561
Commercial Banks (1.9%)
Den Danske Bank 6.550% 9/15/03....................... 2,250 2,392
Deutsche Ausgleichsbank 7.000% 9/24/01............... 2,250 2,381
-------
4,773
Construction and Housing (1.0%)
Hanson Overseas 6.750% 9/15/05....................... 2,250 2,387
Financial (3.3%)
Ford Motor Credit 6.375% 9/15/99..................... 2,750 2,782
Lehman Brothers Holdings 8.375% 2/15/99.............. 2,500 2,506
MDC Mortgage Funding Series Q Class 5 8.850% 3/20/18. 273 277
USX 6.850% 3/1/08.................................... 2,500 2,584
-------
8,149
<PAGE>
<CAPTION>
SR&F Balanced Portfolio Continued
- ----------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Government Regional Bonds (1.6%)
Corporacion Andina de Fomento 6.625% 10/14/98........ $ 1,500 $ 1,495
Province of Quebec 6.500% 1/17/06.................... 2,400 2,538
-------
4,033
Mortgage-Backed Securities (0.9%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22........................... 2,144 2,126
Utilities - Electric (0.9%)
National Power 7.125% 7/11/01........................ 2,000 2,120
-------
Total Bonds and Notes (Cost $94,220)................. 101,345
-------
- ----------------------------------------------------------------------------------------
Short Term Obligation (0.8%)
- ----------------------------------------------------------------------------------------
Commercial Paper (0.8%)
Associates Corp. of North America 5.750% 10/1/98
(Cost $2,090)........................................ 2,090 2,090
-------
- ----------------------------------------------------------------------------------------
Total Investments (106.6%)
(Cost $205,026)...................................... 264,544
Other Assets, Less Liabilities (-6.6%)............... (16,299)
--------
Total Net Assets (100.0%)............................ $248,245
========
- ----------------------------------------------------------------------------------------
<CAPTION>
Securities Sold Short at September 30, 1998, were as follows:
Market
Shares Value
------ ------
<S> <C> <C>
BankAmerica.......................................... 60,000 $ 3,608
British Petroleum ADRs............................... 34,000 2,967
Citicorp............................................. 30,000 2,788
Eli Lilly & Company.................................. 20,000 1,566
Emerson Electric..................................... 20,000 1,245
General Electric..................................... 70,000 5,569
Intel................................................ 8,000 686
--------
Total Value of Securities Sold Short (Proceeds $15,138) $ 18,429
========
- ----------------------------------------------------------------------------------------
Notes to Portfolio of Investments
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At September 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$59,518, consisting of gross unrealized appreciation of $68,774 and gross
unrealized depreciation of $9,256.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SR&F Growth & Income Portfolio
- ----------------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1998
(Dollar amounts in thousands)
NUMBER MARKET
Common Stocks (84.2%) OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace (1.2%)
Boeing............................................... 119,600 $ 4,104
Auto/Truck Parts & Equipment (2.7%)
Federal-Mogul........................................ 61,200 2,861
Lear (a)............................................. 155,000 6,781
-------
9,642
Banks (6.4%)
BankAmerica.......................................... 60,000 3,608
Chase Manhattan...................................... 128,800 5,571
Citicorp............................................. 70,616 6,563
Republic New York.................................... 50,000 1,975
Wells Fargo & Company................................ 13,666 4,851
-------
22,568
Broadcasting and Communications (1.6%)
Interpublic Group of Companies....................... 60,600 3,269
Tribune.............................................. 50,000 2,515
-------
5,784
Chemicals (0.7%)
E.I. du Pont de Nemours.............................. 45,000 2,526
Computers and Computer-Related (4.9%)
Cisco Systems (a).................................... 22,500 1,391
Compaq Computer...................................... 195,000 6,167
Intel ............................................... 15,000 1,286
International Business Machines...................... 65,000 8,320
-------
17,164
Consumer-Related (4.3%)
Avon Products........................................ 80,000 2,245
Cendant (a).......................................... 144,186 1,676
Gillette............................................. 144,400 5,523
Procter & Gamble..................................... 81,000 5,746
-------
15,190
Distribution (6.7%)
TJX ................................................. 312,800 5,572
Wal-Mart Stores...................................... 180,000 9,833
Walgreen Co.......................................... 190,000 8,372
-------
23,777
Electrical Equipment (3.1%)
Emerson Electric..................................... 104,000 6,474
Hubbell, class B..................................... 130,400 4,629
-------
11,103
Energy (3.9%)
Amoco................................................ 73,000 3,933
British Petroleum ADRs............................... 73,104 6,378
Enron................................................ 62,500 3,301
-------
13,612
Entertainment (0.5%)
Walt Disney.......................................... 66,105 1,673
<PAGE>
<CAPTION>
SR&F Growth & Income Portfolio Continued
- ----------------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Financial Services (9.9%)
American Express..................................... 104,000 $ 8,073
Associates First Capital, class A.................... 45,000 2,936
Fannie Mae........................................... 161,000 10,344
Kansas City Southern Industries...................... 261,900 9,166
Nationwide Financial Services, class A............... 37,000 1,681
Washington Mutual.................................... 78,000 2,633
-------
34,833
Food, Beverage and Tobacco (5.0%)
PepsiCo.............................................. 160,000 4,710
Philip Morris........................................ 198,000 9,120
Sara Lee............................................. 72,000 3,888
-------
17,718
Health Care (11.1%)
Abbott Laboratories.................................. 117,000 5,082
Baxter International................................. 125,000 7,437
Bristol-Myers Squibb................................. 85,000 8,829
Roche Holdings Limited............................... 200 2,153
SmithKline Beecham ADRs.............................. 40,000 2,190
Warner-Lambert....................................... 180,000 13,590
-------
39,281
Multi-Industry (7.1%)
General Electric..................................... 88,000 7,002
Honeywell............................................ 109,000 6,983
Monsanto............................................. 195,000 10,993
-------
24,978
Paper and Forest Products (1.5%)
Georgia-Pacific...................................... 85,000 3,878
Georgia-Pacific Timber Group......................... 75,000 1,458
-------
5,336
Rubber, Plastics and Related Products (0.6%)
Goodyear Tire & Rubber .............................. 45,000 2,312
Specialty Chemicals (4.8%)
Ecolab............................................... 345,000 9,811
Solutia.............................................. 42,000 948
Union Carbide........................................ 141,100 6,085
-------
16,844
Telecommunications (3.5%)
AT&T................................................. 30,222 1,766
Bell Atlantic........................................ 190,320 9,219
Lucent Technologies.................................. 19,588 1,353
-------
12,338
Transportation (4.7%)
Burlington Northern Santa Fe......................... 306,000 9,792
Continental Airlines, class B (a).................... 180,000 6,795
-------
16,587
-------
Total Common Stocks (Cost $184,914).................. 297,370
-------
- ----------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
SR&F Growth & Income Portfolio Continued
- ----------------------------------------------------------------------------------------
PRINCIPAL MARKET
Long-Term Notes (0.9%) AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligation (0.9%)
U.S. Treasury Note 7.125% 9/30/99
(Cost $2,964)........................................ $ 3,000 $ 3,074
- ----------------------------------------------------------------------------------------
Short-Term Obligations (15.0%)
- ----------------------------------------------------------------------------------------
Commercial Paper (14.4%)
Associates Corp. of North America 5.750% 10/1/98 .... 17,330 17,330
CSX 5.700% 10/7/98 .................................. 5,000 4,995
Illinois Power 5.700% 10/7/98 ....................... 9,575 9,566
Rite Aid 5.880% 10/1/98 ............................. 4,000 4,000
Texas Utilities 5.820% 10/1/98....................... 15,000 15,000
-------
50,891
U.S. Government Obligation (0.6%)
U.S. Treasury Bills 4.880% 10/8/98 (b)............... 2,000 1,998
-------
Total Short-Term Obligations (Cost $52,889).......... 52,889
-------
- ----------------------------------------------------------------------------------------
Total Investments (100.1%)
(Cost $240,767) (c).................................. 353,333
Other Assets, Less Liabilities (-0.1%)............... (140)
-------
Total Net Assets (100.0%)............................ $353,193
========
- ----------------------------------------------------------------------------------------
Notes to Portfolio of Investments
- ----------------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security was pledged to cover margin requirements for open futures
contracts. The following contracts were open at September 30, 1998:
<CAPTION>
Number of Contract Unrealized
Type Position Contracts Value Expiration Loss
<S> <C> <C> <C> <C> <C>
S&P 500 Index Long 75 $19,238 December, 1998 $191
(c)At September 30, 1998, the cost of investments for federal income tax
purposes was $240,929. Net unrealized appreciation was $112,404, consisting of
gross unrealized appreciation of $120,473 and gross unrealized depreciation of
$8,069.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Assets and Liabilities
- ----------------------------------------------------------------------------------
September 30, 1998
(All amounts in thousands, except per-share data)
<CAPTION>
Growth &
Balanced Income
Fund Fund
--------- ---------
<S> <C> <C>
Assets
Investment in Portfolio, at value................. $248,128 $351,183
Receivable for fund shares sold................... 21 222
Cash.............................................. 25 25
Other assets...................................... 36 28
--------- ---------
Total assets................................... 248,210 351,458
--------- ---------
Liabilities
Payable for fund shares redeemed.................. 112 165
Payable to investment adviser and transfer agent.. 78 109
Other liabilities................................. 168 132
--------- ---------
Total liabilities.............................. 358 406
--------- ---------
Net assets..................................... $247,852 $351,052
========= =========
Analysis of Net Assets
Paid-in capital................................... $175,957 $233,215
Net unrealized appreciation on investments........ 56,205 112,368
Undistributed net investment income............... 573 855
Accumulated net realized gains on investments..... 15,117 4,614
--------- ---------
Net assets..................................... $247,852 $351,052
========= =========
Shares outstanding (unlimited number authorized).. 8,074 15,634
========= =========
Net asset value per share......................... $ 30.70 $ 22.45
========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
- ---------------------------------------------------------------------------------
For the Year Ended September 30, 1998
(All amounts in thousands)
<CAPTION>
Growth &
Balanced Income
Fund Fund
-------- --------
<S> <C> <C>
Investment Income
Interest allocated from Portfolio................. $ 8,542 $ 3,194
Dividends allocated from Portfolio................ 2,361 4,404
-------- --------
Total investment income........................ 10,903 7,598
-------- --------
Expenses
Expenses allocated from Portfolio................. 1,697 2,364
Transfer agent fees............................... 611 799
Administrative fees............................... 417 545
Printing and postage.............................. 55 88
Accounting fees................................... 31 33
SEC and state registration fees................... 23 33
Audit and legal fees.............................. 16 16
Trustees' fees.................................... 7 7
Other............................................. -- 17
-------- --------
Total expenses................................. 2,857 3,902
-------- --------
Net investment income.......................... 8,046 3,696
-------- --------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains on investments allocated
from Portfolio................................. 22,004 5,237
Net realized gains on futures transactions allocated
from Portfolio................................. -- 2,030
Net change in unrealized appreciation or depreciation on
investments and futures transactions........... (27,976) (229)
-------- --------
Net gains (losses) on investments.............. (5,972) 7,038
-------- --------
Net Increase in Net Assets Resulting from Operations $ 2,074 $10,734
======== ========
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>
Balanced Fund Growth & Income Fund
1998 1997 1998 1997
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ............................. $ 8,046 $ 8,059 $ 3,696 $ 4,288
Net realized gains on investments ................. 22,004 11,636 7,267 12,317
Net change in unrealized appreciation
or depreciation on investments .................. (27,976) 36,801 (229) 58,865
--------- --------- --------- ---------
Net increase in net assets
resulting from operations ............. 2,074 56,496 10,734 75,470
--------- --------- --------- ---------
Distributions to Shareholders
Distributions from net investment income .......... (6,492) (8,239) (4,131) (3,709)
Distributions from net capital gains .............. (16,945) (18,744) (14,181) (8,004)
--------- --------- --------- ---------
Total distributions
to shareholders ....................... (23,437) (26,983) (18,312) (11,713)
--------- --------- --------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares ...................... 21,549 53,871 93,477 139,473
Value of distributions reinvested ................. 19,237 22,002 14,304 8,338
Redemptions of fund shares ........................ (56,417) (51,603) (86,617) (78,489)
--------- --------- --------- ---------
Net increase (decrease)
from share transactions ................ (15,631) 24,270 21,164 69,322
--------- --------- --------- ---------
Net increase (decrease)
in net assets .......................... (36,994) 53,783 13,586 133,079
TOTAL NET ASSETS
Beginning of period ............................... 284,846 231,063 337,466 204,387
--------- --------- --------- ---------
End of period ..................................... $ 247,852 $ 284,846 $ 351,052 $ 337,466
========= ========= ========= =========
Undistributed Net Investment Income ............... $ 573 $ 182 $ 855 $ 1,295
========= ========= ========= =========
ANALYSIS OF CHANGES IN SHARES
OF BENEFICIAL INTEREST
Subscriptions to fund shares ...................... 668 1,769 3,902 6,996
Issued in reinvestment of distributions ........... 615 750 636 445
Redemptions of fund shares ........................ (1,735) (1,678) (3,635) (3,826)
--------- --------- --------- ---------
Net increase (decrease)
in fund shares ........................ (452) 841 903 3,615
Shares outstanding at
beginning of period ............................ 8,526 7,685 14,731 11,116
--------- --------- --------- ---------
Shares outstanding at end of period ............... 8,074 8,526 15,634 14,731
========= ========= ========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Assets And Liabilities
- --------------------------------------------------------------------------------
September 30, 1998
(All amounts in thousands)
<CAPTION>
SR&F
SR&F Growth
Balanced & Income
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Assets
Investments, at market value (cost of $205,026 and
$240,767, respectively)........................ $264,544 $353,333
Deposit with broker for securities sold short..... 17,015 --
Dividends and interest receivable................. 1,340 409
Cash.............................................. -- 230
Other assets...................................... -- 75
--------- ---------
Total assets................................... 282,899 354,047
--------- ---------
Liabilities
Securities sold short, at market value
(proceeds of $15,138)........................... 18,429 --
Loan payable to broker............................ 16,000 --
Variation margin payable for futures transactions. -- 591
Payable to investment adviser..................... 115 161
Cash overdraft.................................... 33 --
Other liabilities................................. 77 102
--------- ---------
Total liabilities.............................. 34,654 854
--------- ---------
Net assets applicable to investors'
beneficial interest......................... $248,245 $353,193
========= =========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1998
(All amounts in thousands)
<CAPTION>
SR&F
SR&F Growth &
Balanced Income
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Investment Income
Interest.......................................... $ 8,545 $ 3,201
Dividends......................................... 2,362 4,415
-------- --------
Total investment income........................ 10,907 7,616
-------- --------
Expenses
Management fees................................... 1,530 2,188
Accounting fees................................... 31 33
Trustees' fees.................................... 19 18
Audit and legal fees.............................. 18 17
Custodian fees.................................... 7 5
Other............................................. 92 109
-------- --------
Total expenses................................. 1,697 2,370
-------- --------
Net investment income.......................... 9,210 5,246
-------- --------
Realized and Unrealized Gains (Losses) on Investments
Net realized gains on investments................. 22,005 5,194
Net realized gains on futures transactions........ -- 1,823
Net change in unrealized appreciation or depreciation on
investments and futures transactions........... (27,983) (242)
-------- --------
Net gains (losses) on investments and
futures transactions........................ (5,978) 6,775
-------- --------
Net Increase in Net Assets Resulting from Operations $ 3,232 $12,021
======== ========
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
For the Year Ended September 30, 1998, and
The Period Ended September 30, 1997
(All amounts in thousands)
<CAPTION>
SR&F Growth &
SR&F Balanced Portfolio Income Portfolio
1998 1997 (a) 1998 1997 (a)
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ........................................................ $ 9,210 $ 6,241 $ 5,246 $ 4,048
Net realized gains on investments ............................................ 22,005 6,019 7,017 9,775
Net change in unrealized appreciation or depreciation on investments ......... (27,983) 21,679 (242) 38,203
--------- --------- --------- ---------
Net increase in net assets resulting from operations ................ 3,232 33,939 12,021 52,026
--------- --------- --------- ---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions ................................................................ 4,912 272,915 36,636 306,674
Withdrawals .................................................................. (44,840) (21,913) (33,209) (20,955)
--------- --------- --------- ---------
Net increase (decrease) from transactions in investors'
beneficial interest............................................... (39,928) 251,002 3,427 285,719
--------- --------- --------- ---------
Net increase (decrease) in net assets ............................... (36,696) 284,941 15,448 337,745
TOTAL NET ASSETS
Beginning of period .......................................................... 284,941 -- 337,745 --
--------- --------- --------- ---------
End of period ................................................................ $ 248,245 $ 284,941 $ 353,193 $ 337,745
========= ========= ========= =========
(a) From commencement of operations on February 3, 1997 See accompanying Notes
to Financial Statements.
</TABLE>
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1. Organization
Stein Roe Balanced Fund and Stein Roe Growth & Income Fund (the "Funds") are
series of Stein Roe Investment Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust. Balanced Fund
and Growth & Income Fund invest substantially all of their assets in SR&F
Balanced Portfolio and SR&F Growth & Income Portfolio (the "Portfolios"),
respectively.
The Portfolios are series of the SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolios commenced operations on February 3, 1997. At commencement,
Balanced Fund and Growth & Income Fund contributed $260,013 and $239,175 in
securities and other assets to SR&F Balanced Portfolio and SR&F Growth & Income
Portfolio, respectively, in exchange for beneficial ownership of those
Portfolios. At February 14, 1997, Stein Roe Advisor Balanced Fund and Stein Roe
Advisor Growth & Income Fund each contributed cash of $100 to their respective
Portfolios. The Portfolios allocate income, expenses, realized and unrealized
gains and losses to each investor on a daily basis, based on their respective
percentage of ownership. At September 30, 1998, Balanced Fund and Advisor
Balanced Fund owned 99.95 percent and .05 percent, respectively, of the SR&F
Balanced Portfolio; and Growth & Income Fund and Advisor Growth & Income Fund
owned 99.43 percent and .57 percent, respectively, of SR&F Growth & Income
Portfolio.
Note 2. Significant Accounting Policies
The following summarizes the significant accounting policies of the Funds and
Portfolios. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accom panying notes.
Actual results could differ from those estimates.
Investment Transactions and Investment Income
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, and interest income is recorded on the accrual
basis. Interest income includes discount accretion on fixed income securities.
Realized gains and losses from investment transactions are reported on an
identified cost basis.
Security Valuations
All securities are valued as of September 30, 1998. Securities are valued at,
depending on the security involved, the last reported sales price, last bid or
asked price, or the mean between last bid and asked prices as of the close of
the appropriate exchange or other designated time. A security that is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary exchange for such security. Securities and other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Trustees.
Futures Contracts
During the year ended September 30, 1998, SR&F Growth & Income Portfolio entered
into stock index futures contracts to either hedge against expected declines of
its portfolio securities or as a temporary substitute for the purchase of
individual stocks. Risks of entering into futures contracts include the
possibility that there may be an illiquid market at the time the Portfolio seeks
to close out a contract, and changes in the value of the futures contract may
not correlate with changes in the value of the portfolio securities being
hedged. Upon entering into a futures contract, the Portfolio deposits with its
custodian cash or securities in an amount sufficient to meet the initial margin
requirements. Subsequent payments are made or received by the Portfolio equal to
the daily change in the contract value and are recorded as unrealized gains or
losses. The Portfolio recognizes a realized gain or loss when the contract is
closed or expires.
Securities Sold Short
SR&F Balanced Portfolio engages in selling securities short, which obligates the
Portfolio to replace a security borrowed by purchasing the same security at the
current market value. The Portfolio may incur a gain or a loss between the date
of the short sale and the date on which the Portfolio replaces the borrowed
security. The Portfolio has established a margin account with a broker lending
the securities sold short. While a short sale is outstanding, the broker retains
the proceeds of the short sale in a margin account. The Portfolio may take a
loan against the proceeds not exceeding 95 percent of the total deposit. The
Portfolio must also place an equivalent amount of securities in a separate
account with its custodian.
Federal Income Taxes
No provision is made for federal income taxes since (a) the Funds elect to be
taxed as "regulated investment companies" and make distributions to their
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolios are treated as partnerships for
federal income tax purposes and all of their income is allocated to their owners
based on their respective percentages of ownership.
Distributions to Shareholders
On November 3, 1998, the Board of Trustees declared dividends from net
investment income of 18 cents per share for Balanced Fund and 5 cents per share
for Growth & Income Fund, payable November 20, 1998, to shareholders of record
on November 11, 1998. Each Fund declares and pays dividends of any net
investment income at least quarterly, and any net realized capital gains
annually. Shareholder distributions 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.
Note 3. Trustees' Fees and Transactions with Affiliates
The Funds and Portfolios pay monthly management and administrative fees to Stein
Roe & Farnham Incorporated (the "Adviser"), an indirect, wholly-owned subsidiary
of Liberty Financial Companies, Inc. ("Liberty"), for its services as investment
adviser and manager. The management fee for SR&F Balanced Portfolio is computed
at an annual rate of .55 of 1 percent of average daily net assets up to $500
million, .50 of 1 percent of the next $500 million, and .45 of 1 percent
thereafter. The management fee for SR&F Growth & Income 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 fees for the Funds are computed at an annual rate
of .15 of 1 percent of average daily net assets up to $500 million, .125 of 1
percent of the next $500 million, and .10 of 1 percent thereafter.
The Adviser also provides fund accounting services. For the year ended
September 30, 1998, Balanced Fund, Growth & Income Fund, SR&F Balanced Portfolio
and SR&F Growth & Income Portfolio incurred charges of $31, $33, $31, and $33,
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 Funds. Certain officers and
trustees of the Trust are also officers of the Adviser. The compensation of
trustees not affiliated with the Adviser for Balanced Fund, Growth & Income
Fund, SR&F Balanced Portfolio and SR&F Growth & Income Portfolio for the year
ended September 30, 1998, was $7, $7, $19 and $18, 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 Portfolios maintain borrowing
arrangements under which they can borrow against portfolio securities. Neither
the Funds nor the Portfolios had short-term borrowings during the year ended
September 30, 1998.
Note 5. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than
short-term obligations for the year ended September 30, 1998, were:
Purchases Sales
-------- --------
SR&F Balanced Portfolio........................... $163,405 $174,870
SR&F Growth & Income Portfolio.................... 43,988 33,683
<PAGE>
<TABLE>
Financial Highlights
Balanced Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
Years Ended September 30,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .......................... $ 33.41 $ 30.07 $ 27.82 $ 25.78 $ 27.57
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................ 0.95 0.95 1.00 1.33 1.15
Net realized and unrealized gains
(losses) on investments............................. (0.90) 5.61 2.96 2.22 (1.06)
-------- -------- -------- -------- --------
Total from investment operations ................... 0.05 6.56 3.96 3.55 0.09
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income ................................ (0.76) (0.96) (1.01) (1.23) (1.17)
Net realized capital gains ........................... (2.00) (2.26) (0.70) (0.28) (0.71)
-------- -------- -------- -------- --------
Total distributions ................................ (2.76) (3.22) (1.71) (1.51) (1.88)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ................................ $ 30.70 $ 33.41 $ 30.07 $ 27.82 $ 25.78
======== ======== ======== ======== ========
Ratio of net expenses to average net assets ................... 1.03% 1.05% 1.05% 0.87% 0.83%
Ratio of net investment income to average net assets .......... 2.90% 3.02% 3.45% 5.14% 4.53%
Portfolio turnover rate ....................................... N/A 15%(a) 87% 45% 29%
Total return .................................................. 0.14% 23.60% 14.83% 14.49% 0.36%
Net assets, end of period (000's) ............................. $247,852 $284,846 $231,063 $228,560 $229,274
(a) Prior to commencement of operations of the Portfolio.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
SR&F Balanced Portfolio
<CAPTION>
Year Ended Period Ended
September 30, September 30,
1998 1997 (a)
------------ ------------
<S> <C> <C>
Ratio of net expenses to average net assets....... 0.61% 0.60% (b)
Ratio of net investment income to average net assets 3.31% 3.52% (b)
Portfolio turnover rate........................... 61% 21%
(a) From commencement of operations on February 3, 1997.
(b) Annualized
</TABLE>
<PAGE>
<TABLE>
Financial Highlights Continued
- --------------------------------------------------------------------------------
Growth & Income Fund
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
Years Ended September 30,
1998 1997 1996 1995 1994
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 22.91 $ 18.39 $ 16.65 $ 14.54 $ 14.83
----------- ----------- ---------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .................... 0.24 0.30 0.27 0.34 0.18
Net realized and unrealized gains
on investments......................... 0.55 5.15 3.22 2.56 0.40
----------- ----------- ---------- ----------- ----------
Total from investment operations ....... 0.79 5.45 3.49 2.90 0.58
----------- ----------- ---------- ----------- ----------
DISTRIBUTIONS
Net investment income .................... (0.28) (0.28) (0.32) (0.20) (0.16)
Net realized capital gains ............... (0.97) (0.65) (1.43) (0.59) (0.71)
----------- ----------- ---------- ----------- ----------
Total distributions .................... (1.25) (0.93) (1.75) (0.79) (0.87)
----------- ----------- ---------- ----------- ----------
NET ASSET VALUE, END OF PERIOD .................... $ 22.45 $ 22.91 $ 18.39 $ 16.65 $ 14.54
=========== =========== ========== =========== ==========
Ratio of net expenses to average net assets ....... 1.07% 1.13% 1.18% 0.96% 0.90%
Ratio of net investment income to
average net assets ............................. 1.02% 1.52% 1.65% 1.78% 1.18%
Portfolio turnover rate ........................... N/A 2%(a) 13% 70% 85%
Total return ...................................... 3.45% 30.81% 22.67% 21.12% 4.03%
Net assets, end of period (000's) ................. $ 351,052 $ 337,466 $ 204,387 $ 139,539 $ 129,680
(a) Prior to commencement of operations of the Portfolio.
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------
SR&F Growth & Income Portfolio
<CAPTION>
Year Ended Period Ended
September 30, September 30,
1998 1997 (a)
------------ ------------
<S> <C> <C>
Ratio of net expenses to average net assets....... 0.65% 0.65% (b)
Ratio of net investment income to average net assets 1.44% 2.04% (b)
Portfolio turnover rate........................... 11% 7%
(a)From commencement of operations on February 3, 1997.
(b)Annualized
</TABLE>
<PAGE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of:
Stein Roe Investment Trust
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
SR&F Base Trust
SR&F Balanced Portfolio
SR&F Growth & Income Portfolio
We have audited the accompanying statements of assets and liabilities of Stein
Roe Balanced Fund and Stein Roe Growth & Income Fund and the accompanying
statements of assets and liabilities, including the portfolio of investments, of
SR&F Balanced Portfolio and SR&F Growth & Income 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 Funds' and
Portfolios' management. Our respon sibility 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 Balanced Portfolio and SR&F Growth &
Income Portfolio included confirmation of securities owned as of September 30,
1998, by correspon dence 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 Balanced Fund, Stein Roe Growth & Income
Fund, SR&F Balanced Portfolio and SR&F Growth & Income 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>
Investment Trust
- --------------------------------------------------------------------------------
Trustees
Thomas W. Butch
President, Mutual Fund Division and Director,
Stein Roe & Farnham Incorporated
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Senior Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Senior Vice President and Chief Financial
Officer, United Airlines
Janet Langford Kelly
Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Director, William Blair Capital Partners
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
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
Janet B. Rysz, Assistant Secretary
Scott E. Volk, Treasurer
Margaret O. Zwick, Assistant Treasurer
<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.
GI11A 11/98
