PRESIDENT'S LETTER
Liberty Variable Investment Trust
SteinRoe Variable Investment Trust
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Dear Fellow Contract Owner:
We are pleased to present this annual report for the Liberty Variable
Investment Trust-- Colonial Growth & Income Fund Variable Series, Stein Roe
Global Utilities Fund, Variable Series; Colonial International Fund for Growth,
Variable Series; Colonial U.S. Stock Fund, Variable Series; Colonial Strategic
Income Fund, Variable Series; Newport Tiger Fund, Variable Series and Liberty
All-Star Equity Fund, Variable Series -- and the SteinRoe Variable Investment
Trust -- Stein Roe Special Venture Fund, Variable Series; Stein Roe Growth Stock
Fund, Variable Series; Stein Roe Balanced Fund, Variable Series; Stein Roe
Mortgage Securities Fund, Variable Series; and Stein Roe Money Market Fund,
Variable Series. In the following pages, we will provide you with an overview of
the economic events that occurred over the past year and explain how we
positioned the funds to respond to these events.
STOCKS CONTINUED THEIR SURGE
Coming out of the 1996 bull market, the stock market continued its upward climb,
with the Dow Jones Industrial Average (DJIA) setting new record highs on nearly
half the days in January 1997. Market strength continued throughout the first
quarter, buoyed by healthy economic growth, strong corporate profits and low
inflation. Continued strength in net new subscriptions to mutual funds --
partially reflecting the increasing commitment to stocks on the part of the
80-million-strong contingent of baby boomers -- also fueled the market's growth.
Now between 35 and 50 years old, baby boomers' appetite for investing reflects
their awareness of the increased savings and capital accumulation they'll need
for retirement.
Concern about slowing earnings momentum, however, prompted many investors
to shy away from smaller growth stocks in favor of the relative liquidity and
predictability of large-cap stocks. By March 1997, investors had begun to
realize that the steady bull market could be buffeted by stepped-up inflationary
pressures resulting from too-strong economic growth, too-low unemployment and
rising wage rates. As a result, the Federal Reserve sought to put the brakes on
the economy, raising the federal funds rate by one-quarter percentage point to
5.50 percent in late March.
Although many market watchers expected this rate hike, markets stumbled
enough to offset much of the gains achieved in the first weeks of the year.
Nonetheless, the Standard & Poor's 500 Index ended the first quarter with a
modest 2 percent gain.
After Federal Reserve Chairman Alan Greenspan took the podium in May,
reporting that economic growth was firmly under control, it appeared that
concern over inflation was no longer an issue at the front of investors' minds.
In fact, in the second quarter, the S&P 500 enjoyed a near-record run, returning
17 percent. While the strongest gains still belonged to larger-cap stocks, the
pendulum began to swing back for small-caps during the quarter. After months of
being passed over, small-cap stocks were attractively priced. This, coupled with
solid profits, sparked a rally among smaller-cap stocks in the waning weeks of
the second quarter of 1997. News of a potential balanced budget, strong profits
reports in May, and Greenspan's optimistic read on the economy helped buoy stock
and bond prices.
In July, at the beginning of the third quarter, large-cap stocks
continued their upward surge, boosted in part by strong global economies and
reports of greater-than-expected earnings. The DJIA reached a new high, with the
blue-chip index's performance representing its largest-ever point gain for any
month in its 101-year history. In fact, the DJIA cleared 8000 for the first time
ever. Also in August, the government passed the Taxpayer Relief Act of 1997. The
first federal tax cut in 16 years, the act includes a number of provisions
benefiting investors nationwide.
ASIA FEINTS... AND AMERICA BLINKS
International markets had a mixed first half of the year with some markets
producing strong growth and others reflecting currency pressures. During this
time, the U.S. dollar strengthened against local currencies. Overseas markets,
and particularly Asia, disappointed for the most part in the third quarter,
primarily driven by a weak Japanese economy and the devaluation of several
Southeast Asian currencies.
<PAGE>
Excess debt, overcapacity and what may have been unwise economic and
fiscal policies sparked this devaluation. The resulting currency crisis struck
many Southeast Asian economies and then sparked a surprisingly severe crash in
Hong Kong. By the fourth quarter of 1997, this sequence of events finally
unnerved investors in developed countries. The result: sharp declines in all of
the major markets, including the United States. Stocks fell more than 550 points
in one day of trading on Oct. 28, 1997.
The currency crisis in Asia stabilized somewhat in December, with the
International Monetary Fund providing resources to South Korea, and several
other governments proposing plans to get their economies to a more healthy
state. While it appears that these countries are addressing their severe
economic problems, we expect that for certain countries, the path to recovery
will be long and difficult.
The International Monetary Fund's actions, coupled with strong domestic
growth, helped give investors the confidence to support a recovery in U.S. stock
markets. As a result, December gains concluded the third year in a row in which
the S&P 500 logged an overall gain of more than 20 percent. In fact, the S&P 500
Index closed 1997 with a 33.35 percent return, while the DJIA posted a 24.91
percent return.
The biggest market story of the fourth quarter, of course, was the
change of fortune that buffeted emerging markets. Emerging markets -- which are
concentrated primarily in Asia -- experienced major market downturns. The MSCI
EM Index posted a loss of 19.18 percent for the fourth quarter of 1997; it was
down by 13.45 percent for the year.
GOOD NEWS IN THE FIXED INCOME MARKET
An excellent year for bonds rounded out a strong year for domestic markets
overall. Bonds performed particularly well in the latter part of 1997, as rising
bond prices drove the yield on the 30-year Treasury bond to 5.92 percent on Dec.
31, 1997 -- its lowest point since January 1996. Investors turned to bonds to
avoid what they judged to be an overvalued stock market and to profit from a
possible drop in interest rates. In addition, with the United States looking at
a possible budget surplus in 1998, investors acted to take advantage of a
potentially more limited bond supply. The strong dollar encouraged foreign
investors to purchase U. S. bonds, which also fueled bonds' upward surge.
SUMMARY
The strong year in large-cap domestic companies continued to produce healthy
equity markets in the United States. Growth oriented mutual funds benefited
accordingly. Likewise, fixed income funds benefited from the U.S. bond market's
strong showing. The small-cap equity market had a harder time this year as
investor favor trended toward large-cap growth companies, which tend to have
more stable earnings. International markets -- particularly Asia -- struggled
amidst the currency crisis that struck in the latter part of the year. Money
market fund yields reflected a steady year in money markets as interest rates
remained fairly stable.
GOING FORWARD
The last several years have been a great golden era for the United States. The
strong economy of the past few years provided an environment in which U. S.
investors had the ability to achieve record gains. While disruptions and
dislocations in Southeast Asia may have some overlapping effects on the United
States, we are hopeful that the impacts on our economy, and the profits of U.S.
corporations as a whole, will not be major. What's more, we anticipate any ill
effects on other developed Western economies to be somewhat mild over the next
several quarters. As a result, we hope for a continued strong U.S. economy, and
a favorable investment environment, in coming months.
THE BASICS
Although no one can predict what might happen to the markets in the future, we
believe investors must understand the factors that move the markets, not just to
profit from them, but to gain the patience to ride out short-term volatility. As
always, no matter what direction you think the economy is heading, it's
important to remember the basics. Think long term and re-evaluate your
investment portfolio from time to time to make sure it continues to match your
goals, risk tolerance and time horizon.
Sincerely,
/s/ Richard R. Christensen
Richard R. Christensen
President
Jan. 25, 1998
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
Stein Roe Special Venture Fund, Variable Series
Stein Roe Growth Stock Fund, Variable Series
Stein Roe Balanced Fund, Variable Series
Stein Roe Mortgage Securities Fund, Variable Series
Stein Roe Money Market Fund, Variable Series
Annual Report
Dec. 31, 1997
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TABLE OF CONTENTS
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PORTFOLIO MANAGER'S DISCUSSION:
Stein Roe Special Venture Fund, Variable Series................. 1
Stein Roe Growth Stock Fund, Variable Series.................... 3
Stein Roe Balanced Fund, Variable Series........................ 5
Stein Roe Mortgage Securities Fund, Variable Series............. 7
Stein Roe Money Market Fund, Variable Series.................... 9
INDEPENDENT AUDITORS' REPORT ...................................... 10
FINANCIAL STATEMENTS:
Stein Roe Special Venture Fund, Variable Series................. 11
Stein Roe Growth Stock Fund, Variable Series.................... 16
Stein Roe Balanced Fund, Variable Series........................ 21
Stein Roe Mortgage Securities Fund, Variable Series............. 27
Stein Roe Money Market Fund, Variable Series.................... 32
NOTES TO FINANCIAL STATEMENTS...................................... 36
<PAGE>
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PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Special Venture Fund, Variable Series
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DEAR CONTRACT OWNER:
Special Venture Fund, Variable Series posted a one-year return of 7.81 percent,
trailing both the Russell 2000 Index return of 22.36 percent and the Lipper peer
group return of 20.99 percent. With valuations at near-record highs, the year
saw a shift in investor interest from growth to value stocks. While there is a
value component to our investment style, we are primarily growth investors and
we have tended to perform more in line with small-cap growth indices. The
disparity between growth and value performance in the last 12 months is
underscored by the returns of the growth and value components of the Russell
2000. For the year ended Dec. 31, 1997, the Russell 2000 Value Index returned
31.69 percent, while the Russell 2000 Growth Index returned 12.86 percent -- a
return more in line with the Fund's 7.81 percent return.
Our results reflect a combination of sector-based and company-specific
factors. The portfolio was underweighted relative to the Russell 2000 in the
bank and thrift sector, one of the year's strongest performers. We had greater
exposure than the index to oil and gas stocks, which returned mixed performance
this year. Also contributing to the underperformance were several technology
holdings, which lagged in the latter part of the year.
Standout performers included holdings in the financial services sector --
primarily real estate services and specialty insurance. CB Commercial Real
Estate Services Group and LaSalle Partners, both real estate services firms (4.5
percent and 2.4 percent of total net assets, respectively), fared well as both
companies have capitalized on the strength of the overall real estate market and
a trend on the part of corporations toward outsourcing real estate service
needs. On the insurance side, 20th Century Industries (1.0 percent of total net
assets), Meadowbrook Insurance (4.0 percent of total net assets) and Mutual Risk
Associates all performed well during the year. We sold our position in Mutual
Risk late in the year, concluding that the shares had become overvalued.
Our temporary staffing holdings, including Interim Services, Alternative
Resources and CORESTAFF (2.7 percent, 4.1 percent and 2.2 percent of total net
assets, respectively), also were strong contributors to the Fund's overall
return. These companies have benefited from the trend toward corporate use of
outsourced technology professionals. Other strong performers included several of
our newer holdings: Triarc Companies (2.7 percent of total net assets), a
manufacturer and distributor of beverages -- including the Snapple brand; and
Nanophase Technologies (2.5 percent of total net assets), a manufacturer of
specialty materials.
Weakness in our oil and gas exploration and production holdings offset gains
in the portfolio. These companies were affected by the weakened outlook for oil
and gas prices. During the fourth quarter, we reduced our exposure to the energy
sector, reflecting our greater uncertainty regarding the energy price outlook.
On Dec. 31, 1997, our weighting in the energy sector was 5.7 percent of total
net assets, compared to 12.4 percent of total net assets as of Sept. 30, 1997.
Technology holdings AVX (3.0 percent of total net assets) and Kent
Electronics (1.8 percent of total net assets) -- both historically successful
holdings -- were weak following reduced near-term earnings growth expectations.
We remain optimistic regarding the longer-term outlook for both companies. Danka
Business Systems (1.0 percent of total net assets), also one of the Fund's
historically successful holdings, declined sharply late in the year when it
experienced unforeseen difficulty integrating a large acquisition. We continue
to own the stock as we believe the integration difficulties are temporary and
the current share price is unusually attractive.
<PAGE>
We have, however, eliminated positions in stocks that disappointed as a
result of changes in their competitive environments or management team. These
include Garden Botanika, National Processing, Microware and Firearms Training
Services.
Recent new holdings include BARRA (1.7 percent of total net assets), a
provider of portfolio analysis software and services, and Teva Pharmaceutical
Industries (1.9 percent of total net assets), a leading manufacturer of generic
and proprietary pharmaceuticals.
Following a period of relative outperformance that began in April, small-cap
stocks weakened later in the year, particularly in the fourth quarter. The
small-cap sector's current strong growth prospects, combined with relatively low
valuation levels, lead us to believe the sector is unusually attractive. We
believe the Fund has much stronger earnings growth potential than large-cap
stocks (as measured by the S&P 500 Index), but at comparable valuation levels.
As a result, we believe that the portfolio is well positioned for the
year ahead.
John McLandsborough, Richard B. Peterson,
Portfolio Managers
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. Portfolio
holdings are as of Dec. 31, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The Russell 2000 and the S&P 500 are unmanaged
groups of stocks that differ from the composition of Special Venture Fund; they
are not available for direct investment. According to Lipper Analytical
Services, Inc., an independent monitor of mutual fund performance, the median
returns for the Fund's variable annuity capital appreciation fund peer group for
the one-year, five-year and since inception periods ended Dec. 31, 1997, were
20.99 PERCENT, 15.37 PERCENT and 17.89 PERCENT, respectively. Because benchmark
returns are calculated on a monthly basis, those marked "since inception" are
from the month-end date that fell closest to the Fund's inception date. The
Fund's Adviser currently limits expenses to 0.80 percent of average net assets.
Absent past limits, total return would have been less. Performance numbers
reflect all Fund expenses, but do not include any insurance charges imposed by
your insurance company's separate accounts. If performance information included
the effect of these additional amounts, it would be lower.
LINE CHART:
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES,
S&P 500 INDEX AND RUSSELL 2000 INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to Dec. 31, 1997
Average Annual Total Return
at Dec. 31, 1997
1-Year 5-Year Inception
7.8% 16.0% 16.4%
<TABLE>
<CAPTION>
Special Venture Fund Russell 2000 Index S&P 500 Index
<S> <C> <C> <C>
1/89 $10,000 $10,000 $10,000
12/89 13,084 11,626 13,163
12/90 11,918 9,362 12,754
12/91 16,357 13,672 16,631
12/92 18,725 16,189 17,896
12/93 25,406 19,246 19,697
12/94 25,708 18,895 19,955
12/95 28,729 24,271 27,445
12/96 36,469 28,274 33,742
12/97 39,317 34,597 44,995
</TABLE>
<PAGE>
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PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Growth Stock Fund, Variable Series
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DEAR CONTRACT OWNER:
With the portfolio's large-cap stocks providing reliable, consistent earnings
growth, the Fund's 32.28 percent one-year return easily outdistanced the Lipper
peer group return of 26.47 percent. The S&P 500 Index returned 33.35 percent for
the year.
As the year began, global consumer franchises such as Coca-Cola, Gillette and
Procter & Gamble were thriving in a rapidly growing U.S. economy (2.8 percent,
3.3 percent and 3.4 percent of total net assets, respectively). Later in the
year, amid speculations of earnings disappointments from large-cap companies, we
saw investors subtly shifting their interest away from growth companies and into
smaller, cyclical companies in an effort to capture upside earnings potential.
This bruised the Fund's performance slightly.
A currency crisis struck Asia in the second half of the year, causing a shock
to equity markets worldwide. In the belief that many Asian economies will slow
dramatically and companies that derive any earnings from those countries will
suffer accordingly, investors began to look for companies with little or no
exposure to Asia. Large-cap U.S. growth stocks offered shelter, and investors
both domestic and foreign flocked back to them.
Still, the strong U.S. dollar posed a challenge for many of the global
companies in the portfolio. When the dollar is strong, large multinational
companies -- companies that generate a large portion of their revenue overseas
- -- realize lower earnings as their profits in weaker foreign currencies
translate into the stronger U.S. currency.
Financial services proved one of the year's best-performing sectors. With the
economy in a non inflationary, low interest rate mode, we have seen an increase
of dollars flowing into financial services companies. In addition, baby boomers
- -- one of the largest market forces in action -- are committing even more to
financial services products as their retirements approach. As a result,
financial services firms -- including American Express, Fannie Mae, Travelers
and American International Group -- all proved to be strong holdings for the
portfolio (2.9 percent, 3.7 percent, 3.9 percent and 2.9 percent of total net
assets, respectively). We increased our exposure to this sector by investing in
Charles Schwab, one of the world's financial asset-gathering powerhouses (1.4
percent of total net assets).
Other strong performers included retailers Kohl's and Home Depot (2.6 percent
and 2.8 percent of total net assets, respectively). Investors have perceived
these companies to be solely domestic and, as a result, somewhat protected from
the international turmoil.
We maintained positions in most of our holdings and the Fund's turnover ratio
was correspondingly low -- a third that of the average growth fund. We
eliminated our positions in Renaissance Energy, Baxter and McDonald's -- we
believe all three companies will have difficulty meeting their earnings
estimates in 1998.
We will continue to focus on the technology sector as we believe technology
companies will benefit from consumer demand for new and existing technology. We
are confident in pharmaceutical holdings Pfizer and Eli Lilly & Co. (1.0 percent
and 3.3 percent of total net assets, respectively). We believe their new product
pipelines present opportunities for further growth.
<PAGE>
We are optimistic about growth prospects in 1998, although we expect more
subdued growth than we've seen over the past three years. We think the economy
will continue along its noninflationary growth track. If it does, we would
expect a favorable environment for many of the large U.S. companies we own --
companies that we think are well positioned competitively and dominate the
marketplace with their products.
Erik P. Gustafson, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Portfolio
holdings are as of Dec. 31, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The S&P 500 is an unmanaged group of stocks that
differs from the composition of Growth Stock Fund; it is not available for
direct investment. Lipper Analytical Services, Inc., is an independent monitor
of mutual fund performance. For the one-year, five-year and since inception
periods ended Dec. 31, 1997, the median average annual returns for the Fund's
variable annuity growth fund peer group were 26.47 PERCENT, 17.13 PERCENT and
16.95 PERCENT, respectively. Because benchmark returns are calculated on a
monthly basis, those marked "since inception" are from the month-end date that
fell closest to the Fund's inception date. The Fund's Adviser currently limits
expenses to 0.80 percent of average net assets. Absent past limits, total return
would have been less. Performance numbers reflect all Fund expenses, but do not
include any insurance charges imposed by your insurance company's separate
accounts. If performance information included the effect of these additional
amounts, it would be lower.
LINE CHART:
STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES AND S&P 500 INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to Dec. 31, 1997
Average Annual Total Return
at Dec. 31, 1997
1-Year 5-Year Inception
32.3% 16.8% 18.0%
<TABLE>
<CAPTION>
Growth Stock Fund S&P 500 Index
<S> <C> <C>
1/89 $10,000 $10,000
12/89 13,130 13,163
12/90 12,913 12,754
12/91 19,115 16,631
12/92 20,382 17,896
12/93 21,395 19,697
12/94 20,036 19,955
12/95 27,596 27,445
12/96 33,468 33,742
12/97 44,271 44,995
</TABLE>
<PAGE>
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PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Balanced Fund, Variable Series
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DEAR CONTRACT OWNER:
With a 16.82 percent one-year return, the Fund lagged both its Lipper peer
group return of 19.09 percent and the S&P 500 Index, which posted a return of
33.35 percent.
The Fund's performance was driven by several factors. Although select
holdings in real estate investment trusts (REITs) performed well, they
underperformed as a group. The Asian currency crisis and spreading domestic
earnings fears were challenges that technology stocks had difficulty overcoming
in the latter part of the year. In addition, expectations of slower world
economic growth in 1998 dampened many of our energy holdings and our
overweighted position in international investments was a drag on performance.
These disappointments were offset somewhat by positive returns in the health
care, retail and financial services sectors. These sectors were positioned well
in this year's positive economic and interest rate environments. BankAmerica and
Citicorp, two big money center banks (1.3 percent and 1.0 percent of total net
assets, respectively), were among the year's best performers.
We overweighted the portfolio in international equities this year. While our
international holdings performed well compared to international equity
benchmarks, these holdings underperformed domestic investments. Our strongest
international performers were in the health care and banking sectors, which have
continued to benefit from a benign interest rate environment worldwide and
continued economic growth.
We believe we were effective in assessing and eliminating individual stocks
that threatened to impede performance -- particularly some of our Far East
investments -- before they experienced sharp declines last fall.
We held a full position in fixed income investments. In the current
environment of declining long- and medium-term interest rates, this allocation
has helped boost the portfolio's return. The quality of our fixed income
holdings continues to be high -- a large portion of the portfolio's fixed income
assets are in AAA-rated Treasury and agency securities.
The portfolio traded lightly this year. As described earlier, we sold many
issues with weakening growth prospects. We reinvested the assets in issues that
we believed were more promising.
In line with the portfolio's top-down investment strategy, we then shifted
assets within our favorite sectors -- for example, we altered our REIT holdings
by selling Avalon and Roust to establish positions in Crescent Real Estate
Equities Company, Patriot American Hospitality and Excel Realty Trust (each 0.7
percent of total net assets). In the financial services sector, we sold
NationsBank and Bank of Boston to buy Wells Fargo and Banc One (0.8 percent and
1.0 percent of total net assets, respectively). In the energy sector, where we
see real potential for long-term growth and demand, we sold Schlumberger and
Mobil and purchased El Paso Natural Gas, Tosco, Elf Aquitaine and Cooper Cameron
(0.8 percent, 0.9 percent, 0.7 percent and 1.0 percent of total net assets,
respectively). We sold some Far East holdings as the Asian turmoil began last
fall, but held onto Honda Motor Company and Sony (each 0.8 percent of total net
assets), which we believe are attractively valued. We sought to dampen some of
our international risk and to reinvest in international areas where we were more
comfortable -- mainly Latin America.
We think the economy may slow from this year's 31/2 percent growth pace to 2
percent next year. If, during the first half of next year, economic growth
moderates as much as we anticipate, we believe the Federal Reserve may actually
lower interest rates. As a result, we continue to be positive about the
prospects for fixed income investments and for equity investments in the retail
and banking sectors.
Given our expectations for a slower growth environment, we continue to be
concerned about corporate profitability in the United States. We believe wages
will continue to increase and, with reduced pricing power, companies will tend
to see profit margins narrow. We believe foreign competition will continue to
adversely affect U.S. corporations -- the strong dollar will make it
increasingly difficult for the United States to export overseas because of cost
competition. In addition, firm economic activity may pull in imports, leading to
a continuing deterioration in our trade balance that would have a negative
impact on corporate profits.
Harvey B. Hirschhorn, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Portfolio
holdings are as of Dec. 31, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The S&P 500 is an unmanaged group of stocks that
differs from the composition of Balanced Fund; it is not available for direct
investment. Lipper Analytical Services, Inc., is an independent monitor of
mutual fund performance. For the one-year, five-year and since inception periods
ended Dec. 31, 1997, the median average annual returns for the Fund's variable
annuity flexible portfolio fund peer group were 19.09 PERCENT, 13.02 PERCENT and
13.38 percent, respectively. Because benchmark returns are calculated on a
monthly basis, those marked "since inception" are from the month-end date that
fell closest to the Fund's inception date. The Fund's Adviser currently limits
expenses to 0.75 percent of average net assets. Absent past limits, total return
would have been less. Performance numbers reflect all Fund expenses, but do not
include any insurance charges imposed by your insurance company's separate
accounts. If performance information included the effect of these additional
amounts, it would be lower.
Foreign investments involve market, political and currency risks not generally
associated with other investments.
LINE CHART:
STEIN ROE BALANCED FUND, VARIABLE SERIES AND S&P 500 INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to Dec. 31, 1997
Average Annual Total Return
at Dec. 31, 1997
1-Year 5-Year Inception
16.8% 12.4% 13.0%
<TABLE>
<CAPTION>
Balanced Fund S&P 500 Index
<S> <C> <C>
1/89 $10,000 $10,000
12/89 12,238 13,163
12/90 12,154 12,754
12/91 15,549 16,631
12/92 16,720 17,896
12/93 18,273 19,697
12/94 17,690 19,955
12/95 22,189 27,445
12/96 25,657 33,742
12/97 29,973 44,995
</TABLE>
<PAGE>
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PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Mortgage Securities Fund, Variable Series
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DEAR CONTRACT OWNER:
The Fund returned 9.04 percent for the year ended Dec. 31, 1997, outperforming
the Lehman Intermediate Government/Corporate Index return of 7.87 percent but
lagging the Lipper peer group median return of 9.09 percent.
When 1997 began, mortgages had consistently been outperforming Treasury
securities for several quarters in a row. In March, the Federal Reserve raised
interest rates. This move lowered the prepayment risk associated with mortgages,
further increasing their attractiveness relative to other types of fixed income
investments.
Economic growth slowed by midyear. As a result, the bond market stabilized
and mortgages began to appear to us to be overvalued. In addition, interest
rates began to decline, making refinancing at lower mortgage rates an attractive
option for the homeowner. While refinancing is good news for homeowners, it
increases prepayment risk -- bad news for investors in mortgage-backed
securities. As a result, we reduced our holdings in mortgages. The portfolio
currently holds 72 percent of total net assets in mortgages, compared to a
typical historical weighting of 85 percent to 90 percent of total net assets.
We've held onto lower-coupon mortgages that we believe have the lowest
prepayment risk, and higher coupon investments with the most attractive yields.
In addition, when economic growth slowed during the second quarter, investors
began to speculate that the Federal Reserve would trim rates. Accordingly, we
reduced our holdings of current coupon and premium coupon mortgages. We think
these securities are likely to underperform if interest rates decline and
prepayment risk increases.
As an alternative to mortgages, we sought yield potential in other types of
asset-backed securities, such as home equity loans. We think home equity loans
offer higher yield potential than mortgages with marginally less prepayment
risk.
We also began to shift assets into Treasury securities and corporate bonds.
If interest rates decline -- as we suspect they may -- Treasury securities
should outperform mortgage-backed securities over the near term. The corporate
bonds we hold are all investment-grade issues rated A or higher. We believe they
offer income and total return potential comparable to or better than
mortgage-backed securities, but without the refinancing risk.
We plan to remain underweighted in mortgage securities given their
overvaluation by historical standards and their risk of underperformance if
interest rates decline and refinancing risk increases. Overall, we are
optimistic about fixed income assets as we expect the economy to slow and
interest rates to decline.
Michael T. Kennedy, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Portfolio
holdings are as of Dec. 31, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. The Fund is neither insured nor guaranteed by the
U.S. government. Up to 20 percent of the Fund's assets may be invested in other
types of securities. The Index represents an unmanaged group of government
securities that differs from the composition of Mortgage Securities Fund; it is
not available for direct investment. According to Lipper Analytical Services,
Inc., an independent monitor of mutual fund performance, the median returns for
the variable annuity U.S. mortgage fund peer group for the one-year, five-year
and since inception periods ended Dec. 31, 1997, were 9.09 PERCENT, 7.11 PERCENT
and 9.15 PERCENT, respectively. Because benchmark returns are calculated on a
monthly basis, those marked "since inception" are from the month-end date that
fell closest to the Fund's inception date. The Fund's Adviser currently limits
expenses to 0.70 percent of average net assets. Absent past limits, total return
would have been less. Performance numbers reflect all Fund expenses, but do not
include any insurance charges imposed by your insurance company's separate
accounts. If performance information included the effect of these additional
amounts, it would be lower.
LINE CHART:
STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES AND
LEHMAN MORTGAGE-BACKED SECURITIES INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to Dec. 31, 1997
Average Annual Total Return
at Dec. 31, 1997
1-Year 5-Year Inception
9.0% 6.7% 8.4%
<TABLE>
<CAPTION>
Mortgage Securities Fund S&P 500 Index
<S> <C> <C>
1/89 $10,000 $10,000
12/89 11,284 11,535
12/90 12,311 12,772
12/91 14,094 14,779
12/92 14,933 15,809
12/93 15,868 16,896
12/94 15,619 16,618
12/95 18,077 19,411
12/96 18,927 20,449
12/97 20,638 22,387
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Money Market Fund, Variable Series
- -------------------------------------------------------------------------------
DEAR CONTRACT OWNER:
For the year ended Dec. 31, 1997, Stein Roe Money Market Fund, Variable
Series posted a return of 5.18 percent, outpacing the Lipper peer group median
return of 5.17 percent.
Throughout the first quarter of 1997, the U.S. economy produced mixed
signals. Healthy economic growth, strong corporate profits and low inflation
contributed to market optimism. At the same time, a too-low unemployment rate,
rising wage-rates and subsequent inflationary pressures raised caution. These
mixed signals sent money market rates up and down, but in a fairly tight range.
By March, economic signposts were pointing to an economy that was growing too
quickly. Accordingly, the Federal Reserve tightened interest rates by
one-quarter percentage point. Economic growth then slowed, with the Federal
Reserve standing firm on interest rates for the remainder of the year.
During the first part of the year we invested in floaters for their yield
potential. These variable-rate notes have coupons that adjust, or "float,"
quarterly with market rates. Not only do these notes offer high current yield
potential, but they also provide additional yield potential because their
coupons will float up to at least market rate yields should the Federal Reserve
raise interest rates. The opposite is true in a falling-rate environment. We are
very selective in the floaters we purchase. We look at them for their defensive
characteristics in a rising-rate environment, but we also seek an attractive
current coupon. In this way, even if the Federal Reserve goes into a neutral
mode, we will capture additional yield potential.
Although the economy was generally stable, there were pockets of uncertainty
during the year. Throughout the entire second half of the year, a currency
crisis in Asia caused volatility in markets worldwide. This forced any lender
with exposure to the foreign currency crisis to provide a higher payout to
borrow money. Although this made rates on certain foreign securities attractive,
we believed the risks involved with foreign issuers were too high, so we trimmed
the portfolio's foreign exposure, particularly limiting exposure to Japan.
We generally continued to invest in those credits we believed to be strong
enough to resist the turmoil in the Japanese economy. In addition, we have kept
our investments in Japan short in the event it becomes too risky to invest
there.
These lending pressures helped boost the seven-day yield to 5.29 percent on
Dec. 31, 1997. The increase also is attributable, in part, to a cyclical pattern
typical at this time of year. During this pattern, low demand causes rates to
spike in December, and high demand results in a drop in January. As a result of
the cyclical pattern, the Fund's generous weighting in seven-day maturity
holdings benefited performance in the fourth quarter.
We will continue to look for opportunities to add yield to the portfolio. We
also plan to continue to weight the portfolio heavily in short- and
medium-maturity securities -- we think this move will allow us to respond
quickly should rates reach more attractive levels. In our opinion, it is likely
that interest rates will remain unchanged, especially now that the markets have
calmed down.
We expect moderating growth going into 1998. If economic growth slows enough
in the first part of the year and the potential for a Federal Reserve tightening
grows, we will look for investments in longer-term issues that will help lock in
attractive rates.
Jane M. Naeseth, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. Portfolio
holdings are as of Dec. 31, 1997, and are subject to change. Total return
performance includes changes in share price and reinvestment of income and
capital gains distributions. Lipper Analytical Services, Inc., is an independent
monitor of mutual fund performance. For the one-year, five-year and since
inception periods ended Dec. 31, 1997, the median average total returns for the
Fund's variable annuity money market fund peer group were 5.17 PERCENT, 4.44
PERCENT and 5.34 PERCENT, respectively. An investment in the Fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the Fund will be able to maintain its stable net asset value of $1 per share.
The Fund's Adviser currently limits expenses to 0.65 percent of average net
assets. Absent past limits, total return would have been less. Performance
numbers reflect all Fund expenses, but do not include any insurance charges
imposed by your insurance company's separate accounts. If performance
information included the effect of these additional amounts, it would be lower.
Foreign investments involve market, political and currency risks not
generally associated with U. S. investments.
<PAGE>
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
The Board of Trustees and Shareholders
of SteinRoe Variable Investment Trust:
We have audited the accompanying statement of assets and liabilities including
the schedule of investments, of Stein Roe Special Venture Fund, Variable Series
(formerly Capital Appreciation Fund), Stein Roe Growth Stock Fund, Variable
Series (formerly Managed Growth Stock Fund), Stein Roe Balanced Fund, Variable
Series (formerly Managed Assets Fund), Stein Roe Mortgage Securities Fund,
Variable Series (formerly Mortgage Securities Income Fund), Stein Roe Money
Market Fund, Variable Series (formerly Cash Income Fund), all constituent funds
of SteinRoe Variable Investment Trust, as of December 31, 1997, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers and by the
application of alternative procedures where confirmations were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
SteinRoe Variable Investment Trust as of December 31, 1997, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 11, 1998
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Special Venture Fund, Variable Series / December 31, 1997
- -------------------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS--(93.0%)
AUTO ACCESSORIES--(1.6%)
Superior Industries International, Inc. 118,300 $ 3,171,919
-----------
BANKS/SAVINGS AND LOANS--(2.7%)
Grupo Financiero Inbursa 460,000 1,877,248
National Bancorp of Alaska, Inc. 16,000 2,024,000
Rancho Santa Fe National Bank (a) 111,900 1,566,600
-----------
5,467,848
-----------
BROADCASTING/MEDIA--(7.5%)
Central European Media
Enterprises Ltd. (a) 259,000 6,539,750
Metro Networks, Inc. (a) 259,700 8,505,175
-----------
15,044,925
-----------
BUSINESS SERVICES--(12.7%)
Alternative Resources Corporation (a) 352,300 8,124,919
CORESTAFF, Inc. (a) 164,000 4,346,000
Danka Business Systems Plc ADRs 123,400 1,966,687
G & K Services Cl. A 92,000 3,864,000
Interim Services, Inc. (a) 213,000 5,511,375
Investors Financial Services Corporation 5,000 1,610,000
----------
25,422,981
-----------
COMPUTER HARDWARE AND SOFTWARE--(4.0%)
BARRA, Inc. 142,000 3,425,750
Computer Products, Inc. (a) 80,000 1,810,000
SPSS, Inc. (a) 147,000 2,829,750
-----------
8,065,500
-----------
COMPUTER SERVICES--(4.1%)
Fiserv, Inc. (a) 167,500 8,228,437
-----------
COSMETICS--(1.7%)
Nu Skin Asia Pacific Inc. (a) 185,000 3,376,250
-----------
DIVERSIFIED OPERATIONS--(3.8%)
Fisher Companies, Inc. 19,000 2,280,000
Triarc Companies, Inc. (a) 195,000 5,313,750
-----------
7,593,750
-----------
ELECTRONIC COMPONENTS--(3.0%)
AVX Corporation 323,700 5,968,219
-----------
FOOD MANUFACTURING--(1.4%)
American Italian Pasta Company (a) 109,900 2,747,500
-----------
<PAGE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE--(6.3%)
Meadowbrook Insurance Group, Inc. 310,400 $ 8,089,800
PAULA Financial (a) 112,200 2,580,600
20th Century Industries, Inc. 75,600 1,965,600
-----------
12,636,000
-----------
MEDICAL SPECIALTIES--(8.2%)
BioSource International, Inc. (a) 300,000 1,912,500
National Dentex Corporation (a) 111,000 2,442,000
Urologix, Inc. (a) 161,900 2,934,438
Uroquest Medical Corporation (a) 341,700 896,963
Xomed Surgical Products Inc. (a) 227,900 5,469,600
Young Innovations, Inc. (a) 160,500 2,889,000
-----------
16,544,501
-----------
OIL/GAS--(5.7%)
Barrett Resources Corp. (a) 77,600 2,347,400
Devon Energy Corporation 147,600 5,682,600
Hanover Compressor Company (a) 26,400 539,550
Meridian Resource Corporation (a) 298,800 2,857,275
-----------
11,426,825
-----------
OPTICAL SERVICES--(2.7%)
Sola International, Inc. (a) 169,400 5,505,500
-----------
PHARMACEUTICALS--(2.8%)
Ligand Pharmaceuticals, Inc. (a) 140,000 1,802,500
Teva Pharmaceutical Industries
Ltd. ADRs (a) 79,000 3,737,687
-----------
5,540,187
-----------
PHOTOGRAPHIC EQUIPMENT AND SUPPLIES--(1.6%)
Ballantyne of Omaha, Inc. (a) 175,000 3,150,000
-----------
PUBLISHING--(1.5%)
CMP Media Inc. (a) 175,500 3,027,375
-----------
REAL ESTATE DEVELOPMENT/MANAGEMENT--(8.7%)
CB Commercial Real Estate Services
Group, Inc. (a) 277,500 8,932,031
LaSalle Partners, Inc. (a) 133,500 4,755,937
Security Capital Group (a) 115,100 3,740,750
-----------
17,428,718
-----------
RETAIL--(0.8%)
Video Update, Inc. (a) 797,000 1,594,000
-----------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY CHEMICALS--(6.6%)
ChemFirst, Inc. 203,700 $ 5,754,525
ChiRex Inc. (a) 142,500 2,511,562
Nanophase Technologies
Corporation (a) 396,000 5,024,250
------------
13,290,337
------------
SPECIALTY MATERIALS--(0.9%)
Sheldahl, Inc. (a) 130,000 1,820,000
------------
TELECOMMUNICATIONS--(0.6%)
Western Wireless Corporation (a) 70,000 1,216,250
------------
WHOLESALE DISTRIBUTION--(4.1%)
Henry Schein, Inc. (a) 75,500 $2,642,500
Kent Electronics Corporation (a) 146,500 3,680,813
U.S.A. Floral Products, Inc. (a) 124,300 1,957,726
------------
8,281,039
------------
TOTAL COMMON STOCKS (Cost $172,840,668) 186,548,061
------------
<PAGE>
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS--(7.3%)
COMMERCIAL PAPER--(7.3%)
Associates Corp. of North America
6.750% 1/02/98
(Cost $14,637,255) $14,640,000 $ 14,637,255
------------
TOTAL INVESTMENTS--(100.3%)
(Cost $187,477,923) (b) 201,185,316
OTHER ASSETS, LESS LIABILITIES--(-0.3%) (595,561)
------------
NET ASSETS (100%) $200,589,755
============
<FN>
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is $187,533,441. Tax
basis gross unrealized appreciation and depreciation on investments at December
31, 1997, is as follows
Gross unrealized appreciation: $29,921,534
Gross unrealized depreciation: (16,269,659)
-----------
$13,651,875
===========
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Special Venture Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $187,477,923) $201,185,316
Cash 53,454
Receivable for investments sold 1,226,902
Receivable for fund shares sold 48,130
Dividends and interest receivable 30,073
Other assets 16,982
------------
TOTAL ASSETS 202,560,857
------------
LIABILITIES:
Payable for investments purchased 1,721,360
Payable for fund shares repurchased 75,889
Payable to investment adviser and transfer agent 109,279
Accrued expenses payable 64,574
------------
TOTAL LIABILITIES 1,971,102
------------
NET ASSETS $200,589,755
============
NET ASSETS REPRESENTED BY:
Paid-in capital $169,975,886
Accumulated undistributed net investment income 50,834
Accumulated net realized gains on investments 16,855,500
Net unrealized appreciation on investments 13,707,535
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $200,589,755
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 11,145,224
============
NET ASSET VALUE PER SHARE $18.00
=======
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest income $ 826,023
Dividends 721,211
-------------
Total investment income 1,547,234
-------------
EXPENSES:
Management fee 1,001,641
Administrative fee 300,492
Custodian fee 51,100
Accounting fee 28,760
Printing expense 27,900
Audit and legal fees 18,250
Trustees' expense 15,473
Transfer agent fee 7,500
Miscellaneous expense 11,617
-------------
Total expenses 1,462,733
-------------
Net investment income 84,501
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investments 16,866,896
Change in unrealized appreciation or depreciation on investments (2,574,259)
-------------
Net increase in net assets resulting from operations $ 14,377,138
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Special Venture Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 84,501 $ 340,782
Net realized gains on investments 16,866,896 37,106,567
Change in unrealized appreciation or depreciation on investments (2,574,259) 1,982,076
------------ ------------
Net increase in net assets resulting from operations 14,377,138 39,429,425
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (265,000) --
Net realized gains on investments (36,940,000) --
------------ ------------
Total distributions (37,205,000) --
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 56,760,177 59,130,137
Cost of fund shares repurchased (66,766,579) (45,588,672)
Distributions reinvested 37,205,000 --
------------ ------------
Net increase in net assets resulting from fund share transactions 27,198,598 13,541,465
------------ ------------
Total increase in net assets 4,370,736 52,970,890
NET ASSETS:
Beginning of year 196,219,019 143,248,129
------------ ------------
End of year $200,589,755 $196,219,019
============ ============
Accumulated undistributed net investment income included in ending net assets $ 50,834 $ 263,066
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 3,128,771 3,135,974
Shares repurchased (3,703,394) (2,445,679)
Distributions reinvested 2,256,218 --
------------ ------------
Net increase 1,681,595 690,295
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Special Venture Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 20.73 $ 16.33 $ 14.74 $ 16.53 $ 15.34
--------- --------- --------- --------- --------
Net investment income 0.01 0.04 0.04 0.06 0.03
Net realized and unrealized gains on investments 1.25 4.36 1.69 0.09 5.22
--------- --------- --------- --------- --------
Total from investment operations 1.26 4.40 1.73 0.15 5.25
--------- --------- --------- --------- --------
Less distributions:
Dividends from and in excess of net investment income (0.03) -- (0.04) (0.07) (0.02)
Distributions from and in excess of net realized gains
on investments (3.96) -- (0.10) (1.87) (4.04)
--------- --------- --------- --------- --------
Total distributions (3.99) -- (0.14) (1.94) (4.06)
--------- --------- --------- --------- --------
Net asset value, end of year $ 18.00 $ 20.73 $ 16.33 $ 14.74 $ 16.53
======== ======== ======== ======== =======
TOTAL RETURN 7.81% 26.94% 11.75% 1.19%(b) 35.68%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $200,590 $196,219 $143,248 $134,078 $96,544
Ratio of expenses to average net assets 0.73% 0.75% 0.76% 0.80%(a) 0.84%(a)
Ratio of net investment income to average net assets 0.04% 0.20% 0.26% 0.44%(b) 0.13%(b)
Portfolio turnover ratio 93% 100% 132% 144% 112%
Average commissions (per share) $0.0453 $0.0251 -- -- --
<FN>
(a) These ratios were not materially affected by the reimbursement of certain
expenses by the Adviser and Administrator.
(b) Computed giving effect to the Investment Adviser's and the
Administrator's expense limitation undertaking.
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Growth Stock Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS--(97.8%)
BANKS--(4.8%)
Citicorp 40,000 $ 5,057,500
Wells Fargo & Company 15,000 5,091,563
-----------
10,149,063
-----------
BUSINESS SERVICES--(3.7%)
First Data Corporation 100,000 2,925,000
Paychex, Inc. 100,000 5,062,500
-----------
7,987,500
-----------
COMPUTERS AND COMPUTER SOFTWARE--(7.9%)
Cisco Systems, Inc. (a) 120,000 6,690,000
Intel Corporation 70,000 4,917,500
Microsoft Corp. (a) 40,000 5,170,000
-----------
16,777,500
-----------
CONSUMER RELATED--(12.4%)
Cendant Corporation (a) 357,248 12,280,400
The Gillette Company 70,000 7,030,625
The Proctor & Gamble Co. 90,000 7,183,125
-----------
26,494,150
-----------
DRUGS--(6.8%)
Eli Lilly & Co. 100,000 6,962,500
Merck & Co. 50,000 5,312,500
Pfizer Inc. 30,000 2,236,875
-----------
14,511,875
-----------
ELECTRICAL EQUIPMENT--(3.4%)
General Electric Company 100,000 7,337,500
-----------
ENERGY--(3.0%)
Schlumberger Ltd. 80,000 6,440,000
-----------
FINANCIAL SERVICES--(8.0%)
American Express Company 70,000 6,247,500
Federal National Mortgage Association 140,000 7,988,750
Schwab (Charles) Corporation 70,000 2,935,625
-----------
17,171,875
-----------
FOOD/BEVERAGE/TOBACCO--(5.2%)
The Coca Cola Company 90,000 5,996,250
Phillip Morris Companies, Inc. 110,000 4,984,375
-----------
10,980,625
-----------
<PAGE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE--(4.1%)
Johnson & Johnson 80,000 $ 5,270,000
United Healthcare Corp. 70,000 3,478,125
------------
8,748,125
------------
INSURANCE--(6.8%)
American International Group, Inc. 56,250 6,117,188
The Travelers, Inc. 155,000 8,350,625
------------
14,467,813
------------
LEISURE & ENTERTAINMENT--(2.3%)
Disney (Walt) Co. 50,000 4,953,125
------------
MEDICAL SUPPLIES--(2.9%)
Medtronic, Inc. 120,000 6,277,500
------------
OIL AND GAS-(4.6%)
Baker Hughes, Inc. 100,000 4,362,500
ENSCO International Inc. 100,000 3,350,000
Marine Drilling Company, Inc. (a) 100,000 2,075,000
------------
9,787,500
------------
RETAIL--(5.3%)
The Home Depot, Inc. 100,000 5,887,500
Kohl's Corp. (a) 80,000 5,450,000
------------
11,337,500
------------
RUBBER, PLASTIC & RELATED--(2.8%)
Illinois Tool Works Inc. 100,000 6,012,500
------------
TECHNOLOGY SERVICES--(4.6%)
Tellabs, Inc. (a) 100,000 5,287,500
Thermo Electron Corp. (a) 100,000 4,450,000
------------
9,737,500
------------
TELECOMMUNICATIONS--(9.2%)
LM Ericcson Telecommunications
ADRs Class B 135,000 5,037,187
Lucent Technologies 60,000 4,792,500
Motorola, Inc. 85,000 4,850,312
WorldCom, Inc. (a) 160,000 4,840,000
------------
19,519,999
------------
TOTAL COMMON STOCKS
(Cost $110,173,447) 208,691,650
------------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) PAR VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS--(2.4%)
COMMERCIAL PAPER--(2.4%)
Associates Corp. of North America
6.750% 1/02/98
(Cost $5,034,056) $5,035,000 $ 5,034,056
------------
TOTAL INVESTMENTS--(100.2%)
(Cost $115,207,503) (b) 213,725,706
OTHER ASSETS, LESS LIABILITIES--(0.2%) (326,245)
------------
NET ASSETS (100%) $213,399,461
============
<FN>
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is $115,208,743. Tax
basis gross unrealized appreciation and depreciation on investments at
December 31, 1997, is as follows:
Gross unrealized appreciation: $100,107,342
Gross unrealized depreciation: (1,590,379)
------------
Net unrealized appreciation: $ 98,516,963
============
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Growth Stock Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $115,207,503) $213,725,706
Cash 50,231
Receivable for fund shares sold 8,042
Dividends and interest receivable 154,632
Other assets 12,923
-------------
TOTAL ASSETS 213,951,534
-------------
LIABILITIES:
Payable for fund shares repurchased 401,092
Payable to investment adviser and transfer agent 116,259
Accrued expenses payable 34,722
-------------
TOTAL LIABILITIES 552,073
-------------
NET ASSETS $213,399,461
=============
NET ASSETS REPRESENTED BY:
Paid-in capital $101,690,161
Accumulated undistributed net investment income 589,348
Accumulated net realized gains on investments 12,601,524
Net unrealized appreciation on investments 98,518,428
-------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $213,399,461
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 5,906,242
=============
NET ASSET VALUE PER SHARE $36.13
======
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,538,278
Interest income 429,065
------------
Total investment income 1,967,343
------------
EXPENSES:
Management fee 959,376
Administrative fee 287,813
Custodian fee 20,075
Accounting fee 28,829
Printing expense 10,950
Audit and legal fees 16,425
Trustees' expense 14,400
Transfer agent fee 7,500
Miscellaneous expense 11,321
------------
Total expenses 1,356,689
------------
Net investment income 610,654 REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 12,625,736
Change in unrealized appreciation or depreciation on investments 39,257,702
------------
Net increase in net assets resulting from operations $ 52,494,092
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Growth Stock Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 610,654 $ 728,925
Net realized gains on investments 12,625,736 7,580,172
Change in unrealized appreciation or depreciation on investments 39,257,702 20,202,757
------------ ------------
Net increase in net assets resulting from operations 52,494,092 28,511,854
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (710,000) --
Net realized gains on investments (7,500,000) --
------------ ------------
Total distributions (8,210,000) --
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 35,528,562 22,263,141
Cost of fund shares repurchased (36,502,167) (25,729,831)
Distributions reinvested 8,210,000 --
------------ ------------
Net increase (decrease) in net assets resulting from fund share transactions 7,236,395 (3,466,690)
------------ ------------
Total increase in net assets 51,520,487 25,045,164
NET ASSETS:
Beginning of year 161,878,974 136,833,810
------------ ------------
End of year $213,399,461 $161,878,974
============ ============
Accumulated undistributed net investment income included in ending net assets $ 589,348 $ 688,694
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 1,104,794 854,357
Shares repurchased (1,131,238) (997,588)
Distributions reinvested 274,215 --
------------ ------------
Net increase (decrease) 247,771 (143,231)
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Growth Stock Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 28.61 $ 23.59 $ 18.11 $ 20.65 $ 20.10
--------- --------- --------- -------- ---------
Net investment income 0.10 0.13 0.15 0.15 0.13
Net realized and unrealized gains (losses)
on investments 8.84 4.89 6.68 (1.46) 0.86
--------- --------- --------- -------- ---------
Total from investment operations 8.94 5.02 6.83 (1.31) 0.99
--------- --------- --------- -------- ---------
Less distributions:
Dividends from and in excess of net investment income (0.12) -- (0.15) (0.17) (0.12)
Distributions from and in excess of net realized gains
on investments (1.30) -- (1.20) (1.06) (0.32)
--------- --------- --------- -------- ---------
Total distributions (1.42) -- (1.35) (1.23) (0.44)
--------- --------- --------- -------- ---------
Net asset value, end of year $ 36.13 $ 28.61 $ 23.59 $ 18.11 $ 20.65
======== ======== ======== ======= ========
TOTAL RETURN 32.28% 21.28% 37.73% (6.35)% 4.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $213,399 $161,879 $136,834 $98,733 $111,561
Ratio of expenses to average net assets 0.71% 0.73% 0.74% 0.77% 0.83%
Ratio of net investment income to average net assets 0.32% 0.49% 0.72% 0.75% 0.77%
Portfolio turnover ratio 28% 35% 41% 72% 77%
Average commissions (per share) $0.0583 $0.0534 -- -- --
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Balanced Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS--(52.7%)
AUTOMOTIVE--(0.8%)
Honda Motor Company, Ltd. ADRs 35,000 $ 2,585,625
-----------
BANKS--(6.5%)
Banco Rio de La Plata ADRs (a) 189,700 2,655,800
BankAmerica Corporation 56,000 4,088,000
Banc One Corporation 58,295 3,166,147
Citicorp 26,000 3,287,375
Royal Bank of Scotland Group Plc 200,000 2,544,018
Wells Fargo & Company 8,000 2,715,500
Westpac Banking Corporation Ltd. 385,000 2,462,475
-----------
20,919,315
-----------
BUILDING AND CONSTRUCTION--(0.6%)
Royal Group Technologies Ltd 80,000 1,855,000
-----------
CHEMICALS--(0.8%)
Praxair, Inc. 60,000 2,700,000
-----------
COMMERCIAL SERVICES--(1.5%)
Cendant Corporation (a) 144,186 4,956,394
-----------
COMPUTERS--(0.8%)
International Business Machines 24,000 2,509,500
-----------
DRUGS/HEALTH CARE--(5.7%)
American Home Products Corp. 45,000 3,442,500
Elan Corporation Plc ADRs (a) 62,000 3,173,625
Eli Lilly & Company 67,000 4,664,875
Novartis ADRs 45,000 3,656,021
SmithKline Beecham Plc ADRs 72,000 3,703,500
-----------
18,640,521
-----------
ELECTRICAL EQUIPMENT--(3.3%)
Emerson Electric Co. 62,000 3,499,125
General Electric Company 50,000 3,668,750
Hubbell Inc., Class B 75,000 3,698,438
-----------
10,866,313
-----------
ELECTRONICS--(4.2%)
Analog Devices, Inc. 120,000 3,322,500
Harris Corp. 48,000 2,202,000
Intel Corporation 37,000 2,599,250
Motorola, Inc. 53,000 3,024,313
Sony Corporation Sponsored ADRs 29,000 2,631,750
-----------
13,779,813
-----------
<PAGE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FABRICATED METAL PRODUCTS--(0.6%)
Tubos de Acero de Mexico S.A. (a) 87,100 $ 1,883,538
-----------
FINANCIAL SERVICES--(1.0%)
Federal National Mortgage Association 57,000 3,252,563
-----------
FOOD/BEVERAGE/TOBACCO--(2.9%)
PepsiCo, Inc. 70,000 2,550,625
Philip Morris Companies, Inc. 75,000 3,398,438
Sara Lee Corporation 60,000 3,378,750
-----------
9,327,813
-----------
FUNERAL SERVICES--(0.8%)
Service Corporation International 70,000 2,585,625
-----------
HEALTHCARE--(1.9%)
Pfizer Inc. 50,000 3,728,125
United Healthcare Corporation 47,000 2,335,313
-----------
6,063,438
-----------
HOUSEWARES--(1.1%)
Newell Co. 85,000 3,612,500
-----------
OIL/GAS--(5.3%)
Baker Hughes Inc. 73,000 3,184,625
Cooper Cameron Corp 52,000 3,172,000
Elf Aquitaine Sponsored ADRs 40,000 2,345,000
Halliburton Company 47,000 2,441,063
IRI International Corp (a) 110,000 1,540,000
Tosco Corporation 80,000 3,025,000
United Meridian Corporation (a) 53,000 1,490,625
-----------
17,198,313
-----------
PAPER & FOREST PRODUCTS--(0.8%)
Plum Creek Timber Company 84,000 2,535,750
-----------
REAL ESTATE--(4.0%)
Crescent Real Estate Equities Company 60,000 2,362,500
Excel Realty Trust, Inc 75,000 2,362,500
Patriot American Hospitality, Inc. 80,000 2,305,000
Reckson Associates Realty Corporation 103,800 2,633,925
Security Capital Group, Class B (a) 100,000 3,250,000
Security Capital Group Warrants (a) 4,654 24,434
-----------
12,938,359
-----------
RETAIL--(2.6%)
The Home Depot, Inc. 75,000 4,415,625
Wal-Mart Stores, Inc. 100,000 3,943,750
-----------
8,359,375
-----------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--(4.9%)
Airtouch Communications, Inc. (a) 85,000 $ 3,532,812
GTE Corporation 62,000 3,239,500
LM Ericsson Telecommunications Co.
ADRs Class B 70,000 2,611,875
Telebras Sponsored ADRs 29,000 3,376,688
Telefonica de Argentina S.A. ADRs 85,000 3,166,250
-------------
15,927,125
-------------
TRANSPORTATION--(0.7%)
Canadian National Railway 50,000 2,362,500
-------------
UTILITIES--(1.4%)
El Paso Natural Gas Company 38,000 2,527,000
Endesa Sponsored ADRs 120,000 2,182,500
-------------
4,709,500
-------------
WATER TREATMENT SYSTEMS--(0.5%)
U.S. Filter Corporation (a) 55,000 1,646,558
-------------
TOTAL COMMON STOCKS (Cost $120,846,936) 171,215,438
-------------
<PAGE>
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
LONG-TERM OBLIGATIONS--(42.4%)
AIR TRANSPORTATION--(0.8%)
Federal Express Corporation 1994
Pass-Through Certificates Series
A310-A1 7.530% 9/23/06 $1,743,854 $1,810,556
United Airlines Corporation Series
1991-A-1 9.200% 3/22/08 669,937 758,228
----------
2,568,784
----------
ASSET-BACKED SECURITIES--(1.5%)
ALPS Pass-Through Trust Series 1994-1
Class C2 9.350% 9/15/04 1,989,855 2,046,565
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 2,130,207 2,108,820
Greentree Home Improvement Loan
Trust Series 1994-A Class A
7.050% 3/15/14 711,164 720,850
----------
4,876,235
----------
<PAGE>
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
BANKS--(2.1%)
Den Danske Bank 6.550% 9/15/03 $2,250,000 $2,257,110
Deutsche Ausbank 7.000% 9/24/01 2,250,000 2,327,738
First Chicago NBD 6.125% 2/15/06 2,250,000 2,196,382
----------
6,781,230
----------
CONSTRUCTION & HOUSING--(0.8%)
Hanson Overseas 6.750% 9/15/05 2,500,000 2,540,100
----------
DRUGS/HEALTHCARE--(1.9%)
Glaxo Wellcome Plc 6.125% 1/25/06 2,500,000 2,485,075
Nationwide Health Property Inc.
Conv. Deb. 6.250% 1/01/99 3,400,000 3,871,750
----------
6,356,825
----------
EXTRACTIVE-ENERGY--(0.8%)
BOC Group Plc 5.875% 1/29/01 2,750,000 2,727,698
----------
FOREIGN GOVERNMENT REGIONAL BOND--(0.9%)
Corporacion Andina de Fomento
6.625% 10/14/98 (c) 2,900,000 2,911,687
----------
FINANCIAL--(1.3%)
Associates Corporation of North America
7.500% 4/15/02 4,000,000 4,184,760
----------
INSURANCE--(0.8%)
Prudential Insurance Co.
7.650% 7/1/07 (c) 2,500,000 2,656,325
----------
MORTGAGE-BACKED SECURITIES--(0.1%)
MDC Mortgage Funding Corporation
Series Q Class 5 8.850% 3/20/18 188,317 195,347
----------
OIL/GAS--(0.7%)
SFP Pipeline Holdings, Inc. Conv. Deb.
11.160% 8/15/10 1,400,000 2,310,000
----------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) PAR VALUE
<S> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--(30.7%)
Federal Home Loan Mortgage
Corporation
6.500% 12/01/10 Gold $ 929,080 $ 931,114
6.500% 5/01/11 Gold 802,072 803,829
6.500% 6/01/11 Gold 5,425,300 5,437,181
12.000% 7/01/20 Gold 1,217,318 1,398,771
6.500% 3/01/26 Gold 3,714,239 3,687,942
6.500% 6/01/26 Gold 2,362,623 2,340,958
6.500% 2/01/27 Gold 983,237 974,220
6.500% 3/01/27 Gold 2,882,840 2,852,311
6.500% 4/01/27 Gold 977,116 968,156
Federal National Mortgage Association
8.000% 4/13/05 1,500,000 1,508,655
Government National Mortgage
Association
7.125% 7/20/25 ARM 934,225 956,357
8.000% 3/15/26 4,505,812 4,681,032
U.S. Treasury Bonds
7.875% 8/15/01 1,500,000 1,604,025
7.250% 5/15/16 7,000,000 7,971,740
7.875% 2/15/21 4,500,000 5,526,900
7.125% 2/15/23 8,350,000 9,531,108
U.S. Treasury Notes
6.375% 1/15/99 7,500,000 7,556,325
6.875% 8/31/99 5,500,000 5,603,455
6.750% 4/30/00 3,500,000 3,579,765
6.375% 5/15/00 9,700,000 9,846,567
6.250% 2/15/03 6,500,000 6,648,460
5.750% 8/15/03 6,000,000 6,005,640
6.500% 5/15/05 3,500,000 3,649,345
6.500% 8/15/05 4,000,000 4,173,960
6.875% 5/15/06 1,500,000 1,605,195
------------
99,843,011
------------
TOTAL LONG-TERM OBLIGATIONS
(Cost $130,734,602) 137,952,002
------------
<PAGE>
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS--(4.3%)
COMMERCIAL PAPER--(4.3%)
Associates Corp of North America
6.750% 1/02/98
(Cost $14,002,374) $14,005,000 $ 14,002,374
------------
TOTAL INVESTMENTS (99.4%)
(Cost $265,583,912) (b) 323,169,814
OTHER ASSETS, LESS LIABILITIES--(0.6%) 1,862,808
------------
NET ASSETS (100%) $325,032,622
============
<FN>
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is $265,325,969.
Gross unrealized appreciation and depreciation at December 31, 1997 is as
follows:
Gross unrealized appreciation: $60,064,323
Gross unrealized depreciation: (2,220,478)
------------
Net unrealized appreciation: $57,843,845
============
(c) Private placement security. These securities generally are issued to
institutional investors, such as the Fund, who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must be in an exempt transaction, normally to other
institutional investors. At December 31, 1997, the aggregate value of the
Fund's restricted securities was $5,568,012, which represented 1.7% of net
assets. None of these are deemed to be illiquid securities.
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Balanced Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $265,583,912) $323,169,814
Cash 20,966
Dividends and interest receivable 2,860,637
Receivable for investments sold 478,510
Receivable for fund shares sold 80,482
Other assets 35,815
------------
TOTAL ASSETS 326,646,224
------------
LIABILITIES:
Payable for fund shares repurchased 1,088,343
Payable for investments purchased 269,335
Payable to investment adviser and transfer agent 164,076
Accrued expenses payable 91,848
------------
TOTAL LIABILITIES 1,613,602
------------
NET ASSETS $325,032,622
============
NET ASSETS REPRESENTED BY:
Paid-in capital $236,150,495
Accumulated undistributed net investment income 9,886,114
Accumulated net realized gains on investments 21,410,991
Net unrealized appreciation on investments and foreign currencies 57,585,022
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $325,032,622
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 19,333,707
============
NET ASSET VALUE PER SHARE $16.81
======
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest income $ 9,282,975
Dividends (net of foreign taxes withheld of $81,779) 3,021,590
-----------
Total investment income 12,304,565
-----------
EXPENSES:
Management fee 1,417,148
Administrative fee 472,383
Custodian fee 37,025
Accounting fee 31,616
Audit and legal fees 29,200
Trustees' expense 21,846
Printing expense 20,075
Transfer agent fee 7,500
Miscellaneous expense 35,238
-----------
Total expenses 2,072,031
-----------
Net investment income 10,232,534
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investments 21,582,177
Net realized losses on foreign currency transactions (97,751)
Change in unrealized appreciation or depreciation on investments
and foreign currency translations 17,140,868
-----------
Net increase in net assets resulting from operations $48,857,828
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Balanced Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,232,534 $ 10,512,405
Net realized gains on investments and foreign currency transactions 21,484,426 25,179,094
Change in unrealized appreciation or depreciation on investments and
foreign currency translations 17,140,868 5,972,813
------------ ------------
Net increase in net assets resulting from operations 48,857,828 41,664,312
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (10,262,000) --
Net realized gains on investments (25,340,000) --
------------ ------------
Total distributions (35,602,000) --
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 30,523,814 23,322,625
Cost of fund shares repurchased (53,533,240) (42,816,350)
Distributions reinvested 35,602,000 --
------------ ------------
Net increase (decrease) in net assets resulting from fund share transactions 12,592,574 (19,493,725)
------------ ------------
Total increase in net assets 25,848,402 22,170,587
NET ASSETS:
Beginning of year 299,184,220 277,013,633
------------ ------------
End of year $325,032,622 $299,184,220
============ ============
Accumulated undistributed net investment income included in ending net assets $ 9,886,774 $ 10,358,564
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 1,916,696 1,550,496
Shares repurchased (3,350,160) (2,845,909)
Distributions reinvested 2,387,734 --
------------ ------------
Net increase (decrease) 954,270 (1,295,413)
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Balanced Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 16.28 $ 14.08 $ 12.18 $ 13.11 $ 12.54
--------- --------- --------- --------- ---------
Net investment income 0.53 0.57 0.48 0.51 0.38
Net realized and unrealized gains (losses) on investments
and foreign currency transactions 1.96 1.63 2.61 (0.93) 0.78
--------- --------- --------- --------- ----------
Total from investment operations 2.49 2.20 3.09 (0.42) 1.16
--------- --------- --------- --------- ---------
Less distributions:
Dividends from and in excess of net investment income (0.56) -- (0.48) (0.51) (0.36)
Distributions from and in excess of net realized gains
on investments (1.40) -- (0.71) -- (0.23)
--------- --------- --------- --------- ---------
Total distributions (1.96) -- (1.19) (0.51) (0.59)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 16.81 $ 16.28 $ 14.08 $ 12.18 $ 13.11
======== ======== ======== ======== ========
TOTAL RETURN 16.82% 15.63% 25.43% (3.19)% 9.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $325,033 $299,184 $277,014 $196,278 $197,132
Ratio of expenses to average net assets 0.66% 0.67% 0.66% 0.68% 0.69%
Ratio of net investment income to average net assets 3.25% 3.68% 3.12% 4.01% 3.55%
Portfolio turnover ratio (a) 44% 76% 66% 71% 47%
Average commissions (per share) $0.0539 $0.0547 -- -- --
<FN>
(a) The portfolio turnover ratio includes dollar roll transactions.
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Mortgage Securities Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES--(11.0%)
ALPS Pass-Through Trust Series 1994-1
Class C2 9.350% 9/15/04 $ 994,927 $1,023,283
ContiMortgage Home Equity Loan
Trust Series 1997-1 Class M1
7.420% 2/15/15 1,250,000 1,275,800
First Boston Home Equity Loan Pass-
Through Certificates Series 1993-H1,
Class A-IO (effective yield 12.820%)
9/28/13 4,538,432 177,044
Greentree Home Improvement Loan
Trust Series 1994-A Class A
7.050% 3/15/14 533,373 540,638
Green Tree Financial Corporation
Series 1996-9 Class B1
7.650% 1/15/28 1,350,000 1,407,240
Series 1997-6 Class A8
7.070% 1/15/29 1,492,024 1,529,324
IMC Home Equity Loan Trust
Series 1997-3 Class M2
7.550% 8/20/28 1,000,000 1,027,520
Mego Mortgage Title I Loan Trust
Series 1997-3 Class M1
7.500% 8/25/23 1,500,000 1,537,170
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $8,289,120) 8,518,019
----------
MORTGAGE-BACKED SECURITIES--(11.5%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 804,745 796,665
Asset Securitization Corporation
Series 1997-D5
Class A1C 6.750% 2/14/41 1,375,000 1,402,926
Citicorp Mortgage Securities, Inc.
Series 1987-10 10.000% 7/01/17 132,696 145,759
Comfed Savings Bank Adjustable Rate
Mortgage Series 1987-1A
7.550% 1/01/18 143,837 122,261
Glendale Federal Savings & Loan
Series 1978-A 9.125% 1/25/08 25,049 26,587
Imperial Savings & Loan Adjustable
Rate Mortgage Series 1987-4A
8.826% 7/25/17 24,052 26,234
Merrill Lynch Mortgage Investments Inc.
8.000% 12/20/18 Series 20-D 1,235,981 1,258,389
7.088% 12/26/25 Series 1995-C3
Class A3 ARM 2,000,000 2,095,940
5.890% 11/15/26 Series 1987-A ARM 85,971 87,192
Nomura Asset Securities Corporation
MBS Series 1996-MD5 Class A1B
7.120% 4/13/36 1,000,000 1,058,200
<PAGE>
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
Republic Federal Savings & Loan
Association Series 1987-1
7.500% 2/28/17 $ 7,517 $ 7,627
Sears Mortgage Securities Corp.
Series 1987-A 6.500% 3/25/17 15,601 15,532
Structured Asset Securities Corporation
Series 1996-CFL Class X1-IO
(effective yield 12.960%) 2/25/28 10,678,347 561,467
Series 1996-CFL Class C
6.525% 2/25/28 1,242,500 1,238,623
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $8,631,179) 8,843,402
-----------
CORPORATE SECURITIES--(6.7%)
GMAC Euro 6.750% 7/10/02 1,000,000 1,014,630
National Power Co. Plc 7.125% 7/11/01 1,500,000 1,540,365
National Rural Utilities
6.375% 10/15/04 1,000,000 1,005,960
Zurich Capital Trust I 8.376% 6/01/37 1,450,000 1,600,728
-----------
TOTAL CORPORATE SECURITIES
(Cost $4,951,025) 5,161,683
-----------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES--(16.3%)
8.500% 5/01/06 Gold 115,673 119,468
6.500% 6/01/08 24,470 24,516
6.500% various due dates to 6/01/09
Gold 1,725,495 1,728,740
10.750% 11/01/09 205,958 225,685
12.000% 7/01/13 72,752 82,618
11.250% various due dates to 11/01/15 67,977 76,400
10.500% various due dates to 2/01/19 398,154 441,951
12.000% 7/01/20 Gold 876,469 1,007,115
7.500% various due dates to 5/01/24
Gold 6,582,574 6,750,441
7.000% 1/01/26 2,081,870 2,106,603
-----------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES
(Cost $12,190,552) 12,563,537
-----------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) PAR VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES--(28.6%)
10.500% 2/01/01 $ 68,287 $ 72,096
12.250% 9/01/12 FHA/VA
Guaranteed 82,948 96,349
10.250% 2/01/16 158,251 176,006
10.000% various due dates to 3/01/16 320,203 349,020
8.500% 3/01/17 160,199 168,911
9.000% various due dates to 5/01/20 247,923 265,754
6.000% various due dates to 2/01/25 12,176,703 11,935,591
7.000% various due dates to 8/01/25 4,889,364 4,955,325
6.500% various due dates to 1/01/26 4,097,372 4,046,811
-----------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES
(Cost $21,530,633) 22,065,863
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES--(13.7%)
8.000% various due dates to 7/15/08 1,691,829 1,761,092
11.500% various due dates to 5/15/13 500,021 571,429
8.500% 2/15/17 180,277 192,671
10.000% various due dates to 11/15/19 608,470 672,931
9.000% various due dates to 1/15/20 1,871,713 2,033,891
9.500% various due dates to 8/15/22 1,924,942 2,097,956
7.000% 4/15/23 503,621 510,389
6.500% various due dates to 7/15/24 843,417 839,461
7.125% 7/20/25 ARM 1,868,450 1,912,714
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES
(Cost $10,403,234) 10,592,534
-----------
REAL ESTATE MORTGAGE INVESTMENT
CONDUITS--(1.6%)
Federal Home Loan Mortgage
Corporation Series 11-C
9.500% 4/15/19 62,470 63,868
Federal National Mortgage Association
Trust Series 1988-4Z
9.250% 3/25/18 1,068,529 1,130,397
Federal National Mortgage Association
Trust Series 1991-91SA-IO
(effective yield 14.400%) 7/25/98 654,202 18,056
-----------
TOTAL REAL ESTATE MORTGAGE
INVESTMENT CONDUITS
(Cost $1,224,071) 1,212,321
-----------
<PAGE>
<CAPTION>
MARKET
PAR VALUE
--------- -----------
U.S. GOVERNMENT SECURITIES--(5.5%)
U.S. Treasury Bonds
6.750% 8/15/26 $ 800,000 $ 881,200
6.375% 8/15/27 1,000,000 1,055,030
U.S. Treasury Notes
5.750% 11/01/00 1,000,000 1,001,880
7.250% 8/15/04 1,200,000 1,297,260
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $4,087,367) 4,235,370
-----------
SHORT-TERM INVESTMENTS--(5.2%)
COMMERCIAL PAPER--(5.2%)
Associates Corp. of North America
6.750% 1/02/98
(Cost $4,014,247) 4,015,000 4,014,279
-----------
TOTAL INVESTMENTS--(100.1%)
(Cost $75,321,428) 77,207,008
OTHER ASSETS, LESS LIABILITIES-(-0.1%) (33,565)
-----------
NET ASSETS-(100%) $77,173,443
===========
<FN>
(a) The cost of investments for federal income tax purposes is identical. Gross
unrealized appreciation and depreciation at December 31, 1997 is as follows:
Gross unrealized appreciation: $1,996,263
Gross unrealized depreciation: (110,683)
------------
Net unrealized appreciation: $1,885,580
============
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Mortgage Securities Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $75,321,428) $77,207,008
Cash 52,419
Receivable for fund shares sold 472,943
Interest receivable 597,790
Other assets 8,576
-----------
TOTAL ASSETS 78,338,736
-----------
LIABILITIES:
Payable for investments purchased 1,009,585
Payable for fund shares repurchased 64,724
Payable to investment adviser and transfer agent 39,392
Accrued expenses payable 51,592
-----------
TOTAL LIABILITIES 1,165,293
-----------
NET ASSETS $77,173,443
===========
NET ASSETS REPRESENTED BY:
Paid-in capital 73,734,248
Accumulated undistributed net investment income 4,579,680
Accumulated net realized losses on investments (3,026,065)
Net unrealized appreciation on investments 1,885,580
-----------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $77,173,443
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 7,194,516
===========
NET ASSET VALUE PER SHARE $10.73
======
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INTEREST INCOME $ 5,410,240
------------
EXPENSES:
Management fee 296,763
Administrative fee 111,286
Custodian fee 31,025
Accounting fee 25,613
Printing expense 7,300
Audit and legal fees 27,375
Trustees' expense 8,490
Transfer agent fee 7,500
Miscellaneous expense 3,984
------------
Total expenses 519,336
------------
Net investment income 4,890,904
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 3,468
Change in unrealized appreciation or depreciation on investments 1,494,843
------------
Net increase in net assets resulting from operations $ 6,389,215
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,890,904 $ 5,616,747
Net realized gains (losses) on investments 3,468 (196,495)
Change in unrealized appreciation or depreciation on investments 1,494,843 (1,957,496)
----------- ------------
Net increase in net assets resulting from operations 6,389,215 3,462,756
----------- ------------
DISTRIBUTIONS DECLARED FROM AND IN EXCESS OF:
Net investment income -- (5,700,035)
----------- ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 9,622,128 4,581,248
Cost of fund shares repurchased (14,847,051) (33,813,119)
Distributions reinvested -- 5,700,035
----------- ------------
Net decrease in net assets resulting from fund share transactions (5,224,923) (23,531,836)
----------- ------------
Total increase (decrease) in net assets 1,164,292 (25,769,115)
NET ASSETS:
Beginning of year 76,009,151 101,778,266
----------- ------------
End of year $77,173,443 $ 76,009,151
=========== ============
Accumulated undistributed (overdistributed) net investment
income included in ending net assets $ 4,579,680 $ (299,012)
=========== ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 929,462 447,078
Shares repurchased (1,459,037) (3,321,354)
Distributions reinvested -- 579,272
----------- ------------
Net decrease (529,575) (2,295,004)
=========== ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 9.84 $ 10.16 $ 9.28 $ 10.17 $ 10.26
-------- -------- --------- -------- --------
Net investment income 0.68 0.78 0.57 0.73 0.65
Net realized and unrealized gains (losses)
on investments 0.21 (0.30) 0.89 (0.89) (0.01)
-------- -------- --------- -------- --------
Total from investment operations 0.89 0.48 1.46 (0.16) 0.64
-------- -------- --------- -------- --------
Less distributions:
Dividends from and in excess of net investment income -- (0.80) (0.58) (0.73) (0.65)
Distributions from and in excess of net realized gains
on investments -- -- -- -- (0.08)
-------- -------- --------- -------- --------
Total distributions -- (0.80) (0.58) (0.73) (0.73)
-------- -------- --------- -------- --------
Net asset value, end of year $ 10.73 $ 9.84 $ 10.16 $ 9.28 $ 10.17
======= ======= ======== ======= =======
TOTAL RETURN 9.04% 4.70% 15.74% (1.57)%(b) 6.26%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $77,173 $76,009 $101,778 $72,420 $91,195
Ratio of expenses to average net assets 0.70% 0.70%(a) 0.69% 0.70%(a) 0.76%(a)
Ratio of net investment income to average net assets 6.59% 6.71%(b) 6.76% 6.71%(b) 6.64%(b)
Portfolio turnover ratio (c) 29% 72% 112% 241% 187%
<FN>
(a) If the Fund had paid all of its expenses and there had been no reimbursement
from the Investment Advisor and Administrator, this ratio would have been
0.72%, 0.71%, and 0.76% for the years ended December 31, 1996, 1994, and
1993, respectively.
(b) Computed giving effect to the Investment Adviser's and the Administrator's
expense limitation undertaking.
(c) The portfolio turnover ratio includes dollar roll transactions.
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Money Market Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
COMMERCIAL PAPER--(89.5%)
AUTOMOTIVE--(4.5%)
Eaton Corp. 5.924% 1/09/98 (b) $3,000,000 $ 2,996,067
------------
BEVERAGES--(4.5%)
Joseph Seagram & Sons
5.976% 1/12/98 (b) 3,000,000 2,994,545
------------
BUSINESS CREDIT INSTITUTION--(17.9%)
General Motors Acceptance Corp.
6.137% 1/28/98 3,100,000 3,085,818
Finova Capital Corp. 5.898% 1/02/98 3,000,000 2,990,250
Mitsubishi Motors Credit Corp.
(gtd. by Bank of Tokyo/Mitsubishi Bank)
6.359% 2/09/98 3,000,000 2,979,525
Pemex Capital Inc. (gtd. by Societe
Generale) 5.694% 2/18/98 3,000,000 2,977,400
------------
12,032,993
------------
CONSULTING SERVICES--(4.5%)
CSC Enterprises (gtd. by Computer
Sciences Co.) 5.732% 1/13/98 3,000,000 2,994,330
------------
ELECTRONICS--(4.5%)
General Signal Corp.
6.227% 1/23/98 (b) 3,000,000 2,988,633
------------
HEALTH CARE--(4.4%)
American Home Products
5.790% 3/13/98 (b) 3,000,000 2,966,216
------------
HOTELS--(4.4%)
Accor SA (gtd. by Banque Nationale
de Paris) 5.989% 3/04/98 3,000,000 2,970,292
------------
LENDING INSTITUTIONS--(8.9%)
Old Line Funding Corp.
5.941% 1/16/98 (b) 3,000,000 2,992,625
Windmill Funding Corp.
5.809% 1/15/98 (b) 3,000,000 2,993,292
------------
5,985,917
------------
<PAGE>
<CAPTION>
MARKET
PAR VALUE
<S> <C> <C>
OTHER FINANCIAL--(31.5%)
Asset Securitization Corp.
6.209% 1/07/98 (b) $3,000,000 $ 2,996,900
Associates Corp. of North America
6.753% 1/02/98 725,000 724,864
Corporate Asset Funding
5.789% 1/16/98 (b) 3,000,000 2,992,825
Enterprise Funding Corp.
6.033% 1/05/98 (b) 3,000,000 2,998,033
Lehman Brothers Holdings Inc.
6.513% 1/09/98 2,500,000 2,496,389
Mitsubishi Electric Finance
5.955% 2/18/98 (b) 3,000,000 2,976,480
Preferred Receivables Funding
5.887% 1/08/98 (b) 3,000,000 2,996,588
Thames Asset Global Securitization
5.880% 1/20/98 (b) 3,000,000 2,990,785
------------
21,172,864
------------
RETAILS--(4.4%)
Southland Corp. 6.060% 1/21/98 3,000,000 2,989,950
------------
TOTAL COMMERCIAL PAPER
(Cost $60,091,807) 60,091,807
------------
U.S. GOVERNMENT AGENCY OBLIGATION--(5.2%)
Federal Home Loan Bank Callable Note
5.750% 1/09/98
(Cost $3,500,000) 3,500,000 3,500,000
------------
VARIABLE RATE NOTES--(4.5%)
American Honda Finance Corp. (gtd. by
Honda Motor Co. Inc.) 5.721% 4/06/98 (b)
(Cost $2,999,849) 3,000,000 2,999,849
-----------
TOTAL INVESTMENTS--(99.2%)
(Cost $66,591,656) (a) 66,591,656
OTHER ASSETS, LESS LIABILITIES (0.8%) 545,068
------------
NET ASSETS (100%) $67,136,724
============
<FN>
* The interest rate is the effective rate at the date of purchase.
(a) The cost of investments for federal income tax purposes is identical. There
is no unrealized appreciation or depreciation at December 31, 1997.
(b) Represents private placement securities exempt from registration by Section
4(2) of the Securities Act of 1933. These securities generally are issued to
investors who agree that they are purchasing the securities for investment
and not with a view to public distribution. Any resale by the Fund must be
in an exempt transaction, normally to other institutional investors. At
December 31, 1997, the aggregate value of the Fund's private placement
securities was $38,882,838, which represented 57.9% of net assets.
Of these, $2,996,588, or 4.5% of net assets, were deemed to be illiquid
securities.
</FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Money Market Fund, Variable Series / December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $66,591,656) $66,591,656
Cash 50,567
Receivable for fund shares sold 652,203
Interest receivable 238,138
Other assets 9,757
-----------
TOTAL ASSETS 67,542,321
-----------
LIABILITIES:
Payable for fund shares repurchased 333,538
Payable to investment adviser and transfer agent 30,866
Accrued expenses payable 41,193
-----------
TOTAL LIABILITIES 405,597
-----------
NET ASSETS $67,136,724
===========
NET ASSETS REPRESENTED BY:
Paid-in capital $67,136,724
-----------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $67,136,724
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 67,136,724
===========
NET ASSET VALUE PER SHARE $1.00
=====
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INTEREST INCOME $3,856,502
----------
EXPENSES:
Management fee 237,501
Administrative fee 101,786
Custodian fee 21,900
Accounting fee 25,008
Printing expense 5,475
Audit and legal fees 18,250
Trustees' expense 7,796
Transfer agent fee 7,500
Miscellaneous expense 12,622
----------
Total expenses 437,838
----------
Net investment income 3,418,664
----------
Net increase in net assets resulting from operations $3,418,664
==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SteinRoe Money Market Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,418,664 $ 3,214,365
------------ -------------
Net increase in net assets resulting from operations 3,418,664 3,214,365
------------ -------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (3,418,664) (3,214,365)
------------ -------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 67,656,312 57,327,084
Cost of fund shares repurchased (69,399,644) (60,072,108)
Distributions reinvested 3,418,664 3,214,365
------------ -------------
Net increase in net assets resulting from fund share transactions 1,675,332 469,341
------------ -------------
Total increase in net assets 1,675,332 469,341
NET ASSETS:
Beginning of year 65,461,392 64,992,051
------------ -------------
End of year $ 67,136,724 $ 65,461,392
============ =============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 67,656,312 57,327,084
Shares repurchased (69,399,644) (60,072,108)
Distributions reinvested 3,418,664 3,214,365
------------ -------------
Net increase 1,675,332 469,341
============ =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SteinRoe Money Market Fund, Variable Series
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Net investment income 0.050 0.049 0.055 0.037 0.027
--------- --------- --------- --------- ---------
Less distributions:
Distributions from net investment income (0.050) (0.049) (0.055) (0.037) (0.027)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN 5.18% 5.01% 5.62% 3.81% 2.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $67,137 $65,461 $64,992 $78,698 $83,049
Ratio of expenses to average net assets 0.65% 0.65% 0.63% 0.62% 0.65%
Ratio of net investment income to average net assets 5.05% 4.90% 5.48% 3.73% 2.68%
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
SteinRoe Variable Investment Trust (the "Trust"), an open-end management
investment company, was organized as a Massachusetts business trust on June 9,
1987. At December 31, 1997, the Trust consisted of five diversified Funds with
differing investment objectives, policies and restrictions (individually
referred to as a "Fund," or collectively referred to as the "Funds"):
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES--seeks capital growth by
investing in equity securities.
STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES--seeks long-term growth of capital
by investing 65 percent of total assets in growth companies.
STEIN ROE BALANCED FUND, VARIABLE SERIES--seeks high total investment return
by investing in equity and debt securities.
STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES--seeks highest possible
level of current income by investing at least 65 percent of total assets in
mortgage pass-through certificates.
STEIN ROE MONEY MARKET FUND, VARIABLE SERIES--seeks high current income while
emphasizing capital preservation from investment in short-term money market
instruments.
Shares of the Trust are available and are being marketed exclusively as a pooled
funding vehicle for variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies") of various affiliated insurance
companies and, in the case of Stein Roe Special Venture Fund, Variable Series,
also of Transamerica Life Companies, Great-West Life & Annuity Insurance Company
and Providian Life & Health Insurance Company. Stein Roe & Farnham, Inc. (the
"Adviser") provides investment advisory services to the Funds as well as
management and administrative services. SteinRoe Services, Inc. (the "Transfer
Agent") provides transfer agent services. Keyport Financial Services Corp., a
subsidiary of Keyport Life Insurance Company ("Keyport"), serves as the
underwriter of the Trust. Keyport, the Adviser and the Transfer Agent are direct
subsidiaries of Liberty Financial Companies, Inc. At December 31, 1997, various
affiliated insurance companies of Liberty Financial Companies Inc. owned 100
percent of the outstanding shares of all Funds, except for Stein Roe Special
Venture Fund, Variable Series, of which Liberty Financial Companies Inc.
affiliates owned 92.8 percent, Great-West Life & Annuity Insurance Company owned
5.4 percent, Transamerica Life Companies owned 1.7 percent, and Providian Life &
Health Insurance Company owned 0.1 percent.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. 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
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
Certain prior-year amounts have been reclassified to conform to current-year
presentation.
VALUATION OF INVESTMENTS--Portfolio securities listed on domestic exchanges and
over-the-counter securities quoted on the Nasdaq system are valued on the basis
of the last sale on the date as of which the valuation is made, or, lacking any
sales, at the current bid prices. Over-the-counter securities not quoted on the
Nasdaq system are valued at the latest bid quotation. Foreign security
valuations are generally based upon market quotations which, depending upon
local convention or regulation, may be last sale price, last bid or asked price,
or the mean between last bid and asked prices as of, in each case, the close of
the appropriate exchange or other designated time. Long-term debt securities are
valued on the basis of dealer-supplied quotations or valuations furnished by a
pricing service. Securities for which reliable quotations are not readily
available are valued at fair value, as determined in good faith and pursuant to
procedures established by the Trustees. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost unless the Trustees
determine this does not represent fair value. Stein Roe Money Market Fund,
Variable Series, values investments utilizing the amortized cost valuation
technique permitted in accordance with Rule 2a-7 under the Investment Company
Act of 1940, which requires the Fund to comply with certain conditions. This
technique involves valuing a portfolio security initially at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium.
FEDERAL INCOME TAXES--The Funds now qualify and intend to continue qualifying as
"regulated investment companies" and, as such (and by complying with the
applicable provisions of the Internal Revenue Code), will not be subject to
federal income tax on taxable income (including realized capital gains)
distributed to shareholders.
FOREIGN CURRENCY TRANSACTIONS--Certain of the Funds have entered into foreign
exchange contracts for the settlement of purchases and sales of securities
denominated in a foreign currency to reduce the risk to the Funds from adverse
changes in the relationship between the U.S. dollar and the foreign currency.
The face or contract amount in U.S. dollars reflects the total exposure the Fund
has in that particular currency contract. In the event that the counterparty in
the foreign exchange contract fails to meet the terms of the contract, the Fund
could be exposed to the effects of changes in the relationship between the U.S.
dollar and the foreign currency.
INVESTMENT TRANSACTIONS--The Funds may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Payment and delivery
may take place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated. Stein Roe Balanced
Fund, Variable Series, and Stein Roe Mortgage Securities Fund, Variable Series,
may also enter into dollar roll transactions. In a dollar roll transaction, the
Fund sells securities for delivery in the current month and simultaneously
contracts to repurchase, typically in 30 days to 60 days, substantially similar
securities at an agreed upon price and date. These transactions may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous yields. The Funds identify
securities as segregated in their custodial records with a value at least equal
to the amount of the purchase commitment.
<PAGE>
INVESTMENT IN REPURCHASE AGREEMENTS--Each Fund may enter into repurchase
agreements with banks, broker-dealer firms and other recognized financial
institutions whereby such institutions sell an instrument to the Fund, and the
seller agrees, at the time of the sale, to repurchase that instrument at a
specified time and price. The Funds require the seller of the instrument to
maintain on deposit with the Funds' custodian bank or in the Federal Reserve
Book-Entry System securities in an amount at all times equal to or in excess of
the value of the repurchase agreement plus accrued interest. In the event the
seller of the instrument defaults on the repurchase obligation, a Fund could
receive less than the repurchase price on the sale of the securities to another
party or could be subject to delays in selling the securities.
RECLASSIFICATIONS--Reclassifications between capital accounts have been made in
1997 for the following Funds to reflect differences between financial reporting
and income tax bases:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET
NET REALIZED
PAID-IN INVESTMENT GAINS (LOSSES)
FUND CAPITAL INCOME ON INVESTMENTS
<S> <C> <C> <C>
Stein Roe Special Venture Fund,
Variable Series $ -- $ (31,733) $ 31,733
Stein Roe Balanced Fund,
Variable Series 257,169 (442,984) 185,815
Stein Roe Mortgage Securities
Fund, Variable Series -- (12,212) 12,212
</TABLE>
OTHER--Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Discounts on debt securities are amortized in
accordance with Internal Revenue Code requirements. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Net realized
and unrealized gains (losses) on foreign currency transactions include the
fluctuation in exchange rates on gains and losses between trade and settlement
dates on security transactions, gains and losses arising from the disposition of
foreign currency, and currency gains and losses between the accrual and payment
dates on dividend and interest income and foreign withholding taxes. The Funds
do not isolate that portion of the results of operations resulting from changes
in foreign exchange rates on investment from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included with
the net realized and unrealized gain or loss from investments. Unrealized
appreciation and depreciation and realized gains and losses may differ between
financial statements and tax earnings due to deferred losses from wash sales and
certain other transactions.
NOTE 2. FUND SHARE TRANSACTIONS
Each Fund's capitalization consists of an unlimited number of shares of
beneficial interest without par value that represent a separate series of the
Trust. Each share of a Fund represents an equal proportionate beneficial
interest in that Fund and, when issued and outstanding, is fully paid and
nonassessable. Shareholders would be entitled to share proportionally in the net
assets of a Fund available for distribution to shareholders upon liquidation of
a Fund.
NOTE 3. SECURITY TRANSACTIONS
Realized gains and losses are computed on the identified cost basis for both
financial reporting and federal income tax purposes. At December 31, 1997, Stein
Roe Mortgage Securities Fund, Variable Series had a capital loss carryforward of
$3,026,065, which will expire between 2002 and 2004, if not utilized. The cost
of investments purchased and proceeds from investments sold, excluding
short-term investments, for the 12 months ended December 31, 1997, for the
Funds, excluding Stein Roe Money Market, Variable Series, were as follows:
<TABLE>
<CAPTION>
STEIN ROE STEIN ROE STEIN ROE STEIN ROE
SPECIAL GROWTH BALANCED MORTGAGE
VENTURE FUND, STOCK FUND, FUND, SECURITIES FUND,
VARIABLE SERIES VARIABLE SERIES VARIABLE SERIES VARIABLE SERIES
<S> <C> <C> <C> <C>
Cost of
investments
purchased $170,930,548 $52,184,374 $132,915,050 $21,919,255
Proceeds from
investments sold 177,126,193 53,669,663 146,552,071 24,862,317
</TABLE>
NOTE 4. DISTRIBUTIONS TO SHAREHOLDERS
The Funds, with the exception of the Stein Roe Money Market Fund, Variable
Series, intend to distribute as dividends or capital gains distributions, at
least annually, substantially all of their net investment income and net gains
realized from the sale of portfolio securities. All dividends and distributions
are reinvested in additional shares of the Funds. Stein Roe Money Market Fund,
Variable Series, declares dividends daily and reinvests all dividends declared
monthly in additional shares at net asset value. Income and capital gains
distributions are determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting principles primarily
relating to foreign currency losses, gains and losses on principal paydowns and
book-tax timing differences.
<PAGE>
NOTE 5. MANAGEMENT AND ADMINISTRATIVE FEES
The Funds have advisory and administrative agreements with the Adviser. The
following investment advisory fee rates were in effect as of December 31, 1997:
ANNUAL RATE AS A
PERCENT OF AVERAGE
FUND DAILY NET ASSETS
- ----- ---------------
Stein Roe Special Venture Fund, Variable Series .50 of 1%
Stein Roe Growth Stock Fund, Variable Series .50 of 1%
Stein Roe Balanced Fund, Variable Series .45 of 1%
Stein Roe Mortgage Securities Fund, Variable Series .40 of 1%
Stein Roe Money Market Fund, Variable Series .35 of 1%
As of December 31, 1997, for all the Funds, the administrative fee was .15 of 1
percent of average annual net assets. Both the investment advisory fees and the
administrative fees are computed daily and paid monthly.
The Adviser also provides the Funds with certain Fund accounting services. The
fee is $25,000 annually plus .0025 of 1 percent of assets in excess of $50
million. For the 12 months ended December 31, 1997, Stein Roe Special Venture
Fund, Variable Series, Stein Roe Growth Stock Fund, Variable Series, Stein Roe
Balanced Fund, Variable Series, Stein Roe Mortgage Securities Fund, Variable
Series and Stein Roe Money Market Fund, Variable Series incurred charges of
$28,760, $28,829, $31,616, $25,613, and $25,008, respectively.
The Funds pay SteinRoe Services, Inc. for transfer agent services rendered at
an annual rate of $7,500 computed on the basis of $625 per month.
The Adviser has agreed to reimburse all expenses, including management fees,
incurred by the Funds as follows:
FUND EXPENSES EXCEEDING
- ----- -------------------------
Stein Roe Special Venture Fund, .80 of 1% of average daily net assets
Variable Series
Stein Roe Growth Stock Fund, .80 of 1% of average daily net assets
Variable Series
Stein Roe Balanced Fund, .75 of 1% of average daily net assets
Variable Series
Stein Roe Mortgage .70 of 1% of average daily net assets
Securities Fund,
Variable Series
Stein Roe Money Market Fund, .65 of 1% of average daily net assets
Variable Series
The expense limitations expire April 30, 1998.
NOTE 6. FUND NAME CHANGES
On August 13, 1997, the Board of Trustees of the Trust approved a change in the
name of each of the five existing separate Series of the Trust, as specified in
the table set forth below. Such name changes were effective November 15, 1997.
FUND FORMER NAME
- ----- ----------------
Stein Roe Special Venture Fund, Capital Appreciation Fund
Variable Series
Stein Roe Growth Stock Fund, Managed Growth Stock Fund
Variable Series
Stein Roe Balanced Fund, Managed Assets Fund
Variable Series
Stein Roe Mortgage Securities Fund, Mortgage Securities Income Fund
Variable Series
Stein Roe Money Market Fund, Cash Income Fund
Variable Series
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
TRANSFER AGENT
SteinRoe Services, Inc.
One South Wacker Drive
Chicago, IL 60606
DISTRIBUTOR
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
CLIENT SERVICES
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
800-367-3653 (Press 3)
CUSTODIAN
State Street Bank & Trust Company
P.O. Box 366
Boston, MA 02101
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110
THE TRUSTEES
John A. Bacon Jr.
Richard R. Christensen
Salvatore Macera
Dr. Thomas E. Stitzel
This report is authorized for use as sales literature only when accompanied by a
current prospectus of the Trust and a current prospectus for a variable
insurance product offered by Keyport Life Insurance Company, Independence Life
Insurance Company, or Liberty Life Assurance Company of Boston.
12/97 NIM 30m
