STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
SEPTEMBER 30, 1999
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(R).
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CONTENTS
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FROM THE PRESIDENT................................................ 1
Stephen E. Gibson's thoughts on the equity markets and investing
PERFORMANCE SUMMARY .............................................. 4
QUESTIONS & ANSWERS
Balanced Fund -- An interview with
Portfolio Manager Harvey Hirschhorn.......................... 7
Growth & Income Fund-- An interview with
Portfolio Manager Dan Cantor................................. 11
PORTFOLIOS OF INVESTMENTS......................................... 15
A complete list of investments with market values
FINANCIAL STATEMENTS.............................................. 24
Statements of assets and liabilities, operations
and changes in net assets
NOTES TO FINANCIAL STATEMENTS..................................... 32
FINANCIAL HIGHLIGHTS.............................................. 36
Selected per-share data and ratios
REPORT OF INDEPENDENT
ACCOUNTANTS....................................................... 40
Must be preceded or accompanied by a prospectus.
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FROM THE PRESIDENT
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TO OUR SHAREHOLDERS
Five years ago fear of higher inflation and rising interest rates dominated the
news. The Federal Reserve Board had raised borrowing rates. Some investors
believed America's robust economy would overheat. The stock market was volatile.
Now, at the threshold of a new century, inflation and interest rates are
again at the top of Wall Street's worries. Market volatility has returned, and
the returns from many large-cap growth stocks in fiscal year 1999 were modest.
Stocks of mid-size and smaller companies generally lagged. Long-term interest
rates soared to 6.15%.
50 YEARS OF BALANCED INVESTING
I am therefore pleased to report that Stein Roe Balanced Fund marked its 50th
anniversary year by providing excellent fiscal year 1999 results. The Fund
outpaced the return of the average balanced fund by more than 300 basis points
for the 12-month period ended September 30, 1999, according to Lipper Inc.
Balanced Fund's portfolio included a combination of growth stocks in sectors
such as technology, companies with a consistent growth history and high quality
fixed-income securities. The Fund weathered stock and bond market volatility
during the summer of 1999 by taking a conservative approach to asset allocation.
For Growth & Income Fund, which turned 12 years old this year, fiscal 1999
was fairly good. Strong weightings in pharmaceutical and financial companies and
exposure to midcap stocks -- areas that had provided superior results for much
of the 1990s -- hurt performance in the past year amid drug pricing concerns,
rising interest rates and investors' focus on large-cap stocks.
The Fund's returns were less than the return of the average large-cap value
fund for the 12 months ended
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MARKET VOLATILITY HAS RETURNED, AND THE RETURNS FROM MANY LARGE-CAP GROWTH
STOCKS IN FISCAL YEAR 1999 WERE MODEST.
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September 30, 1999, as determined by Lipper Inc. Lipper placed the Fund in this
new category this past summer while eliminating its growth & income category.
In order to broaden the distribution of Growth & Income Fund and increase its
prospects for asset growth, the Fund's Board of Trustees voted to close Growth &
Income Fund to new investors as of October 31, 1999. The Fund will be available
for purchase through third-party intermediaries. Current shareholders and
certain clients of the Advisor may invest in the Fund as described in the August
30, 1999 prospectus supplement. We believe
1
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FROM THE PRESIDENT CONTINUED
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this move will enable Stein Roe, over time, to increase Growth & Income Fund's
scale, potentially benefiting the Fund's shareholders.
Balanced Fund and Growth & Income Fund invest primarily in a broad mix of
established large-company stocks that may appeal to risk-sensitive equity
investors. Balanced Fund complements its portfolio with a mix of U.S. government
obligations, mortgage securities and investment-grade corporate bonds. Growth &
Income augments its portfolio with some mid-size company stocks.
TECHNOLOGY: A GROWTH ENGINE, THEN AND NOW
In selecting equity investments for each portfolio over the years, each Fund's
manager has consistently sought stocks with the potential to stand the test of
time.
Take General Electric, for example. It was one of the largest equity holdings
in both Balanced Fund and Growth & Income Fund as of September 30, 1999 (2.2%
and 2.8% of net assets, respectively) and a positive contributor to both Funds'
total returns in fiscal 1999. Perhaps more than in any decade since the 1920s,
advances in technology are revolutionizing American business. Consider that five
years ago, hardly anyone used the Internet. Now it is becoming the business tool
of choice, and we're investing in time-tested companies like GE with the
resources and potential to capitalize on this trend.
A PERSPECTIVE ON INTELLIGENT INVESTING
We're sure you'll agree that a year is far too short a period to judge the
performance of an equity fund. Keep in mind that over the past 73 years, annual
returns from stocks have averaged 11%, with some years of negative returns of
more than 20%.*
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IN SELECTING EQUITY INVESTMENTS FOR EACH PORTFOLIO OVER THE YEARS, EACH FUND'S
MANAGER HAS CONSISTENTLY SOUGHT STOCKS WITH THE POTENTIAL TO STAND THE TEST
OF TIME.
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Investors should consider that such volatility is normal for growth-oriented
investments. Financial advisors are often in a strong position to offer such
lessons of history as they help clients build their portfolios.
As shareholders, you can expect that each respective Fund's manager has a
commitment to a disciplined, research intensive approach to stock
2
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FROM THE PRESIDENT CONTINUED
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selection that has the potential to help you meet your long-term investment
goals. On the pages that follow, Harvey Hirschhorn and Dan Cantor, your Fund(s)
portfolio managers, detail each Fund's strategy and provide an outlook for the
year ahead. We encourage you to carefully review this report and visit us on the
Internet at www.steinroe.com for quarterly updates on each Fund's progress.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
November 15, 1999
* Source: Wiesenberger(R), based on average annual returns of the S&P 500
Index, 12/31/25 to 9/30/99.
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.
Photo of: Stephen E. Gibson
3
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x
PERFORMANCE SUMMARY
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AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
ONE YEAR FIVE YEARS 10 YEARS
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STEIN ROE BALANCED FUND 15.74% 13.50% 11.26%
Unmanaged Blend:
60% MSCI World Index/
40% Lehman Bros. Aggregate
Bond Index 18.54% 13.40% 9.98%
Standard & Poor's 500 Index 27.79% 25.03% 16.80%
Lipper Balanced Fund Average 12.56% 14.35% 11.25%
Number of Funds in Peer Group 421 200 60
Fund began operating on 8/25/49.
STEIN ROE GROWTH & INCOME FUND 19.39% 19.14% 14.73%
Standard & Poor's 500 Index 27.79% 25.03% 16.80%
Lipper Large-Cap Value Fund Average 20.68% 20.38% 14.03%
Number of Funds in Peer Group 250 104 44
Fund began operating on 3/24/87.
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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 includes changes in share price and reinvestment of income and capital
gains distributions. Each index shown above is an unmanaged group of securities
that differs from the composition of each Stein Roe fund; they are not available
for direct investment. The MSCI World Index includes both U.S. and foreign
stocks. Foreign investing involves market, political, currency and accounting
risks not associated with domestic securities. Sources: Lipper Inc. As of
9/30/99, Lipper had reclassified Growth & Income Fund from its growth & income
category to a new large-cap value category.
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INVESTMENT COMPARISONS
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GROWTH OF A $10,000 INVESTMENT
Sept. 30, 1989 to Sept. 30, 1999
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Balanced Fund
Growth of a $10,000 Investment
Sept. 30, 1989 to Sept. 30, 1999
S&P 500 Index
Stein Roe Balanced Fund
Lipper Balanced Fund Average (56 funds)
Unmanaged Blend: 60% MSCI World Index/ 40% Lehman Bros. Aggregate Bond Index
<TABLE>
<CAPTION>
Date Balanced Fund S&P 500 Index Lipper Balanced Unmanaged Blend:
Fund Average 60% MSCI World Index/ Lehman Brothers
(60 Funds) 40% Lehman Brothers Aggregate
Aggregate Bond Index Bond Index
<S> <C> <C> <C> <C> <C>
9/30/89 10000 10000 10000 10000 10000
9/30/90 9313.78 9075.84 9462.77 8973 10675.5
9/30/91 12077.6 11897.8 11855.2 10929 12368.3
9/30/92 13422.3 13211.6 13062.4 11443 14005
9/30/93 15377.6 14924.9 14902.2 13332 15607.9
9/30/94 15432.2 15473.9 14930.6 13803 14961.2
9/30/95 17668.1 20070.9 17773.7 15839 17108.7
9/30/96 20289.3 24149.4 19986.5 17496 17879
9/30/97 25078 33911.8 25049.6 20753 19594.7
9/30/98 25111.9 36991.9 25867.5 21839 22110.4
9/30/99 29064.0 47270.3 29047.0 25887 21797.0
</TABLE>
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GROWTH OF A $10,000 INVESTMENT
Sept. 30, 1989 to Sept. 30, 1999
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Growth & Income Fund
S&P 500 Index
Stein Roe Growth & Income Fund
Lipper Growth & Income Fund Average (151 funds)
<TABLE>
<CAPTION>
Lipper Large-Cap
Value Fund Average
Date Growth & Income Fund (44 Funds) S&P 500 Index
<S> <C> <C> <C>
9/30/89 10000 10000 10000
9/30/90 9474.93 8869.84 9075.84
9/30/91 11760.6 11667.6 11897.8
9/30/92 13407.6 12818.7 13211.6
9/30/93 15818.5 14860.3 14924.9
9/30/94 16456.2 15323.1 15473.9
9/30/95 19931.5 19136 20070.9
9/30/96 24450.3 22736.4 24149.4
9/30/97 31984.3 30683.9 33911.8
9/30/98 33087.6 31580 36991.9
9/30/99 39503.0 37834.2 47270.3
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. Each
illustration assumes a $10,000 investment on Sept. 30, 1989, and reinvestment of
income and capital gains distributions. Each index shown above is an unmanaged
group of securities that differs from the composition of each Stein Roe fund;
they are not available for direct investment. The MSCI World Index includes both
U.S. and foreign stocks. Foreign investing involves market, political, currency
and accounting risks not associated with domestic securities. Sources: Lipper
Inc. and Wiesenberger(R).
</TABLE>
5
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TWO INTELLIGENT CHOICES
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BALANCED FUND: TAPPING THE INCOME POTENTIAL OF STOCKS AND BONDS
20-Year Systematic Withdrawal Plan 1979-1999
$100,000 Initial Investment, 5% Withdrawn Each Year
Ending Balance = $328,712 Withdrawals = $184,306
Total Value Realized As of September 30, 1999 = $513,018
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Market Value of Account
9/80 4734
9/81 5755
9/82 5082
9/83 5594
9/84 6314
9/85 6264
9/86 7057
9/87 8443
9/88 8004
9/89 8302
9/90 9313
9/91 8295
9/92 10364
9/93 10827
9/94 12030
9/95 11232
9/96 12102
9/97 13672
9/98 15342
9/99 15580
5% ANNUAL WITHDRAWAL AMOUNTS $15,580
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. This
illustration assumes a $100,000 investment on October 1, 1979, reinvestment of
income and capital gains and withdrawal of 5% of the account value once every 12
months. Each bar represents annual amounts withdrawn. Source: Wiesenberger(R).
GROWTH & INCOME FUND: BUILDING ASSETS FOR THE FUTURE
How $100-a-Month Investment Grew March 20, 1987 to Sept. 30, 1999
Account Value As Of Sept. 30, 1999 = $54,976 Amount Invested = $17,600
Market Value of Account
3/87 2500
9/87 3354
9/88 4149
9/89 6809
9/90 7590
9/91 10728
9/92 13470
9/93 17175
9/94 19082
9/95 24474
9/96 31340
9/97 42366
9/98 45071
9/99 54976
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. This
illustration assumes a $2,500 initial investment on March 20, 1987, and
reinvestment of income and capital gains. Dollar-cost averaging does not
guarantee a profit or protect against loss in a declining market. Also,
automatic investing will not prevent you from losing money when the market is
down. You should consider your ability to make regular purchases in a declining
market environment before committing to a systematic investing plan. Source:
Wiesenberger(R).
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QUESTIONS & ANSWERS
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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 AND STRATEGY:
Stein Roe Balanced Fund seeks
long-term growth of capital and
current income, consistent with
reasonable investment risk by
investing primarily in a
diversified portfolio of common stocks,
bonds and cash.
FUND INCEPTION:
Aug. 25, 1949
NET ASSETS:
$250.7 million
photo of : Harvey B. Hirschhorn
Q: HOW DID THE FUND PERFORM IN FISCAL 1999?
HIRSCHHORN: Fiscal 1999 was a good year for the Fund. The Fund provided a total
return of 15.74% for the year ended September 30, 1999, outpacing the average
fund investing in a combination of stocks and bonds, according to Lipper Inc.
(see page 4). The unmanaged Standard & Poor's 500 Index returned 27.79% for the
period led by big gains from a select group of technology stocks.
Q: HOW DID YOU POSITION THE FUND DURING THE PERIOD?
HIRSCHHORN: When we began the fiscal year last October, the Portfolio held
roughly a 60%/40% mix of equities and domestic fixed income securities. At the
time, we believed the attractiveness of the markets -- based on continued
domestic economic expansion, rising corporate earnings, low interest rates and
an absence of inflation -- warranted holding these full positions.
By mid-year, however, we began to have concerns about the earnings outlook
for some U.S. companies and decided to focus only on those companies whose
earnings we had the highest confidence would meet or exceed expectations. We
sold several stocks as a result of this focus and rather than reinvest the
proceeds in what has been a volatile market, we've been holding more cash. As of
September 30, 1999 the Portfolio's asset mix was 54.2% equities, 33.8% fixed
income, and 12.0% cash.
Q: WHAT CONTRIBUTED TO THE FUND'S DOMESTIC STOCK PERFORMANCE?
HIRSCHHORN: We benefited from strong stock selection in the technology sector.
Technology
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QUESTIONS & ANSWERS CONTINUED
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represented one-quarter of the Portfolio's equity component as of September 30.
Top performing holdings included Tellabs, Cisco Systems, Lucent Technologies,
Motorola and Intel (0.5%, 1.7%, 1.0%, 0.9% and 1.3% of net assets,
respectively). Within technology, we try to own a fairly diversified group of
companies with a particular emphasis on those that we believe are positioned to
benefit from the Internet's growth.
Q: WHICH STOCK HOLDINGS DID NOT PERFORM WELL?
HIRSCHHORN: Health care stocks, in general, delivered disappointing performance
for the period. The Portfolio's holdings in Eli Lilly, American Home Products
and Elan (1.2%, 0.6% and 0.7% of net assets, respectively) were weak performers.
Although this has been a lackluster area for us, we believe that new product
development in the health care industry will help these stocks, especially in an
environment in which investors are troubled by economic uncertainty.
Financial stocks were also weak performers, attributable to rising
short-term interest rates as well as some individual company disappointments.
Our holdings in Banc One, BankAmerica and Freddie Mac (0.2%, 0.7% and 0.4% of
net assets, respectively) underperformed on the whole for fiscal 1999. We
reduced the Fund's weighting in financial stocks, which helped performance late
in the period.
Q: WHAT IS THE COMPOSITION OF THE FIXED INCOME PORTION OF THE PORTFOLIO?
HIRSCHHORN: We maintain a very high quality fixed income portfolio comprised
primarily of U.S. Treasuries and investment grade corporate bonds. During the
course of fiscal 1999, the Fund's average duration fluctuated relative to our
fixed-income benchmark, the Lehman Brothers Aggregate Bond Index. We recently
extended duration as the yield on the 30-year U.S. Treasury bond rose above
6.10%. This has helped us capture attractive levels of income for the Portfolio.
As of September 30, 1999, the Fund's duration of 4.5 years was equivalent to
that of its fixed-income benchmark.
Q: AS WORLD MARKETS HAVE BEEN IMPROVING LATELY, HAVE YOU MADE OR DO YOU EXPECT
TO MAKE ANY CHANGES IN THE FUND'S INTERNATIONAL HOLDINGS?
HIRSCHHORN: Earlier in the fiscal year, we reduced our international equity
holdings (from 14.5% to 5% of net assets) to focus more on the U.S. stock market
where we believed the strongest capital appreciation opportunities could be
found. However, given our more recent uncertainty in the U.S. market and growing
opportunities we are seeing
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QUESTIONS & ANSWERS CONTINUED
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overseas, we expect to increase our international exposure over the next six
months.
Q: WHAT IS YOUR OUTLOOK FOR FISCAL 2000, AND HOW MIGHT THIS INFLUENCE HOW YOU
POSITION THE FUND?
HIRSCHHORN: We're looking for the U.S. economy to continue expanding, but at a
slower pace than we've seen over the past three years; we expect the growth rate
to slow from about 4% to 2.5% over the next few quarters. Consumer confidence
probably may not be as strong and, in anticipation of that, we reduced our
retail holdings during fiscal 1999.
We think corporate profit growth will be under pressure. Increased
competition from overseas and wage increases are likely to be the primary
factors dampening corporate profit margins. Given this outlook, we're looking
for companies whose prospects for stable earnings growth we believe are more
assured. That's why we like technology and continue to have a market weight in
health care.
Inflationary pressures should remain under control, in which case we expect
to be more constructive toward buying bonds and may increase our weight and
duration in various fixed income securities as we move forward.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE GAIN OR LOSS WHEN YOU SELL SHARES. Total
return includes changes in share price and reinvestment of all distributions.
Portfolio holdings are as of 9/30/99 and are subject to change. Foreign
investing involves market, political, currency and accounting risks not
associated with domestic securities. Each index mentioned is an unmanaged group
of stocks that differs from the composition of any Stein Roe fund; indices are
not available for direct investment. Source: Lipper Inc.
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WE'RE LOOKING FOR THE U.S. ECONOMY TO CONTINUE EXPANDING,
BUT AT A SLOWER PACE THAN WE'VE SEEN OVER THE PAST THREE YEARS.
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9
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FUND HIGHLIGHTS
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Balanced Portfolio
TOP 10 EQUITY HOLDINGS (% OF NET ASSETS)
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Microsoft 2.3% International Business Machines 1.5%
General Electric 2.2 Citigroup 1.4
Wal-Mart 1.9 Intel 1.3
Bristol-Myers Squibb 1.7 Tyco International 1.3
Cisco Systems 1.7 Home Depot 1.3
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EQUITY PORTFOLIO HIGHLIGHTS
PORTFOLIO S&P 500 INDEX
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Number of Equity & Convertible Holdings 76 500
Dollar Weighted Median Market
Capitalization (Billions) $84.8 $65
Price/Earnings Ratio 32.2x 25.3x
Beta of Equity Component (Volatility) 0.98 1.00
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ECONOMIC SECTOR BREAKDOWN
EQUITY PORTFOLIO S&P 500 INDEX
22% Technology 26%
15% Financial 14%
15% Utilities 11%
14% Energy/Basic Materials 10%
12% Consumer Noncyclical 19%
12% Industrial 8%
10% Consumer Cyclical 12%
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ASSET MIX
Sept. 30, 1999
Equities 54.2%
Bonds 33.8%
Cash 12.0%
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QUESTIONS & ANSWERS
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AN INTERVIEW WITH DAN CANTOR, PORTFOLIO MANAGER OF STEIN ROE
GROWTH & INCOME FUND, CLASS S AND SR&F GROWTH & INCOME PORTFOLIO
Growth & Income Fund closed to new investors on October 31, 1999, subject to the
terms set forth in the prospectus. The Fund was redesignated Growth & Income
Fund Class S on November 19, 1999.
FUND DATA
INVESTMENT OBJECTIVE AND STRATEGY:
Stein Roe Growth & Income
Fund, Class S seeks capital
growth and current income by
investing primarily in common
stocks of well-established companies
having large market capitalizations.
The portfolio may also invest in
companies having midsize
market capitalizations.
FUND INCEPTION:
March 24, 1987
NET ASSETS:
$375.8 million
Photo: Dan Cantor
Q: HOW DID THE FUND PERFORM IN FISCAL 1999?
CANTOR: Our results were fairly good despite our underweight position in
technology stocks, which outperformed virtually all other industry groups for
the period. The Fund provided a total return of 19.39% for the year ended
September 30, 1999. The unmanaged Standard & Poor's 500 Index rose 27.79% for
the period, led by a narrow group of big technology stocks that were generally
not in the Portfolio.
Early in the fiscal year, cyclical stocks -- or companies whose fortunes are
tied to the economy -- performed very well for us. Later in the period, however,
nearly every industry group with the exception of technology came under
pressure. The Fund, which had limited exposure to technology, gave back some of
its early year gains as a result.
Q: CAN YOU EXPLAIN WHY THE FUND HAD A LOWER TECHNOLOGY EMPHASIS?
CANTOR: We focus on growth at reasonable prices, which has made it difficult for
us to fully participate in technology given the sector's high valuations. If you
look at the technology companies in the S&P 500, most are selling at peak
price/earnings (P/E) multiples. P/E is an indicator of how much investors are
paying for a company's earning power -- the higher the P/E, the more they are
paying; the lower the P/E, the less they are paying. While we want to own
<PAGE>
QUESTIONS & ANSWERS CONTINUED
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companies that are growing, we generally focus on stocks that are selling at
attractive multiples.
Over the long term, we believe investors are well-served by paying close
attention to the risk profile of a stock's underlying company. Sometimes
investors appear willing to pay any price for select companies' earnings growth.
At other times investors use more discriminating selection parameters. When
there is a market shift towards such value parameters, we think our approach has
the potential to provide outstanding results.
Q: AMONG THE PORTFOLIO'S TECHNOLOGY HOLDINGS, WHAT PERFORMED WELL?
CANTOR: Standout performers included IBM and Intel (3.9% and 0.6% of net assets,
respectively), both of which have nearly doubled in price over the course of
1999. We also held a small position in Applied Materials (0.6% of net assets)
that performed well.
Q: IN WHAT SECTORS DID YOU FOCUS THE FUND'S INVESTMENT SELECTION, AND HOW DID
HOLDINGS IN THESE SECTORS PERFORM?
CANTOR: Financial services stocks represented one of the Portfolio's largest
sector allocation. Holdings in American Express and Citigroup (3.7% and 3.1% of
net assets, respectively) posted strong results early in the fiscal year, but
subsequently lost ground as a result of the negative impact of rising short-term
interest rates on the financial sector.
The Portfolio's holdings in health care, our largest sector weighting,
provided mixed results. We're focusing on companies that we believe have
improving product development pipelines, lengthy patent protection, and are
attractively priced relative to company earnings. One example is Pharmacia &
Upjohn (0.7% of net assets). We increased our position in Pharmacia & Upjohn
based on these factors and given what we think are excellent growth prospects
for the company.
Within the food, beverage and tobacco industry, Phillip Morris (1.8% of net
assets) hurt the Fund's performance. The stock fell in response to ongoing
litigation brought against tobacco product manufacturers. As of Sept. 30, 1999,
we continued to believe the stock's risk/reward profile was attractive.
Q: DID YOU ADD ANY NEW NAMES TO THE PORTFOLIO, AND IN WHAT TYPES
OF COMPANIES DO YOU ANTICIPATE INCREASING HOLDINGS?
CANTOR: We added Federated Department Stores (0.6% of net assets) to our retail
holdings. Federated, whose operating divisions
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QUESTIONS & ANSWERS CONTINUED
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include Bloomingdale's and Macy's, is at the forefront of online retailing and
should continue to be a big beneficiary of electronic commerce.
Generally speaking, we've been finding attractive investment opportunities in
sectors that were hit hardest by the stock market's correction, including
financials, health care and various cyclical groups -- specifically, automotive,
paper and chemical companies. Many of these groups are selling at attractive
multiples, so we may add positions in these types of companies.
We'll also continue to search for opportunities in technology since
it's such an important part of the economy. Specifically, we'll look for
individual issues that may get discounted for reasons we don't think are
justified.
Q: WHAT IS YOUR OUTLOOK FOR THE LARGE-CAP SEGMENT OF THE STOCK MARKET?
CANTOR: Compared to one year ago, large-cap stocks are not as overpriced --
especially if you look outside of technology. In the aftermath of late
September's correction in large-cap stocks, (defined as a 10% or more decline in
stock prices), we've seen an increasing number of larger companies selling at
attractive prices. This should give us ample opportunities to invest the Fund's
assets going forward.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE GAIN OR LOSS WHEN YOU SELL SHARES. Total
return includes changes in share price and reinvestment of all distributions.
Portfolio holdings are disclosed as a percentage of SR&F Growth & Income
Portfolio as of 9/30/99 and are subject to change. The S&P 500 Index mentioned
is an unmanaged group of stocks that differs from the composition of any Stein
Roe fund; indices are not available for direct investment. Source: Lipper Inc.
13
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FUND HIGHLIGHTS
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Growth & Income Portfolio
TOP 10 HOLDINGS (% OF NET ASSETS)
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IBM 3.9% Citigroup 3.1%
American Express 3.7 Bristol Myers-Squibb 3.0
BP Amoco 3.6 Warner Lambert 3.0
Bell Atlantic 3.4 General Electric 2.8
Wal-Mart 3.3 Fannie Mae 2.7
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EQUITY PORTFOLIO HIGHLIGHTS
S&P 500
PORTFOLIO INDEX
-----------------------------------
Number of Equity & Convertible Holdings 60 500
Median Market Capitalization (Billions) $ 27.0 $ 65
Price/Earnings Ratio 25.5x 25.3x
Beta (Volatility) 0.97 1.00
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ECONOMIC SECTOR BREAKDOWN
Equity Portfolio S&P 500 Index
22% Consumer Noncyclical 19%
18% Financial 14%
17% Consumer Cyclical 12%
15% Industrial 8%
10% Energy 7%
9% Basic Materials 26%
5% Technology 3%
4% Utilities/Specialty Chemicals 11%
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SR&F BALANCED PORTFOLIO
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PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1999
(ALL AMOUNTS IN THOUSANDS)
NUMBER MARKET
COMMON STOCKS (62.7%) OF SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE (1.3%)
General Dynamics Corp................................ 20 $ 1,249
Raytheon Co., Class B................................ 19 943
United Technologies Corp............................. 18 1,068
--------
3,260
AUTOMOTIVE (0.6%)
Ford Motor Co........................................ 31 1,556
BANKS (7.7%)
Banc One............................................. 18 627
BankAmerica Corp..................................... 98 5,454
Bayerische Hypo-Und Vereinsbank...................... 9 539
Citigroup, Inc....................................... 194 8,525
Fannie Mae........................................... 14 878
Freddie Mac.......................................... 21 1,092
Royal Bank of Scotland Group......................... 118 2,530
--------
19,645
BROADCASTING AND COMMUNICATIONS (0.7%)
Clear Channel Communications (a)..................... 24 1,917
BUILDING PRODUCTS (0.3%)
Masco Corp........................................... 24 744
CHEMICALS (0.6%)
E. I. du Pont de Nemours & Co., Inc.................. 23 1,421
COMPUTERS (6.3%)
EMC Corp. (a)........................................ 16 1,143
International Business Machines Corp................. 32 3,884
Microsoft Corp. (a).................................. 65 5,887
Oracle Corp. (a)..................................... 51 2,320
Sun Microsystems, Inc. (a)........................... 30 2,790
--------
16,024
CONSUMER PRODUCTS (0.9%)
Unilever NV ADR...................................... 10 686
Procter & Gamble Co.................................. 18 1,688
--------
2,374
DRUGS AND HEALTH PRODUCTS (5.4%)
ALZA Corp.(a)........................................ 18 771
American Home Products Corp.......................... 39 1,619
Bristol-Myers Squibb Co.............................. 65 4,388
Elan Corp. ADR (a)................................... 52 1,745
Eli Lilly & Co....................................... 47 2,976
Pfizer, Inc.......................................... 65 2,336
--------
13,835
15
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (6.6%)
Emerson Electric Co.................................. 46 $ 2,907
General Electric Co.................................. 117 13,872
--------
16,779
ELECTRONICS (1.8%)
Intel Corp........................................... 62 4,607
ENERGY SERVICES (0.9%)
AES Corp. (a)........................................ 14 826
Kinder Morgan Energy Partners L.P.................... 37 1,603
--------
2,429
FINANCIAL SERVICES (1.3%)
Capital One Financial Corp........................... 27 1,053
Concord EFS, Inc. (a)................................ 26 535
Goldman Sachs Group.................................. 8 470
Heller Financial, Inc. (a)........................... 27 608
Prism Financial Corp................................. 66 663
--------
3,329
FOOD, BEVERAGE AND TOBACCO (1.7%)
General Mills, Inc................................... 23 1,866
PepsiCo, Inc......................................... 39 1,180
Philip Morris Cos., Inc.............................. 35 1,196
--------
4,242
INSURANCE (1.0%)
American International Group......................... 30 2,608
MANAGEMENT INVESTMENT (1.6%)
S&P Depository Receipts.............................. 34 2,431
WEBS-Japan Index Series.............................. 110 1,533
--------
3,964
MANUFACTURING (1.3%)
Tyco International Ltd............................... 33 3,407
MEDICAL INFORMATION SYSTEMS (0.5%)
IMS Health, Inc...................................... 55 1,255
MEDICAL INSTRUMENTS (0.3%)
Medtronic............................................ 20 710
NETWORKING (1.7%)
Cisco Systems, Inc. (a).............................. 62 4,251
OIL AND NATURAL GAS (5.8%)
BP Amoco PLC, ADR.................................... 58 6,479
Conoco, Inc., Class B................................ 49 1,345
Enron Corp........................................... 52 2,145
16
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
OIL AND NATURAL GAS (CONTINUED)
Mobil Corp........................................... 28 $ 2,821
Schlumberger Ltd..................................... 25 1,558
Unocal Corp.......................................... 11 408
--------
14,756
PAPER AND FOREST PRODUCTS (0.0%)
Georgia Pacific Corp................................. 5 203
PRIMARY METALS (0.2%)
Aluminum Company of America, Inc..................... 7 434
REAL ESTATE (1.2%)
Apartment Investment & Management Co................. 17 650
Equity Residential Properties Trust.................. 29 1,229
Reckson Associates Corp.............................. 58 1,207
--------
3,086
RETAIL (4.4%)
Home Depot, Inc...................................... 47 3,225
Kohl's Corp. (a)..................................... 19 1,256
McDonald's Corp...................................... 43 1,849
Wal-Mart Stores, Inc................................. 100 4,756
--------
11,086
TELECOMMUNICATIONS (5.5%)
AT & T Corp.......................................... 8 326
Ameritech Corp....................................... 36 2,419
BellSouth Corp....................................... 44 1,980
Comcast Corp., Special Class A....................... 62 2,472
MCI WorldCom, Inc. (a)............................... 41 2,947
Sprint Corp. PCS (a)................................. 9 671
Vodafone AirTouch ADR................................ 13 3,091
--------
13,906
TELECOMMUNICATIONS EQUIPMENT (2.4%)
Lucent Technologies, Inc............................. 39 2,530
Motorola, Inc........................................ 26 2,314
Tellabs, Inc. (a).................................... 22 1,253
--------
6,097
UTILITIES - ELECTRIC (0.7%)
Endesa SA ADR........................................ 92 1,760
--------
TOTAL COMMON STOCKS (Cost $83,502)................... 159,685
--------
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES (1.1%)
- --------------------------------------------------------------------------------
BUILDING PRODUCTS (0.1%)
RYG DECS Trust II 6.875% 11/15/00.................... 16 344
17
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS (0.0%)
Unilever (a)......................................... 18 $ 96
TELECOMMUNICATIONS (1.0%)
TCI Pacific Communications 5.000% 07/31/06........... 9 2,412
--------
TOTAL CONVERTIBLE PREFERRED SECURITIES (Cost $2,041). 2,852
--------
- --------------------------------------------------------------------------------
PRINCIPAL
BONDS AND NOTES (33.9%) AMOUNT
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (21.7%)
U.S. Treasury Bonds:
7.625% 02/15/25................................... $ 3,350 3,867
8.125% 08/15/19................................... 6,600 7,812
--------
11,679
U.S. Treasury Notes:
5.750% 08/15/03................................... 3,650 3,638
6.250% 02/15/07................................... 3,300 3,329
6.625% 05/15/07................................... 4,900 5,052
7.250% 08/15/04................................... 5,200 5,492
7.875% 11/15/04................................... 4,400 4,767
7.875% 08/15/01................................... 4,550 4,726
--------
27,004
FHLMC Gold:
6.500% 04/01/11................................... 3,811 3,741
6.500% 04/01/26................................... 8,363 8,023
7.000% 07/01/28................................... 1,701 1,672
FNMA:
5.125% 02/13/04................................... 2,623 2,499
GNMA:
8.000% 07/15/25................................... 197 204
8.000% 03/15/26................................... 530 543
--------
16,682
AIR TRANSPORTATION (1.1%)
Federal Express 1994 Pass-Through Certificates
Series A310-A1 7.530% 09/23/06.................... 1,575 1,586
United Airlines, Inc., 1991 Pass-Through Certificates
Series A1 9.200% 03/22/08......................... 1,241 1,332
--------
2,918
CHEMICALS (1.0%)
BOC Group 5.875% 01/29/01............................ 2,500 2,493
COMMERCIAL BANKS (1.8%)
Den Danske Bank 6.550% 09/15/03...................... 2,250 2,203
Deutsche Ausgleichsbank 7.000% 09/24/01.............. 2,250 2,269
--------
4,472
18
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------
CONSTRUCTION AND HOUSING (0.9%)
Hanson Overseas 6.750% 09/15/05...................... $ 2,250 $ 2,204
FINANCIAL (2.0%)
Associates Corp. of North America 6.950% 11/01/18... 1,900 1,794
Household Financial Corp 5.875% 11/01/02............ 2,000 1,945
Transamerica Financial Corp. 6.125% 11/01/01......... 1,500 1,480
--------
5,219
FOREIGN GOVERNMENT REGIONAL BONDS (0.9%)
Province of Quebec 6.500% 01/17/06................... 2,400 2,337
INDUSTRIAL (1.1%)
Raytheon Co. 6.150% 11/15/08......................... 1,500 1,447
Safeway Inc. 5.750% 11/15/00......................... 1,250 1,239
--------
2,686
MORTGAGE-BACKED SECURITIES (0.9%)
American Mortgage Trust
Series 1993-3 Class 3B 8.190% 09/27/22............ 1,248 1,245
Lehman Brother's Commercial Conduit Mortgage Trust
Series 1998-C4 Class 1B 6.210% 10/15/08........... 1,000 924
--------
2,169
OIL AND NATURAL GAS (0.9%)
USX Corp. 6.850% 03/01/08............................ 2,500 2,393
UTILITIES - ELECTRIC (1.5%)
National Power PLC 7.125% 07/11/01................... 2,000 2,029
National Rural Utilities 5.000% 10/01/02............ 2,000 1,917
--------
3,946
--------
TOTAL BONDS AND NOTES (Cost $86,727)................. 86,202
--------
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS (11.3%)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (11.3%)
Associates Corp. of North America 5.600% 10/01/99.... 9,565 9,565
Countrywide Home Loans 5.400% 10/01/99............... 12,000 12,000
Limited, Inc. 5.700% 10/01/99........................ 4,000 4,000
Reynolds Metals, Inc. 5.500% 10/04/99................ 3,300 3,298
--------
(Cost $28,863)....................................... 28,863
--------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (109.0%)
(Cost $201,133) (b).................................. 277,602
OTHER ASSETS, LESS LIABILITIES (-9.0%)............... (23,036)
--------
NET ASSETS (100.0%).................................. $254,566
========
- --------------------------------------------------------------------------------
19
<PAGE>
SR&F Balanced Portfolio Continued
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
SECURITIES SOLD SHORT AT SEPTEMBER 30, 1999, WERE AS FOLLOWS:
BankAmerica Corp..................................... 68 $ 3,781
BP Amoco PLC, ADR.................................... 34 3,768
Citigroup, Inc....................................... 113 4,950
Eli Lilly & Co....................................... 20 1,280
Emerson Electric Co.................................. 20 1,264
General Electric Co.................................. 70 8,299
Intel Corp........................................... 16 1,189
--------
TOTAL VALUE OF SECURITIES SOLD SHORT (Proceeds $15,138) $ 24,531
========
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a)Non-income producing security.
(b)At September 30, 1999, the cost of investments for federal income tax
purposes was $201,017. Net unrealized appreciation was $76,585, consisting
of gross unrealized appreciation of $81,044 and gross unrealized
depreciation of $4,459.
Acronym Name
---------- ------
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
20
<PAGE>
SR&F GROWTH & INCOME PORTFOLIO
- -------------------------------------------------------------------------------
Portfolio of Investments at September 30, 1999
(All amounts in thousands)
NUMBER MARKET
COMMON STOCKS (91.2%) OF SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE (1.1%)
Boeing Co. .......................................... 100 $ 4,245
AUTO/TRUCK PARTS & EQUIPMENT (2.7%)
Hertz Corp., Class A................................. 60 2,640
Federal-Mogul Corp. ................................. 51 1,411
Lear Corp. (a)....................................... 170 5,982
--------
10,033
BANKS (8.1%)
BankAmerica Corp. ................................... 68 3,781
Chase Manhattan Corp. ............................... 129 9,708
Citigroup, Inc. ..................................... 265 11,652
Wells Fargo & Co. ................................... 137 5,415
--------
30,556
BROADCASTING AND COMMUNICATIONS (2.6%)
Interpublic Group Cos., Inc. ........................ 121 4,984
Tribune Co. ......................................... 100 4,975
--------
9,959
CHEMICALS (0.5%)
E. I. du Pont de Nemours & Co., Inc. ................ 29 1,776
COMPUTERS AND COMPUTER-RELATED (7.1%)
Applied Materials (a)................................ 30 2,336
Cisco Systems, Inc. (a).............................. 45 3,085
Compaq Computer Corp. ............................... 195 4,473
Intel Corp. ......................................... 30 2,229
International Business Machines Corp. ............... 120 14,565
--------
26,688
CONSUMER RELATED (3.9%)
Avon Products, Inc. ................................. 80 1,985
Gillette Co. ........................................ 144 4,901
Procter & Gamble Co. ................................ 81 7,594
--------
14,480
DISTRIBUTION (8.7%)
Federated Department Stores, Inc. (a)................ 50 2,184
Kmart Corp. ......................................... 210 2,454
TJX Co., Inc. ....................................... 313 8,778
Walgreen Co. ........................................ 280 7,105
Wal-Mart Stores, Inc. ............................... 260 12,366
--------
32,887
ELECTRICAL EQUIPMENT (2.7%)
Emerson Electric Co. ................................ 100 6,319
Hubbell Inc., Class B................................ 120 3,838
--------
10,157
ENERGY (6.2%)
BP Amoco PLC ADR..................................... 121 13,453
Conoco, Inc.:
Class A........................................... 105 2,908
Class B........................................... 61 1,681
Enron Corp. ......................................... 125 5,156
--------
23,198
ENTERTAINMENT (0.2%)
Walt Disney Productions.............................. 30 776
21
<PAGE>
SR&F GROWTH & INCOME PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (10.9%)
American Express Co. ................................ 104 $ 14,001
Associates First Capital Corp., Class A.............. 95 3,420
Fannie Mae........................................... 161 10,093
Kansas City Southern Industries, Inc. ............... 217 10,072
Nationwide Financial Services, Class A............... 37 1,309
Washington Mutual, Inc. ............................. 78 2,282
--------
41,177
FOOD, BEVERAGE AND TOBACCO (4.0%)
PepsiCo, Inc. ....................................... 160 4,840
Philip Morris Cos., Inc. ............................ 203 6,940
Sara Lee Corp. ...................................... 144 3,375
--------
15,155
HEALTH CARE (11.0%)
Abbott Laboratories.................................. 117 4,300
Baxter International, Inc. .......................... 120 7,230
Bristol-Myers Squibb Co. ............................ 170 11,475
Pharmacia & Upjohn, Inc. ............................ 50 2,481
Roche Holdings Limited............................... (b) 2,321
SmithKline Beecham ADR............................... 40 2,305
Warner Lambert Co. .................................. 170 11,284
--------
41,396
MULTI-INDUSTRY (6.9%)
General Electric Co. ................................ 88 10,434
Honeywell, Inc. ..................................... 84 9,350
Monsanto Co. ........................................ 175 6,245
--------
26,029
PAPER AND FOREST PRODUCTS (2.3%)
Georgia-Pacific Corp. ............................... 170 6,885
Georgia-Pacific Timber Group......................... 75 1,716
--------
8,601
RUBBER, PLASTICS AND RELATED PRODUCTS (0.6%)
Goodyear Tire & Rubber Co. .......................... 45 2,166
SPECIALTY CHEMICALS (4.0%)
Ecolab, Inc. ........................................ 260 8,873
Union Carbide Corp. ................................. 111 6,312
--------
15,185
TELECOMMUNICATIONS (4.8%)
AT & T Corp. ........................................ 65 2,842
Bell Atlantic Corp. ................................. 190 12,811
Lucent Technologies, Inc. ........................... 39 2,542
--------
18,195
TRANSPORTATION (2.9%)
Burlington Northern Santa Fe Corp. .................. 200 5,500
Continental Airlines, Class B (a).................... 170 5,568
--------
11,068
--------
TOTAL COMMON STOCKS (Cost $181,143).................. 343,727
--------
- --------------------------------------------------------------------------------
22
<PAGE>
SR&F GROWTH & INCOME PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
SHORT-TERM OBLIGATIONS (8.5%) AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (7.7%)
Associates Corp. of North America 5.600% 10/01/99.... $ 15,010 $ 15,010
Limited, Inc. 5.700% 10/01/99........................ 2,000 2,000
Western Resources 5.570% 10/05/99.................... 12,000 11,993
--------
(Cost $28,983)....................................... 29,003
--------
U.S. GOVERNMENT OBLIGATIONS (0.8%)
U.S Treasury Bills 4.760% 03/23/00
(Cost $2,931)........................................ 3,000 2,929
--------
TOTAL SHORT TERM OBLIGATIONS (cost $31,914).......... 31,932
--------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(Cost $213,057) (c).................................. 375,659
OTHER ASSETS, LESS LIABILITIES (0.3%)................ 1,076
--------
NET ASSETS (100.0%).................................. $376,735
========
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Rounds to less than one.
(c) At September 30, 1999, the cost of investments for federal income tax
purposes was $213,202. Net unrealized appreciation was $162,457 consisting
of gross unrealized appreciation of $170,930 and gross unrealized
depreciation of $8,473.
Acronym Name
-------- ------
ADR American Depositary Receipt
The following futures contracts were open at September 30, 1999:
<TABLE>
<CAPTION>
Number of Contract Unrealized
Type Position Contracts Value Expiration Loss
----- --------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
S&P 500 Index Long 10 $12,982 December, 1999 $(550)
</TABLE>
See accompanying Notes to Financial Statements.
23
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1999
(All amounts in thousands)
<TABLE>
<CAPTION>
SR&F
SR&F GROWTH &
BALANCED INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ASSETS
Investments, at market value (cost of $201,133 and
$213,057, respectively)........................... $277,602 $375,659
Deposit with broker for securities sold short..... 13,690 --
Dividends and interest receivable................. 1,235 359
Variation margin receivable for futures transactions -- 933
--------- ---------
Total Assets................................... 292,527 376,951
--------- ---------
LIABILITIES
Securities sold short,
at market value (proceeds of $15,138) 24,531 --
Loan payable to broker............................ 13,113 --
Overdraft at custodian bank....................... 25 --
Payable to Advisor................................ 117 194
Payable for investments purchased................. 151 --
Other liabilities................................. 24 22
--------- ---------
Total Liabilities.............................. 37,961 216
--------- ---------
Net assets applicable to investors'
beneficial interest $254,566 $376,735
========= =========
See accompanying Notes to Financial Statements.
24
<PAGE>
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended September 30, 1999
(All amounts in thousands)
SR&F
SR&F GROWTH &
BALANCED INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
INVESTMENT INCOME
Interest.......................................... $ 6,709 $ 3,011
Dividends......................................... 2,497 4,649
-------- --------
9,206 7,660
Dividend expense from short positions............. (305) --
Foreign taxes withheld............................ (55) (28)
-------- --------
Total investment income........................ 8,846 7,632
-------- --------
EXPENSES
Management fees................................... 1,445 2,497
Accounting fees................................... 30 34
Trustees' fees.................................... 18 18
Audit and legal fees.............................. 17 16
Custodian fees.................................... 15 14
Other, net........................................ (31) (61)
-------- --------
Net expenses................................... 1,494 2,518
-------- --------
Net investment income.......................... 7,352 5,114
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES TRANSACTIONS
Net realized gain on investments.................. 20,920 13,333
Net realized gain on futures transactions......... -- 5,040
Net change in unrealized appreciation on
investments and futures transactions........... 10,921 49,677
-------- --------
Net gain on investments and futures transactions 31,841 68,050
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $39,193 $73,164
======== ========
See accompanying Notes to Financial Statements.
25
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
SR&F BALANCED PORTFOLIO
--------------------
YEARS ENDED SEPTEMBER 30,
1999 1998
------------ ---------------
<S> <C> <C>
OPERATIONS
Net investment income............................................................ $ 7,352 $ 9,210
Net realized gain on investments................................................. 20,920 22,005
Net change in unrealized appreciation or depreciation on investments
and futures transactions 10,921 (27,983)
--------- ---------
Net increase in net assets resulting from operations.......................... 39,193 3,232
--------- ---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions.................................................................... 4,122 4,912
Withdrawals...................................................................... (36,994) (44,840)
--------- ---------
Net increase (decrease) from transactions in investors' beneficial interest... (32,872) (39,928)
--------- ---------
Net increase (decrease) in net assets......................................... 6,321 (36,696)
NET ASSETS
Beginning of year................................................................ 248,245 284,941
--------- ---------
End of year...................................................................... $254,566 $248,245
========= =========
26
<PAGE>
(All amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------------
SR&F GROWTH & INCOME PORTFOLIO
----------------------------
YEARS ENDED SEPTEMBER 30,
1999 1998
------------ ---------------
<S> <C> <C>
OPERATIONS
Net investment income............................................................ $ 5,114 $ 5,246
Net realized gain on investments................................................. 18,373 7,017
Net change in unrealized appreciation or depreciation on investments
and futures transactions 49,677 (242)
--------- ---------
Net increase in net assets resulting from operations.......................... 73,164 12,021
--------- ---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions.................................................................... 22,804 36,636
Withdrawals...................................................................... (72,426) (33,209)
--------- ---------
Net increase (decrease) from transactions in investors' beneficial interest... (49,622) 3,427
--------- ---------
Net increase (decrease) in net assets......................................... 23,542 15,448
NET ASSETS
Beginning of year................................................................ 353,193 337,745
--------- ---------
End of year...................................................................... $376,735 $353,193
========= =========
See accompanying Notes to Financial Statements.
</TABLE>
27
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(All amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
GROWTH &
BALANCED INCOME
FUND FUND
--------- ---------
<S> <C> <C>
ASSETS
Investment in Portfolio, at value................. $254,437 $376,089
Receivable for fund shares sold................... 8 204
Cash.............................................. 25 25
Other assets...................................... 31 17
--------- ---------
Total Assets................................... 254,501 376,335
--------- ---------
LIABILITIES
Payable for fund shares redeemed.................. 3,694 394
Payable to Advisor and transfer agent............. 47 119
Other liabilities................................. 70 33
--------- ---------
Total Liabilities.............................. 3,811 546
--------- ---------
Net Assets..................................... $250,690 $375,789
========= =========
ANALYSIS OF NET ASSETS
Paid-in capital................................... $166,053 $199,267
Undistributed (overdistributed) net investment income (5) 406
Accumulated net realized gain on investments and
futures transactions........................... 17,594 14,520
Net unrealized appreciation on investments and
futures transactions........................... 67,048 161,596
--------- ---------
Net Assets..................................... $250,690 $375,789
========= =========
Shares outstanding (unlimited number authorized).. 7,750 14,379
========= =========
Net asset value per share......................... $ 32.35 $ 26.14
========= =========
See accompanying Notes to Financial Statements.
28
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1999
(All amounts in thousands)
GROWTH &
BALANCED INCOME
FUND FUND
-------- --------
INVESTMENT INCOME
Interest allocated from Portfolio................. $ 6,706 $ 2,997
Dividends allocated from Portfolio................ 2,495 4,628
-------- --------
9,201 7,625
Dividend expense from short positions allocated from (304) --
Portfolio Foreign taxes withheld allocated from Portfolio... (55) (28)
-------- --------
Total investment income........................ 8,842 7,597
-------- --------
EXPENSES
Expenses allocated from Portfolio................. 1,493 2,591
Transfer agent fees............................... 599 981
Administrative fees............................... 394 617
Accounting fees................................... 30 34
SEC and state registration fees................... 26 44
Printing and postage.............................. 28 31
Audit and legal fees.............................. 15 14
Trustees' fees.................................... 9 11
Custodian fees.................................... 1 1
Other, net........................................ (99) (137)
-------- --------
Net expenses................................... 2,496 4,187
-------- --------
Net investment income.......................... 6,346 3,410
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES TRANSACTIONS ALLOCATED FROM PORTFOLIO
Net realized gain on investments and futures transactions 20,922 18,333
Net change in unrealized appreciation or depreciation on
investments and futures transactions........... 10,843 49,228
-------- --------
Net gain on investments and futures transactions.. 31,765 67,561
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,111 $70,971
======== ========
See accompanying Notes to Financial Statements.
</TABLE>
29
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
BALANCED FUND
------------
YEARS ENDED SEPTEMBER 30,
1999 1998
------------ ---------------
<S> <C> <C>
OPERATIONS
Net investment income............................................................ $ 6,346 $ 8,046
Net realized gain on investments and futures transactions allocated from Portfolio 20,922 22,004
Net change in unrealized appreciation or depreciation on investments and futures
transactions allocated from Portfolio.......................................... 10,843 (27,976)
--------- ---------
Net increase in net assets resulting from operations.......................... 38,111 2,074
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income......................................... (6,767) (6,492)
Distributions from net capital gains............................................. (17,075) (16,945)
--------- ---------
Total distributions to shareholders........................................... (23,842) (23,437)
--------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares..................................................... 16,749 21,549
Value of distributions reinvested................................................ 20,674 19,237
Redemptions of fund shares....................................................... (48,854) (56,417)
--------- ---------
Net increase (decrease) from share transactions............................... (11,431) (15,631)
--------- ---------
Net increase (decrease) in net assets......................................... 2,838 (36,994)
NET ASSETS
Beginning of year................................................................ 247,852 284,846
--------- ---------
End of year...................................................................... $250,690 $247,852
========= =========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME........................... $ (5) $ 573
========= =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares..................................................... 517 668
Issued in reinvestment of distributions.......................................... 670 615
Redemptions of fund shares....................................................... (1,511) (1,735)
--------- ---------
Net increase (decrease) in fund shares........................................ (324) (452)
Shares outstanding at beginning of period........................................ 8,074 8,526
--------- ---------
Shares outstanding at end of period.............................................. 7,750 8,074
========= =========
30
<PAGE>
(All amounts in thousands)
GROWTH & INCOME FUND
-------------------
YEARS ENDED SEPTEMBER 30,
1999 1998
------------ ---------------
<S> <C> <C>
OPERATIONS
Net investment income............................................................ $ 3,410 $ 3,696
Net realized gain on investments and futures transactions allocated from Portfolio 18,333 7,267
Net change in unrealized appreciation or depreciation on investments and futures
transactions allocated from Portfolio......................................... 49,228 (229)
--------- ---------
Net increase in net assets resulting from operations.......................... 70,971 10,734
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income......................................... (3,859) (4,131)
Distributions from net capital gains............................................. (5,981) (14,181)
--------- ---------
Total distributions to shareholders........................................... (9,840) (18,312)
--------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares..................................................... 91,029 93,477
Value of distributions reinvested................................................ 9,089 14,304
Redemptions of fund shares....................................................... (136,512) (86,617)
--------- --------
Net increase (decrease) from share transactions............................... (36,394) 21,164
--------- ---------
Net increase (decrease) in net assets......................................... 24,737 13,586
NET ASSETS
Beginning of year................................................................ 351,052 337,466
--------- ---------
End of year...................................................................... $375,789 $351,052
========= =========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME........................... $ 406 $ 855
========= =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares..................................................... 3,502 3,902
Issued in reinvestment of distributions.......................................... 367 636
Redemptions of fund shares....................................................... (5,124) (3,635)
--------- ---------
Net increase (decrease) in fund shares........................................ (1,255) 903
Shares outstanding at beginning of period........................................ 15,634 14,731
--------- ---------
Shares outstanding at end of period.............................................. 14,379 15,634
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(All amounts in thousands)
NOTE 1. ORGANIZATION
Stein Roe Balanced Fund and Stein Roe Growth & Income Fund, Class S (the
"Funds") are 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. 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. The Portfolios allocate 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, Balanced Fund owned 99.9%
of SR&F Balanced Portfolio and Growth & Income Fund owned 99.8% of the SR&F
Growth & Income Portfolio.
- --------------------------------------------------------------------------------
NOTE 2. SIGNIFICANT
ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Funds and
the Portfolios. These policies are in conformity with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENT TRANSACTIONS AND
INVESTMENT INCOME
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, and interest income is recorded on the accrual
basis. Interest income includes discount accretion on fixed income securities.
Realized gains and losses from investment transactions are reported on an
identified cost basis.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
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 last bid and asked
price 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, 1999, SR&F Growth & Income Portfolio entered
into stock index futures contracts to invest cash pending direct investments in
stocks and to enhance its return. 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 AGAINST THE BOX
SR&F Balanced Portfolio engages in selling securities short against the box;
that is, enter into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities that it
owns at no additional cost. The Portfolio may make short sales of securities
only if at all times when a short position is open it owns at least an equal
amount of such securities or securities convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities sold
short, at no additional cost.
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
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
based on methods approved by the Internal Revenue Service. Distributions to
Shareholders 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 the Portfolios pay monthly management and administrative fees 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 Balanced
Portfolio is computed at an annual rate of 0.55% of the Portfolio's average
daily net assets up to $500 million, 0.50% of the next $500 million, and 0.45%
thereafter. The management fee for SR&F Growth & Income Portfolio is computed at
an annual rate of 0.60% of the Portfolio's average daily net assets up to $500
million, 0.55% of the next $500 million, and 0.50% thereafter. The
administrative fees for the Funds are computed at an annual rate of 0.15% of the
Funds' average daily net assets up to $500 million, 0.125% of the next $500
million, and 0.10% thereafter.
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.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Funds and the Portfolios maintain
borrowing arrangements under which they can borrow against portfolio securities.
Neither the Funds nor the Portfolios had borrowings during the year ended
September 30, 1999.
- --------------------------------------------------------------------------------
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:
Purchases Sales
-------- --------
SR&F Balanced Portfolio........................... $111,630 $164,561
SR&F Growth & Income Portfolio.................... 23,694 43,796
- --------------------------------------------------------------------------------
NOTE 6. SUBSEQUENT EVENT
As of November 19, 1999, Stein Roe Growth & Income Fund was redesignated Stein
Roe Growth & Income Fund, Class S. On October 31, 1999 the Fund was closed to
new investors, as described in the Fund's prospectus. On December 1, 1999 the
Fund will begin to offer Class A, Class B, Class C and Class Z shares. Each
share class has its own sales charge and expense structure. Please call for a
prospectus or consult with your financial adviser for the share class most
appropriate for you.
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS
Based on the recommendation of the Audit Committee of the Liberty-Stein Roe
Funds Investment Trust and SR&F Base Trust, on August 3, 1999 the Board of
Trustees determined not to retain Arthur Andersen LLP as the Funds' and the
Portfolios' independent accountant and voted to appoint PricewaterhouseCoopers
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.
35
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BALANCED 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.......................... $ 30.70 $ 33.41 $ 30.07 $ 27.82 $ 25.78
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a).................................. 0.78 0.95 0.95 1.00 1.33
Net realized and unrealized gain (loss) on investments..... 3.85 (0.90) 5.61 2.96 2.22
-------- -------- -------- -------- --------
Total from investment operations......................... 4.63 0.05 6.56 3.96 3.55
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income...................................... (0.90) (0.76) (0.96) (1.01) (1.23)
Net realized capital gains................................. (2.08) (2.00) (2.26) (0.70) (0.28)
-------- -------- -------- -------- --------
Total distributions...................................... (2.98) (2.76) (3.22) (1.71) (1.51)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD................................ $ 32.35 $ 30.70 $ 33.41 $ 30.07 $ 27.82
======== ======== ======== ======== ========
Ratio of net expenses to average net assets................... 1.14%(b) 1.03% 1.05% 1.05% 0.87%
Ratio of net investment income to average net assets.......... 2.35%(b) 2.90% 3.02% 3.45% 5.14%
Portfolio turnover rate....................................... N/A N/A 15%(c) 87% 45%
Total return.................................................. 15.74% 0.14% 23.60% 14.83% 14.49%
Net assets, end of year (000's)............................... $250,690 $247,852 $284,846 $231,063 $228,560
</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 seven basis points as a result of expenses
accrued in a prior period. The Fund's ratios disclosed above reflects 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.
- -------------------------------------------------------------------------------
Federal Income Tax Information (unaudited).
For the fiscal year ended September 30, 1999, the Fund designates long-term
capital gains of $18,725,517.
19% of the ordinary income distributed by the Fund in the year ended September
30, 1999 qualifies for the corporate dividends received deduction.
36
<PAGE>
- -------------------------------------------------------------------------------
SR&F BALANCED PORTFOLIO
<TABLE>
<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............................... 0.71%(b) 0.61% 0.60%(c)
Ratio of net investment income to average net assets...................... 2.78%(b) 3.31% 3.52%(c)
Portfolio turnover rate................................................... 41% 61% 21%
</TABLE>
(a)From commencement of operations on February 3, 1997.
(b)During the year ended September 30, 1999, the Portfolio experienced a
one-time reduction in its expenses of two basis points as a result of
expenses accrued in a prior period. The Portfolio's ratios disclosed above
reflects the actual rate at which expenses were incurred throughout the
current fiscal year without the reduction.
(c)Annualized.
37
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
- -------------------------------------------------------------------------------
GROWTH & INCOME 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.......................... $ 22.45 $ 22.91 $ 18.39 $ 16.65 $ 14.54
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) 0.22 0.24 0.30 0.27 0.34
Net realized and unrealized gain (loss) on investments..... 4.10 0.55 5.15 3.22 2.56
-------- -------- -------- -------- --------
Total from investment operations......................... 4.32 0.79 5.45 3.49 2.90
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income...................................... (0.25) (0.28) (0.28) (0.32) (0.20)
Net realized capital gains................................. (0.38) (0.97) (0.65) (1.43) (0.59)
-------- -------- -------- -------- --------
Total distributions..................................... (0.63) (1.25) (0.93) (1.75) (0.79)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR.................................. $ 26.14 $ 22.45 $ 22.91 $ 18.39 $ 16.65
======== ======== ======== ======== ========
Ratio of net expenses to average net assets................... 1.06%(b) 1.07% 1.13% 1.18% 0.96%
Ratio of net investment income to average net assets.......... 0.79%(b) 1.02% 1.52% 1.65% 1.78%
Portfolio turnover rate....................................... N/A N/A 2%(c) 13% 70%
Total return.................................................. 19.39% 3.45% 30.81% 22.67% 21.12%
Net assets, end of period (000's)............................. $375,789 $351,052 $337,466 $204,387 $139,539
</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 four basis points as a result of
expenses accrued in a prior period. The Fund's ratios disclosed above
reflects 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.
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited).
For the fiscal year ended September 30, 1999, the Fund designates long-term
capital gains of $16,330,459. 93% of the ordinary income distributed by the Fund
in the year ended September 30, 1999 qualifies for the corporate dividends
received deduction.
38
<PAGE>
- -------------------------------------------------------------------------------
SR&F GROWTH & INCOME PORTFOLIO
<TABLE>
<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............................. 0.63%(b) 0.65% 0.65%(c)
Ratio of net investment income to average net assets.................... 1.22%(b) 1.44% 2.04%(c)
Portfolio turnover rate................................................. 7% 11% 7%
(a) From commencement of operations on February 3, 1997.
(b) During the year ended September 30, 1999, the Portfolio experienced a
one-time reduction in its expenses of two basis points as a result of
expenses accrued in a prior period. The Portfolio's ratios disclosed above
reflects the actual rate at which expenses were incurred throughout the
current fiscal year without the reduction.
(c) Annualized.
</TABLE>
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Trustees and Shareholders of:
Liberty-Stein Roe Funds
Investment Trust
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
SR&F Base Trust
SR&F Balanced Portfolio
SR&F Growth & Income Portfolio
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, 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 Balanced Fund and Stein
Roe Growth & Income Fund (the "Funds") (each a series of Liberty-Stein Roe Funds
Investment Trust, formerly Stein Roe Investment Trust) and SR&F Balanced
Portfolio and SR&F Growth & Income Portfolio (the "Portfolios") (each 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 Funds' and
the Portfolios' 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 Funds and the Portfolios 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
40
<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
<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.
GI11A 11/99