STEIN ROE MUTUAL FUNDS
ANNUAL REPORT
SEPTEMBER 30, 2000
[PHOTO OF HANDS AND PLANT]
STEIN ROE EQUITY FUNDS
GROWTH FUNDS
MIDCAP GROWTH FUND
[STEIN ROE LOGO]
STEIN ROE MUTUAL FUNDS
SENSIBLE RISKS. INTELLIGENT INVESTMENTS.(R)
<PAGE>
Contents
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From the President................................................ 1
Stephen E. Gibson's thoughts on the equity markets and investing
Performance Summary .............................................. 2
Questions & Answers
An interview with Portfolio Manager Steve Hayward.............. 3
Fund Highlights................................................... 6
Portfolio of Investments.......................................... 7
A complete list of investments with market values
Financial Statements.............................................. 10
Statements of assets and liabilities, operations and changes
in net assets
Notes to Financial Statements..................................... 14
Financial Highlights.............................................. 18
Selected per-share data and ratios
Report of Independent Accountants................................. 19
Must be preceded or accompanied by a prospectus.
<PAGE>
From the President
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
I am happy to report that the Liberty Midcap Growth Fund had an outstanding
fiscal year ended September 30, 2000. In fact, the Fund outperformed its
benchmark index, the S&P MidCap 400 Index, by approximately 12 percentage points
during the period. Although midcap stocks performed well, these stocks
experienced some volatility during the 12-month period. An important influence
has been the performance of technology stocks, which had a terrific fourth
quarter in 1999 but retreated from March through May of 2000. We believe a
combination of high valuations and lower than expected net earnings contributed
to the slide. Despite this pullback, the Fund benefited from the technology
sector during the period.
The domestic economy exhibited some volatility as well during the 12-month
period. The Federal Reserve was concerned with the robust economy and began a
series of interest rate increases. Voters began to contemplate the prospects of
a new president in November, and the possibility of new health care legislation.
And the value of the euro against the U.S. dollar continued a slide begun
early in the period. Although the Fund does not invest in foreign securities, a
portion of the Fund's holdings does conduct business in Europe. The fact that
your Fund performed so well against this economic backdrop is even more
impressive.
Take a look at the enclosed report. Portfolio manager Steve Hayward
provides more specifics about the economic, political and market factors that
affected the Fund's performance. Thank you for choosing the Liberty Midcap
Growth Fund and for giving us the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
November 20, 2000
[PHOTO OF STEPHEN E. GIBSON]
Stephen E. Gibson
1
<PAGE>
Performance Summary
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Period Ended September 30, 2000
ONE LIFE OF
YEAR FUND
--------------------------------------------------------------------------------
STEIN ROE MIDCAP GROWTH FUND CLASS S* 55.83% 22.78%
Morningstar Mid-Cap Growth Category 65.70 32.03
* The Fund's inception is 6/30/97.
Investment Comparisons
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT June 30, 1997 to September 30, 2000
--------------------------------------------------------------------------------
Liberty Midcap Growth Fund
[LINE CHART HERE]
Stein Roe Morningstar S&P
Midcap Mid-Cap MidCap 400
Growth Fund Growth Index
Class S Category
7/1/97 10000 10000 10000
10470 10893 10990
10219.8 10713.3 10976.8
9/30/97 10769.6 11420.3 11608
10469.1 10890.4 11103
10598.9 10888.3 11267.4
12/31/97 10959.3 10976.5 11704.5
10908.9 10929.3 11482.1
11888.5 11847.3 12432.9
3/31/98 12658.9 12425.5 12993.6
12638.6 12558.4 13231.4
11999.1 12003.3 12636
6/30/98 12749.1 12595.1 12715.6
12088.6 12149.2 12222.2
9529.49 9966.01 9947.65
9/30/98 10409.1 10721.4 10875.8
10639.1 11296.1 11848.1
11389.1 12154.6 12439.3
12/31/98 12629.4 13551.2 13941.9
12639.5 14288.4 13399.6
11479.2 13472.5 12697.5
3/31/99 11999.2 14385.9 13053
12239.2 14820.4 14081.6
11939.4 14590.7 14143.5
6/30/99 12908.8 15663.1 14898.8
12748.8 15374.9 14582.9
12738.6 15437.9 14084.2
9/30/99 12508 15505.8 13649
13028.3 16696.7 14345.1
14247.8 18338 15098.2
12/31/99 18024.9 21552.6 15995
17395.8 21136.7 15544
21273.3 24949.7 16632.1
3/31/00 20998.9 24730.2 18024.2
18359.3 22556.4 17395.1
16664.8 20984.2 17177.7
6/30/00 18389.6 23273.6 17430.2
18876.9 22568.4 17705.6
19760.3 25091.5 19683.3
9/30/00 19482.3 23944.8 19549.5
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 YOUR SHARES. The
above illustration assumes a $10,000 investment made on June 30, 1997, and
reinvestment of income and capital gains distributions. The S&P MidCap 400 Index
is an unmanaged group of middle-capitalization stocks that differs from the
composition of the Fund; it is not available for direct investment. Source:
Lipper Inc., Morningstar, Liberty Distributors, Inc.
The Fund's return is also compared to the average return of the funds
included in the Morningstar Mid-Cap Growth Funds category average (Morningstar
Average). This Morningstar Average is composed of Funds with similar investment
styles as measured by their underlying portfolio holdings. Morningstar does not
warrant their information to be accurate, correct, complete or timely. They
shall not be responsible for investment decisions, damages or other losses
resulting from use of the averages. Morningstar, Inc. has not granted consent
for it to be considered or deemed an "expert" under the Securities Act of 1933.
Sales charges are not reflected in the Morningstar's averages.
2
<PAGE>
Questions & Answers
--------------------------------------------------------------------------------
AN INTERVIEW WITH STEVE HAYWARD, PORTFOLIO MANAGER OF LIBERTY MIDCAP GROWTH FUND
FUND DATA
INVESTMENT OBJECTIVE AND STRATEGY:
Liberty Midcap Growth Fund seeks long-term growth by investing at least 65%
of its assets in common stocks of mid-cap companies that the portfolio manager
believes have long-term growth potential.
FUND INCEPTION:
June 30, 1997
NET ASSETS:
$66.2 million
Q: HOW DID CLASS S SHARES OF THE STEIN ROE MIDCAP GROWTH FUND PERFORM DURING
FISCAL YEAR 2000?
HAYWARD: For the year ended September 30, 2000, Class S shares of the Fund
delivered a total return of 55.83% compared to 43.22% for its benchmark, the
Standard and Poor's (S&P) MidCap 400 Index.
Q: WHICH SECTORS CONTRIBUTED MOST TO THE FUND'S PERFORMANCE?
HAYWARD: The technology sector contributed significantly to the Fund's strong
performance during the period, based on its rise in the fourth quarter of 1999.
However, certain core components of the sector recently underperformed.
Specifically, the wireless telecommunications companies have declined as
wireless rates have increased. As a result, we sold our holdings in stocks of
Allegiance Telecom and Nextlink Communications, two so-called "tower companies."
Exposure to the financial services sector contributed to positive Fund
performance during the period. Financial services companies including MGIC,
Northern Trust and Raymond James Financial (2.8%, 2.7% and 1.5% of net assets,
respectively) all performed well during the period. We added to positions in
each, but toward the end of the quarter, we concentrated on increasing our
holdings of Raymond James.
The Fund also benefited from investments in drug companies including Forest
Labs (3.5% of net assets) and Alza (3.3% of net assets), which have both
performed well during the period. Finally, we increased our exposure to consumer
products stocks such as Starbucks, and retail growth stocks such as Tiffany's
(1.7% of net assets).
[PHOTO OF STEVE HAYWARD]
Steve Hayward
3
<PAGE>
Q&A Continued
--------------------------------------------------------------------------------
Q: HAVE ANY SECTORS DETRACTED FROM THE FUND'S PERFORMANCE?
HAYWARD: The Fund was underweighted in the utility sector. Utility stocks were
strong this year because investors considered them defensive in light of recent
market volatility, and also because energy prices remained high. However, these
stocks did not fit the Fund's profile of investing in growth companies. We do,
however, own Southern Energy, Inc. (0.2% of net assets) which is a utility
company that has transformed its business to take advantage of energy exchanges
through the Internet. The firm's resulting trading profits have increased from
$10 million for the entire year 1999, to over $40 million in the first six
months of 2000.
Q: IN LIGHT OF ECONOMIC AND MARKET VOLATILITY, HAS THE FUND'S FOCUS CHANGED?
HAYWARD: We continued to emphasize investments in mid-cap stocks. We divested
the majority of companies with market capitalizations above $15 billion and
added companies with market capitalizations considered mid-cap, between $2-$10
billion. We continued to hold a small concentration of large-cap companies in
the portfolio because we are sensitive that a subsequent sell-off could result
in considerable tax implications for the Fund's shareholders.
Q: CAN YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD?
HAYWARD: The economic environment during the period was mixed. The continuing
weakness of the euro raised concerns among those companies selling products to
Europe, so we have stayed away from companies with considerable European
exposure. The Federal Reserve's (the Fed's) policy of raising interest rates to
slow the economy and combat inflation, as well as uncertainty surrounding the
upcoming presidential and congressional elections, caused additional concern
among investors. Also, Federal Communications Commission policy on open access
seemed to move from the position that cable is not controllable toward the
position that it can be controlled in the same manner as phone lines. As a
result, telecommunications stocks could ultimately be affected, which could
dampen prospects for some of the telecommunications stocks that the Fund owns.
Q: WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE MARKETS?
HAYWARD: We look for economic growth to continue. Fears of recession have caused
uncertainty among many investors, but we do not believe that such a scenario
will
4
<PAGE>
Q&A Continued
--------------------------------------------------------------------------------
materialize. We believe the euro may continue to fall against a rising dollar
and that inflation will be a major issue only if oil prices continue to rise. If
both of these situations materialize, it would not bode well for the global
economy. Finally, the Fed will certainly keep an eye on interest rates, but we
believe we are more likely to see interest rates decline than increase.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return performance
includes changes in share price and reinvestment of income and capital gains
distributions. Share price and investment returns will vary, so you may have a
gain or loss when you sell your shares. Portfolio holdings are as of 9/30/00 and
are subject to change. The S&P MidCap 400 Index is an unmanaged group of stocks
not associated with any Liberty Fund; it is not available for direct investment.
5
<PAGE>
Fund Highlights As of September 30, 2000
--------------------------------------------------------------------------------
Liberty Midcap Growth Fund
TOP 10 EQUITY HOLDINGS (% OF NET ASSETS)
--------------------------------------------------------------------------------
SDL Inc 4.7% Forest Laboratories Inc 3.5%
Network Appliance Inc 3.8 Alza Corp 3.3
Flextronics International Ltd 3.7 Comverse Tech 3.3
Mercury Interactive Co 3.6 Harley Davidson 2.9
Kohl's Corp 3.5 MGIC Inv Corp 2.8
--------------------------------------------------------------------------------
EQUITY PORTFOLIO HIGHLIGHTS
S&P MIDCAP
PORTFOLIO 400 INDEX
--------------------------------------------------------------------------------
Number of Holdings 51 400
Dollar Weighted
Median Market Capitalization ($mil.) 10,008.0 3,277.5
--------------------------------------------------------------------------------
ECONOMIC SECTOR BREAKDOWN
September 30, 1999
[PIE CHART HERE]
Technology 44%
Consumer Non-Cyclical 24%
Consumer Cyclical 19%
Industrial 8%
Financial 3%
Utilities 2%
Energy 0%
September 30, 2000
[PIE CHART HERE]
Technology 47%
Consumer Non-Cyclical 11%
Consumer Cyclical 17%
Industrial 4%
Financial 14%
Utilities 2%
Energy 5%
--------------------------------------------------------------------------------
ASSET ALLOCATION
September 30, 1999
[PIE CHART HERE]
Equities 96.3%
Cash Equivalents & other 3.7%
September 30, 2000
[PIE CHART HERE]
Equities 98.1%
Cash Equivalents & other 1.9%
6
<PAGE>
Liberty MidCap Growth Fund
--------------------------------------------------------------------------------
Investment Portfolio
September 30, 2000 (In thousands)
COMMON STOCKS - 98.1% SHARES VALUE
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY PRODUCTS - 16.0%
BROADCASTING & CABLE - 3.7%
Univision Communications, Inc., Class A (a)...... 36 $ 1,345
USA Networks, Inc. (a)........................... 50 1,097
--------
2,442
--------
DEPARTMENT STORES - 3.5%
Kohl's Corp. (a)................................. 40 2,308
--------
HOTELS - 2.2%
Four Seasons Hotels, Inc.......................... 20 1,464
--------
MOTORCYCLE MANUFACTURERS - 3.0%
Harley-Davidson, Inc.............................. 40 1,915
--------
SPECIALTY STORES - 3.6%
Bed Bath & Beyond, Inc. (a)...................... 50 1,220
Tiffany & Co...................................... 30 1,157
--------
2,377
--------
CONSUMER STAPLES - 1.5%
PACKAGED FOODS
Suiza Foods Corp. (a)............................ 20 1,014
-------
ENERGY - 1.9%
OIL & GAS DRILLING
Noble Drilling Corp. (a)......................... 25 1,256
-------
FINANCIALS - 12.3%
CONSUMER FINANCE - 2.4%
Metris Companies, Inc............................. 40 1,580
--------
DIVERSIFIED FINANCIAL SERVICES - 3.0%
Federated Investors, Inc. Class B................. 40 990
Raymond James Financial, Inc...................... 30 988
--------
1,978
--------
FINANCIAL INSTITUTIONS - 4.1%
Cullen/Frost Bankers, Inc......................... 30 975
Northern Trust Corp............................... 20 1,777
--------
2,752
--------
PROPERTY & CASUALTY INSURANCE - 2.8%
MGIC Investment Corp.............................. 30 1,834
--------
See notes to investment portfolio.
7
<PAGE>
Liberty MidCap Growth Fund Continued
--------------------------------------------------------------------------------
SHARES VALUE
--------------------------------------------------------------------------------
HEALTH CARE - 7.4%
BIOTECHNOLOGY - 0.7%
PE Corp-Celera Genomics Group (a)................ 5 $ 498
--------
PHARMACEUTICALS - 6.7%
Alza Corp. (a)................................... 25 2,162
Forest Laboratories, Inc. (a)..................... 20 2,294
--------
4,456
--------
INDUSTRIALS - 7.2%
DATA PROCESSING SERVICES - 1.8%
Fiserv, Inc. (a)................................. 20 1,197
--------
DIVERSIFIED COMMERCIAL SERVICES - 2.2%
Diamond Technology Partners, Inc. (a)............ 20 1,485
--------
ELECTRONIC EQUIPMENT - 0.9%
Advanced Lighting Technologies, Inc. (a).......... 47 582
--------
EMPLOYMENT SERVICES - 2.3%
Korn/Ferry International. (a).................... 40 1,513
--------
SOFTWARE & SERVICES - 9.9%
APPLICATIONS SOFTWARE - 6.7%
Intuit, Inc. (a)................................. 15 855
Mercury Interactive Corp. (a).................... 15 2,351
Rational Software Corp. (a)...................... 15 1,041
Vastera, Inc. (a)................................ 10 220
--------
4,467
--------
INTERNET SOFTWARE & SERVICES - 3.2%
Certicom Corp. (a) .............................. 10 397
Inktomi Corp. (a)................................ 10 1,140
SonicWall, Inc. (a).............................. 20 570
--------
2,107
--------
TECHNOLOGY HARDWARE & EQUIPMENT - 33.3%
APPLICATIONS SOFTWARE - 3.3%
Comverse Technology, Inc. (a)..................... 20 2,160
--------
COMPUTER STORAGE & PERIPHERALS - 4.9%
Cosine Communications, Inc. (a).................. 13 694
Network Appliance, Inc. (a)...................... 20 2,547
--------
3,241
--------
CONTRACT MANUFACTURING - 6.3%
Jabil Circuit, Inc. (a).......................... 30 1,703
Flextronics International, Ltd. (a).............. 30 2,464
--------
4,167
--------
NETWORKING EQUIPMENT - 0.7%
Proxim, Inc. (a)................................. 10 445
--------
See notes to investment portfolio.
8
<PAGE>
Liberty MidCap Growth Fund Continued
--------------------------------------------------------------------------------
SHARES VALUE
--------------------------------------------------------------------------------
TECHNOLOGY HARDWARE & EQUIPMENT (CONTINUED)
SEMICONDUCTORS - 6.2%
Broadcom Corp., Class A (a)...................... 7 $ 1,706
TranSwitch Corp. (a)............................. 15 956
TriQuint Semiconductor, Inc. (a)................. 40 1,457
--------
4,119
--------
TELECOMMUNICATIONS EQUIPMENT - 11.9%
Digital Lightwave, Inc. (a)...................... 10 726
ONI Systems Corp. (a)............................ 15 1,295
Research in Motion Ltd. (a)...................... 15 1,478
SDL, Inc. (a).................................... 10 3,080
Scientific-Atlanta, Inc........................... 20 1,273
--------
7,852
--------
TELECOMMUNICATION SERVICES - 6.0%
WIRELESS TELECOM SERVICES
Crown Castle International Corp. (a)............. 25 776
Pinnacle Holdings, Inc. (a)....................... 30 799
Powertel, Inc. (a)............................... 10 761
Spectrasite Holding, Inc. (a)..................... 40 743
Western Wireless Corp. Class A (a).............. 25 891
-------
3,970
-------
UTILITIES - 2.6%
ELECTRIC UTILITIES - 0.2%
Southern Energy, Inc. (a)........................ 5 157
-------
GAS UTILITIES - 2.4%
Dynegy Inc........................................ 10 570
Kinder Morgan, Inc................................ 25 1,023
-------
1,593
-------
TOTAL COMMON STOCKS (cost of $45,498)................ 64,929
-------
--------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 0.4% PAR
--------------------------------------------------------------------------------
U.S. Treasury Bond,
7.500%, 5/15/02 (cost of $255) ................. $ 250 255
-------
TOTAL INVESTMENTS (cost of $ 45,753) (b)............. 65,184
-------
--------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 1.8%
COMMERCIAL PAPER
Associate Corp of North America
6.700% (c), 10/2/00 ............................ 1,180 1,180
-------
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET - (0.3)%........... (199)
-------
NET ASSETS - 100%.................................... $66,165
=======
--------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
(a) Non-incoming producing.
(b) Cost for federal income tax is $45,807.
(c) Rate represents yield at time of purchase.
See notes to investment portfolio.
9
<PAGE>
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
September 30, 2000
(In thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $45,753)............... $65,184
Short-term obligations............................ 1,180
--------
66,364
Cash.............................................. $ 551
Receivable for:
Fund shares sold............................... 978
Investments sold............................... 36
Dividends...................................... 7
Interest....................................... 7
Expense reimbursement due from Advisor............ 79 1,658
-------- --------
Total Assets................................... 68,022
LIABILITIES
Payable for:
Fund shares repurchased........................ 972
Distributions.................................. 462
Investments purchased.......................... 296
Accrued:
Management fee................................. 41
Transfer agent fee............................. 13
Administration fee............................. 8
Bookkeeping fee................................ 2
Other.......................................... 63
--------
Total Liabilities.............................. 1,857
--------
NET ASSETS........................................ 66,165
--------
CLASS A
Net asset value & redemption price per share ($162/10) $ 16.84(a)
--------
Maximum offering price per share ($16.84/0.9425).. $ 17.87(b)
--------
Class B
Net asset value & offering price per share ($195/12) $ 16.82(a)
--------
Class C
Net asset value & offering price per share ($31/2) $ 16.81(a)
--------
Class S
Net asset value, redemption & offering price per share
($65,776/3,907)................................ $ 16.84
--------
Class Z
Net asset value, redemption & offering price per share ($1/(c)) $ 16.84
--------
COMPOSITION OF NET ASSETS
Capital paid in................................... $44,053
Accumulated net realized gain..................... 2,681
Net unrealized appreciation....................... 19,431
--------
$66,165
========
(a) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
(c) Rounds to less than one.
See notes to financial statements.
10
<PAGE>
Statement of Operations
--------------------------------------------------------------------------------
For the Year Ended September 30, 2000
(in thousands)
INVESTMENT INCOME
Interest.......................................... $ 137
Dividends......................................... 56
--------
193
EXPENSES
Management fee.................................... 457
Administration fee................................ 91
12b-1 Service and Distribution fees............... (a)
Transfer agent fee................................ 149
Bookkeeping fee................................... 25
Trustees' fee..................................... 13
Custodian fee..................................... 4
Audit fee......................................... 20
Legal fee......................................... 2
Registration fee.................................. 47
Reports to shareholders........................... 4
Other............................................. 20
--------
832
Fees waived by the Advisor........................ (75) 757
-------- --------
Net Investment Loss............................ (564)
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments.................................... 15,237
Closed futures contracts....................... (47)
--------
Net Realized Gain............................ 15,190
Net change in unrealized appreciation/depreciation
during the period ............................. 8,847
--------
Net Gain..................................... 24,037
--------
Increase in Net Assets from Operations............ $ 23,473
========
(a) Rounds to less than one.
See notes to financial statements.
11
<PAGE>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
(in thousands)
YEAR ENDED YEAR ENDED
SEPTEMBER 30 SEPTEMBER 30
INCREASE (DECREASE) IN NET ASSETS 2000(a) 1999
------------------------------
OPERATIONS:
Net investment loss............................... $ (564) $ (441)
Net realized gain................................. 15,190 2,610
Net change in unrealized appreciation/depreciation 8,847 7,804
-------- --------
Net Increase from Operations................... 23,473 9,973
-------- --------
DISTRIBUTIONS:
From net realized gains - Class A................. (b) --
From net realized gains - Class B................. (b) --
From net realized gains - Class C................. (b) --
From net realized gains - Class S................. (9,226) --
From net realized gains - Class Z................. (b) --
-------- --------
14,247 --
-------- --------
FUND SHARE TRANSACTIONS:
Receipts for shares sold - Class A................ 160 --
Value of distributions reinvested - Class A....... (b) --
-------- --------
160 --
-------- --------
Receipts for shares sold - Class B................ 194 --
Value of distributions reinvested - Class B....... (b) --
-------- --------
194 --
-------- --------
Receipts for shares sold - Class C................ 31 --
Value of distributions reinvested - Class C....... (b) --
-------- --------
31 --
-------- --------
Receipts for shares sold - Class S................ 27,801 12,421
Value of distributions reinvested - Class S....... 8,741 --
Cost of shares repurchased - Class S.............. (29,369) (28,009)
-------- --------
7,173 (15,588)
-------- --------
Receipts for shares sold - Class Z................ 1 --
Value of distributions reinvested - Class Z....... (b) --
-------- --------
1 --
-------- --------
Net Increase from Fund Share Transactions...... 7,559 (15,588)
-------- --------
Total Increase (Decrease).................... 21,806 (5,615)
NET ASSETS
Beginning of period............................... 44,359 49,974
-------- --------
End of period (including accumulated net investment loss
of none and none, respectively)................ $ 66,165 $ 44,359
======== ========
(a) Class A, Class B, Class C and Class Z shares were initially offered on
July 31, 2000.
(b) Rounds to less than one.
See notes to financial statements.
12
<PAGE>
Statement of Changes in Net Assets - cont.
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30 SEPTEMBER 30
2000(a) 1999
------------------------------
NUMBER OF FUND SHARES
Sold - Class A.................................... 10 --
Issued for distributions reinvested - Class A..... (b) --
-------- --------
10
-------- --------
Sold - Class B.................................... 12 --
Issued for distributions reinvested - Class B..... (b) --
-------- --------
12 --
-------- --------
Sold - Class C.................................... 2 --
Issued for distributions reinvested - Class C..... (b) --
-------- --------
2 --
-------- --------
Sold - Class S.................................... 1,537 1,088
Issued for distributions reinvested - Class S..... 519 --
Repurchased - Class S............................. (1,695) (2,344)
-------- --------
361 (1,256)
-------- --------
Sold - Class Z.................................... (b) --
Issued for distributions reinvested - Class Z..... (b) --
-------- --------
(b) --
-------- --------
(a) Class A, Class B, Class C and Class Z shares were initially offered on
July 31, 2000.
(b) Rounds to less than one.
See notes to financial statements.
13
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
September 30, 2000
NOTE 1. ORGANIZATION
Stein Roe Midcap Growth Fund - Class S and Liberty Midcap Growth Fund -- Class
A, Class B, Class C and Class Z (collectively, the Fund) is a series of
Liberty-Stein Roe Funds Investment Trust (the Trust), an open-end management
investment company organized as a Massachusetts business trust. The Fund may
issue an unlimited number of shares. Effective July 31, 2000, the Fund began
offering Class A, Class B, Class C and Class Z shares. The Fund offers five
classes of shares: Class A, Class B, Class C, Class S and Class Z. Class S
shares are offered continuously at net asset value. Class A, Class B and Class C
has its own sales charge and each share class has its own expense structure.
Please refer to the Fund's prospectus for more information on Class A, Class B,
Class C and Class Z shares. The financial highlights for Class A, Class B, Class
C and Class Z are presented in a separate annual report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses for the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS
Equity securities generally are valued at the last sale price or, in the case of
unlisted or listed securities for which there were no sales during the day, at
current quoted bid price.
Futures contracts are valued based on the difference between the last sale
price and the opening price of the contract.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Portfolio positions for which market quotations are not readily available
are valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS
All income, expenses (other than 12b-1 service fees, distribution fees and Class
A and Class S Transfer Agent fee), and realized and unrealized gains (losses)
are allocated to each class proportionately on a daily basis for purposes of
determining the net asset value of each class.
14
<PAGE>
Notes to Financial Statements Continued
--------------------------------------------------------------------------------
The per share data was calculated using the average shares outstanding
during the period.
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles. Reclassifications are made to the
Fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryforwards) under income tax regulations.
OTHER
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date. Corporate actions are recorded on the ex-date.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Stein Roe and Farnham Inc. (the Advisor) is the investment Advisor of the Fund
and receives a monthly fee as follows:
Average net assets Annual fee rate
-------------- ------------
1st $500 million 0.75%
Next $500 million 0.70%
Over $1 billion 0.65%
ADMINISTRATIVE FEE
The Advisor also provides accounting and other services for a monthly fee as
follows:
Average net assets Annual fee rate
-------------- ------------
1st $500 million 0.150%
Next $500 million 0.125%
Over $1 billion 0.100%
BOOKKEEPING FEE
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$25,000 annually plus 0.0025% annually of the Fund's average daily net assets
over $50 million.
TRANSFER AGENT FEE
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the Advisor,
provides shareholder services for a monthly fee equal to 0.22% annually of the
Fund's average net assets and receives reimbursement for certain out of pocket
expenses. For more information on the Transfer Agent fee applicable to Class A,
Class B, Class C and Class Z, please refer to the Fund's prospectus.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
Liberty Funds Distributor, Inc. (the Distributor), a subsidiary of the
Advisor, is the Fund's principal underwriter.
The Fund has adopted a 12b-1 plan which requires it to pay the
15
<PAGE>
Notes to Financial Statements Continued
--------------------------------------------------------------------------------
Distributor a service fee on Class A, Class B and Class C net assets. The plan
also requires the payment of a distribution fee to the Distributor on Class A,
Class B and Class C shares, only. The fee structure for the 12b-1 plan is
defined in the Class A, Class B and Class C prospectus.
EXPENSE LIMITS
The Advisor has agreed, until further notice, to waive fees and bear
certain Fund expenses to the extent that total expenses (exclusive of service
fees, distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) exceed 1.25% annually of the Fund's average
daily net assets.
OTHER
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor.
NOTE 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY
During the year ended September 30, 2000, purchases and sales of investments,
other than short-term obligations, were $142,444,148 and $144,302,837,
respectively.
Unrealized appreciation (depreciation) for the year ended September 30,
2000 based on cost of investments for federal income tax purposes was:
Gross unrealized
appreciation $ 21,214,467
Gross unrealized
depreciation (1,837,425)
-----------
Net unrealized
appreciation $ 19,377,042
===========
OTHER
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
The Fund may purchase or sell futures contracts. The Fund will use these
instruments to hedge against the effects of changes in the portfolio securities
due to market conditions and not for trading purposes. The use of futures
contracts involves certain risks which include (1) imperfect correlation between
the price movement of the instruments and the underlying securities, (2)
inability to close out a position due to different trading hours, or the absence
of a liquid market for either the instrument or the underlying securities or (3)
an inaccurate prediction by the Advisor of the future direction of the market or
stock price or interest rate trends. Any of these risks may involve amounts
exceeding the variation margin recorded in the Fund's Statement of Assets and
Liabilities at any given time.
16
<PAGE>
Notes to Financial Statements Continued
--------------------------------------------------------------------------------
NOTE 4. LINE OF CREDIT
The Liberty-Stein Roe Funds Investment Trust participates in unsecured line of
credit agreements provided by the custodian bank consisting of two components.
The committed line of credit entitles the Trust to borrow from the custodian at
any time upon notice from the Trust. The uncommitted line of credit permits the
Trust to borrow from the custodian at the custodian's sole discretion. The
aggregate borrowings available to the Trust for the committed and uncommitted
lines of credit are $200 million and $100 million, respectively. Borrowings may
be made to temporarily finance repurchase of Fund shares. Interest is charged to
each trust and, ultimately, the Fund based on its borrowings. In addition, a
commitment fee of 0.10% per annum on the Fund's unused commitment shall be paid
quarterly by each Fund based on the relative asset size of the Fund to the Trust
as a whole. The commitment fee is included in other expenses on the Statement of
Operations. For the year ended September 30, 2000, the Trust and Fund had no
borrowings under the agreement.
NOTE 5. OTHER RELATED PARTY TRANSACTIONS
During the year ended September 30, 2000, the Fund used Alphatrade, a wholly
owned subsidiary of Colonial Management Associates, Inc. as a broker. Total
commissions paid to Alphatrade during the year were $5,532.
17
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows::
PERIOD
YEARS ENDED SEPTEMBER 30 ENDED
SEPTEMBER
CLASS S 30,
2000 1999 1998 1997(a)
-------- -------- -------- -------
NET ASSET VALUE - BEGINNING OF PERIOD..... $ 12.51 $ 10.41 $ 10.77 $ 10.00
-------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (b).................... (0.16) (0.10) (0.07) --
Net realized and unrealized gain (loss) on
investments............................. 7.11 2.20 (0.29) 0.77
-------- -------- -------- -------
Total from investment operations........ 6.95 2.10 (0.36) 0.77
-------- -------- -------- -------
DISTRIBUTIONS
Net realized capital gains.............. (2.62) -- -- --
-------- -------- -------- -------
NET ASSET VALUE - END OF PERIOD............ $ 16.84 $ 12.51 $ 10.41 $ 10.77
======== ======== ======== =======
Ratio of net expenses to
average net assets (c)(d)............... 1.25% 1.25%(f) 1.25% 1.25%(e)
Ratio of net investment loss
to average net assets (d)(g)............ (0.93)% (0.97)%(f) (0.64)% 0.02%(e)
Portfolio turnover rate.................... 242% 133% 75% 3%(i)
Total return (g)(h)........................ 55.83% 20.17% (3.34)% 7.70%(i)
Net assets, end of period (000's).......... $65,776 $44,359 $49,974 $49,830
(a) From commencement of operations on June 30, 1997.
(b) Per share data was calculated using average shares outstanding during
the period.
(c) If the Fund had paid all of its expenses and there had been no
reimbursement by the Advisor, this ratio would have been 1.37% for the
year ended September 30, 2000, 1.54% for the year ended September 30,
1999, 1.44% for the year ended September 30, 1998 and 1.74% for the
period ended September 30, 1997.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) Annualized.
(f) During the year ended September 30, 1999, the Fund experienced a
one-time reduction in its expenses of 11 basis points as a result of
expenses accrued in a prior period. The Fund's gross expense ratio
disclosed in (c) above reflects the actual rate at which expenses were
incurred throughout the fiscal year without the reduction.
(g) Computed giving effect to Advisor's expense limitation undertaking.
(h) Total return at net asset value assuming all distributions reinvested.
(i) Not annualized.
--------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
For the fiscal year ended September 30, 2000, the Fund designates long-term
capital gains of $7,385,940.
--------------------------------------------------------------------------------
18
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Liberty-Stein Roe Funds Investment Trust and Class S
Shareholders of Liberty Midcap Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class S financial highlights present fairly, in
all material respects, the financial position of Liberty Midcap Growth Fund
(formerly Stein Roe Midcap Growth Fund)(the "Fund") (a series of Liberty-Stein
Roe Funds Investment Trust) at September 30, 2000, the results of its operations
for the year then ended, the changes in its net assets and the financial
highlights for the two years then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund'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 auditing
standards generally accepted in the United States of America, 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 securities at September 30, 2000 by correspondence with the custodian,
provide a reasonable basis for the opinion. The financial highlights of the Fund
for periods through September 30, 1998 were audited by other independent
accountants, whose report dated November 16, 1998 expressed an unqualified
opinion on those financial highlights.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 20, 2000
19
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This page intentionally left blank.
20
<PAGE>
Liberty-Stein Roe Funds Investment Trust
--------------------------------------------------------------------------------
TRUSTEES
John A. Bacon Jr. Private Investor
William W. Boyd
Chairman and Director, Sterling Plumbing
Group Inc.
Lindsay Cook
Executive Vice President, Liberty Financial
Companies, Inc.
Douglas A. Hacker
Executive Vice President and Chief Financial
Officer, United Airlines
Janet Langford Kelly
Executive 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,
Secretary
AGENTS AND ADVISORS
Stein Roe & Farnham Incorporated
Investment Advisor
State Street Bank and Trust Company
Custodian
Liberty Funds Services, Inc.
Transfer Agent
Bell, Boyd & Lloyd
Legal Counsel to the Fund
PricewaterhouseCoopers LLP
Independent Accountants
21
<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
Young Investor Fund
Midcap Growth Fund
Focus Fund
Capital Opportunities Fund
Small Company Growth Fund
INTERNATIONAL FUNDS
Asia Pacific Fund
Small Cap Tiger Fund
International 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.
S20-02/206D-0900(11/00) 00/2100
