STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
September 30, 1999
Photo of: Hands on Globe.
Stein Roe Equity Fund
INTERNATIONAL FUND
International Fund
Logo:
STEIN ROE MUTUAL FUNDS
Sensible Risks, Intelligent Investments.(R)
<PAGE>
CONTENTS
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FROM THE PRESIDENT................................................ 1
STEPHEN E. GIBSON'S THOUGHTS ON INTERNATIONAL INVESTING
PERFORMANCE SUMMARY............................................... 3
QUESTIONS & ANSWERS............................................... 4
INTERNATIONAL FUND -- AN INTERVIEW WITH PORTFOLIO
MANAGER NICHOLAS GHAJAR
FUND HIGHLIGHTS................................................... 7
PORTFOLIOS OF INVESTMENTS......................................... 8
A COMPLETE LIST OF INVESTMENTS WITH MARKET VALUES
FINANCIAL STATEMENTS.............................................. 12
STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS
AND CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS..................................... 18
FINANCIAL HIGHLIGHTS.............................................. 22
SELECTED PER-SHARE DATA AND RATIOS
REPORT OF INDEPENDENT
ACCOUNTANTS....................................................... 24
MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
<PAGE>
FROM THE PRESIDENT
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
I am pleased to present the 1999 annual report for Stein Roe International Fund.
For the 12 months ended September 30, 1999, your Fund provided a total return of
33.02%, the strongest results in its five-and-a-half year history.
With a diverse mix of stocks in both established and emerging overseas
equity markets, International Fund was well-positioned to capitalize on this
past year's rebound in many Pacific Rim equity markets, most notably Japan's.
Selected Western European equity markets also provided excellent returns.
The Fund's fiscal 1999 returns outpaced the results of the average
international mutual fund as well as the unmanaged Morgan Stanley Capital
International Europe Australasia Far East (EAFE) Index, as shown on page 3. It
was also the first 12-month period in several years that the Morgan Stanley EAFE
Index
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INTERNATIONAL FUND WAS WELL-POSITIONED TO CAPITALIZE ON THIS PAST YEAR'S REBOUND
IN MANY PACIFIC RIM EQUITY MARKETS.
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outperformed large-cap domestic stocks, as measured by the unmanaged Standard &
Poor's 500 Index and shown on page 3.
Structural economic reforms, interest rate reductions and financial support
provided by the Inter national Monetary Fund (IMF) helped restore investor
confidence in Asian emerging markets during the past year. Equity markets in
countries that suffered in the wake of summer 1997 currency devaluations -- such
as Hong Kong, Singapore, South Korea and Thailand -- bounced back.
In Western Europe, the pace of change increased as Continental economic
growth slowed. Mergers swept the financial services and energy industries.
Tensions in the Balkans eased. The new Euro currency unit made a lukewarm debut
while the United Kingdom averted recession.
At Stein Roe, we've always believed that long-term investors should
consider allocating a portion of their portfolio to international investments.
In our view, overseas developments during the past year, as well as the
increased volatility of the U.S. stock market, make a solid case for maintaining
a diverse global portfolio.
On the pages that follow, Nicholas Ghajar, a member of Liberty Funds
Group's international equity management team since 1993 and your Fund's
portfolio manager since September 14, 1999, details the consistent strategy that
helped your Fund deliver attractive fiscal 1999 results.
[photo of Stephen E. Gibson]
- -----------------
STEPHEN E. GIBSON
1
<PAGE>
FROM THE PRESIDENT CONTINUED
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OCEANS OF OPPORTUNITY
The world is an exciting, dynamic place as we enter the 21st Century; full of
challenges, risks and potential rewards. While this past summer's violence in
Indonesia shows the potential for political and economic chaos, the fact that
multinational corporations such as General Electric and Microsoft are expanding
their ownership interests in many countries bodes well for the future of
emerging markets, in our view.
Nearly a century ago Teddy Roosevelt sent a fleet of battleships on a
cruise around the world to pursue our country's interests. Today in a few
seconds, investors can electronically navigate the globe in search of
opportunity. We believe more overseas companies are recognizing that to
successfully compete for investment capital, they need to adopt U.S. business
practices, including credible accounting and legal standards, a focus on
profitability, effective currency risk management and shareholder-friendly
corporate governance.
To the extent that companies and countries do not offer people a fair
opportunity to invest or earn a living -- what Roosevelt called a square deal --
investors face added risks. Substantial market, political and currency
fluctuations, and even military conflict, remain a facet of investing overseas.
Overall, however, we think the world is entering the new millennium with solid
prospects for long-term growth.
At Stein Roe, we are committed to making intelligent global investments and
taking sensible risks. We thank you for the confidence you have shown in
International Fund. As we have for 50 years, we will to do everything we can to
help your investment dollars work hard for you.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
November 15, 1999
Foreign investments, especially emerging market investments, involve market,
political, currency and accounting risks not associated with domestic
securities.
On November 2, 1999, Stephen E. Gibson was named President of Stein Roe Mutual
Funds. Mr. Gibson is President and Chief Executive Officer of Liberty Funds
Group, LLC, a part of Liberty Financial Companies Inc. Liberty Financial is
Stein Roe's Boston parent organization. Mr. Gibson joined Liberty Financial in
1996 and has more than 20 years of mutual fund industry experience that includes
senior management positions at Putnam Investments and Kemper Corporation.
2
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PERFORMANCE SUMMARY
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AVERAGE ANNUAL TOTAL RETURNS
Periods Ended September 30, 1999
ONE FIVE LIFE
YEAR YEARS OF FUND+
- --------------------------------------------------------------------------------
STEIN ROE INTERNATIONAL FUND 33.02% 5.40% 5.94%
MSCI EAFE Index 30.95 9.12 9.57
Lipper International Fund Average 29.80 9.12 8.90
Number of Funds in Peer Group 578 207 162
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+ Fund began operating on 3/1/94. Index and Lipper International Fund Life of
Fund performance is from 3/31/94.
INVESTMENT COMPARISON
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GROWTH OF A $10,000 INVESTMENT
March 1, 1994 to September 30, 1999
- --------------------------------------------------------------------------------
STEIN ROE INTERNATIONAL FUND
LINE CHART:
LIPPER MSCI STEIN ROE
INTERNATIONAL EAFE INTERNATIONAL
FUND AVERAGE INDEX FUND
(162 FUNDS)
3/31/94 10000 10000 10000
3/31/94 9565.94 10000 10000
9/30/94 9971.91 10535 10610
9/30/95 10362.8 11178 10475
9/30/96 11401.9 12177 11337
9/30/97 13533.5 13699 12452
9/30/98 12106 12592 10376
9/30/99 15546.2 16533 13802
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. The above
illustration assumes a $10,000 investment on March 1, 1994 and includes changes
in share price and reinvestment of income and capital gains distributions. The
MSCI EAFE Index is a group of stocks in established overseas markets, is
unmanaged and not available for direct investment. Foreign investments,
especially emerging market investments, involve market, political, currency and
accounting risks not associated with domestic securities. Sources: Lipper Inc.,
a monitor of mutual fund performance and Wiesenberger(R). Lipper category and
Index performance is from 3/31/94.
3
<PAGE>
QUESTIONS & ANSWERS
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AN INTERVIEW WITH NICHOLAS GHAJAR, PORTFOLIO MANAGER OF STEIN ROE
INTERNATIONAL FUND AND SR&F INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
FUND FACTS
INVESTMENT OBJECTIVE AND STRATEGY:
Stein Roe International Fund seeks long-term growth and invests all
of its assets in SR&F International Portfolio. The Portfolio invests
primarily in stocks of large foreign companies. It seeks broad
diversification both in terms of countries and issuers.
INCEPTION DATE:
March 1, 1994
NET ASSETS:
$114.9 million
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Effective Sept. 14, 1999, Nicholas Ghajar was named portfolio manager for
International Fund and SR&F International Portfolio. Mr. Ghajar has more than
six years of investment experience that includes managing, researching and
trading equities for global and international portfolios for Colonial Management
Associates, Inc. (CMA) since 1993. He is employed by Stein Roe & Farnham
Incorporated and CMA and he holds a Master of Science degree in finance from
Northeastern University.
Q: HOW DID THE FUND PERFORM IN FISCAL 1999?
GHAJAR: It was an excellent year for International Fund. The Portfolio's total
return of 33.02% for the fiscal year ended September 30, 1999 outpaced most
international funds (see page 3) and the unmanaged Morgan Stanley Capital
International Europe, Australasia and Far East (MSCI EAFE) Index, which advanced
30.95%.
[Photo of Nicholas Ghajar]
NICHOLAS GHAJAR
Q: WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
GHAJAR: We boosted the Fund's holdings in Japan (23.3% of net assets) and
reduced our exposure to Germany, France and Italy. In addition, the Fund had a
large exposure to emerging markets and cyclical stocks, that benefited from
rebounding economic growth and from rising commodities prices. This helped
provide solid returns. A year earlier, the Fund allocated 12% of net assets to
Japan.
Since October 1998, Japan's stock market has risen over 75%, largely as a
result of economic reform. The Japanese government injected $35 billion into the
economy and cut taxes by $80 billion. Another positive factor has been corporate
restructuring, which has centered on cutting costs to improve Japanese firms'
profitability. Both measures appear to have been effective in stimulating
Japan's economy.
The Fund's performance also
4
<PAGE>
QUESTIONS & ANSWERS CONTINUED
- --------------------------------------------------------------------------------
benefited from a significant rise in the value of the U.S. dollar,
particularly against the Japanese yen. The yen showed astonishing strength,
appreciating 24% in U.S. dollar terms during the fourth quarter of calendar year
1998. This translated into higher dollar-based returns for the Fund.
Q: CAN YOU GIVE AN EXAMPLE OF A PORTFOLIO HOLDING THAT HAS BENEFITED FROM
CORPORATE RESTRUCTURING IN JAPAN?
GHAJAR: KAO Corp. (0.8% of net assets), a holding we added to the portfolio
early in the fiscal year, has benefited from restructuring. KAO is Japan's
second largest maker of personal care, laundry and cleaning products. In the
mid-1980s, the company diversified into computer hard disk drive manufacturing,
a move that was not successful. Over the past year, KAO started selling such
non-core businesses. Since refocusing on household products, KAO's net income
has risen nearly 60%.
Q: OTHER THAN JAPAN WHERE ELSE DID THE FUND INVEST?
GHAJAR: As of September 30, 1999, the Portfolio's holdings were diversified
among 25 countries. We increased our weighting in the United Kingdom (21.4%) and
reduced the Fund's weightings in several Northern European countries, including
France, Germany, Italy and Finland, (9.6%, 6.3%, 3.4% and 3.6% of net assets,
respectively) because of a sharp slowdown in economic growth and currency
weakness.
During fiscal 1999, we added Spain and Portugal, (0.7% and 1.5% of net
assets respectively) to the roster of countries we favored for investment. These
smaller markets in Western Europe are attractive to investors because they had
lower labor costs, less government bureaucracy and faster economic growth than
some European economies such as France and Germany.
Q: WHAT HOLDINGS PERFORMED WELL IN FISCAL 1999?
GHAJAR: Some of our strongest performers were stocks in the capital goods
sector, the Fund's largest sector allocation (18% of net assets). These included
Samsung Electronics, a South Korean consumer electronics maker (2.7% of net
assets). Samsung's stock price rose 15-fold during fiscal 1999, contributing
significantly to the Fund's results in this sector. Also Colt Telecom, a UK
telecommunications company (1.0%), and KAO Corp., a Japanese consumer goods
company, contributed significantly to the performance of the Fund. South Korea
was also the world's best performing stock market for the 12 months ended
September 30, 1999, rising 207.9%.
Q: WHAT IS YOUR OUTLOOK FOR WORLD MARKETS FOR FISCAL 2000?
GHAJAR: We anticipate a strong recovery in gross domestic product on
5
<PAGE>
QUESTIONS & ANSWERS CONTINUED
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a worldwide basis, particularly in Asia. If this happens, we believe many
commodities -- including oil, paper products and steel -- may continue to rise
in price.
In September 1999, the Inter national Monetary Fund raised its estimate for
economic growth in Asia in the year 2000 to 5.7%, citing faster-than-expected
recoveries in emerging Asian markets and fiscal reforms in Japan. That compares
with a projected year 2000 growth rate of 2.6% for the United States and 2.9%
for Western Europe, according to the IMF's WORLD ECONOMIC OUTLOOK.
We believe the steps taken by Japan's government to jumpstart its economy
are working, as evidenced by an improving GDP and a successful corporate
restructuring to date. A stronger Japanese economy should help the overall
global economy, particularly in Southeast Asia. We've also begun to see solid
improvement in Europe. In our view, the combination of below average short-term
interest rates, low inflation, corporate restructuring activities and strong
economic growth on a global basis should benefit these markets going forward.
Foreign investing involves market, political, currency and accounting risks not
associated with domestic securities. Emerging market investing also involves
these risks, and emerging market equities are generally more volatile and less
liquid than securities in either the U.S. or countries with established equity
markets.
- --------------------------------------------------------------------------------
WORLD'S TOP PERFORMING/WORST PERFORMING STOCK MARKETS
September 30, 1998 to September 30, 1999
South Korea (Korea Composite Index) 207.9%
Indonesia (Jakarta Composite Index) 159.4%
Greece (ASE Composite Index) 149.5%
Singapore (SES All Index) 92.1%
Russia (Russian Trading System Index) 89.7%
--------------------------------------------------------------
Columbia (Columbia Stock Market) -16.5%
Denmark (Borsen BMCX Index) -16.0%
Panama (Panama Stock General Index) -15.9%
Mauritius*(SE Semdex) -15.6%
Belgium (Bel20Index) -5.3%
*Mauritius is a small island nation near Madagascar off the east coast
of Africa.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Each above index is
an unmanaged group of securities that differs from the composition of
any Stein Roe fund; none are available for direct investment. Returns
shown are in U.S. dollars and include reinvestment of dividends, if any.
Source: Bloomberg Business News.
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6
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FUND HIGHLIGHTS
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SR&F INTERNATIONAL PORTFOLIO
As of September 30, 1999
TOP 10 EQUITY HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
COMPANY NET ASSETS COUNTRY INDUSTRY
<S> <C> <C> <C>
Samsung Electronics 2.7% South Korea Electronics
NTT Mobile Communications 2.2% Japan Cell. Phones
Murata Manufacturing Co. 2.1% Japan Electronic components
Promise Co. 2.1% Japan Consumer finance
Ito-Yokado Co. 1.9% Japan Retailer
Alcatel 1.7% France Telecom
Deutsche Bank AG 1.7% Germany Financial Services
Mannesmann AG 1.6% Germany Telecom
Michelin 1.6% France Tires, Industrial Components
Racal Electronics 1.6% UK Electronics
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO STATISTICS
MSCI
PORTFOLIO EAFE INDEX
--------------------------------
Number of Holdings 106 989
Price/Earnings Ratio 21.0x 26.4x
Price-to-Book Value 2.1 2.9
- --------------------------------------------------------------------------------
ECONOMIC SECTOR BREAKDOWN
PORTFOLIO MSCI EAFE INDEX
[Pie chart] [Pie chart]
18% Capital Goods 11.5%
13% Consumer Goods 20.5%
11% Energy 10.2%
18% Financial 23.8%
11% Materials 5.9%
2% Multi-Industry 1.3%
27% Services 26.8%
[World map]
Cash Equivalents - 2.6%
Latin America# - 2.6%
Other Pacific Rim*** - 7.9%
Continental Europe* - 33.7%
United Kingdom - 21.4%
Scandinavia** - 8.5%
Japan - 23.3%
*France, Netherlands, Germany, Italy, Switzerland, Portugal, Spain, Belgium
**Finland, Sweden and Norway
#Brazil, Argentina, Mexico
***South Korea, Hong Kong, Indonesia, Philippines, Malaysia, Thailand and
Australia
7
<PAGE>
SR&F INTERNATIONAL PORTFOLIO
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Portfolio of Investments at September 30, 1999
(All amounts in thousands)
NUMBER MARKET
EQUITY SECURITIES (94.2%) OF SHARES VALUE
- --------------------------------------------------------------------------------
ARGENTINA (0.8%)
Telecom Argentina ADR................................ 33 $ 873
AUSTRALIA (0.2%)
Reinsurance Australia Corp. ......................... 401 211
BELGIUM (0.1%)
Fortis (a)........................................... 13 79
Fortis Strip VVPR (a)................................ 117 1
Generale Banque Strip VVPR........................... (b) (b)
--------
80
BRAZIL (1.1%)
Telebras ADR (a)..................................... 33 1
Telebras ADR, Preferred shares....................... 16 1,199
--------
1,200
FINLAND (3.6%)
Enso................................................. 92 1,225
Merita............................................... 245 1,384
Metsa-Serla, B shares................................ 165 1,485
--------
4,094
FRANCE (9.6%)
Alcatel.............................................. 14 1,964
Banque Nationale de Paris............................ 22 1,754
Lafarge.............................................. 12 1,339
Michelin, B shares................................... 38 1,814
Moulinex (a)......................................... 49 494
Total Fina, B shares................................. 14 1,704
Vivendi.............................................. 23 1,654
Vivendi Rights....................................... 23 29
Vivendi Warrants..................................... 18 36
--------
10,788
GERMANY (6.3%)
Daimler-Chrysler..................................... 13 902
Deutsche Bank........................................ 29 1,917
Henkel KGaA, Preferred shares........................ 17 1,040
MAN AG............................................... 46 1,391
Mannesmann........................................... 11 1,833
--------
7,083
HONG KONG (1.3%)
Companion Building Materials Holdings................ 11,119 288
Hong Kong Ferry...................................... 633 664
Vitasoy International Holdings....................... 1,530 468
--------
1,420
INDONESIA (0.8%)
Charoen Pokphand Indonesia (a)....................... 1,038 190
Ever Shine Textile (a)............................... 2,020 200
Matahari Putra Prima................................. 6,083 530
--------
920
8
<PAGE>
SR&F INTERNATIONAL PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
ITALY (3.4%)
Banca Popolare di Milano............................. 229 $ 1,664
Olivetti (a)......................................... 507 1,114
Olivetti Rights...................................... 507 39
Telecom Italia, Savings shares....................... 202 1,020
--------
3,837
JAPAN (23.3%)
Bank of Tokyo Mitsubishi LTD......................... 95 1,461
Bridgestone.......................................... 52 1,457
Canon................................................ 45 1,312
Daiwa House Industry................................. 104 1,030
Glaxo................................................ 39 1,011
Honda Motor.......................................... 27 1,132
Ito-Yokado........................................... 26 2,151
Japan OTC Fund (a)................................... 1 1,579
KAO Corp. ........................................... 31 877
Murata Manufacturing................................. 24 2,415
Nichiei.............................................. 6 460
Nippon Telegraph & Telephone......................... (b) 1,318
NTT Mobile Communication Network..................... (b) 2,468
Promise.............................................. 29 2,321
Sony................................................. 8 1,197
Sumitomo Heavy Industries (a)........................ 573 1,584
Tokyo Style.......................................... 130 1,430
Webs - Japan Index Series............................ 72 1,008
--------
26,211
MALAYSIA (0.5%)
IOI Properties (c)................................... 298 533
MEXICO (0.7%)
Grupo Carso, Series A1............................... 198 824
NETHERLANDS (6.9%)
Fortis Amev.......................................... 35 1,119
Koninklijke Ahold NV................................. 17 570
Koninklijke KPN...................................... 28 1,247
Koninklijke Philips Electronics ADR (a).............. 11 1,121
Royal Dutch Petroleum................................ 20 1,181
Sphinx Gustavberg.................................... 52 644
TNT Post Groep....................................... 44 1,109
Vendex NV............................................ 27 770
--------
7,761
NORWAY (1.5%)
Norsk Hydro.......................................... 39 1,683
PHILIPPINES (0.5%)
Metro Pacific........................................ 11,451 381
Southeast Asia Cement Holdings (a)................... 15,754 166
--------
547
PORTUGAL (1.6%)
Banco Pinto & Sotto Mayor............................ 29 574
Cimpor Cementos...................................... 31 508
Telecel Comunicacaoes Pessoais....................... 5 656
--------
1,738
9
<PAGE>
SR&F INTERNATIONAL PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
SOUTH KOREA (3.5%)
Samchully............................................ 18 $ 736
Samsung Electronics
GDR (d)........................................... 4 418
Preferred shares.................................. 21 2,674
SK Telecom........................................... (b) 102
SK Telecom Rights.................................... (b) (b)
--------
3,930
SPAIN (0.7%)
Centros Comerciales Continente (a)................... 34 838
SWEDEN (3.4%)
Asticus (a).......................................... 59 844
Avesta-Sheffield..................................... 141 702
Biora ADRs (a)....................................... 29 288
Diligentia........................................... 105 796
SSAB, B shares....................................... 94 1,213
--------
3,843
SWITZERLAND (2.8%)
Bucher Holding....................................... 1 761
Novartis............................................. 1 1,180
Holderbank Financiere................................ 1 1,172
--------
3,113
THAILAND (0.2%)
IFCT................................................. 851 265
UNITED KINGDOM (21.4%)
Allied Irish Bank, PLC............................... 38 466
Allied Zurich........................................ 80 933
Aracruz.............................................. 68 1,420
Billiton............................................. 92 384
BG .................................................. 199 1,130
Bowthorpe PLC........................................ 134 1,248
BP Amoco ADR......................................... 13 1,441
British American Tobacco............................. 116 980
Carlton Communications............................... 83 624
Celsis International (a)............................. 551 241
Centrica............................................. 556 1,472
Colt Telecom Group (a)............................... 49 1,142
CRH PLC.............................................. 33 644
Dixons Group......................................... 61 1,090
GKN.................................................. 73 1,149
Halifax PLC.......................................... 79 965
Inchcape............................................. 119 650
Lloyds TSB Group..................................... 80 993
Racal Electronics.................................... 261 1,787
SmithKline Beecham................................... 134 1,558
Tesco................................................ 348 1,076
Tomkins.............................................. 258 1,079
Vodafone Group....................................... 68 1,606
--------
24,078
--------
TOTAL EQUITY SECURITIES (94.2%)
(Cost $89,908).................................... 105,870
--------
- --------------------------------------------------------------------------------
10
<PAGE>
SR&F INTERNATIONAL PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS (3.2%)
REPURCHASE AGREEMENT (3.2%)
Repurchase Agreement with ABN AMRO Chicago Corp.,
dated 09/30/99, due 10/01/99 at 5.300%,
collateralized by a U.S. Treasury Note maturing
in 2000 (Repurchase proceeds $3,646)
(Cost $3,645)..................................... $3,645 $ 3,645
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.4%)
(Cost $93,553) (e)................................ 109,515
Other Assets, Less Liabilities (2.6%)................ 2,933
--------
NET ASSETS (100.0%).................................. $112,448
========
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Rounds to less than one.
(c) Security is illiquid. At September 30, 1999 the value of this security was
0.5% of net assets.
(d) The value of this security represents fair value as determined in good
faith under the direction of the Trustees.
(e) At September 30, 1999, the cost of investments for federal income tax
purposes was $95,604. Net unrealized appreciation $13,911, consisting of
gross unrealized appreciation of $27,307 and gross unrealized depreciation
of $13,396.
Acronym Name
------- ----
ADR American Depositary Receipt
GDR Global Depositary Receipt
See accompanying Notes to Financial Statements.
11
<PAGE>
SR&F INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(All amounts in thousands, except per-share data)
ASSETS
Investments, at market value (cost $93,553).................. $109,515
Cash......................................................... 40
Dividends receivable......................................... 3,057
Receivable for investments sold.............................. 30
--------
Total Assets.............................................. 112,642
--------
LIABILITIES
Payable to Advisor and transfer agent........................ 82
Payable for investments purchased............................ 4
Other liabilities............................................ 108
--------
Total Liabilities......................................... 194
--------
Net Assets................................................ $112,448
========
See accompanying Notes to Financial Statements.
12
<PAGE>
SR&F INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
(All amounts in thousands)
INVESTMENT INCOME
Dividends.................................................... $ 3,403
Interest..................................................... 238
--------
3,641
Foreign taxes withheld....................................... (359)
--------
Total investment income................................... 3,282
--------
EXPENSES
Management fees.............................................. 1,024
Custodian fees............................................... 112
Bookkeeping fees............................................. 27
Audit fees................................................... 17
Trustee fees................................................. 14
Transfer agent fees.......................................... 6
Other........................................................ 39
--------
Total expenses............................................ 1,239
--------
Net investment income..................................... 2,043
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized gain on investments............................. 11,841
Net realized loss on foreign currency transactions........... (29)
Net change in unrealized appreciation or depreciation on
investments and foreign currency transactions............. 22,685
--------
Net gain on investments and foreign currency.............. 34,497
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $36,540
========
See accompanying Notes to Financial Statements.
13
<PAGE>
SR&F INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(All amounts in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
1999 1998
---------- ----------
<S> <C> <C>
OPERATIONS
Net investment income.................................................. 2,043 1,687
Net realized gain (loss) on investments and foreign
currency transactions............................................... 11,812 (7,697)
Net change in unrealized appreciation or depreciation
on investments and foreign currency transactions.................... 22,685 (18,940)
---------- ----------
Net increase (decrease) in net assets resulting
from operations..................................................... 36,540 (24,950)
---------- ----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions.......................................................... 152,210 39,808
Withdrawals............................................................ (191,012) (66,578)
---------- ----------
Net decrease from transactions in investors'
beneficial interest................................................. (38,802) (26,770)
---------- ----------
Net decrease in net assets.......................................... (2,262) (51,720)
NET ASSETS
Beginning of year...................................................... 114,710 166,430
---------- ----------
End of year............................................................ $112,448 $114,710
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE>
STEIN ROE INTERNATIONAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(All amounts in thousands, except per-share data)
ASSETS
Investments in SR&F International Portfolio, at value........ $112,323
Receivable for fund shares sold.............................. 4,231
Cash......................................................... 25
Other assets................................................. 25
--------
Total Assets.............................................. 116,604
--------
LIABILITIES
Payable for fund shares redeemed............................. 1,597
Payable to Adviser and transfer agent........................ 35
Other liabilities............................................ 46
--------
Total Liabilities......................................... 1,678
--------
Net Assets................................................ $114,926
========
ANALYSIS OF NET ASSETS
Paid-in capital.............................................. $ 98,333
Overdistributed net investment income........................ (721)
Accumulated net realized gain on investments ................ 1,340
Net unrealized appreciation on investments and
foreign currency ......................................... 15,974
--------
Net Assets................................................ $114,926
========
Shares outstanding (unlimited number authorized)............. 9,520
--------
Net asset value per share.................................... $ 12.07
========
See accompanying Notes to Financial Statements.
15
<PAGE>
STEIN ROE INTERNATIONAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
(All amounts in thousands)
INVESTMENT INCOME
Dividends allocated from SR&F International Portfolio........ $ 3,400
Interest allocated from SR&F International Portfolio......... 238
-------
3,638
Foreign taxes withheld allocated from
SR&F International Portfolio.............................. (358)
-------
Total investment income...................................... 3,280
-------
EXPENSES
Expenses allocated from SR&F International Portfolio......... 1,236
Transfer agent fees.......................................... 300
Administrative fees.......................................... 180
Bookkeeping fees............................................. 27
Audit and legal fees......................................... 46
SEC and state registration fee .............................. 31
Printing and postage......................................... 30
Trustee fees................................................. 11
Other, net................................................... (122)
-------
Net Expenses.............................................. 1,739
-------
Net investment income..................................... 1,541
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY ALLOCATED FROM SR&F INTERNATIONAL PORTFOLIO
Net realized gain on investments ............................ 11,888
Net realized gain on foreign currency transactions .......... 13
Net change in unrealized appreciation or depreciation on
investments and foreign currency transactions ............ 22,538
-------
Net gain on investments and foreign currency.............. 34,439
-------
Net Increase in Net Assets Resulting from Operations......... $35,980
=======
See accompanying Notes to Financial Statements.
16
<PAGE>
STEIN ROE INTERNATIONAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(All amounts in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
1999 1998
--------------------------
<S> <C> <C>
OPERATIONS
Net investment income.................................................. $ 1,541 $ 919
Net realized gain (loss) on investments and
foreign currency transactions allocated from
SR&F International Portfolio........................................ 11,901 (7,353)
Net change in unrealized appreciation or depreciation
on investments and foreign currency transactions
allocated from SR&F International Portfolio......................... 22,538 (18,814)
--------- ---------
Net increase (decrease) in net assets resulting
from operations..................................................... 35,980 (25,248)
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income............................... (1,137) (1,450)
Distributions from net capital gains................................... -- (8,026)
--------- ---------
(1,137) (9,476)
--------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares........................................... 266,314 61,513
Value of distributions reinvested...................................... 777 7,003
Redemptions of fund shares............................................. (301,252) (85,636)
--------- ---------
Net decrease from share transactions................................ (34,161) (17,120)
--------- ---------
Net increase (decrease) in net assets............................... 682 (51,844)
NET ASSETS
Beginning of year...................................................... 114,244 166,088
--------- ---------
End of year ........................................................... $114,926 $ 114,244
========= =========
Undistributed (Overdistributed)
Net Investment Income............................................... $ (721) $ 745
========= =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares .......................................... 23,473 5,773
Issued in reinvestment of distributions................................ 76 738
Redemptions of fund shares............................................. (26,503) (8,127)
--------- ---------
Net decrease in fund shares......................................... (2,954) (1,616)
Shares outstanding at beginning of year................................ 12,474 14,090
--------- ---------
Shares outstanding at end of year...................................... 9,520 12,474
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(ALL AMOUNTS IN THOUSANDS)
NOTE 1. ORGANIZATION
Stein Roe International Fund (the "Fund") is a series of Liberty-Stein Roe Funds
Investment Trust (the "Trust"), (formerly Stein Roe Investment Trust), an
open-end management investment company organized as a Massachusetts business
trust. The Fund invests substantially all of its assets in SR&F International
Portfolio (the "Portfolio"), which seeks long-term growth of capital by
investing primarily in a diversified mix of foreign securities.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on February 3, 1997. At commence ment,
Stein Roe International Fund contributed $132,942 in securities and other assets
in exchange for beneficial ownership of the Portfolio. The Portfolio allocates
income, expenses, realized and unrealized gains and losses to each investor on a
daily basis, based on methods approved by the Internal Revenue Service. At
September 30, 1999 Stein Roe International Fund owned 99.9%, of the Portfolio.
- --------------------------------------------------------------------------------
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the sign if icant accounting policies of the Fund and
the Portfolio. These policies are in conformity with generally accepted
accounting principles, which require manage ment to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The books and records of the Fund and the Portfolio are maintained in U.S.
dollars.
SECURITY VALUATIONS
Securities are valued at, depending on the security involved, the last reported
sales price, last bid or asked price, or the mean between the last bid and asked
prices as of the close of the appropriate exchange or other designated time. A
security that is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary exchange for such
security. Securities and other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
INVESTMENT TRANSACTIONS AND
INVESTMENT INCOME
Investment transactions are accounted for on trade date.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
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.
CURRENCY TRANSLATIONS
For purposes of valuation, assets and liabilities are translated into U.S.
dollars using that day's currency exchange rates that represent the midpoint
between the bid and asked rates. Purchases and sales of securities are
translated into U.S. dollars using the prevailing exchange rate on the dates of
such transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of such
gains and losses.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Portfolio may enter into forward foreign currency exchange contracts under
which the Portfolio is obligated to exchange currencies at specified rates on
specified future dates. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
currency values. The Portfolio had no open contracts at September 30, 1999.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elected to be
taxed as a "regulated investment company" and makes 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 methods approved by the Internal Revenue Service.
The Fund intends to utilize provisions of federal income tax law, which
allows it to carry a realized capital loss forward up to eight years following
the year of the loss, and offset such losses against any future realized gains.
At September 30, 1999, the Fund had no capital loss carryforwards.
DISTRIBUTIONS 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
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
recognition or classification of income between the financial statements and tax
earnings are reclassified to paid-in capital.
Reclassifications in the Fund's accompanying analysis of net assets was
made in 1999 in order to reflect differences between financial reporting and
income tax results. The differences primarily relate to treatment of investments
in passive foreign investment companies and foreign currency gains and losses.
- --------------------------------------------------------------------------------
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Fund and the Portfolio pay monthly management and administrative fees,
computed and accrued daily, to Stein Roe & Farnham Incorporated (the "Advisor"),
an indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), for its services as investment advisor and administrator. The
management fee for SR&F International Portfolio is computed at an annual rate of
0.85% on the Portfolio's average daily net assets. The administrative fees for
the Fund is computed at an annual rate of 0.15% on the Fund's average daily net
assets.
The Advisor also provides fund accounting services.
Transfer agent fees are paid to SteinRoe Services Inc., a direct, wholly
owned subsidiary of Liberty.
Certain officers and trustees of the Trust are also officers of the
Advisor. No remuneration was paid to any trustee or officer of the Trust who is
affiliated with the Advisor.
- --------------------------------------------------------------------------------
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Fund and the Portfolio maintain borrowing
arrangements under which they can borrow against portfolio securities. During
the year ended September 30, 1999, the Fund utilized this facility on three
different occasions. The maximum loan outstanding during the period was $6,000
at a rate of 5.5625%.
- --------------------------------------------------------------------------------
NOTE 5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the year ended September 30, 1999 were $46,932 and $99,937,
respectively.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS
Based on the recommendation of the Audit Committee of the Stein Roe
International Fund and the SR&F International Portfolio, on August 3, 1999 the
Board of Trustees determined not to retain Arthur Andersen LLP as the Fund's and
the Portfolio's independent accountant and voted to appoint Pricewaterhouse
Coopers LLP for the year ended September 30,1999. During the two most recent
fiscal years, Arthur Andersen LLP audit reports contained no adverse opinion or
disclaimer of opinion; nor were its reports qualified or modified as to
uncertainty, audit scope, or accounting principle. There were no disagreements
in accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which if not resolved to the satisfaction of Arthur
Andersen LLP would have caused it to make reference to the disagreement in its
report on the financial statements for such years.
21
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STEIN ROE INTERNATIONAL FUND
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
Years ended September 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 9.16 $ 11.79 $ 10.96 $ 10.25 $ 10.61
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a).................................. 0.14 0.07 0.06 0.09 0.12
Net realized and unrealized gain (loss) on investments
and foreign currency allocated from SR&F International
Portfolio................................................ 2.87 (2.01) 0.99 0.74 (0.26)
-------- -------- -------- -------- --------
Total from investment operations......................... 3.01 (1.94) 1.05 0.83 (0.14)
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income...................................... (0.10) (0.11) (0.08) (0.12) (0.05)
Net realized capital gains................................. -- (0.58) (0.14) -- (0.17)
-------- -------- -------- -------- --------
Total distributions...................................... (0.10) (0.69) (0.22) (0.12) (0.22)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR.................................. $ 12.07 $ 9.16 $ 11.79 $ 10.96 $ 10.25
======== ======== ======== ======== ========
Ratio of net expenses to average net assets................... 1.57%(b) 1.53% 1.55% 1.51% 1.59%
Ratio of net investment income to average net assets.......... 1.16%(b) 0.62% 0.55% 1.01% 1.41%
Portfolio turnover rate....................................... N/A N/A 11%(c) 42%(c) 59%(c)
Total return ................................................. 33.02% (16.67)% 9.84% 8.23% (1.28)%
Net assets, end of period (000's)............................. $114,926 $114,244 $166,088 $135,545 $83,020
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) During the year ended September 30, 1999, the Fund experienced a one-time
reduction in its expenses of twelve basis points as a result of expenses
accrued in a prior period. The Fund's ratios disclosed above reflect the
actual rate at which expenses were incurred throughout the current fiscal
year without the reduction.
(c) Prior to commencement of operations of the Portfolio. (See Note 1 to
Financial Statements.)
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For the fiscal year ended September 30, 1999, the Fund designates long-term
capital gains of $3,245,242.
Foreign taxes paid during the fiscal year ended September 30, 1999 amounting to
$358,173 ($0.0376 per share) are expected to be passed through to the
shareholders as 100% allowable foreign tax credits on form 1099-DIV for the year
ending December 31, 1999. Gross income derived from sources within foreign
countries amounted to $2,639,985 ($0.2773 per share) for the fiscal year ended
September 30, 1999.
<PAGE>
<TABLE>
SR&F INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<CAPTION>
Period ended
Years ended September 30, September 30,
1999 1998 1997 (a)
----------- ---------- ------------
<S> <C> <C> <C>
Ratio of net expenses to average net assets............. 1.03% 1.02% 0.98%(b)
Ratio of net investment income to average net assets.... 1.70% 1.13% 1.58%(b)
Portfolio turnover rate................................. 44% 32% 18%
</TABLE>
(a) From commencement of operations on February 3, 1997.
(b) Annualized.
22 23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of Liberty-Stein Roe Funds
Investment Trust
Stein Roe International Fund
SR&F Base Trust
SR&F International Portfolio
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolio and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Stein Roe International Fund (the "Fund") (a
series of Liberty-Stein Roe Funds Investment Trust, formerly Stein Roe
Investment Trust) and SR&F International Portfolio (the "Portfolio") (a series
of SR&F Base Trust) at September 30, 1999, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the period then ended, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's and
the Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at September 30, 1999 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above. The financial statements of the Fund and the Portfolio for periods prior
to October 1, 1998 were audited by other independent accountants whose report
dated November 16, 1998 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 15, 1999
24
<PAGE>
INVESTMENT TRUST
- --------------------------------------------------------------------------------
TRUSTEES
John A. Bacon Jr. Private Investor
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
Vice President-Corporate Development, General
Counsel and Secretary, Kellogg Co.
Charles R. Nelson
Van Voorhis Professor of Political Economy,
University of Washington
Thomas C. Theobald
Managing Partner, William Blair Capital Partners
OFFICERS
Stephen E. Gibson, President
William D. Andrews, Executive Vice President
Loren A. Hansen, Executive Vice President
Kevin M. Carome, Executive Vice President,
Assistant Secretary
Timothy Jacoby, Senior Vice President
Christine Balzano, Vice President
David Brady, Vice President
Daniel Cantor, Vice President
J. Kevin Connaughton, Vice President, Treasurer
William Garrison, Vice President
Erik Gustafson, Vice President
Harvey Hirschhorn, Vice President
Gail D. Knudsen, Vice President, Controller
Lynn C. Maddox, Vice President
Mary D. McKenzie, Vice President
Art McQueen, Vice President
Nicholas Norton, Vice President
Nicolette D. Parrish, Vice President,
Assistant Secretary
Heidi J. Walter, Vice President, Secretary
Michael Fisher, Assistant Treasurer
AGENTS AND ADVISORS
Stein Roe & Farnham Incorporated
Investment Advisor
State Street Bank and Trust Company
Custodian
SteinRoe Services Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Fund
PricewaterhouseCoopers LLP
Independent Accountants
25
<PAGE>
THE STEIN ROE MUTUAL FUNDS
FIXED INCOME FUNDS
Cash Reserves Fund
Municipal Money Market Fund
Intermediate Municipals Fund
Managed Municipals Fund
High-Yield Municipals Fund
Intermediate Bond Fund
Income Fund
High Yield Fund
EQUITY FUNDS
Balanced Fund
Growth & Income Fund
Disciplined Stock Fund
Growth Stock Fund
Growth Investor Fund
Young Investor Fund
Midcap Growth Fund
Large Company Focus Fund
Capital Opportunities Fund
International Fund
Small Company Growth Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
Financial Advisors call: 800-322-0593
Shareholders call: 800-338-2550
www.steinroe.com
Liberty Funds Distributor, Inc.
IN11A 11/99
