STEIN ROE MUTUAL FUNDS
SEMIANNUAL REPORT
MARCH 31, 1999
Photo of corn in field
STEIN ROE EQUITY FUNDS
GROWTH AND INCOME FUNDS
Balanced Fund
Growth & Income Fund
Stein Roe Mutual Funds
----------------------
Sensible Risks. Intelligent Investments.(R)
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CONTENTS
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FROM THE PRESIDENT................................................ 1
Tom Butch's thoughts on the equity markets and investing
PERFORMANCE SUMMARY............................................... 3
QUESTIONS & ANSWERS
Balanced Fund -- An interview with
Portfolio Manager Harvey Hirschhorn.......................... 6
Growth & Income Fund-- An interview with
Portfolio Manager Dan Cantor................................. 11
PORTFOLIO OF INVESTMENTS.......................................... 16
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
Must be preceded or accompanied by a prospectus.
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FROM THE PRESIDENT
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TO OUR SHAREHOLDERS
On March 31, 1981, the Dow Jones Industrial Average (DJIA) stood at just 1,003
points. It was a tough time to start a family. Consumer prices were spiraling
upward at a 10.6% rate. The U.S. unemployment rate was 7.4% and climbing. Home
mortgage rates exceeded 15%.
Today we live in an era that by many measures may be termed the best of
times. In March 1999, the DJIA reached the 10,000 level. Together, the jobless
rate and inflation -- a combination once known as the misery index -- stands at
less than 6%, a third of its former level. Mortgage rates are half of what they
were a generation ago.
OUR 50TH YEAR
Such a contrast illustrates clearly that markets run in cycles and that patience
makes sense when it comes to investing. At Stein Roe, we have always taken a
sensible, long-term approach to helping people as they strive to reach their
financial goals. In fact, this August Stein Roe will mark 50 years serving
mutual fund investors when Balanced Fund reaches its golden anniversary. I'd
like to note that only a handful of the hundreds of mutual fund families can
claim half-a-century of continuous commitment to no-load investing.
I am pleased to report that Balanced Fund and Growth & Income Fund
outperformed the average of their respective peer groups for the six months
ended March 31, 1999, as shown on page 3. Each Fund did so in a challenging
operating environment. Stock and bond market volatility increased between
September and March as interest rates rose and investors focused on a narrow mix
of large-cap growth stocks.
Balanced Fund and Growth & Income Fund invest primarily in a broad mix of
established large- company stocks that generally 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 Fund augments its portfolio with some mid-size company stocks.
Balanced Fund achieved success for the first half of fiscal 1999 with a
stock portfolio that included a combination of growth stocks in sectors such as
technology, and industrial firms with a consistent growth history. By focusing
on fixed-income securities with superior income potential such as corporate
bonds, the Fund's bond portfolio weathered this past winter's sharp decline in
U.S. Treasury bond prices.
photo of Thomas W. Butch
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FROM THE PRESIDENT CONTINUED
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DIVIDENDS STILL MATTER
Growth & Income Fund turned 12 years old in March. No one can guarantee the
future, but I am delighted to report that the Fund has delivered
higher-than-average results, as compared to its peers, over its lifetime and for
all time periods shown on page 3. What's more, the Fund's success has been
achieved with a portfolio turnover rate that consistently has been lower than
most of its peers for the past several years (see pages 11, 13 and 38).* We
think this buy-and-hold strategy has the potential to reduce taxable
distributions, and therefore help investors who hold the Fund in taxable
accounts reduce their income tax burden.
On the pages that follow, Harvey Hirschhorn, Stein Roe's chief economist
and Balanced Fund's portfolio manager, and Dan Cantor, portfolio manager of
Growth & Income Fund, detail the strategies and positioning that generated
robust results for the first half of fiscal 1999.
A CLEAR OPPORTUNITY
As I write this letter, U.S. stock prices are at historically high levels when
measured by traditional indicators such as price/earnings ratios and book value.
Still, when one looks at all the positive change that has occurred since 1981,
and how much potential for growth remains, especially in emerging technologies
and the global economy, one cannot help but be heartened and optimistic about
the long-term environment for investing.
Consider that, in less than a generation, personal computers, e-mail,
cellular phones and the Internet have revolutionized our world. While global
trouble spots remain and the U.S. economy still has many cyclical elements, more
Americans today -- from newborns to retirees -- enjoy a greater level of
prosperity in a much safer, freer world than when the Dow stood at 1,000 points.
THE CHALLENGE OF THE NEW MILLENNIUM
In the early 1980s, policy makers had the courage to initiate changes that
sharply reduced inflation and interest rates. As investors and as citizens, the
challenge we face today is to carry forward the growth of the 1990s for a new
millennium.
At Stein Roe, we maintain a firm commitment to making intelligent
investments and taking sensible risks. We know you and your families have worked
hard for your money. As we have since 1949, we at Stein Roe plan to do
everything we can in the 21st Century to help your mutual fund investments work
hard for you.
Sincerely,
/s/ Thomas W. Butch
Thomas W. Butch
President
April 16, 1999
* In fiscal years 1998 and 1997, Growth & Income Portfolio's turnover rate
was 11% and 7%, respectively, compared to turnover rates of 64% and 64%,
respectively, for the average fund in the Fund's Morningstar peer group.
Source: Morningstar Principia.
2
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PERFORMANCE SUMMARY
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SIX-MONTH CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1999
SIX ONE FIVE 10
MONTHS YEAR YEARS YEARS
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STEIN ROE BALANCED FUND 14.54% 7.67% 13.74% 12.60%
Unmanaged Blend:
60% MSCI World Index
40% Lehman Bros. Aggregate
Bond Index 15.20% 10.18% 12.93% 10.11%
Standard & Poor's 500 Index 27.32% 18.49% 26.23% 18.95%
Lipper Balanced Fund Average 12.58% 6.47% 14.80% 12.58%
Number of Funds in Peer Group 435 416 175 57
Fund began operating on 8/25/49.
STEIN ROE GROWTH & INCOME FUND 20.28% 8.44% 20.19% 16.85%
Standard & Poor's 500 Index 27.32% 18.49% 26.23% 18.95%
Lipper Growth & Income Fund Average 20.06% 5.47% 19.53% 14.92%
Number of Funds in Peer Group 872 808 321 151
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. and
Weisenberger.(R)
3
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INVESTMENT COMPARISONS
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Growth of a $10,000 Investment 1989 to 1999
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BALANCED FUND
Balanced Fund
Lipper Balanced Fund Average (57 funds)
S&P 500 Index
Unmanaged Blend: 60% MSCI World Index/
40% Lehman Bros. Aggregate Bond Index
Balanced Lipper S&P 500 Unmanaged
Date Fund Average Blend
3/31/89 10000 10000 10000 10000
3/31/90 11148 11189 11922 10395
3/31/91 12696 12605 13637 11425
3/31/92 14442 14169 15139 11910
3/31/93 16651 16036 17441 13464
3/31/94 17211 16572 17697 14729
3/31/95 17945 17761 20447 15898
3/31/96 22156 21564 27004 18560
3/31/97 24447 23952 32356 20029
3/31/98 30442 30948 47875 24868
3/31/99 32758 33041 56725 27583
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GROWTH & INCOME FUND
Growth & Income Fund
S&P 500 Index
Lipper Growth & Income Fund Average (151 funds)
Growth &
Income S&P Lipper Growth &
Date Fund 500 Income Fund Average
3/31/89 10000 10000 10000
3/31/90 11756 11922 11342
3/31/91 13276 13637 12699
3/31/92 15540 15139 14387
3/31/93 17951 17441 16459
3/31/94 18927 17697 17139
3/31/95 20439 20447 18866
3/31/96 26882 27004 24123
3/31/97 31291 32356 27918
3/31/98 43770 47875 39180
3/31/99 47465 56725 41095
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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. Each
illustration assumes a $10,000 investment on March 31, 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.
Source: Lipper, Inc.
4
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TWO INTELLIGENT CHOICES FROM STEIN ROE
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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 = $356,725 Withdrawals = $215,462
Total Value Realized As of March 31, 1999 = $572,187
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5% Annual Withdrawal Amounts
Market Value of Account
5% Annual Market
Withdrawal Value of
Amounts Account
3/31/1980 5070 $97289
3/31/1981 5133 123838
3/31/1982 6037 99270
3/31/1983 5176 136030
3/31/1984 7126 126541
3/31/1985 6255 140783
3/31/1986 7100 178998
3/31/1987 8862 196459
3/31/1988 9616 175592
3/31/1989 8784 181795
3/31/1990 9372 192507
3/31/1991 9374 208281
3/31/1992 10541 225076
3/31/1993 11384 246536
3/31/1994 12166 242088
3/31/1995 12057 239782
3/31/1996 12235 281244
3/31/1997 14067 292821
3/31/1998 15005 346169
3/31/1999 17329 356725
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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. This
illustration assumes a $100,000 investment on March 31, 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.
GROWTH & INCOME FUND: BUILDING ASSETS FOR THE FUTURE
How $100-a-Month Investment Grew 1987-1999
Account Value As Of March 31, 1999 = $54,387
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Market Value of Account
Market
Value of
Account
3/20/1987 2500
3/31/1987 2548
3/31/1988 3324
3/31/1989 5177
3/31/1990 7316
3/31/1991 9571
3/31/1992 12497
3/31/1993 15747
3/31/1994 17816
3/31/1995 20490
3/31/1996 28308
3/31/1997 34226
3/31/1998 49270
3/31/1999 54387
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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. 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 if you sell shares
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.
5
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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:
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 equities, debt securities and cash.
FUND INCEPTION:
Aug. 25, 1949
TOTAL NET ASSETS:
$265.8 million
Q: HOW DID THE FUND PERFORM BETWEEN OCTOBER 1998 AND MARCH 1999?
HIRSCHHORN: The Fund's total return of 14.54% for the six-month period ended
March 31, 1999, outpaced the results achieved by the average fund holding a mix
of stock and bond investments, as shown on page 3. We centered our allocation on
a 60%/40% mix of equities and domestic fixed-income securities. Led by a narrow
group of technology and other growth stocks, the unmanaged Standard & Poor's 500
Index returned 27.32% for the period.
Harvey B. Hirschhorn
photo of : Harvey B. Hirschhorn
Q: WHAT SECTORS HELPED THE FUND'S DOMESTIC STOCK PERFORMANCE?
HIRSCHHORN: We made a major commitment to the retail sector, correctly
anticipating that the consumer was going to be the source of strength in the
U.S. economy. We were rewarded by strong performance from a number of our
holdings including Wal-Mart and Home Depot (2.2% and 1.4% of net assets,
respectively). Our holdings in the technology sector continued to perform well
including Microsoft, Lucent, Tellabs and Cisco Systems (2.4%, 0.9%, 0.8% and
2.0% of net assets, respectively). We believe these companies are likely to
exhibit strong earnings growth amid healthy global business and consumer demand
for more sophisticated computers and improved network and Internet
communications.
Prior to September 30, bank and other financial stock prices were weak
because investors believed Russia's debt default, economic weakness in Latin
America and
6
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QUESTIONS & ANSWERS CONTINUED
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volatility in the U.S. stock market would depress earnings. Beginning this past
autumn, the financial markets stabilized, U.S. short-term interest rates dropped
and bank stocks have outperformed the market. We held both money-center and
regional bank stocks throughout the first half of fiscal 1999. We've focused on
more large capitalization stocks. Additions to the portfolio include EMC Corp.,
Sun Microsystems, IBM and McDonald's (0.5%, 1.2%, 1.0% and 0.7% of net assets
respectively).
Q: WHICH SECTORS PROVIDED DISAPPOINTING RESULTS?
HIRSCHHORN: Having been a solid contributor to performance during last summer's
market volatility, our health care holdings did not perform as well as the
overall market for the first half of fiscal 1999. This modest underperformance
reflected the improved relative environment for other sectors. Concerns about a
slowdown in U.S. economic growth evaporated.
Our non-bank financial stocks, principally REITs and U.S.
government-sponsored enterprises such as Fannie Mae and Freddie Mac, also
underperformed the market. Rising long-term interest rates were a factor. For
the remainder of 1999, we expect interest rates to decline and for the financial
sector's profit growth to remain intact.
We've been underweight in energy stocks, which was favorable for the
portfolio because this sector underperformed the S&P 500 Index as oil prices
remained low. We were also underweight relative to the market in consumer
non-durable manufactured goods, and this also enhanced our results. Increased
competition with inexpensive imports has depressed earnings growth for some U.S.
manufacturers.
Q: HOW DID THE FIXED-INCOME PORTION OF THE PORTFOLIO PERFORM?
HIRSCHHORN: Long-term interest rates were volatile between September and March.
Thirty-year U.S. Treasury bond yields fluctuated between a record low of 4.7%
and 5.7% during the period. We anticipated some of these interest rate movements
and modified both our asset allocation mix and average duration to try to take
advantage of bond market volatility.
Last fall during the bond market turmoil we decided to reduce our strong
positioning in U.S. Treasuries and increase the portfolio's weighting in
corporate and mortgage securities. As the difference between Treasury bond
yields and corporate bond yields narrowed, we captured some performance for the
portfolio.
7
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QUESTIONS & ANSWERS CONTINUED
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Q: INTERNATIONAL MARKET CONDITIONS HAVE BEEN UNCERTAIN. HOW MUCH EMPHASIS DID
YOU PUT ON INTERNATIONAL INVESTING IN THE PORTFOLIO?
HIRSCHHORN: We significantly reduced our international equity holdings from
14.5% of net assets as of Sept. 30, 1998, to 6.7% of net assets as of March 31.
We positioned the portfolio to focus more on the U.S. stock market because we
believe select U.S. companies offer the strongest growth potential of any
established market. Our research and risk analysis showed that superior capital
appreciation opportunities could be found within our shores.
We also increased the portfolio's median market capitalization by buying
more large-company stocks with market capitalizations of more than $20 billion.
We sold many of our holdings that had market capitalizations of less than $5
billion. This shift enhanced the portfolio's performance and also helped us
moderate share price volatility.
Q: With U.S. GDP growth at a robust 6% for the fourth quarter of 1998, do you
think the Federal Reserve is likely to change current interest rate policy?
Hirschhorn: We do not anticipate any change in Fed policy in the near-term. As
we move into the latter part of the year, we could see the Fed reduce interest
rates again due to domestic and foreign considerations.
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We sold many of our holdings that
had market capitalizations of
less than $5 billion. This shift
enhanced the portfolio's
performance and also helped us
moderate share price volatility.
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In the U.S., we think inflationary pressures will remain modest and that
economic growth will slow. Also, in our view, U.S. real interest rates (after
inflation) are still too high for the rest of the world. Thus on the
international side, our high real interest rates may push some foreign economies
into a credit crunch.
8
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QUESTIONS & ANSWERS CONTINUED
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Q: HOW DO YOU PLAN TO POSITION THE PORTFOLIO FOR THE REMAINDER OF FISCAL 1999?
HIRSCHHORN: We are satisfied with the current asset allocation of the portfolio
(see pie chart on page 10). On September 30, there was a great deal of
uncertainly about equities and higher-risk fixed-income securities. The U.S.
stock market fell sharply. Russia and other emerging markets were in the middle
of a financial crisis. Corporate bond prices were retreating.
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SOON THEREAFTER, THE FEDERAL
RESERVE REDUCED SHORT-TERM
INTEREST RATES THREE TIMES,
THE U.S. ECONOMY REASSERTED
ITSELF AND GREW SIGNIFICANTLY,
INFLATION HAS REMAINED
TAME AND THE DOLLAR HAS GAINED
STRENGTH AGAINST MOST FOREIGN
CURRENCIES, INCLUDING
THE NEW EURO.
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As we move into the second quarter of 1999 and beyond, slower U.S. economic
growth could reduce annual corporate profit growth to around 5%. As a result we
plan to continue to focus on companies that we think will have good profit
margins and revenue growth despite any economic slowdown. We'll also continue to
emphasize the retail, technology, telecommunications and health care sectors;
sectors that provided strong returns in the past several years and stand to
benefit from strong demand going forward.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Total
return includes changes in share price and reinvestment of all distributions.
Portfolio holdings are as of 3/31/99 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.
9
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FUND HIGHLIGHTS
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SR&F Balanced Portfolio
Top 10 Equity Holdings (% of Net Assets)
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Microsoft 2.4% MCI WorldCom 1.8%
Wal-Mart 2.2 Pfizer 1.5
Cisco Systems 2.0 Home Depot 1.4
General Electric 2.0 Citigroup 1.4
Bristol Myers-Squibb 1.9 Eli Lilly 1.4
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Total 18.0%
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Equity Portfolio Highlights
PORTFOLIO S&P 500 INDEX
----------------------------------
Number of Equity & Convertible Holdings 69 500
Dollar Weighted Median
Market Capitalization ($Mil.) 78,422 60,137
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Economic Sector Breakdown
Equity S&P 500
Portfolio Index
Basic Materials 1 2
Consumer Cyclical 13 14
Consumer Noncyclical 21 21
Energy 7 6
Financial 20 16
Industrial 12 8
Technology 18 22
Utilities 8 10
10
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QUESTIONS & ANSWERS
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AN INTERVIEW WITH DAN CANTOR, PORTFOLIO MANAGER
OF STEIN ROE GROWTH & INCOME FUND AND SR&F GROWTH & INCOME PORTFOLIO
FUND DATA
INVESTMENT OBJECTIVE:
Stein Roe Growth & Income Fund seeks both growth of capital and current
income by investing primarily in common stocks of well-established
companies having large market capitalizations. The portfolio manager looks
for common stocks that have the potential to appreciate in value and pay
dividends.
FUND INCEPTION:
March 24, 1987
TOTAL NET ASSETS:
$419.6 million
Q: HOW DID THE FUND PERFORM BETWEEN OCTOBER 1998 AND MARCH 1999?
CANTOR: Our results were good, especially considering that some cyclical and
consumer stocks were out-of-favor for much of the time. The Fund outperformed
the average fund in Lipper, Inc.'s growth & income fund category as shown on
page 3, providing a total return of 20.28% for the six months ended March 31,
1999.
We're pleased to report that we held positions in six of the top seven
performing stocks in the unmanaged Standard & Poor's 500 Index in calendar 1998.
Several of these companies, including Wal-Mart, General Electric, IBM and Cisco
Systems (3.3%, 2.3%, 2.7% and 0.6% of net assets) were among the portfolio's and
the market's top performers during the first half of fiscal 1999.
photo: Dan Cantor
Dan Cantor
The stock market enjoyed a remarkable recovery this past autumn and the
Fund benefited from an unprecedented rally that took the Dow Jones Industrial
Average past the 10,000 level in late March. We achieved success amid increased
market volatility and maintained a portfolio turnover rate of just 3%,
significantly less than most of our peers.*
Q: WHAT SECTORS DID WELL FOR THE FUND?
CANTOR: The portfolio's retail stock holdings rose sharply in value during the
first half of fiscal 1999 as consumer confidence remained high and the nation's
unemployment rate dropped. As strong performing retail holdings Walgreen Co.
(1.9% of net assets) and Wal-Mart reached the price targets we had set for them,
we reduced the portfolio's position in
11
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QUESTIONS & ANSWERS CONTINUED
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these holdings. We also increased our position in Kmart (0.7% of net assets)
which we considered undervalued.
In the fourth quarter of 1998, large-company technology stocks were among
the leaders of the market's robust advance, and our positioning in firms such as
IBM served us well. We achieved strong results in the first three months of 1999
with the help of financial and energy stocks.
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WE'D LIKE TO THINK OUR SHARE-
HOLDERS CAN SLEEP A LITTLE BETTER
AT NIGHT KNOWING THAT WE'RE
STRIVING TO LIMIT THE POTENTIAL
VOLATILITY THAT IS OFTEN
CHARACTERISTIC OF MORE
AGGRESSIVE EQUITY FUNDS.
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This past winter, the profit outlook for certain money-center banks such as
Chase Manhattan and Citigroup (2.5% and 2.7% of net assets, respectively)
improved, bolstering prices of financial stocks. Energy stocks benefited from
merger activity and a rebound in oil prices.
Q: WERE THERE ANY DISAPPOINTMENTS?
CANTOR: Concern about weakness in personal computer sales and company-specific
problems led to share price declines among some technology firms in the first
calendar quarter. Economically sensitive stocks such as chemicals and railroads
were weak throughout the period.
Q: WHAT DO YOU LOOK FOR WHEN RESEARCHING A COMPANY?
CANTOR: We typically look for companies that we think can expand earnings by 10%
to 20% a year for several years. A higher growth rate involves more investment
risk than we are comfortable with for this Fund. We'd like to think our
shareholders can sleep a little better at night knowing that we're striving to
limit the potential volatility that is often characteristic of more aggressive
equity funds.
Some of the other characteristics we look for are a price/earnings ratio
that is lower than the average of a stock's peer group, a favorable
debt-to-capital ratio and a shareholder- driven management teams.
Q: HOW DOES THE PORTFOLIO DIFFER FROM THE UNMANAGED S&P 500 INDEX?
CANTOR: We strive for a sensible mix of stocks that exhibit strong earnings
growth potential. We have a much more concentrated portfolio than the Index,
with just 59 stocks as of March 31, 1999. Historically, we have been
underweighted in utility and energy stocks, which we think have limited growth
prospects.
Q: WHY DO YOU ATTEMPT TO KEEP PORTFOLIO TURNOVER LOW?
CANTOR: We are mindful of the potential tax consequences of our
12
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QUESTIONS & ANSWERS CONTINUED
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investment decisions on shareholders who own the Fund in taxable accounts. We
generally seek to hold stocks for several years. We are pleased to report that
the Fund's 14.97% tax-adjusted total return for the 10-year period ended March
31, 1999 was higher than the 13.54% average tax-adjusted total return for
large-cap mutual funds using a blend of growth and value stock selection
parameters, according to Morningstar Inc.+
Q: WHAT'S YOUR OUTLOOK FOR THE REMAINDER OF FISCAL 1999?
CANTOR: We think the portfolio is well-positioned for what lies ahead,
especially given the volatility in interest rates during the first quarter,
increasing international tensions and earnings disappointments from some
large-cap growth stocks such as Coca-Cola.
By focusing on stocks that offer a blend of growth and value
characteristics, we believe we can offer investors the best of both worlds --
capital appreciation potential with a discipline that avoids excessive risks. We
feel a portfolio built solely on an aggressive growth discipline seems less than
prudent given that the stock market has risen more than 20% for four consecutive
calendar years, an unprecedented feat. We believe the Fund is well-positioned if
the market's current enthusiasm for growth stocks broadens.
We select stocks one-by-one through fundamental research rather than
attempting to predict what will happen in the U.S. economy.
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BY FOCUSING ON STOCKS THAT OFFER
A BLEND OF GROWTH AND VALUE
CHARACTERISTICS, WE BELIEVE WE
CAN OFFER INVESTORS THE BEST OF BOTH
WORLDS -- CAPITAL APPRECIATION
POTENTIAL WITH A DISCIPLINE THAT
AVOIDS EXCESSIVE RISKS.
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However, what we see gives us continued optimism about the future. Domestic
inflation has been quite low. This should help support stock prices.
Additionally, personal income appears strong, and that should help bolster
domestic consumption.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Total
return includes changes in share price and reinvestment of all distributions.
Portfolio holdings are as of 3/31/99 and are subject to change. 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.
* As of 3/31/99, the average fund in Growth & Income Fund's
Morningstar category (large-cap blend) had a portfolio turnover rate of 63%.
+See page 3 for standard performance information. Total return includes changes
in share price and reinvestment of capital gains and income distributions.
Morningstar calculates tax-adjusted returns for an investor in the 39.6% federal
income tax bracket and includes all elements of total return. There were 875
funds in the large blend category as of 3/31/99. Source: Morningstar Principia.
13
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FUND HIGHLIGHTS
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GROWTH & INCOME PORTFOLIO
TOP 10 HOLDINGS (% OF NET ASSETS)
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Kansas City Southern Industries 3.6% Int'l Business Machines 2.7%
Wal-Mart 3.3 Citigroup 2.7
BP Amoco 2.9 Warner-Lambert 2.7
American Express 2.9 Fannie Mae 2.6
Ecolab 2.8 Bristol-Myers Squibb 2.6
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Total 28.8%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
S&P 500
PORTFOLIO INDEX
---------------------------------
Number of Equity & Convertible Holdings 59 500
Dollar Weighted Median
Market Capitalization ($Mil.) 28,136 60,137
- --------------------------------------------------------------------------------
ECONOMIC SECTOR BREAKDOWN
Equity Portfolio S&P 500
PIE CHARTS
Basic Materials 5% 2%
Consumer Cyclical 18 14
Consumer Noncyclical 26 21
Energy 5 6
Financial 18 16
Industrial 17 8
Technology 8 22
Utilities 3 10
14
<PAGE>
A BIG AND NARROW MARKET
- --------------------------------------------------------------------------------
HOW STOCKS OF DIFFERENT SIZES PERFORMED -- SEPT. 30, 1998 TO MARCH 31, 1999
S&P
S&P MidCap Russell
500 400 2000
DATE Index Index Index
9/30/1998 0 0 0
10/31/1998 8.13 8.92 4.1
11/30/1998 14.68 14.36 9.6
12/31/1998 21.28 28.16 16.44
1/31/1999 26.35 23.16 17.95
2/28/1999 22.43 16.72 8.45
3/31/1999 27.32 20.02 10
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. Source: Bloomberg Business News.
- --------------------------------------------------------------------------------
LARGE-COMPANY STOCKS OUTPERFORMED MIDCAP AND SMALL-CAP
STOCKS FOR THE SIX MONTHS ENDED MARCH 31, 1999, AS SHOWN
ABOVE. MIDCAP STOCKS DID WELL THIS PAST FALL BUT FALTERED IN
JANUARY WHILE PRICES OF LARGE-COMPANY AND SMALL-CAP
STOCKS ROSE.
- --------------------------------------------------------------------------------
15
<PAGE>
SR&F BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1999
(Dollar amounts in thousands)
(Unaudited) NUMBER MARKET
COMMON STOCKS (69.5%) OF SHARES VALUE
- --------------------------------------------------------------------------------
AUTOMOTIVE (1.0%)
Ford Motor........................................... 48,000 $ 2,724
BANKS (10.4%)
Banc One............................................. 45,000 2,478
BankAmerica.......................................... 99,949 7,059
Bayerische Hypo-Und Vereinsbank...................... 29,000 1,731
Citigroup............................................ 132,500 8,463
Fannie Mae........................................... 18,000 1,247
First Union.......................................... 20,000 1,069
Freddie Mac.......................................... 48,000 2,742
Royal Bank of Scotland Group......................... 133,460 2,911
-------
27,700
BUILDING PRODUCTS (1.0%)
Masco Corp........................................... 55,000 1,554
Royal Group Technologies Limited (a)................. 50,000 1,172
-------
2,726
CHEMICALS (1.6%)
E. I. du Pont de Nemours............................. 40,000 2,323
Monsanto............................................. 44,900 2,063
-------
4,386
COMPUTERS (5.5%)
Compaq Computer...................................... 16,000 507
EMC.................................................. 11,000 1,405
International Business Machines...................... 15,000 2,659
Microsoft (a)........................................ 70,000 6,274
Oracle............................................... 21,000 554
Sun Microsystems..................................... 26,000 3,248
-------
14,647
CONSUMER PRODUCTS (1.7%)
Gillette............................................. 37,000 2,199
Unilever, NY shares.................................. 33,000 2,192
-------
4,391
DRUGS AND HEALTH PRODUCTS (8.7%)
Abbott Laboratories.................................. 57,000 2,668
ALZA................................................. 36,000 1,377
American Home Products............................... 45,000 2,936
Bristol-Myers Squibb................................. 78,000 5,016
Elan ADRs (a)........................................ 28,000 1,953
Eli Lilly & Company.................................. 62,500 5,305
Pfizer............................................... 28,000 3,885
-------
23,140
ELECTRICAL EQUIPMENT (5.9%)
Emerson Electric..................................... 50,000 2,647
General Electric..................................... 117,000 12,943
-------
15,590
ELECTRONICS (2.4%)
AMP.................................................. 33,300 1,788
Intel................................................ 38,000 4,517
-------
6,305
ENERGY SERVICES (0.5%)
Kinder Morgan Energy Partners L.P.................... 37,000 1,281
16
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (0.9%)
Heller Financial (a)................................. 35,000 $ 823
Capital One Financial................................ 11,000 1,661
--------
2,484
FOOD, BEVERAGE AND TOBACCO (2.1%)
General Mills........................................ 26,000 1,965
PepsiCo.............................................. 45,000 1,763
Philip Morris........................................ 52,000 1,830
--------
5,558
INSURANCE (1.3%)
American International Group......................... 29,000 3,498
MANAGEMENT INVESTMENT (0.7%)
WEBS-Japan Index Series.............................. 165,000 1,898
MANUFACTURING (0.3%)
TYCO International (a)............................... 10,000 718
MEDICAL INFORMATION SYSTEMS (0.6%)
IMS Health........................................... 50,000 1,656
MEDICAL INSTRUMENTS (0.5%)
Medtronic............................................ 18,000 1,292
MULTIMEDIA (1.0%)
Time Warner.......................................... 38,000 2,700
NETWORKING (2.0%)
Cisco Systems (a).................................... 48,000 5,259
OIL AND NATURAL GAS (4.2%)
BP Amoco............................................. 58,473 5,902
Enron................................................ 29,000 1,863
Mobil................................................ 21,000 1,848
Schlumberger Limited................................. 25,000 1,505
--------
11,118
REAL ESTATE (1.0%)
Equity Residential Properties Trust.................. 29,000 1,196
Reckson Associates................................... 77,000 1,583
--------
2,779
RETAIL (5.5%)
Home Depot........................................... 61,000 3,797
Kohl's (a)........................................... 28,000 1,985
McDonald's........................................... 43,000 1,948
Saks................................................. 42,000 1,092
Wal-Mart Stores...................................... 62,000 5,716
--------
14,538
17
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (6.6%)
AT&T................................................. 5,000 $ 399
AirTouch Communications (a).......................... 30,000 2,899
Ameritech............................................ 56,000 3,241
BellSouth............................................ 44,000 1,763
Clear Channel Communications......................... 33,000 2,213
Comcast.............................................. 35,000 2,203
MCI WorldCom (a)..................................... 55,000 4,871
--------
17,589
TELECOMMUNICATIONS EQUIPMENT (2.5%)
Lucent Technologies.................................. 23,000 2,478
Motorola............................................. 27,300 2,000
Tellabs (a).......................................... 23,000 2,248
--------
6,726
UTILITIES - ELECTRIC (0.9%)
Endesa ADRs.......................................... 92,000 2,289
WATER TREATMENT SYSTEMS (0.7%)
U.S. Filter (a)...................................... 60,000 1,837
--------
TOTAL COMMON STOCKS (COST $104,899).................. 184,829
--------
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES (1.1%)
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (1.1%)
TCI Pacific Communications 5.000% 7/31/06............ 9,000 2,970
--------
TOTAL CONVERTIBLE PREFERRED SECURITIES (Cost $1,519). 2,970
--------
- --------------------------------------------------------------------------------
PRINCIPAL
BONDS AND NOTES (35.5%) AMOUNT
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (16.3%)
U.S. Treasury Bonds
8.125% 8/15/19.................................... $6,600 8,311
7.250% 8/15/22.................................... 4,300 5,018
U.S. Treasury Notes
6.375% 5/15/00.................................... 2,000 2,031
7.875% 8/15/01.................................... 4,550 4,830
6.500% 8/31/01.................................... 2,750 2,838
5.750% 8/15/03.................................... 3,650 3,722
7.250% 8/15/04.................................... 5,200 5,675
6.500% 10/15/06................................... 2,100 2,236
6.250% 2/15/07.................................... 3,300 3,471
6.625% 5/15/07................................... 4,900 5,279
--------
43,411
<PAGE>
SR&F Balanced Portfolio Continued
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (6.1%)
FHLMC Gold
6.500% 2/1/11..................................... $1,186 $ 1,199
6.500% 4/1/11..................................... 656 663
6.500% 10/1/11.................................... 634 641
6.500% 10/1/11.................................... 696 703
6.500% 4/1/26..................................... 755 752
6.500% 6/1/26..................................... 813 810
6.500% 9/15/28.................................... 1,939 1,931
7.000% 7/1/28..................................... 1,821 1,846
FHLMC
6.500% 4/1/11..................................... 1,142 1,154
6.500% 4/1/26..................................... 690 687
6.500% 2/1/27..................................... 896 892
6.500% 2/1/27..................................... 831 827
6.500% 2/1/27..................................... 680 677
6.500% 3/1/27..................................... 864 861
6.500% 3/1/27..................................... 1,678 1,672
GNMA
8.000% 7/15/25.................................... 705 734
8.000% 3/15/26.................................... 298 310
--------
16,359
AIR TRANSPORTATION (1.1%)
Federal Express 1994 Pass-Through Certificates
Series A310-A1 7.530% 9/23/06..................... 1,575 1,626
United Airlines 1991 Pass-Through Certificates
Series A1 9.200% 3/22/08.......................... 1,241 1,380
--------
3,006
CHEMICALS (1.0%)
BOC Group 5.875% 1/29/01............................. 2,500 2,516
COMMERCIAL BANKS (1.7%)
Den Danske Bank 6.550% 9/15/03....................... 2,250 2,286
Deutsche Ausgleichsbank 7.000% 9/24/01............... 2,250 2,303
--------
4,589
CONSTRUCTION AND HOUSING (0.9%)
Hanson Overseas 6.750% 9/15/05....................... 2,250 2,293
FINANCIAL (2.4%)
Associates Corporation National 6.950% 11/01/18...... 1,900 1,939
Household Financial 5.875% 11/1/02.................. 2,000 1,986
Lehman Brothers 6.210% 10/15/08..................... 1,000 989
Transamerica Financial 6.125% 11/01/01.............. 1,500 1,508
--------
6,422
FOREIGN GOVERNMENT REGIONAL BONDS (0.9%)
Province of Quebec 6.500% 1/17/06.................... 2,400 2,432
GOVERNMENTAL AGENCY (1.0%)
Fannie Mae 5.980% 11/12/02........................... 2,500 2,545
INDUSTRIAL (1.0%)
Raytheon 6.150% 11/15/08............................. 1,500 1,478
Safeway 5.750% 11/15/00.............................. 1,250 1,250
--------
2,728
<PAGE>
SR&F BALANCED PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (0.6%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22......................... $1,659 $ 1,645
OIL AND NATURAL GAS (1.0%)
USX 6.850% 3/1/08.................................... 2,500 2,492
UTILITIES - ELECTRIC (1.5%)
National Power 7.125% 7/11/01........................ 2,000 2,063
National Rural Utilities 5.000% 10/01/02........... 2,000 1,957
--------
4,020
--------
TOTAL BONDS AND NOTES (Cost $91,558)................. 94,458
--------
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATION (2.4%)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (2.4%)
Associates First Capital 5.000% 4/1/99
(Cost $6,285)........................................ 6,285 6,285
--------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (108.5%)
(Cost $204,261) (b).................................. 288,542
OTHER ASSETS, LESS LIABILITIES (-8.5%)............... (22,502)
--------
TOTAL NET ASSETS (100.0%)............................ $266,040
========
- --------------------------------------------------------------------------------
SECURITIES SOLD SHORT AT MARCH 31, 1999, WERE AS FOLLOWS:
NUMBER MARKET
OF SHARES VALUE
________ ________
BP Amoco............................................. 34,000 $ 3,432
BankAmerica.......................................... 67,896 4,795
Citigroup............................................ 75,000 4,791
Eli Lilly & Company.................................. 20,000 1,697
Emerson Electric..................................... 20,000 1,059
General Electric..................................... 70,000 7,744
Intel................................................ 8,000 951
--------
TOTAL VALUE OF SECURITIES SOLD SHORT (Proceeds $15,138) $24,469
========
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At March 31, 1999, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$74,950, consisting of gross unrealized appreciation of $87,889, and gross
unrealized depreciation of $12,939.
Acronym Name
-------- -----
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
20
<PAGE>
SR&F GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1999
(Dollar amounts in thousands)
(Unaudited) NUMBER MARKET
COMMON STOCKS (85.2%) OF SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE (1.0%)
Boeing............................................... 119,600 $ 4,081
AUTO/TRUCK PARTS & EQUIPMENT (2.3%)
Federal-Mogul........................................ 81,200 3,492
Lear (a)............................................. 150,000 6,403
--------
9,895
BANKS (8.0%)
BankAmerica.......................................... 67,896 4,795
Chase Manhattan...................................... 128,800 10,473
Citigroup............................................ 176,540 11,276
Republic New York.................................... 50,000 2,306
Wells Fargo & Company................................ 136,660 4,792
--------
33,642
BROADCASTING AND COMMUNICATIONS (1.9%)
Interpublic Group of Companies....................... 60,600 4,719
Tribune.............................................. 50,000 3,272
--------
7,991
CHEMICALS (0.7%)
E.I. du Pont de Nemours.............................. 50,000 2,903
COMPUTERS AND COMPUTER-RELATED (5.5%)
Applied Materials.................................... 20,000 1,234
Cisco Systems (a).................................... 22,500 2,465
Compaq Computer...................................... 195,000 6,179
Intel ............................................... 15,000 1,783
International Business Machines...................... 65,000 11,521
--------
23,182
CONSUMER-RELATED (5.3%)
Avon Products........................................ 80,000 3,765
Cendant (a).......................................... 144,186 2,271
Gillette............................................. 144,400 8,583
Procter & Gamble..................................... 81,000 7,933
--------
22,552
DISTRIBUTION (8.3%)
Kmart Corporation.................................... 170,000 2,858
TJX ................................................. 312,800 10,635
Wal-Mart Stores...................................... 150,000 13,828
Walgreen Co.......................................... 280,000 7,910
--------
35,231
ELECTRICAL EQUIPMENT (2.5%)
Emerson Electric..................................... 100,000 5,294
Hubbell, class B..................................... 130,400 5,216
--------
10,510
ENERGY (4.4%)
BP Amoco ADR......................................... 121,405 12,254
Enron................................................ 62,500 4,016
Conoco............................................... 104,800 2,574
--------
18,844
ENTERTAINMENT (0.5%)
Walt Disney.......................................... 66,105 2,057
21
<PAGE>
SR&F GROWTH & INCOME PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (11.3%)
American Express..................................... 104,000 $ 12,220
Associates First Capital............................. 95,000 4,275
Fannie Mae........................................... 161,000 11,149
Kansas City Southern Industries...................... 266,900 15,213
Nationwide Financial Services........................ 37,000 1,554
Washington Mutual.................................... 78,000 3,188
--------
47,599
FOOD, BEVERAGE AND TOBACCO (4.0%)
PepsiCo.............................................. 160,000 6,270
Philip Morris........................................ 203,000 7,143
Sara Lee............................................. 144,000 3,564
--------
16,977
HEALTH CARE (9.7%)
Abbott Laboratories.................................. 117,000 5,477
Baxter International................................. 120,000 7,920
Bristol-Myers Squibb................................. 170,000 10,933
Roche Holdings Limited............................... 200 2,439
SmithKline Beecham ADRs.............................. 40,000 2,860
Warner-Lambert....................................... 170,000 11,252
--------
40,881
MULTI-INDUSTRY (6.1%)
General Electric..................................... 88,000 9,735
Honeywell............................................ 99,000 7,505
Monsanto............................................. 185,000 8,498
--------
25,738
PAPER AND FOREST PRODUCTS (2.1%)
Georgia-Pacific...................................... 95,000 7,054
Georgia-Pacific Timber Group......................... 75,000 1,683
--------
8,737
RUBBER, PLASTICS AND RELATED PRODUCTS (0.5%)
Goodyear Tire & Rubber .............................. 45,000 2,242
SPECIALTY CHEMICALS (4.5%)
Ecolab............................................... 330,000 11,716
Solutia.............................................. 42,000 730
Union Carbide........................................ 141,100 6,376
--------
18,822
TELECOMMUNICATIONS (3.4%)
AT&T................................................. 30,222 2,412
Bell Atlantic........................................ 190,320 9,838
Lucent Technologies.................................. 19,588 2,111
--------
14,361
TRANSPORTATION (3.2%)
Burlington Northern Santa Fe......................... 240,000 7,890
Continental Airlines, Class B (a).................... 150,000 5,700
--------
13,590
--------
TOTAL COMMON STOCKS (Cost $186,232).................. 359,835
--------
- --------------------------------------------------------------------------------
22
<PAGE>
SR&F GROWTH & INCOME PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
SHORT-TERM OBLIGATIONS (14.9%) AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (14.2%)
Rite Aid 5.150% 4/1/99............................... $19,965 $ 19,965
Texas Utilities 5.080% 4/6/99........................ 20,000 19,986
Volvo Treasury NA 5.050% 4/6/99...................... 20,000 19,986
--------
(Cost $59,918)....................................... 59,937
U.S. GOVERNMENT OBLIGATION (0.7%)
U.S. Treasury Note 7.125% 9/30/99 (b)
(Cost $2,964)........................................ 3,000 3,035
--------
TOTAL SHORT-TERM OBLIGATIONS (Cost $62,882).......... 62,972
--------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(Cost $249,114) (c).................................. 422,807
OTHER ASSETS, LESS LIABILITIES (-0.1%)............... (245)
--------
TOTAL NET ASSETS (100.0%)............................ $422,562
========
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security was pledged to cover margin requirements for open futures
contracts. The following contracts were open at March 31, 1999:
Number of Contract Unrealized
Type Position Contracts Value Expiration Loss
----- -------- --------- -------- ---------- -----------
S&P
500
Index Long 75 $24,249 Jun-99 $210
(c)At March 31, 1999, the cost of investments for federal income tax purposes
was $249,276. Net unrealized appreciation was $173,531, consisting of gross
unrealized appreciation of $177,654 and gross unrealized depreciation of
$4,123.
Acronym Name
------- ----
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
23
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
MARCH 31, 1999
(All amounts in thousands, except per-share data)
(Unaudited)
GROWTH &
BALANCED INCOME
FUND FUND
--------- ---------
Assets
Investment in Portfolio, at value................. $265,913 $420,373
Receivable for fund shares sold................... 78 716
Cash.............................................. 25 25
Other assets...................................... 30 20
--------- ---------
Total assets................................... 266,046 421,134
--------- ---------
Liabilities
Payable for fund shares redeemed.................. 223 1,353
Payable to investment adviser and transfer agent.. 15 134
Other liabilities................................. 232 74
--------- ---------
Total liabilities.............................. 470 1,561
--------- ---------
Net assets..................................... $265,576 $419,573
========= =========
Analysis of Net Assets
Paid-in capital................................... $179,320 $238,288
Net unrealized appreciation on investments........ 74,978 173,072
Accumulated undistributed (overdistributed) net
investment income.............................. (639) 351
Accumulated net realized gain on investments...... 11,917 7,862
--------- ---------
Net assets..................................... $265,576 $419,573
========= =========
Shares outstanding (unlimited number authorized).. 8,204 15,875
========= =========
Net asset value per share......................... $ 32.37 $ 26.43
========= =========
See accompanying Notes to Financial Statements.
24
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
MARCH 31, 1999
(All amounts in thousands, except per-share data)
(Unaudited)
GROWTH &
BALANCED INCOME
FUND FUND
-------- --------
Investment Income
Interest allocated from Portfolio................. $ 3,407 $ 1,633
Dividends allocated from Portfolio................ 1,152 2,310
-------- --------
4,559 3,943
-------- --------
Foreign taxes withheld allocated from Portfolio... (24) (18)
-------- --------
Total investment income........................ 4,535 3,925
-------- --------
Expenses
Expenses allocated from Portfolio................. 800 1,261
Transfer agent fees............................... 276 480
Administrative fees............................... 171 300
SEC and state registration fees................... 21 11
Accounting fees................................... 15 17
Printing and postage.............................. 14 3
Audit and legal fees.............................. 8 5
Trustees' fees.................................... 8 8
Custodian fees.................................... 1 1
Other............................................. 55 1
-------- --------
Total expenses................................. 1,369 2,087
-------- --------
Net investment income.......................... 3,166 1,838
-------- --------
Realized and Unrealized Gain on Investments
Net realized gain on investments and futures transactions
allocated from Portfolio....................... 13,386 9,234
Net change in unrealized appreciation on
investments and futures transactions........... 18,773 60,704
-------- --------
Net gain on investments and futures transactions.. 32,159 69,938
-------- --------
Net Increase in Net Assets Resulting from Operations $35,325 $71,776
======== ========
See accompanying Notes to Financial Statements.
25
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
BALANCED FUND GROWTH & INCOME FUND
------------ -------------------
(UNAUDITED) (UNAUDITED)
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1999 1998 1999 1998
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income............................................... $ 3,166 $ 8,046 $ 1,838 $ 3,696
Net realized gain on investments and futures transactions........... 13,386 22,004 9,234 7,267
Net change in unrealized appreciation or
depreciation on investments and futures transactions........... 18,773 (27,976) 60,704 (229)
--------- --------- --------- ---------
Net increase in net assets resulting from operations............. 35,325 2,074 71,776 10,734
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income............................ (4,378) (6,492) (2,342) (4,131)
Distributions from net capital gains................................ (16,586) (16,945) (5,986) (14,181)
--------- --------- --------- ---------
Total distributions to shareholders.............................. (20,964) (23,437) (8,328) (18,312)
--------- --------- --------- ---------
SHARE TRANSACTIONS
Subscriptions to fund shares........................................ 9,139 21,549 55,984 93,477
Value of distributions reinvested................................... 18,260 19,237 7,618 14,304
Redemptions of fund shares.......................................... (24,036) (56,417) (58,529) (86,617)
--------- --------- --------- --------
Net increase (decrease) from share transactions.................. 3,363 (15,631) 5,073 21,164
--------- --------- --------- ---------
Net increase (decrease) in net assets............................ 17,724 (36,994) 68,521 13,586
TOTAL NET ASSETS
Beginning of period................................................. 247,852 284,846 351,052 337,466
--------- --------- --------- ---------
End of period....................................................... $265,576 $247,852 $419,573 $351,052
========= ========= ========= =========
ACCUMULATED UNDISTRIBUTED
(Overdistributed) Net Investment Income........................ $ (639) $ 573 $ 351 $ 855
========= ========= ========= =========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Subscriptions to fund shares........................................ 286 668 2,240 3,902
Issued in reinvestment of distributions............................. 596 615 313 636
Redemptions of fund shares.......................................... (752) (1,735) (2,312) (3,635)
--------- --------- --------- ---------
Net increase (decrease) in fund shares........................... 130 (452) 241 903
Shares outstanding at beginning of period........................... 8,074 8,526 15,634 14,731
--------- --------- --------- ---------
Shares outstanding at end of period................................. 8,204 8,074 15,875 15,634
========= ========= ========= =========
</TABLE>
See accompanying Notes to Financial Statements.
26 27
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
MARCH 31, 1999
(All amounts in thousands, except per-share data)
(Unaudited)
SR&F
SR&F GROWTH
BALANCED & INCOME
PORTFOLIO PORTFOLIO
--------- ---------
ASSETS
Investments, at market value (cost of $204,261 and
$249,114, respectively)...................... $288,542 $422,807
Deposit with broker for securities sold short..... 17,162 --
Dividends and interest receivable................. 1,319 476
Cash.............................................. 55 2
--------- ---------
Total assets................................... 307,078 423,285
--------- ---------
LIABILITIES
Securities sold short, at market value (proceeds
of $15,138).................................. 24,469 --
Loan payable to broker............................ 16,000 --
Variation margin payable for futures transactions. -- 420
Payable to investment adviser..................... 125 217
Payable for investments purchased................. 80 --
Other liabilities................................. 364 86
--------- ---------
Total liabilities............................ 41,038 723
--------- ---------
Net assets applicable to investors'
beneficial interest..................... $266,040 $422,562
========= =========
See accompanying Notes to Financial Statements.
28
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(All amounts in thousands)
(Unaudited)
SR&F
SR&F GROWTH &
BALANCED INCOME
PORTFOLIO PORTFOLIO
--------- ---------
INVESTMENT INCOME
Interest.......................................... $ 3,401 $ 1,643
Dividends......................................... 1,152 2,324
-------- --------
4,553 3,967
-------- --------
Foreign taxes withheld............................ (24) (18)
-------- --------
Total investment income........................ 4,529 3,949
-------- --------
EXPENSES
Management fees................................... 721 1,225
Accounting fees................................... 15 17
Trustees' fees.................................... 12 12
Audit and legal fees.............................. 7 8
Custodian fees.................................... 6 6
Other............................................. 40 1
-------- --------
Total expenses................................. 801 1,269
-------- --------
Net investment income.......................... 3,728 2,680
-------- --------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.................. 13,390 4,678
Net realized gain on futures transactions......... -- 4,573
Net change in unrealized appreciation on
investments and futures transactions........... 18,795 61,108
-------- --------
Net gain on investments and futures transactions 32,185 70,359
-------- --------
Net Increase in Net Assets Resulting from Operations $35,913 $73,039
======== ========
See accompanying Notes to Financial Statements.
29
<PAGE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
SR&F BALANCED PORTFOLIO SR&F GROWTH & INCOME PORTFOLIO
-------------------- -----------------------------
(UNAUDITED) (UNAUDITED)
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1999 1998 1999 1998
------------ --------------- ------------ ---------------
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income................................................ $ 3,728 $ 9,210 $ 2,680 $ 5,246
Net realized gain on investments and futures transactions............ 13,390 22,005 9,251 7,017
Net change in unrealized appreciation or depreciation on investments
and futures transactions........................................ 18,795 (27,983) 61,108 (242)
--------- --------- --------- ---------
Net increase in net assets resulting from operations............ 35,913 3,232 73,039 12,021
--------- --------- --------- ---------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions........................................................ 2,868 4,912 15,227 36,636
Withdrawals.......................................................... (20,986) (44,840) (18,897) (33,209)
--------- --------- --------- ---------
Net increase (decrease) from transactions in investors'
beneficial interest........................................ (18,118) (39,928) (3,670) 3,427
--------- --------- --------- ---------
Net increase (decrease) in net assets............................. 17,795 (36,696) 69,369 15,448
Total Net Assets
Beginning of period.................................................. 248,245 284,941 353,193 337,745
--------- --------- --------- ---------
End of period........................................................ $266,040 $248,245 $422,562 $353,193
========= ========= ========= =========
</TABLE>
See accompanying Notes to Financial Statements.
30 31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(ALL AMOUNTS IN THOUSANDS) (UNAUDITED)
NOTE 1. ORGANIZATION
Stein Roe Balanced Fund and Stein Roe Growth & Income Fund (the "Funds") are
series of Stein Roe Investment Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust. Balanced Fund
and Growth & Income Fund invest substantially all of their assets in SR&F
Balanced Portfolio and SR&F Growth & Income Portfolio (the "Portfolios"),
respectively.
The Portfolios are series of the SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolios commenced operations on February 3, 1997. At commencement,
Balanced Fund and Growth & Income Fund contributed $260,013 and $239,175 in
securities and other assets to SR&F Balanced Portfolio and SR&F Growth & Income
Portfolio, respectively, in exchange for beneficial ownership of those
Portfolios. The Portfolios allocate income, expenses, realized and unrealized
gains and losses to each investor on a daily basis, based on their respective
percentage of ownership. At March 31, 1999, Balanced Fund owned 99.95 percent of
the SR&F Balanced Portfolio and Growth & Income Fund owned 99.48 percent of the
SR&F Growth & Income Portfolio.
- --------------------------------------------------------------------------------
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Funds and
Portfolios. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and 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
All securities are valued as of March 31, 1999. Securities are valued at,
depending on the security involved, the last reported sales price, last bid or
asked price, or the mean between last bid and asked prices as of the close of
the appropriate exchange or other designated time. A security that is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary exchange for such security. Securities and other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Trustees.
FUTURES CONTRACTS
During the six months ended March 31, 1999, SR&F Growth & Income Portfolio
entered into stock index futures contracts to either hedge against expected
declines of its portfolio securities or as a temporary substitute for the
purchase of individual stocks. Risks of entering into futures contracts include
the possibility that there may be an illiquid market at the time the Portfolio
seeks to close out a contract, and changes in the value of the futures contract
may not correlate with changes in the value of the portfolio securities being
hedged. Upon entering into a futures contract, the Portfolio deposits with its
custodian cash or securities in an amount sufficient to meet the initial margin
requirements. Subsequent payments are made or received by the Portfolio equal to
the daily change in the contract value and are recorded as unrealized gains or
losses. The Portfolio recognizes a realized gain or loss when the contract is
closed or expires.
SECURITIES SOLD SHORT
SR&F Balanced Portfolio engages in selling securities short, which obligates the
Portfolio to replace a security borrowed by purchasing the same security at the
current market value. The Portfolio may incur a gain or a loss between the date
of the short sale and the date on which the Portfolio replaces the borrowed
security. The Portfolio has established a margin account with a broker lending
the securities sold short. While a short sale is outstanding, the broker retains
the proceeds of the short sale in a margin account. The Portfolio may take a
loan against the proceeds not exceeding 95 percent of the total deposit. The
Portfolio must also place an equivalent amount of securities in a separate
account with its custodian.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Funds
33
<PAGE>
Notes to Financial Statements Continued
- --------------------------------------------------------------------------------
elect to be taxed as "regulated investment companies" and make distributions to
their shareholders to be relieved of all federal income taxes under provisions
of current federal tax law; and (b) the Portfolios are treated as partnerships
for federal income tax purposes and all of their income is allocated to their
owners based on their respective percentages of ownership.
DISTRIBUTIONS TO SHAREHOLDERS
Each Fund declares and pays dividends of any net investment income at least
quarterly, and any net realized capital gains annually. Shareholder
distributions are recorded on the ex-dividend date. Dividends are determined in
accordance with income tax principles, which may treat certain transactions
differently from generally accepted accounting principles. Distributions in
excess of tax basis earnings are reported in the financial statements as a
return of capital. Permanent differences in the recognition or classification of
income between the financial statements and tax earnings are reclassified to
paid-in capital.
- --------------------------------------------------------------------------------
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Funds and Portfolios pay monthly management and administrative fees to Stein
Roe & Farnham Incorporated (the "Adviser"), an indirect, wholly-owned subsidiary
of Liberty Financial Companies, Inc. ("Liberty"), for its services as investment
adviser and administrator. The management fee for SR&F Balanced Portfolio is
computed at an annual rate of .55 of 1 percent of average daily net assets up to
$500 million, .50 of 1 percent of the next $500 million, and .45 of 1 percent
thereafter. The management fee for SR&F Growth & Income Portfolio is computed at
an annual rate of .60 of 1 percent of average daily net assets up to $500
million, .55 of 1 percent of the next $500 million, and .50 of 1 percent
thereafter. The administrative fees for the Funds are computed at an annual rate
of .15 of 1 percent of average daily net assets up to $500 million, .125 of 1
percent of the next $500 million, and .10 of 1 percent thereafter.
The Adviser also provides fund accounting services. For the six months
ended March 31, 1999, Balanced Fund, Growth & Income Fund, SR&F Balanced
Portfolio and SR&F Growth & Income Portfolio incurred charges of $15, $17, $15
and $17, respectively.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
Transfer agent fees are paid to SteinRoe Services Inc. (SSI), a direct,
wholly-owned subsidiary of Liberty. SSI has entered into an agreement with
Liberty Funds Services, Inc., an indirect wholly-owned subsidiary of Liberty, to
act as subtransfer agent for the Funds.
Certain officers and trustees of the Trust are also officers of the
Adviser. The compensation of trustees not affiliated with the Adviser for
Balanced Fund, Growth & Income Fund, SR&F Balanced Portfolio and SR&F Growth &
Income Portfolio for the six months ended March 31, 1999, was $8, $8, $12 and
$12, respectively. No remuneration was paid to any other trustee or officer of
the Trust.
- --------------------------------------------------------------------------------
NOTE 4. SHORT-TERM DEBT
To facilitate portfolio liquidity, the Funds and Portfolios maintain borrowing
arrangements under which they can borrow against portfolio securities. Neither
the Funds nor the Portfolios had borrowings during the six months ended March
31, 1999.
- --------------------------------------------------------------------------------
NOTE 5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the six months ending March 31, 1999, were:
Purchases Sales
-------- --------
SR&F Balanced Portfolio.......................... $77,303 $95,765
SR&F Growth & Income Portfolio................... 10,253 13,638
35
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BALANCED FUND
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 30.70 $ 33.41 $ 30.07 $ 27.82 $ 25.78 $ 27.57
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................... 0.39 0.95 0.95 1.00 1.33 1.15
Net realized and unrealized gain (loss) on investments.. 3.90 (0.90) 5.61 2.96 2.22 (1.06)
-------- -------- -------- -------- -------- --------
Total from investment operations...................... 4.29 0.05 6.56 3.96 3.55 0.09
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income................................... (0.54) (0.76) (0.96) (1.01) (1.23) (1.17)
Net realized capital gains.............................. (2.08) (2.00) (2.26) (0.70) (0.28) (0.71)
-------- -------- -------- -------- -------- --------
Total distributions................................... (2.62) (2.76) (3.22) (1.71) (1.51) (1.88)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 32.37 $ 30.70 $ 33.41 $ 30.07 $ 27.82 $ 25.78
======== ======== ======== ======== ======== ========
Ratio of net expenses to average net assets................ 1.04%(a) 1.03% 1.05% 1.05% 0.87% 0.83%
Ratio of net investment income to average net assets....... 2.41%(a) 2.90% 3.02% 3.45% 5.14% 4.53%
Portfolio turnover rate.................................... N/A N/A 15%(b) 87% 45% 29%
Total return............................................... 14.54% 0.14% 23.60% 14.83% 14.49% 0.36%
Net assets, end of period (000's).......................... $265,576 $247,852 $284,846 $231,063 $228,560 $229,274
</TABLE>
(a) Annualized.
(b) Prior to commencement of operations of the Portfolio.
- --------------------------------------------------------------------------------
SR&F Balanced Portfolio
<TABLE>
<CAPTION>
(Unaudited)
Six Months Year Period
Ended Ended Ended
March 31, September 30, September 30,
1999 1998 1997 (a)
------------- ---------- ----------
<S> <C> <C> <C>
Ratio of net expenses to average net assets............................ 0.61%(b) 0.61% 0.60% (b)
Ratio of net investment income to average net assets................... 2.83%(b) 3.31% 3.52% (b)
Portfolio turnover rate................................................ 30% 61% 21%
</TABLE>
(a) From commencement of operations on February 3, 1997.
(b) Annualized.
36 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>
(UNAUDITED)
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 22.45 $ 22.91 $ 18.39 $ 16.65 $ 14.54 $ 14.83
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................ 0.12 0.24 0.30 0.27 0.34 0.18
Net realized and unrealized gain on investments...... 4.39 0.55 5.15 3.22 2.56 0.40
-------- -------- -------- -------- -------- --------
Total from investment operations................... 4.51 0.79 5.45 3.49 2.90 0.58
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income................................ (0.15) (0.28) (0.28) (0.32) (0.20) (0.16)
Net realized capital gains........................... (0.38) (0.97) (0.65) (1.43) (0.59) (0.71)
-------- -------- -------- -------- -------- --------
Total distribution................................. (0.53) (1.25) (0.93) (1.75) (0.79) (0.87)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 26.43 $ 22.45 $ 22.91 $ 18.39 $ 16.65 $ 14.54
======== ======== ======== ======== ======== ========
Ratio of net expenses to average net assets............. 1.04%(a) 1.07% 1.13% 1.18% 0.96% 0.90%
Ratio of net investment income to average net assets.... 0.92%(a) 1.02% 1.52% 1.65% 1.78% 1.18%
Portfolio turnover rate................................. N/A N/A 2%(b) 13% 70% 85%
Total return............................................ 20.28% 3.45% 30.81% 22.67% 21.12% 4.03%
Net assets, end of period (000's)....................... $419,573 $351,052 $337,466 $204,387 $139,539 $129,680
</TABLE>
(a) Annualized.
(b) Prior to commencement of operations of the Portfolio.
- --------------------------------------------------------------------------------
SR&F GROWTH & INCOME PORTFOLIO
<TABLE>
<CAPTION>
(Unaudited)
Six Months Year Period
Ended Ended Ended
March 31, 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% (b)
Ratio of net investment income to average net assets................... 1.33%(b) 1.44% 2.04% (b)
Portfolio turnover rate................................................ 3% 11% 7%
</TABLE>
(a) From commencement of operations on February 3, 1997.
(b) Annualized.
38 39
<PAGE>
TO CONTACT US. . .
- --------------------------------------------------------------------------------
BY PHONE 800-338-2550
You can discuss your investment questions with a Stein Roe account
representative by calling us toll free. We'll be happy to answer questions about
your current account, or to provide you with information about opening a Stein
Roe account, including Stein Roe Traditional, Roth and Education IRAs. We're
available seven days a week, from 7 a.m. to 7 p.m. weekdays and from 9 a.m. to 1
p.m. Saturday and Sunday (Central time).
STEIN ROE'S FUNDS-ON-CALL(R)
24-HOUR SERVICE LINE
Using a touch-tone phone, call our toll-free number, day or night, for your
current account balance, the latest Stein Roe Fund prices and yields and other
information. In addition, if you have a Personal Identification Number (PIN),
you may place orders for the following transactions 24 hours a day:
o Exchange shares between your Stein Roe accounts;
o Purchase fund shares by electronic transfer;
o Order additional account statements and money marketfund checks;
o Redeem shares by check, wire or electronic transfer.
RETIREMENT PLAN ACCOUNTS
Call us for information about how we can assist you with your defined
contribution plan, including 401(k) plans. You can reach us toll free at
800-322-1130. For information on Traditional, Roth and Education IRA plans, call
us toll free at 800-338-2550.
BY MAIL OR E-MAIL
If you prefer to contact us by mail, please address all correspondence to: P.O.
Box 8900, Boston, MA 02205-8900. To contact us by e-mail, send correspondence
directly to: comments @steinroe.com or visit us at www.steinroe.com on the
Internet.
IN PERSON
If you are in the Chicago area, please visit our Investor Center located in
downtown Chicago at One South Wacker Drive, 32nd Floor. Our account
representatives can answer questions about your current Fund investments or
provide you with information about any of the Stein Roe Funds and retirement
plans. Stop by weekdays between 8 a.m. and 5:15 p.m.
MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
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
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL
COUNSEL, SARA LEE CORPORATION
Charles R. Nelson
VAN VOORHIS PROFESSOR OF POLITICAL ECONOMY,
UNIVERSITY OF WASHINGTON
Thomas C. Theobald
MANAGING PARTNER, WILLIAM BLAIR CAPITAL PARTNERS
AGENTS AND ADVISERS
Stein Roe & Farnham Incorporated
INVESTMENT ADVISER
State Street Bank and Trust Company
CUSTODIAN
SteinRoe Services Inc.
TRANSFER AGENT
Bell, Boyd & Lloyd
LEGAL COUNSEL TO THE FUND
Ernst & Young LLP
INDEPENDENT AUDITORS
OFFICERS
Thomas W. Butch, PRESIDENT
William D. Andrews, EXECUTIVE VICE PRESIDENT
Loren A. Hansen, EXECUTIVE VICE PRESIDENT
Gary A. Anetsberger, SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
David P. Brady, VICE PRESIDENT
Daniel K. Cantor, VICE PRESIDENT
Kevin M. Carome, VICE PRESIDENT,
ASSISTANT SECRETARY
J. Kevin Connaughton, VICE PRESIDENT
William M. Garrison, VICE PRESIDENT
Erik P. Gustafson, VICE PRESIDENT
James P. Haynie, VICE PRESIDENT
Harvey B. Hirschhorn, VICE PRESIDENT
Timothy Jacoby, VICE PRESIDENT
Gail D. Knudsen, VICE PRESIDENT
Eric S. Maddix, VICE PRESIDENT
Lynn C. Maddox, VICE PRESIDENT
Arthur J. McQueen, VICE PRESIDENT
Nicolette D. Parrish, VICE PRESIDENT,
ASSISTANT SECRETARY
Brian D. Pollard, VICE PRESIDENT
Gita R. Rao, VICE PRESIDENT
Michael E. Rega, VICE PRESIDENT
Steven M. Salopek, VICE PRESIDENT
M. Gerard Sandel, VICE PRESIDENT
Gloria J. Santella, VICE PRESIDENT
Sharlene Thomas, VICE PRESIDENT
Heidi J. Walter, VICE PRESIDENT, SECRETARY
Janet B. Rysz, ASSISTANT SECRETARY
Scott E. Volk, TREASURER
<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
Floating Rate Income 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
Large Company Focus Fund
Midcap Growth Fund**
Special Venture Fund
Capital Opportunities Fund
International Fund
Small Company Growth Fund
* Formerly Special Fund
** Formerly Growth Opportunities 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
In Chicago, visit our Fund Center at One South Wacker Drive
Liberty Funds Distributor, Inc.
GI12A 5/99
