Stein Roe Mutual Funds
Annual Report
September 30, 1999
Stein Roe Equity Fund
Young Investor Fund
Logo: Stein Roe Mutual Funds
Sensible Risks. Intelligent Investments.(R)
<PAGE>
Contents
From the President............................................... 1
Stephen E. Gibson's thoughts on the equity markets and investing
Performance Summary.............................................. 7
The Companies We Invest In ...................................... 8
Fund Highlights.................................................. 10
Questions & Answers.............................................. 12
An interview with Portfolio Managers David Brady and Erik Gustafson
Portfolio of Investments......................................... 17
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.................................... 30
Financial Highlights............................................. 33
Selected per-share data and ratios
Report of Independent Accountants................................ 36
Must be preceded or accompanied by a prospectus.
<PAGE>
To Our Shareholders
DEAR INVESTOR,
Five years ago when we published the first annual report for Stein Roe Young
Investor Fund, 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.
Still, by investing in companies of all sizes, Young Investor Fund provided
an attractive total return of 23.89% for the 12 months ended September 30, 1999.
This was less than the return of the Fund's benchmark, the unmanaged Standard &
Poor's 500 Index, a group of large-cap stocks that rose 27.79% for the period.
For four of the last five fiscal years, Young Investor Fund provided
average annual returns of
1
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To Our Shareholders (Continued)
more than 20%, an exceptional achievement. Over the past 73 years, however,
annual returns from stocks have averaged just 11%, with some years of negative
returns of more than 20%.* Investors of all ages should consider that such
volatility is normal for growth-oriented investments.
TECHNOLOGY AND TELECOM DROVE RESULTS
We attribute the Fund's fiscal 1999 returns to a strong positioning in
technology and telecommunications stocks that did well. You should know that
from its very beginnings, your Fund's investment portfolio has reflected a
consistent belief in the power of technology. For example, Microsoft and MCI
WorldCom (then MCI Communications) were top 10 holdings five years ago and are
still among the top 10 as of September 30, 1999 (2.8% and 2.7% of net assets,
respectively).
*Source: Wiesenberger(R), based on average annual returns of the S&P 500 Index,
12/31/25 to 9/30/99.
Balloon Text: The unmanaged Standard & Poor's 500 Index has been around since
1925. It is a group of large company stocks that changes slightly each year as
companies merge and fluctuate in value.
2
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Perhaps more than in any decade since the 1920s, advances in technology and
telecommunications are revolutionizing American business. Consider that when
Young Investor Fund began operating in May 1994, hardly anyone used the
Internet. Now it is becoming the communication tool of choice. In fact, some
85% of children with a home computer use the Internet to do homework.**
A FUTURE FULL OF POTENTIAL
As any parent knows, the amount of care given a child in his or her first
few years is critical to a child's future success. We are pleased to report that
the attention Stein Roe has provided for your Fund since 1994 has built an
outstanding investment and educational opportunity. Young Investor Fund's net
assets have risen more than 100-fold since the Fund's first annual report.
During fiscal 1999, the Fund attracted an average of nearly 5,000 new
shareholders a month. Yet we think we've barely scratched the surface of the
Fund's potential to reach young Americans.
**Source: NPD Online Research.
3
<PAGE>
To Our Shareholders
(Continued)
With the support of Liberty Financial Companies, Inc., Stein Roe's parent
organization, we believe we are making a difference in an industry where candid
communication is more important than ever.
One statistic we believe worth highlighting is that the number of potential
young investors in America is rising. In fact, over the next 50 years, the
number of people under age 19 in the United States is expected to grow 19
million to 106.8 million, according to the U.S. Census Bureau.
This 21% increase compares with what census experts expect will be a 23%
decline in the number of kids in the rest of the industrialized world by the
year 2050. In Europe, for example, the number of children could fall from 180
million to 90 million in 50 years because of limited job opportunities, high
taxes and social trends that discourage formation of families.***
***Source: US Census Bureau, International Data Base at www.census.gov.
Balloon Text: Over the next 50 years, the number of people under age 19 in the
United States is expected to grow 19 million.
4
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A BEACON OF OPPORTUNITY
One thing we've learned in managing Young Investor Fund is that America's
children have no shortage of optimism about the future. Through letters,
postcards and the annual Young Investor essay contest, kids as young as four
have shared thousands of insightful thoughts about money and investing. Some of
the most poignant messages illustrate ingenuity, shatter myths about kids and
highlight the growing role of technology in children's lives.
A century ago, through the efforts of newspaper publisher Joseph Pulitzer,
schoolchildren invested enough pennies to build a pedestal for the Statue of
Liberty at the entrance to New York harbor. Today, in that same spirit, we think
Young Investor Fund provides a platform for investor education that can also
serve as a beacon for personal financial freedom.
5
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To Our Shareholders (Continued)
INTELLIGENT INVESTING IN GROWTH STOCKS
As parents and shareholders, you can expect that Young Investor Fund's
management has a commitment to a disciplined, research intensive approach to
stock selection that has the potential to help you meet your long-term
investment goals. On the pages that follow, David Brady and Erik Gustafson, your
Fund's portfolio managers, detail the strategy that has generated the Fund's
fiscal 1999 results.
We appreciate the confidence you have shown in Young Investor Fund. We
encourage you to carefully review this report as well as the forthcoming fall
issue of Dollar Digest.(R)
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
November 15, 1999
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.
6
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Performance Summary
Average Annual Total Returns Through Sept. 30, 1999
One Year Five Years Life of Fund
Young Investor Fund 23.89% 24.72% 23.13%
Standard & Poor's
500 Index 27.79% 25.03% 23.77%
Lipper Multi-Cap Growth
Fund Average 41.88% 20.86% 19.38%
Number of Funds
In Peer Group 348 147 131
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. The S&P 500 Index is an unmanaged group of stocks that
differs from the composition of the Fund and is not available for direct
investment. The Fund began operating on 4/29/94; benchmark performance is from
4/30/94 to 9/30/99. Source: Lipper Inc., a monitor of mutual fund performance.
Balloon Text: Recently Lipper Inc. changed many mutual fund peer groups to more
precisely measure similarly managed funds. Young Investor Fund's peer group
changed from "growth funds" to "multi-cap growth funds."
7
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The Companies We Invest In
Did you know it took 13 years from the time that Thomas Edison invented
the light bulb in 1879 to form the company we know today as General Electric Co?
It was a volatile time. Edison needed to sue to protect his light bulb
patent. His company went through several mergers. The business branched out into
new directions such as electric locomotives, transformers and turbines.
Industrial technology was changing rapidly, offering enormous growth potential
as well as substantial risks for investors.
Today, the Internet and telecommunications are the leading growth engines
of America's economy, and the pace of change is equally dynamic. Companies of
all sizes in many industries are trying to capitalize on bright ideas to sell
products and services through electronic commerce.
In selecting stocks for Young Investor Fund's portfolio, your Fund's
portfolio managers look for businesses in many sectors that they think are
likely to stand the test of time. Mindful of the lessons of history, they
carefully analyze the risks of investing in rapidly growing companies and learn
as much as they can about how companies are managed.
As of September 30, 1999, four of the Portfolio's top 10 holdings were
technology and telecommunications companies, as shown on the next page. The
Fund's largest holding was Cisco Systems (4.4% of net assets), a company that
helps link computer networks to the Internet.
By the way, the Portfolio also holds shares of General Electric (2.6% of
net assets). GE still makes light bulbs and locomotives, and today also makes
medical devices and airplane engines, provides financial services and operates
the NBC television network.
Balloon Text: As of September 30, 1999, four of the Portfolio's top 10 holdings
were technology and telecommunications companies.
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<TABLE>
<CAPTION>
Main
Top 10 Holdings As of Sept. 30, 1999* Percent of Product
Company Net Assets Or Service
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
1 Cisco Systems 4.4% Computer networking
- ---------------------------------------------------------------------------------------
2 Microsoft 2.8 Computer software
- ---------------------------------------------------------------------------------------
3 MCI WorldCom 2.7 Telecommunications
- ---------------------------------------------------------------------------------------
4 General Electric 2.6 Capital Goods/Finance
- ---------------------------------------------------------------------------------------
5 Tyco International 2.6 Capital Goods
- ---------------------------------------------------------------------------------------
6 Hispanic Broadcasting 2.5 Media
- ---------------------------------------------------------------------------------------
7 Interpublic Group 2.5 Advertising agency
- ---------------------------------------------------------------------------------------
8 Clear Channel Comm. 2.4 Media
- ---------------------------------------------------------------------------------------
9 AES 2.4 Global Utility
- ---------------------------------------------------------------------------------------
10 Lucent Technologies 2.4 Telecom equipment
*Holdings disclosed as a percentage of SR&F Growth Investor Portfolio.
</TABLE>
9
<PAGE>
Fund Highlights
As of September 30,1999
Growth of a $10,000 Investment Since
Young Investor Fund Began Operating on April 29, 1994
- --------------------------------------------------------------------------------
Line Chart:
Young Investor Standard & Poor's Lipper Multi-Cap
Fund 500 Index Growth Fund Average
(131 funds)
4/29/94 10040 10163.5 9950.28
09/30/94 10240 10398.5 10200.6
03/31/95 11413.6 11408 10842.1
09/30/95 14395.5 13487.7 13328.6
03/31/96 16466.5 15066.4 14216.5
09/30/96 19512.7 16228.5 15438.7
03/31/97 19293.7 18052.3 15028.5
09/30/97 24659.1 22788.9 19603.6
03/31/98 28909.5 26710.8 21532.3
09/30/98 24939.8 24858.7 18795.5
03/31/99 32791.2 31649 25220.4
09/30/99 30954.5 31765.8 26461.3
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. This
illustration assumes a $10,000 investment on April 29, 1994, and reinvestment of
income and capital gains distributions. The S&P 500 Index is an unmanaged group
of stocks that differs from the composition of the Fund and is not available for
direct investment. Lipper Inc. is a monitor of mutual fund performance. Lipper
Category and Index performance is from 4/30/94.
Fund Data
- --------------------------------------------------------------------------------
Investment Objective and Strategy:
Seeks to achieve long-term growth by investing in a portfolio primarily made up
of common stocks and other equity securities. The Fund also has an educational
objective to teach investors about basic economic principles and personal
finance through a variety of educational materials prepared and paid for by the
Fund.
Age of Fund:
5 years, 5 months
Net Assets:
$880.6 million
Number of Shareholders: 201,283
Balloon Text: Standard & Poor's compiles different indexes that measure the
stock performance of large, medium and small companies.
10
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Your Fund and Its Benchmark
Industry Weightings vs. the S&P 500 Index
As of Sept. 30, 1999
- --------------------------------------------------------------------------------
Young S&P 500
Investor Fund Index
- --------------------------------------------------------------------------------
Technology/Telecom 35% 26%
Media/Leisure/Retailers/Restaurants* 21% 12%
Health Care/Food/Household
Products & Services** 15% 19%
Financial 12% 14%
Utilities 9% 11%
Industrial 7% 8%
Basic Materials/Energy 1% 10%
*Consumer cyclicals **Consumer non-cyclicals
How Young Investor Fund Performed Amid Market
Volatility Oct. 1, 1998 to Sept. 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Young Investor Standard & Poor`s Standard & Poor's Standard & Poor's
Fund MidCap 400 Index 500 Index SmallCap 600 Index
<S> <C> <C> <C> <C>
9/30/98 0 0 0 0
6.88 8.92 8.13 4.64
11/30/98 13.18 14.36 14.68 10.52
20.53 28.16 21.28 17.57
1/31/99 26.12 23.16 26.35 16.08
21.66 16.72 22.43 5.63
3/31/99 31.04 19.99 27.32 6.99
34.51 29.45 32.25 14.06
5/31/99 29.86 30.01 29.14 16.84
36.22 36.97 36.3 23.48
7/31/99 29.01 34.06 32.04 22.4
26.39 29.47 31.39 17.01
9/30/99 24.12 25.5 27.8 17.54
</TABLE>
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 stocks that
differs from the composition of the Fund and is not available for direct
investment. Source: Bloomberg Business News.
11
<PAGE>
An Interview with the Portfolio Managers
Q&A with David Brady and Erik Gustafson, portfolio managers of
Young Investor Fund and SR&F Growth Investor Portfolio
Q. How did the Fund perform between October 1998 and September 30, 1999?
A. Gustafson: A positive market environment helped lift the Fund's returns
during the first half of fiscal 1999 while a period of market anxiety about
possible higher inflation depressed the Fund's results between April and
September. Young Investor Fund fully participated in the stock market's recovery
last autumn and winter but underperformed the unmanaged S&P 500 Index and its
peer group this past spring and summer as interest rates rose.
Q. What contributed to the Fund's performance?
A. Brady: We held an above-average weighting in technology and
telecommunications stocks to participate in the growth potential of the
Internet. While these sectors provided strong double-digit returns between
October 1998 and March 1999, this positioning hurt the Fund's results this past
summer. Prices of some of our holdings in these two sectors dropped sharply.
Some of the Portfolio's holdings in midcap and small-cap stocks were also a
drag on the Fund's results during fiscal 1999. Both the unmanaged S&P MidCap 400
Index and S&P SmallCap 600 Index rose less than the S&P 500 for the 12 months
ended Sept. 30, 1999, as shown on page 11.
A. Gustafson: We believe that technology and telecommunications represent the
fastest growing sectors of the U.S. economy, and we have weighted the portfolio
to try to benefit from long-term growth and
12
<PAGE>
deregulation trends in these areas. In fiscal 1999, we also maintained a roughly
60%-30%-10% mix of large, midcap and small-cap companies. For many of our
shareholders, Young Investor Fund may be their primary equity holding. We feel
our positioning provides the opportunity for investors to benefit from the
growth potential of all segments of the market.
Q. Can you be more specific about how the Fund's technology holdings performed?
A. Brady: During the fiscal year, your Fund held many large company stocks such
as America Online and MCI WorldCom (2.1% and 2.7% of net assets, respectively)
that were among the top performers among stocks in the S&P 500 Index for the
first half of the year. During the second half, some of these stocks' prices
weakened amid concerns about product pricing.
Certain Internet-related technology and telecommunications stocks provided
strong positive returns throughout fiscal 1999. Cisco Systems, EMC Corp. and
Hispanic Broadcasting were among the Fund's top performers (4.4%, 2.2% and 2.5%
of net assets, respectively) this past summer.
One technology stock we've held for more than five years is Microsoft (2.8%
of net assets). Its performance was strong for most of the year, and we continue
to like the company. It
Photos of: Erik Gustafon and David Brady
13
<PAGE>
An Interview with the Portfolio Managers (Continued)
has a consistent record of strong earnings growth. We're excited about sales
prospects for Microsoft's planned Windows 2000 operating system upgrade in the
coming months.
Q. What caused the stock market to be so volatile in the past year?
A. Gustafson: After one of the strongest surges in recent years from October
1999 to April 1999, the U.S. stock market treaded water. In particular, the
third calendar quarter of 1999 was a period of weakness for growth stocks. Some
companies' shares dropped as much as 30% after reporting earnings
disappointments.
In autumn 1998, investors became much more confident in corporate earnings
prospects after the Federal Reserve Board (the Fed) reduced short-term interest
rates. Consumer prices remained low, and international financial markets began
to stabilize. U.S. economic growth was better than expected.
However, investor perceptions began to change dramatically beginning in the
late spring. Oil prices rose to $25 a barrel, GDP (gross domestic product)
accelerated to the point where some economists thought the economy would
overheat and the Fed raised short-term interest rates. All of this put downward
pressure on stock prices this past summer.
Balloon Text: GDP is the amount of goods and services made in the U.S. each
year.
14
<PAGE>
An Interview with the Portfolio Managers (Continued)
Q. Can you provide some examples of stocks that were disappointments in fiscal
1999 that you believe still have the potential to do well or that you sold?
A. Brady: Stocks of toy makers generally did not do well in fiscal 1999. We
owned Hasbro and Mattel (1.5% and 1.9% of net assets, respectively) because we
thought both companies had outstanding fundamentals. We've retained our
positions because we thought each company's brands, such as Barbie dolls, were
well-established. While each has the potential to overcome the industry's
current challenges, Mattel's acquisitions have disappointed investors and led to
lower company profits.
A. Gustafson: This past spring we purchased Excite@Home on the belief that it
had strong potential as an Internet services provider. As larger companies such
as Microsoft announced plans to move aggressively into this area, Excite@Home
earnings prospects began to look less attractive, so we sold the Portfolio's
position this past summer. During the first half of the year, we sold Kellogg
Corp. and Quaker Oats. More competition in the breakfast foods section of
supermarkets appears to have limited both companies' growth prospects.
Health care stocks generally did not fare well amid concerns about
government plans to cover prescription drugs under the Medicare program for
retirees. We sold Eli Lilly
Balloon Text: During the past three years, the earnings of technology stocks in
the S&P 500 Index have risen an average of 34% a year. Source: First
Call/Thompson Financial.
15
<PAGE>
An Interview with the Portfolio Managers (Continued)
but retained the Fund's position in Johnson & Johnson (1.9% of net assets) a
stock that held up well during this past summer's market volatility.
Q. In addition to technology and telecommunications, what other types of stocks
appear to have attractive long-term investment characteristics?
A. Brady: We have been exploring opportunities in the financial services sector,
which has had a difficult time over the past year as interest rates have risen.
We believe certain companies offer good growth prospects and that interest
rates, in the absence of inflation, are unlikely to move much higher from
current levels.
Recent government economic data have confirmed a resilient, healthy U.S.
economy. Retail sales and personal income are rising. Consumer confidence is
high and consumer credit trends remain positive, in our view. Looking ahead, we
believe the investment environment we anticipate will unfold over the next
several months - continued favorable inflation and moderate growth - will lead
to a more stable interest rate environment, and this should benefit financial
stocks such as Citigroup (2.3% of net assets).
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 income and capital
gains distributions. Portfolio holdings are as of 9/30/99 and are subject to
change. Investments in midcap and smaller companies may experience greater
volatility. The unmanaged S&P 500 Index differs from the composition of any
Stein Roe Fund; the index is not available for direct investment. Source: Lipper
Inc.
16
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<TABLE>
<CAPTION>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1999
(All amounts in thousands)
NUMBER MARKET
COMMON STOCKS (96.5%) OF SHARES VALUE
--------- --------
<S> <C> <C>
Advertising (2.5%)
Interpublic Group Cos., Inc.
(Owns and operates advertising agencies) 600 $ 24,675
Banks (0.9%)
Texas Regional Bancshares, Class A
(Commercial bank operating in the Rio Grande
Valley of Texas) 375 9,281
Commercial Services (1.6%)
Paychex, Inc.
(Provides computerized payroll accounting services
to businesses) 450 15,356
Computer Software and Services (17.3%)
America Online, Inc. (a)
(Internet service provider) 200 20,800
Cisco Systems, Inc. (a)
(Produces, markets and supports multiprotocol
internetworking systems) 633 43,400
EMC Corp. (a)
(Provides enterprise storage systems, software, networks,
and services) 300 21,431
Equant NV-NY Registered Shares (a)
(Operates data network systems to multinational
businesses) 200 16,275
Inktomi Corp. (a)
(Develops and markets scalable software applications) 100 12,003
Intuit, Inc.
(Develops and markets software products and related services) 175 15,340
Microsoft Corp. (a)
(Manufactures computer and software products and
operating systems) 300 27,169
Sun Microsystems, Inc. (a)
(Supplies network computing products) 150 13,950
-------
170,368
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SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(All amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
Consumer Products (1.7%)
Procter & Gamble Co.
(Produces personal-care products, pharmaceuticals,
food and beverages) 175 $ 16,406
Distribution - Retail (5.5%)
Hasbro, Inc.
(Manufactures and sells children's toys) 700 15,006
Mattel, Inc.
(Designs, manufactures and markets children's toys) 1,000 19,000
Walgreen Co.
(Large retail drugstore chain) 800 20,300
-------
54,306
Electrical Equipment (2.6%)
General Electric Co.
(Appliances, broadcasting, communications and
transportation) 220 26,084
Electrical Generation (3.3%)
AES Corp. (a)
(Provider of electricity to U.S. and international
customers) 400 23,600
Calpine Corp. (a)
(Provider and seller of electricity and thermal
energy in the U.S.) 100 8,506
-------
32,106
Entertainment (3.2%)
Cedar Fair L.P.
(Owns and operates amusement theme parks) 315 6,536
Time Warner, Inc.
(Media and entertainment company) 200 12,150
Walt Disney
(Operates theme parks and resorts, and produces
motion pictures) 500 12,938
-------
31,624
18
<PAGE>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(All amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
Financial Services (11.5%)
Alliance Capital Management L.P.
(Provides investment services to pension funds, endowments,
insurance companies, banks and individual investors) 350 $ 9,603
American International Group, Inc.
(Provides financial services and insurance to U.S. and
international companies) 188 16,301
Citigroup, Inc.
(Provider of financial services to consumers
and corporations) 525 23,100
Fannie Mae
(Buys and holds mortgages, and issues and sells mortgage-
backed securities) 275 17,239
Freddie Mac
(Purchases mortgages from lenders and resells
in pools or packages) 325 16,900
The Goldman Sachs Group, Inc.
(Provides global investment banking, trading and
asset management services) 165 10,034
Household International, Inc.
(Provides financial and banking services) 500 20,063
-------
113,240
Food and Beverage (2.9%)
Coca-Cola Co.
(Producer and distributor of soft drink products) 350 16,822
Wm. Wrigley Jr. Co.
(Manufactures chewing gum) 175 12,042
-------
28,864
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<PAGE>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(All amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
Health Care (4.7%)
American Home Products Corp.
(Discovers, develops, manufactures, distributes and sells
health care products) 270 $ 11,205
IMS Health, Inc.
(Provides information system solutions to pharmaceutical and
healthcare industries) 500 11,406
Johnson & Johnson
(Manufactures and markets a broad range of health care
and other products) 200 18,375
Orthodontic Centers of America (a)
(Provides management and consulting services to
orthodontic practices) 325 5,687
-------
46,673
Machinery (0.1%)
McDermott International
(Manufacturer of steam generating and environmental
machinery) 19 385
Medical - Instruments (1.4%)
Medtronic
(Manufactures various cardiovascular medical instruments) 400 14,200
Medical - Pharmaceutical (3.7%)
Pfizer, Inc.
(Researches and provides global health care products) 600 21,563
Watson Pharmaceuticals (a)
(Develops, produces, markets and distributes
pharmaceutical products) 500 15,281
-------
36,844
Publishing, Broadcasting and Media (6.8%)
AT&T Liberty Media A
(Holds interests in globally branded entertainment
networks) 500 18,563
Clear Channel Communications (a)
(Owns, operates and manages radio and television stations) 300 23,962
Hispanic Broadcasting, Class A (a)
(Spanish language radio broadcasting company) 325 24,741
-------
67,266
20
<PAGE>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(All amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
Restaurant (2.3%)
McDonald's Corp.
(Develops, licenses, leases and services a worldwide
system of restaurants) 525 $ 22,575
Security Systems (2.6%)
Tyco International Ltd.
(Develops and manufactures various security systems and
products) 250 25,813
Semiconductors (3.9%)
Atmel Corp. (a)
(Produces and sells non-volatile memory and logic
integrated circuits and related products) 300 10,144
Maxim Integrated Products (a)
(Develops, manufactures and markets integrated circuits) 300 18,928
KLA-Tencor Corp. (a)
(Manufactures monitoring systems for semiconductor
industry) 150 9,750
-------
38,822
Specialty Chemicals (1.5%)
Minerals Technologies, Inc.
(Develops, produces and markets specialty minerals,
mineral-based and synthetic mineral products) 300 14,569
Telecommunications (7.8%)
American Tower, Class A (a)
(Operator of wireless telecommunication towers) 500 9,781
Global Telesystems Group, Inc. (a)
(Provider of broadband, internet, international and
domestic long distance services) 590 11,634
Level 3 Communications, Inc. (a)
(Provider of local and long distance information and data
transmission services) 220 11,488
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<PAGE>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(All amounts in thousands)
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
Telecommunications (Continued)
MCI WorldCom, Inc. (a)
(Provides facilities-based and fully integrated local, long
distance, international and Internet services) 375 $ 26,953
Qwest Communications International (a)
(Provides communication services to interexchange
carriers, businesses and consumers) 583 17,236
-------
77,092
Telecommunications Equipment (6.0%)
Foundry Networks, Inc. (a)
(Manufactures networking products for enterprises and
Internet service providers) 40 5,040
Loral Space & Communications (a)
(High technology company concentrated on satellite
manufacturing and satellite-based communication services) 600 10,313
Lucent Technologies, Inc.
(Produces public and private networks, communication
systems and software) 360 23,355
Tellabs, Inc. (a)
(Designs, assembles, markets and services voice and data
networking products) 350 19,928
-------
58,636
Travel Services (2.7%)
Sabre Group Holdings Corp. (a)
(Provider of a travel reservation system) 250 10,750
Royal Caribbean Cruises Ltd.
(Operator and owner of a fleet of global cruise vessels) 360 16,200
-------
26,950
-------
Total Common Stocks (Cost $710,083) 952,135
-------
22
<PAGE>
SR&F Growth Investor Portfolio
PORTFOLIO OF INVESTMENTS (CONTINUED)
(All amounts in thousands)
PRINCIPAL MARKET
SHORT-TERM OBLIGATIONS (0.1%) AMOUNT VALUE
--------- --------
<S> <C> <C>
Commercial Paper (0.1%)
Associates Corp. of North America 5.600% 10/01/99 $1,010 $ 1,010
--------
Total Short-Term Obligations (Cost $1,010) 1,010
--------
Total Investments (96.6%)
(Cost $711,093) (b) 953,145
Other Assets, Less Liabilities (3.4%) 33,695
--------
Net Assets (100.0%) $986,840
========
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 $711,829. Net unrealized appreciation was $241,316, consisting
of gross unrealized appreciation of $282,757 and gross unrealized
depreciation of $41,441.
See accompanying Notes to Financial Statements.
23
</TABLE>
<PAGE>
SR&F Growth Investor Portfolio
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
(All amounts in thousands)
Assets
Investments, at market value (cost $711,093) $ 953,145
Cash 2
Receivable for investments sold 71,707
Dividends receivable 431
----------
Total Assets 1,025,285
----------
Liabilities
Payable for investments purchased 37,927
Payable to Advisor 492
Other liabilities 26
----------
Total Liabilities 38,445
----------
Net Assets applicable to investors' beneficial interest $ 986,840
==========
See accompanying Notes to Financial Statements.
24
<PAGE>
SR&F Growth Investor Portfolio
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(All amounts in thousands)
Investment Income
Dividends $ 5,808
Interest 1,827
--------
Total investment income 7,635
--------
Expenses
Management fees 5,416
Accounting fees 47
Transfer Agent fees 6
Custodian fees 26
Other fees 18
--------
Total expenses 5,513
--------
Net investment income 2,122
--------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments 944
Net change in unrealized appreciation or depreciation on investments 169,408
--------
Net gain on investments 170,352
--------
Net increase in net assets resulting from operations $172,474
========
See accompanying Notes to Financial Statements.
25
<PAGE>
SR&F Growth Investor Portfolio
STATEMENT OF CHANGES IN NET ASSETS
(All amounts in thousands)
Years ended September 30,
1999 1998
-------- --------
Operations
Net investment income $ 2,122 $ 2,659
Net realized gain on investments 944 12,629
Net change in unrealized appreciation or depreciation
on investments 169,408 (30,644)
-------- --------
Net increase (decrease) in net assets resulting
from operations 172,474 (15,356)
-------- --------
Transactions in Investors' Beneficial Interest
Contributions 274,918 389,527
Withdrawals (183,222) (127,041)
-------- --------
Net increase from transactions in investors'
beneficial interest 91,696 262,486
-------- --------
Net increase in net assets 264,170 247,130
Net Assets
Beginning of year 722,670 475,540
-------- --------
End of year $986,840 $722,670
======== ========
See accompanying Notes to Financial Statements.
Balloon Text: This past year your Fund's net assets grew substantially. The
number of shareholders rose by more than 40%.
26
<PAGE>
Stein Roe Young Investor Fund
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
(All amounts in thousands, except per-share data)
Assets
Investment in SR&F Growth Investor Portfolio, at value $882,087
Cash 25
Receivable for fund shares sold 290
Other assets 9
--------
Total Assets 882,411
--------
Liabilities
Payable for fund shares redeemed 1,251
Accrued administrative and transfer agent fees 416
Other liabilities 170
--------
Total Liabilities 1,837
--------
Net Assets $880,574
========
Analysis of Net Assets
Paid-in capital $645,314
Accumulated net realized gain on investments 4,854
Net unrealized appreciation on investments 230,406
--------
Net Assets $880,574
========
Shares outstanding (unlimited number authorized) 32,115
========
Net asset value per share $ 27.42
========
See accompanying Notes to Financial Statements.
27
<PAGE>
Stein Roe Young Investor Fund
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(All amounts in thousands)
Investment Income
Dividends allocated from SR&F Growth Investor Portfolio $ 5,356
Interest allocated from SR&F Growth Investor Portfolio 1,695
--------
Total investment income 7,041
--------
Expenses
Expenses allocated from SR&F Growth Investor Portfolio 5,078
Transfer agent fees 2,894
Administrative fees 1,546
SEC and state registration fees 57
Accounting fees 45
Trustees' fees 9
Legal and audit fees 15
Other 581
--------
Total expenses 10,225
--------
Net investment loss (3,184)
--------
Realized and Unrealized Gain (Loss) on Investments
Allocated from SR&F Growth Investor Portfolio
Net realized gain on investments 4,240
Net change in unrealized appreciation or depreciation on investments 158,189
--------
Net gain on investments 162,429
--------
Net Increase in Net Assets Resulting from Operations $159,245
========
See accompanying Notes to Financial Statements.
28
<PAGE>
Stein Roe Young Investor Fund
STATEMENT OF CHANGES IN NET ASSETS
(All amounts in thousands)
Years ended September 30,
1999 1998
-------- --------
Operations
Net investment loss $ (3,184) $ (1,746)
Net realized gain on investments allocated from
SR&F Growth Investor Portfolio 4,240 18,158
Net change in unrealized appreciation or
depreciation on investments allocated
from SR&F Growth Investor Portfolio 158,189 (31,047)
-------- --------
Net increase (decrease) in net assets
resulting from operations 159,245 (14,635)
-------- --------
Distributions to Shareholders
Distributions from net capital gains (18,152) (7,157)
-------- --------
Share Transactions
Subscriptions to fund shares 335,052 452,618
Value of distributions reinvested 17,877 7,013
Redemptions of fund shares (299,472) (227,321)
-------- --------
Net increase from share transactions 53,457 232,310
-------- --------
Net increase in net assets 194,550 210,518
Net Assets
Beginning of year 686,024 475,506
-------- --------
End of year $880,574 $686,024
======== ========
Undistributed Net Investment Income at End of Year $ -- $ --
======== ========
Analysis of Changes in Shares of Beneficial Interest
Subscriptions to fund shares 11,915 18,030
Issued in reinvestment of distributions 741 315
Redemptions of fund shares (10,786) (8,999)
-------- --------
Net increase in fund shares 1,870 9,346
Shares outstanding at beginning of year 30,245 20,899
-------- --------
Shares outstanding at end of year 32,115 30,245
======== ========
See accompanying Notes to Financial Statements.
29
<PAGE>
Notes to Financial Statements
(ALL AMOUNTS IN THOUSANDS)
NOTE 1. ORGANIZATION
- --------------------------------------------------------------------------------
Stein Roe Young Investor Fund (the "Fund") is a series of Liberty-Stein Roe
Funds Investment Trust (the "Trust") formerly Stein Roe Investment Trust, an
open-end management investment company organized as a Massachusetts business
trust. The Fund invests substantially all of its assets in SR&F Growth Investor
Portfolio (the "Portfolio"), which seeks to achieve long-term growth by
investing primarily in common stocks that are believed to have long-term
appreciation potential. The Fund also has an educational objective to teach
investors, especially young people, about basic economic principles and personal
finance through a variety of educational materials prepared and paid for by the
Fund.
The Portfolio is a series of SR&F Base Trust, a Massachusetts common law
trust organized under an Agreement and Declaration of Trust dated August 23,
1993. The Portfolio commenced operations on February 3, 1997. At commencement,
the Fund contributed $292,104 in securities and other assets in exchange for
beneficial ownership of the Portfolio. The Portfolio allocates income, expenses,
realized and unrealized gains and losses to each investor on a daily basis,
based on methods approved by the Internal Revenue Service. At September 30,
1999, Stein Roe Young Investor Fund owned 89.4% of the Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The following summarizes the significant accounting policies of the Fund and the
Portfolio. 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.
SECURITY VALUATIONS
Securities traded on national securities exchanges are valued at the last
reported sales price or, if there are no sales, at the latest bid quotation.
30
<PAGE>
Each over-the-counter security for which the last sale price is available from
NASDAQ is valued at that price. All other over-the-counter securities for which
reliable quotations are available are valued at the latest bid quotation.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, and interest income is recorded on the accrual
basis. Interest income includes discount accretion on fixed income securities.
Realized gains and losses from investment transactions are reported on an
identified cost basis.
FEDERAL INCOME TAXES
No provision is made for federal income taxes since (a) the Fund elects to be
taxed as a "regulated investment company" and makes distributions to its
shareholders to be relieved of all federal income taxes under provisions of
current federal tax law; and (b) the Portfolio is treated as a partnership for
federal income tax purposes and all of its income is allocated to its owners
based on methods approved by the Internal Revenue Service.
DISTRIBUTION TO SHAREHOLDERS
The Fund declares and pays dividends of any net investment income and net
realized capital gains annually, which are recorded on the ex-dividend date.
Dividends are determined in accordance with income tax principles, which may
treat certain transactions differently from generally accepted accounting
principles. Distributions in excess of tax basis earnings are reported in the
financial statements as a return of capital. Permanent differences in the
recognition or classification of income between the financial statements and tax
earnings are reclassified to paid-in capital.
31
<PAGE>
NOTE 3. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee and the Fund pays a monthly
administrative fee to Stein Roe & Farnham Incorporated (the "Advisor"), an
indirect, wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty"), for its services as investment advisor and administrator.
The management fee for the 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 fee for the Fund is
computed at an annual rate of 0.20% of the Fund's average daily net assets up to
$500 million, 0.15% of the next $500 million, and 0.125% thereafter.
The Advisor also provides fund accounting services.
Transfer agent fees are paid to SteinRoe Services Inc. (SSI), a direct,
wholly-owned subsidiary of Liberty.
Certain officers and trustees of the Trust are also officers of the
Advisor. No remuneration was paid to any trustee or officer of the Trust who is
affiliated with the Advisor.
NOTE 4. SHORT-TERM DEBT
- --------------------------------------------------------------------------------
To facilitate portfolio liquidity, the Fund and the Portfolio maintain borrowing
arrangements under which they can borrow against portfolio securities. Neither
the Fund nor the Portfolio had borrowings during the year ended September 30,
1999.
NOTE 5. INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
The Portfolio's aggregate cost of purchases and proceeds from sales other than
short-term obligations for the year ended September 30, 1999, were $548,233 and
$422,350, respectively.
32
<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANTS
Based on the recommendation of the Audit Committee of the Stein Roe Young
Investor Fund and the SR&F Growth Investor Portfolio, on August 3, 1999 the
Board of Trustees determined not to retain Arthur Andersen LLP as the Fund's and
the Portfolio's independent accountant and voted to appoint
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.
SR&F Growth Investor Portfolio
<TABLE>
<CAPTION>
Financial Highlights
Years ended Period ended
September 30, September 30,
1999 1998 1997(a)
----------- ------------ -------------
<S> <C> <C> <C>
Ratio of net expenses to average net assets 0.59% 0.62% 0.63%(b)
Ratio of net investment income to average
net assets 0.25% 0.42% 0.54%(b)
Portfolio turnover rate 45% 45% 38%
(a) From commencement of operations on February 3, 1997.
(b) Annualized.
</TABLE>
33
<PAGE>
<TABLE>
Stein Roe Young Investor Fund
Financial Highlights
Selected per-share data (for a share outstanding throughout each period), ratios
and supplemental data.
<CAPTION>
Years ended September 30,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 22.68 $ 22.75 $ 18.64 $ 14.29 $ 10.24
---------- ---------- ---------- ---------- ---------
Income From Investment Operations
Net investment income (loss) (a) (0.10) (0.06) (0.04) 0.05 0.06
Net realized and unrealized gain on investments allocated
from SR&F Growth Investor Portfolio 5.44 0.31 4.79 4.86 4.07
---------- ---------- ---------- ---------- ---------
Total from investment operations 5.34 0.25 4.75 4.91 4.13
---------- ---------- ---------- ---------- ---------
Distributions
Net investment income -- -- (0.02) (0.05) (0.08)
Net realized capital gains (0.60) (0.32) (0.62) (0.51) --
---------- ---------- ---------- ---------- ---------
Total distributions (0.60) (0.32) (0.64) (0.56) (0.08)
---------- ---------- ---------- ---------- ---------
Net Asset Value, End of Period $ 27.42 $ 22.68 $ 22.75 $ 18.64 $ 14.29
========== ========== ========== =========== =========
Ratio of net expenses to average net assets 1.18% 1.31% 1.43% (b) 1.21% (b) 0.99% (b)
Ratio of net investment income (loss) to
average net assets (0.37)% (0.28)% (0.25)% (c) 0.30% (c) 0.47% (c)
Portfolio turnover rate N/A N/A 22% (d) 98% (d) 55% (d)
Total return 23.89% 1.14% 26.37% (c) 35.55% (c) 40.58% (c)
Net assets, end of year (000's) $880,574 $686,024 $475,506 $179,089 $31,401
(a) Per share data was calculated using average shares outstanding during the
period.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Advisor, this ratio would have been 1.49%,
2.04% and 2.87% for the years and period ended September 30, 1997, 1996 and
1995, respectively.
(c) Computed giving effect to the Advisor's expense limitation undertaking.
(d) Prior to commencement of operations of the Portfolio (See Note 1 to
Financial Statements).
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
For the fiscal year ended September 30, 1999, the Fund designates long-term
capital gains of $4,229,901.
- --------------------------------------------------------------------------------
Balloon Text (arrow pointing to portfolio turnover rate): Portfolio turnover
rate indicates how much buying and selling of stocks a manager does each year.
Low turnover can help reduce yearly distributions, which can help investors
save taxes. See page 33 for more information.
Balloon Text: If you are a child and your mutual fund distributes more than $650
to you this year, your parents may have to file a tax return for you even if you
reinvest the money.
35
<PAGE>
Report of Independent Accountants
To the Trustees and Shareholders of
Liberty-Stein Roe Funds Investment Trust
Stein Roe Young Investor Fund
SR&F Base Trust
SR&F Growth Investor Portfolio
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Stein Roe Young Investor Fund (the
"Fund") (a series of Liberty-Stein Roe Funds Investment Trust, formerly Stein
Roe Investment Trust) and Stein Roe Growth Investor Portfolio (the "Portfolio")
a series of SR&F Base Trust at September 30, 1999, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the period then ended, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's and
the Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at September 30, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above. The
financial statements of the Fund and the Portfolio for periods prior to October
1, 1998 were audited by other independent accountants whose report dated
November 16, 1998 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 15, 1999
36
<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
37
<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.
YI11A 11/99
