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
Semiannual Report
June 30, 1998
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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
FINANCIAL STATEMENTS:
Stein Roe Special Venture Fund, Variable Series..................... 10
Stein Roe Growth Stock Fund, Variable Series........................ 15
Stein Roe Balanced Fund, Variable Series............................ 20
Stein Roe Mortgage Securities Fund, Variable Series................. 26
Stein Roe Money Market Fund, Variable Series........................ 31
NOTES TO FINANCIAL STATEMENTS.......................................... 35
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Special Venture Fund, Variable Series
- --------------------------------------------------------------------------------
Q: HOW DID THE FUND PERFORM?
A: For the six-month period ended June 30, 1998, Stein Roe Special Venture Fund,
Variable Series returned -6.25 percent, underperforming the Russell 2000 Index
and the Lipper small-cap peer group which returned 4.93 percent and 6.02
percent, respectively. Small-cap stocks continued to lag their larger-cap
counterparts throughout the period despite relatively better earnings growth in
the small stock sector. The Fund underperformed its peers as many of its
holdings suffered from a "ripple effect" from reduced demand from Asian markets.
Q: WHAT WAS THE PREMISE FOR SMALL-CAP STOCK UNDERPERFORMANCE?
A: Small-cap stocks outperformed large-cap stocks from April 1997 through
October 1997 until the currency crisis in Asia caused many investors to flee to
the relative safety of large-cap stocks. This "safety in size" mentality left
small-cap stocks lagging their large-cap counterparts ever since. For the
six-month period, the Russell 2000, the proxy for the small-cap market, trailed
the large-cap S&P 500 benchmark by 12.79 percentage points.
The second quarter of 1998 was the most difficult quarter for small-cap stocks
this decade. The majority of stock market purchasing has favored large-cap
stocks, with influences from indexing, mutual fund activity, and large foreign
institutions. Small stock prices have suffered from indifference. If past phases
of market activity are any indication of what's to come, investors should again
favor the excellent growth potential and reasonable valuations of the small-cap
sector. In the mean time, we're using this opportunity to purchase attractive
stocks at inexpensive prices.
Q: WHAT SECTORS UNDERPERFORMED?
A: Two sectors that underperformed for the Fund were energy and technology. Our
oil and gas exploration and production holdings, including Barrett Resources and
Meridian Resources (0.3 percent, and 1.4 percent of total net assets), suffered
from the weakened outlook for oil and gas prices. During the first quarter, we
reduced our exposure to the energy sector from 5.7 percent to 1.7 percent of
total net assets (an underweighted position relative to the Russell 2000),
because, in our opinion, energy prices still look uncertain going forward.
Technology holdings that impacted the Fund's performance included AVX (1.8
percent of total net assets), Kent Electronics (1.8 percent of total net
assets), Artesyn Technologies (2.3 percent of net assets), and Andrew
Corporation which we sold out of before the end of the period. Earnings growth
expectations were reduced on these companies as demand from Asia slowed.
Q: WHEN DO YOU SELL DISAPPOINTING STOCKS?
A: We generally only sell a stock if there is a sudden change in business
strategy that suggests to us that company or industry fundamentals are
deteriorating. We thoroughly research each purchase so that our buying is based
on long-term fundamentals. However, disappointing short-term performance will
trigger a fundamental review of a stock.
Q: WHAT HOLDINGS PERFORMED WELL?
A: LaSalle Partners (2.4 percent of total net assets) rose 24.7 percent over the
past six months reflecting higher commercial real estate activity. Xomed
Surgical Products (4.8 percent of total net assets) increased 24.2 percent as
its less-invasive surgical products market share rose in
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES, AND RUSSELL 2000 INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to June 30, 1998
Average Annual Total Return
at June 30, 1998
1-Year 5-Year Since Inception
-5.68% 12.36% 14.73%
Chart:
Special Venture Fund Russell 2000 Index
1/89 10000 10000
12/89 13083 11626
12/90 11918 9362
12/91 16357 13672
12/92 18726 16189
12/93 25406 19246
12/94 25708 18895
12/95 28729 24271
12/96 36470 28274
12/97 39318 34597
6/98 36860 36302
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION (continued)
Stein Roe Special Venture Fund, Variable Series
- --------------------------------------------------------------------------------
the ears, nose and throat market. Also, Metamor Worldwide (2.9 percent of total
net assets), benefiting from the trend toward outsourcing of information
technology staff and consulting services, increased 36.7 percent over the last
six months.
Q: WHAT IS YOUR OUTLOOK FOR THE SMALL-CAP MARKET? BASED ON THAT, WHAT IS YOUR
OUTLOOK FOR THE FUND?
A: Small-cap stocks are as cheap as they've been at any time during the past
twenty years, relative to larger-cap stocks. The earnings growth outlook for
small stocks remains favorable. This suggests to us that this sector has the
potential for long-term outperformance with moderate shorter-term risk.
We continue to add to our positions in companies that have experienced
management, financial strength and evidence of a sustainable competitive
advantage.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of June 30, 1998, and are subject to change. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The Russell 2000 is an unmanaged group of
stocks that differs from the composition of each Stein Roe 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
Fund's variable annuity small-cap fund peer group for the one-, five-year and
since inception periods ended June 30, 1998, were 18.13 PERCENT, 15.78 PERCENT
and 17.78 PERCENT, respectively. 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.
* Funds that emphasize investments in smaller companies may experience
short-term volatility.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Growth Stock Fund, Variable Series
- --------------------------------------------------------------------------------
Q: HOW DID THE FUND PERFORM?
A: Stein Roe Growth Stock Fund, Variable Series performed well during the
six-month period ending June 30, 1998. The Fund's total return of 18.68 percent
beat both the Lipper growth fund peer group return of 15.65 percent and the S&P
500 Index return of 17.72 percent for the same period.
Q: WHAT CONTRIBUTED TO PERFORMANCE?
A: For the past six months the U.S. economy has been strong amid continued
global affects from the Asian crisis. Large-cap stocks historically perform well
in a strong economy. They also are considered the equity investment of choice
when markets are volatile because of their historical stability and liquidity.
Combined, these two factors helped boost the performance of the Fund.
Q: WHAT SECTORS PERFORMED THE BEST?
A: The U.S. consumer has benefited from extremely favorable economic conditions.
Therefore, retail companies have benefited from strong consumer spending. The
Fund's performance was supported by holdings in global consumer franchises such
as Gillette, Procter & Gamble and Walt Disney (3.1 percent, 3.2 percent and 2.1
percent of total net assets, respectively). Other top performers in the retail
sector were Home Depot and Kohl's. Home Depot's profits were driven by record
sales of new and existing homes (3.3 percent of total net assets). Kohl's, a
Midwestern value-priced retailer (3.3 percent of total net assets), is
benefiting from its East Coast expansion. Our health care holdings Merck,
Medtronic and Pfizer (2.6 percent, 3.1 percent, and 3.4 percent of total net
assets, respectively) continued to perform well due to their strong product
lines. Rounding out top performers were telecommunications equipment companies
Lucent Technologies, Cisco Systems and LM Ericsson Telecommunications (3.9
percent, 4.4 percent and 3.2 percent of total net assets, respectively). These
companies continue to benefit from the dramatic worldwide need to upgrade
telecommunications infrastructures to accommodate voice, video and data
services.
Q: WHAT SECTORS UNDERPERFORMED?
A: Oil services was a disappointing sector as companies suffered from decreasing
oil prices. In this sector, holdings Schlumberger Limited and R&B Falcon
underperformed (2.2 percent and 0.9 percent of total net assets, respectively).
However, our long-term outlook for this area is favorable, so we plan to
continue to hold these companies.
Q: TECHNOLOGY IS ONE OF YOUR TOP SECTORS. HOW DID YOUR HOLDINGS FARE?
A: The first quarter is usually tough for certain technology companies, but this
year's seasonal slowness was exacerbated by the turmoil in Asia. Some of the
Fund's holdings suffered due to earnings concerns as well, such as Motorola --
which we sold, and Intel -- which we continue to hold (2.3 percent of total net
assets). Our long-term outlook for the technology sector overall continues to be
favorable because we believe companies will continue to purchase new technology
in order to compete globally. We invest in technology companies that we think
have excellent product lines and are less susceptible to economic downturns
because of their market dominance. For example, we continue to hold this
microprocessor manufacturer because, like Coca-Cola (3.0 percent of total net
assets) and Gillette, Intel is the dominant company in its industry around the
globe.
STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES, AND S&P 500 INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to June 30, 1998
Average Annual Total Return
at June 30, 1998
1-Year 5-Year Since Inception
31.29% 21.56% 19.10%
Chart:
Growth Stock Fund S&P 500 Index
1/89 10000 10000
12/98 13130 13163
12/90 12913 12754
12/91 19114 16631
12/92 20382 17896
12/93 21394 19696
12/94 20035 19955
12/95 27595 27445
12/96 33467 33742
12/97 44269 44995
6/98 52539 52969
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION (continued)
Stein Roe Growth Stock Fund, Variable Series
- --------------------------------------------------------------------------------
Q: WHAT ARE SOME NEW NAMES WE'LL SEE IN THE PORTFOLIO?
A: We established positions in Time Warner, NationsBank and Peoplesoft during
the period (3.4 percent, 1.8 percent and 1.6 percent of total net assets,
respectively) because we believe these companies will be able to grow their
earnings consistently over time.
Q: WHAT DID YOU SELL DURING THE PERIOD?
A: We sold our position in McDonald's after it experienced continued decreases
in same-store sales growth. We also sold Wells Fargo, Baker-Hughes and
Thermo-Electron due to weaker than expected earnings.
Q: WHAT INVESTMENT THEMES DO YOU PLAN TO FOLLOW GOING FORWARD?
A: We intend to take advantage of the trend toward global democracy and we will
continue to look for companies that will benefit from increased global consumer
demand. Greater disposable income leads to greater consumer demand for products.
And our belief is that global consumer franchises that perfect their business in
multiple markets stand to benefit tremendously from this opportunity. For
example, we believe Procter & Gamble is the most globally dominant company
within its respective markets, and it is one of the portfolio's largest
holdings.
We also will continue to focus on companies that we believe stand to benefit
from the aging of the baby boomer generation. As these 80 million consumers age,
they're going to require more and better health care. For, example, we believe
pharmaceutical maker Eli Lilly (2.6 percent of total net assets) should be
driven by sales of Evista, which is its osteoporosis drug for post-menopausal
women. As market segments change, product demand will change. Therefore, we will
continue to monitor the market and invest in companies that we believe are
positioned to leverage this trend.
Q: WHAT'S YOUR OUTLOOK?
A: Our long-term outlook for large-cap companies remains positive despite the
possibility that growth for some of these companies may decelerate sometime in
the future due to the Asian crisis. Therefore, we will focus on companies that
have proved their ability to deliver consistent earnings despite the overall
strength or weakness of the general market. We believe that the U.S. economy
will slow in the second half of 1998. If that does occur, then growth stocks may
continue to outperform as investors pay a premium for the consistent earnings
growth they can provide.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of June 30, 1998, 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 each Stein Roe 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
Fund's growth fund peer group for the one-, five- and since inception-periods
ended June 30, 1998, were 29.14 PERCENT, 19.97 PERCENT and 17.95 PERCENT,
respectively. 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.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Balanced Fund, Variable Series
- --------------------------------------------------------------------------------
Q: HOW DID THE FUND PERFORM?
A: The Fund returned 6.56 percent for the six-month period ended June 30, 1998,
underperforming both the Lipper flexible portfolio peer group median return of
9.85 percent and the S&P 500 Index return of 17.72 percent. The benchmark S&P
500 Index is comprised of large-cap equity stocks, reflecting the main portion
of the Fund's investments. However, the Fund also invests significant assets in
international equities and fixed income securities, and for that reason we think
it's useful to mention the returns for those two categories as well. Fixed
income securities as represented by the Lehman Intermediate Government/Corporate
Index returned 3.47 percent and international equities as represented by the
Morgan Stanley Capital International Europe Australia and Far East Index
returned 13.74 percent for the same period.
Q: WHAT AFFECTED THE MARKETS AND THEREFORE THE FUND DURING THE PAST SIX MONTHS?
A: The Asian crisis has led to favorable and unfavorable developments in the
United States. On the positive side the dollar is strong, and energy prices and
inflation are low. On the negative side, the U.S. trade balance has deteriorated
as exports diminished and imports remained firm. The combined result is that the
U.S. consumer is benefiting from solid economic growth, with employment gains
and real wages showing the sharpest increase in over 20 years. The Fund
benefited from strong consumer spending, and retail stock holdings Wal-Mart
Stores and Home Depot, (1.5 percent and 1.5 percent of total net assets,
respectively) were among the best-performing holdings.
Q: DO YOU EXPECT CURRENT ECONOMIC CONDITIONS TO CONTINUE?
A: We anticipate reduced U.S. corporate profits and profit margins over the next
several quarters. Factors we believe will influence weaker pricing power
include, increased foreign competition, reduced exports and increased salary
payments. We have been investing in companies that we believe stand to counter
these trends, such as drug companies experiencing new product cycles and
financial companies benefiting from lower long-term interest rates. Holdings in
these sectors boosted the Fund's performance during the period. Drug stocks that
performed well were Pfizer, Eli Lilly, American Home Products and Bristol-Myers
Squibb (1.1 percent, 1.1 percent, 1.1 percent and 1.2 percent of total net
assets, respectively).
Q: WHAT HURT PERFORMANCE?
A: Our investment in REIT stocks has been disappointing. Investors have been
steering away from these stocks this year even though earnings have been solid
and dividend yields high because of concerns over legislation, new issue supply
and new construction. However, we plan to maintain our exposure to REIT stocks,
because we believe they are excellent value investments that possess strong
upside potential.
Another drag on performance came from Cendant; previously one of the Fund's
largest holdings. This stock dropped significantly after accounting
irregularities were exposed (0.9 percent of total net assets).
Latin American holdings that supported the Fund's performance in the first
quarter of 1998 restricted performance in the recent quarter, as these stocks
reacted more than we anticipated to a second round of Asian turmoil.
STEIN ROE BALANCED FUND, VARIABLE SERIES, AND S&P 500 INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to June 30, 1998
Average Annual Total Return
at June 30, 1998
1-Year 5-Year Since Inception
14.03% 12.77% 13.02%
Chart:
Balanced Fund S&P 500 Index
1/89 10000 10000
12/89 12238 13163
12/90 12155 12754
12/91 15550 16631
12/92 16721 17896
12/93 18274 19696
12/94 17691 19955
12/95 22197 27445
12/96 25665 33742
12/97 29982 44995
6/98 31950 52969
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION (continued)
Stein Roe Balanced Fund, Variable Series
- --------------------------------------------------------------------------------
We also were disappointed by the performance of our holdings in the energy
sector. We reduced our exposure to this sector early in the first quarter of
1998 as oil prices began to deteriorate.
Early in the second quarter, we reduced our equity exposure modestly by selling
investments which were not performing in line with our expectations. We then
redeployed the cash toward the end of the period as conditions were falling into
place for renewed stock market improvement.
Q: WHAT DID YOU PURCHASE?
A: We added several names to the portfolio to increase the Fund's industry
diversification. They include WorldCom in the telecommunications area, Travelers
Group in the financial services area and TCI Group in the media area (1.3
percent, 1.1 percent and 0.6 percent of total net assets, respectively).
Q: HOW DID THE PORTFOLIO'S FIXED INCOME PORTION PERFORM?
A: Our longer-duration strategy in fixed income holdings benefited the Fund's
performance, as interest rates were modestly lower during the period. We expect
the Federal Reserve Board to maintain the current interest rate environment for
the foreseeable future. Therefore, we continue to hold a full, high-quality
position in fixed income. We are now in the environment of a federal budget
surplus and anticipate that the government will use some of the budget surplus
this year to pay down debt. This event would provide support for the fixed
income market. Also, in anticipation of slowing growth in the economy, we
anticipate that the yields on long-term bonds will ease further by year-end.
Q: WHAT'S YOUR OUTLOOK?
A: We are somewhat cautious about the stock market's ability to maintain its
current strength because we think the valuations of many stocks are high. We
continue to project moderate U.S. economic activity with real growth of 2 to 2
1/2 percent through the end of 1999. In this environment, inflation should
remain muted and interest rates may drift lower. Selectivity in purchasing will
become increasingly important, as the overall stock market in coming months
likely will be digesting the gains of the past few years.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of June 30, 1998; portfolio data is subject to change.
Total return performance includes changes in share price and reinvestment of
income and capital gains distributions. The S&P 500, the Lehman Intermediate
Government/Corporate Index and the MSCI EAFE are unmanaged groups of securities
that differ from the composition of each Stein Roe 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 flexible portfolio fund peer group for the for the one-,
five- and since inception-periods ended June 30, 1998, were 18.64 PERCENT, 14.21
PERCENT and 13.81 PERCENT, respectively. 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.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
Q: HOW DID THE FUND PERFORM?
A: For the six-month period ended June 30, 1998, Mortgage Securities Fund,
Variable Series, returned 3.43 percent, beating the Lipper U.S. mortgage fund
peer group median and the Lehman Mortgage Backed Securities Fixed Rate Index
returns of 3.42 percent and 3.38 percent, respectively.
Q: WHAT TRANSPIRED IN THE MORTGAGE SECURITIES MARKET OVER THE PAST SIX MONTHS?
A: During the first quarter, the differences, or spreads, between yields on
mortgage securities and U.S. Treasury securities widened, an event that occurred
in the corporate and other bond markets as well. Corporate bond yields widened
in reaction to the Asian financial crisis and fears of a slowdown in U.S.
economic activity.
In the second quarter, falling bond yields dropped home-mortgage rates to their
lowest levels in five years. However, what is great news to homeowners -- the
opportunity to refinance their mortgage -- is often a negative to investors in
mortgage-backed securities. Prices of these bonds, which represent an ownership
interest in mortgage loans made by financial institutions, usually lag behind
Treasury bonds as interest rates fall, and that has been the case throughout
much of the second quarter. From a historical perspective, however, the decline
in yields was relatively benign and much smaller than the expected interest rate
move priced into the yield spread between mortgage-backed securities and
Treasuries. This enabled mortgage returns to perform reasonably well in a
difficult environment of spread widening and faster-than-expected prepayments.
While concerns regarding Asia and its impact on the U.S. economy may persist for
some time, we believe this widening of spreads has made both the mortgage and
corporate sectors attractive. This, together with an outlook of subdued interest
rate volatility, bodes well for mortgage securities in the period ahead.
Q: WHAT STRATEGIES AIDED THE FUND'S PERFORMANCE?
A: One strategy that supported our outperformance was our longer duration. We've
been maintaining it at three and a quarter to three and one half years, and this
relatively longer stance helped performance as interest rates dropped and
longer-term securities rose in market value.
Another factor that supported the Fund's performance was the high quality of our
holdings. Mortgage funds that invest more aggressively, such as hedge funds or
real estate investment trusts (REITs), use leverage or borrowed money to
increase their profits. While this tactic can be successful, it also can falter
when mortgage prepayments do not conform to expectations. Recently, when
interest rates fell, prepayment rates on higher-coupon mortgages accelerated
beyond market expectations because of a stronger housing market and improvements
in refinancing technology. Struggling hedge funds and REITs were forced to dump
their leveraged positions in interest-only mortgage securities, which are
extremely sensitive to accelerating prepayment trends. This depressed prices of
interest-only securities by 20 percent. While press reports regarding the
condition of the mortgage market have been alarming, they have overstated the
extent to which problems facing the interest-only sector have spilled over to
the overall market for mortgage-backed issues. Those mortgage funds that have
invested in the riskiest mortgage securities suffer the most. While we held
positions in seasoned premium mortgages that prepaid faster than expected, our
position in interest-only securities is small. This conservative approach has
stood the test of time and is another reason we outperformed our peer group.
STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES, AND
LEHMAN MORTGAGE-BACKED SECURITIES INDEX
Performance of a hypothetical $10,000 investment Jan. 1, 1989, to June 30, 1998
Average Annual Total Return
at June 30, 1998
1-Year 5-Year Since Inception
9.13% 6.39% 8.32%
Chart:
Mortgage Securities Lehman Mortgage-Backed
Income Fund Securities Index
1/89 10000 10000
12/89 11284 11535
12/90 12311 12772
12/91 14094 14779
12/92 14933 15809
12/93 15868 16891
12/94 15635 16618
12/95 18077 19411
12/96 18926 20449
12/97 20368 22390
6/98 21346 23149
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION (continued)
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
Q: WHERE ELSE DID YOU FOCUS YOUR INVESTMENTS?
A: We continue to maintain a positive outlook regarding our exposure to
subordinate home equity and home improvement loans, even though they have
underperformed since our initial purchase during late 1997. These high-quality
holdings possess substantial credit protection to adequately handle adverse
delinquency and loss environments. They are also currently priced better than
comparably-rated corporate alternatives. We expect spreads in this sector to
narrow over the coming 12-18 months as prepayments become more common.
Q: ARE YOU STILL UNDERWEIGHT MORTGAGE-BACKED SECURITIES?
A: The portfolio continues to hold a slightly lower-than-normal weighting of
83.8 percent of total net assets in mortgage securities. This can be compared to
a typical historical weighting of 85 percent to 90 percent of total net assets.
However, we did increase our exposure during the period, up from 72.3 percent at
the beginning of the year, by purchasing discount government mortgage bonds that
we believe to be relatively insensitive to prepayment risk. At the end of the
year, we took advantage of supply pressures and reinvested principal prepayments
into home-equity loans with non-accelerating senior (NAS) structures. These
securities offer yield spreads up to one third of a percent higher than other
mortgage alternatives such as agency collateralized mortgage obligations (CMOs).
Home equity loan NAS investments are attractive because they are less sensitive
to prepayment risk and contain structural protection whereby principal cash
flows are "locked out" from prepayments for the first three years of the
transaction. This combination of refinancing and structural protection is
expected to lead to total rates of return greater than the initial yield
advantage versus agency CMOs. Our outlook for the sector has improved slightly,
and we plan to increase the percentage of mortgage holdings when opportunities
arise.
We plan to maintain our positions in Treasury securities and corporate bonds. If
interest rates decline, 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 the specific corporate
issues we own offer income and total return potential comparable to or better
than mortgage-backed securities, but without the refinancing risk.
Q: WHAT'S YOUR OUTLOOK?
A: Compared to historical experience, interest rate volatility has been very low
over the past eighteen-month period. A combination of moderate economic growth
and low inflation is expected to keep existing Federal Reserve interest rate
policy on hold. We therefore continue to believe that interest rate volatility
will remain subdued. This, coupled with wider yield spreads, should provide a
favorable environment going forward for mortgage-backed securities.
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 June 30, 1998; portfolio data is 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 Lehman Mortgage Backed Securities Fixed Rate
Index represents an unmanaged group of government securities that differs from
the composition of the 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 Fund's variable annuity mortgage
fund peer group for the one-, five- and since inception-periods ended June 30,
1998, were 9.07 PERCENT, 6.62 PERCENT and 9.06 PERCENT, respectively. 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.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
Stein Roe Money Market Fund, Variable Series
- --------------------------------------------------------------------------------
Q: HOW DID THE FUND PERFORM?
A: The Stein Roe Money Market Fund, Variable Series, performed in line with the
peer group and the Index for the six-month period ended June 30, 1998. The total
return for the Fund was 2.55 percent, versus 2.53 percent for the 90-day
Treasury Bill Index and 2.48 percent for the Lipper money market fund peer
group. The Fund's average total return for the one-year, five-year and since
inception periods ended June 30, 1998, were 3.85 percent, 4.39 percent and 5.17
percent, respectively.
Q: WHAT AFFECTED THE CHANGE IN THE FUND'S YIELD?
A: When year-end financing pressures wore off, the inflated rates being offered
by money market securities lowered, as we expected. As a result, the Fund's
seven-day yield decreased from 5.32 percent at Dec. 31, 1997 to 5.05 percent at
June 30, 1998. With the exception of the year-end peak keeping yields high at
the beginning of the year, the yield curve remained flat. We lengthened the
Fund's weighted average maturity to approximately 33.1 days (neutral maturity)
because we don't expect the Federal Reserve to increase interest rates anytime
soon.
Q: DID THE FUND'S STRUCTURE CHANGE THROUGHOUT THE PERIOD?
A: We've been moving into domestic commercial paper throughout 1998, as
reflected in the Fund's holdings. We've limited our Japanese positions in
letters of credit commercial paper and Yankee CDs because we believe it was in
the Fund's best interest to limit exposure to that area. However, our position
in Yankee CDs increased because we believe securities backed by Canadian and
European banks are still attractive purchases. During the first quarter of the
fiscal year, our holdings in federal agency securities matured. Although we
would have liked to maintain the Fund's exposure to that sector, it was too
expensive to make attractive new purchases. We wanted to add to our position in
variable rate note securities as a hedge against interest rate fluctuations, but
we had a hard time finding any of these "floaters" throughout the year, as they
were not offered at attractive prices. We instead replaced our floaters and a
maturing federal agency note with a one-year Yankee CD from Canada (4.0 percent
of total net assets) and some regular commercial paper.
Q: BASED ON THE RISKINESS OF INVESTING IN ASIAN MARKETS, DOES THE FUND HAVE ANY
EXPOSURE THERE?
A: The Fund did hold Japanese letter of credit commercial paper. We often invest
in Japanese-backed issues when they are offering attractive yields. However,
during this period, when the Fund's Japanese holdings matured we did not replace
them because we believe there is presently too much risk in having exposure to
that area. We invested the proceeds in regular commercial paper and a Yankee CD.
The Fund's average yield decreased slightly as a result of this move.
Q: WAS THERE ANY CHANGE IN INTEREST RATE ACTIVITY THROUGHOUT THE SIX-MONTH
PERIOD?
A: We saw a spark in the shortest-term rates near the end of the six-month
period, as the date of the Federal Open Market Committee (FOMC) meeting
approached and created speculation about the direction of interest rates.
However, long-term interest rates remained unchanged throughout the entire
period. There was a stated bias toward tightening rates at the May meeting, but
rates remained unchanged, likely due to problems in Asia. In the days since that
meeting, the situation in Asia has become worse. Because of that, we believe
interest rates will remain unchanged for at least a few more months.
Q: ALTHOUGH A FLAT YIELD CURVE RESTRICTS SOME VALUE TRADING, ISN'T STABILITY
GOOD FOR A MONEY MARKET FUND?
A: Yes. In circumstances like we've seen this year, when the stock and bond
markets are high and both markets are volatile, many investors shift assets into
money market funds for stability. Investors also use money market funds as the
cash basis of their investment portfolio. While money market funds have not
returned resounding rates, given the current interest rate environment, we
believe they have provided decent returns for short-term, high-liquidity
investing.
Q: WHAT'S YOUR INVESTMENT STRATEGY FOR THE REMAINDER OF 1998?
A: Part of our strategy will depend on what the Federal Reserve does with
interest rates. Until investors begin to believe that there will be a change in
interest rates, yields will remain flat. Factors that may push rates up include
a recovery in Asia, increased inflation in the United States or
stronger-than-expected economic growth.
We plan to lengthen the Fund's duration when we see the potential for profiting
from this move. We'll remain cautious in our maturity range, too. Without
finding value in the Japanese market, we plan to remain heavily invested in U.S.
commercial paper. We will also continue to invest in letter of credit commercial
paper and European and Canadian Yankee CDs when they offer good relative values.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURNS WILL VARY, SO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
Portfolio holdings are as of June 30, 1998; portfolio data is subject to change.
Total return performance includes changes in share price and reinvestment of
income and capital gains distributions. The 30-day Treasury Bill Index is an
unmanaged group of stocks that differs from the composition of each Stein Roe
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 Fund's money market fund peer group for the one-, five- and
since inception-periods ended June 30, 1998, were 5.22 PERCENT, 4.71 PERCENT and
5.34 PERCENT, respectively. 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.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Special Venture Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
--------- -----------
COMMON STOCKS--(93.1%)
APPAREL MANUFACTURERS--(2.1%)
Columbia Sportswear (a) 185,700 $ 3,528,300
-----------
BANKS/SAVINGS AND LOANS--(2.5%)
National Bancorp of Alaska 74,800 2,309,450
Rancho Santa Fe National Bank (a) 111,900 1,846,350
-----------
4,155,800
-----------
BROADCASTING/MEDIA--(9.8%)
Central European Media Enterprises
Limited (a) 293,000 6,336,125
Metro Networks (a) 234,600 10,117,125
-----------
16,453,250
-----------
BUSINESS SERVICES--(6.5%)
Alternative Resources (a) 405,800 5,021,775
Interim Services (a) 34,100 1,095,462
Metamor Worldwide (a) 136,000 4,785,500
-----------
10,902,737
-----------
COMPUTER HARDWARE, SOFTWARE, AND SERVICES--(6.5%)
BARRA (a) 147,700 3,618,650
National Computer Systems 80,200 1,924,800
Radiant Systems (a) 108,600 1,574,700
SPSS (a) 157,700 3,666,525
-----------
10,784,675
-----------
CONTAINERS-METAL/GLASS--(1.9%)
Silgan Holdings (a) 115,700 3,239,600
-----------
COSMETICS--(2.6%)
Nu Skin Asia (a) 224,000 4,368,000
-----------
DENTAL PRODUCTS--(1.7%)
National Dentex (a) 118,000 2,773,000
-----------
DIVERSIFIED OPERATIONS--(4.7%)
Fisher Companies 39,500 2,804,500
Triarc Companies 228,000 5,001,750
-----------
7,806,250
-----------
ELECTRONIC COMPONENTS--(10.6%)
Artesyn Technologies (a) 244,000 3,904,000
AVX 186,600 2,997,262
Black Box (a) 133,400 4,427,212
Kent Electronics (a) 162,800 2,981,275
Hubbell
Class A 5,000 218,125
Class B 78,700 3,275,888
-----------
17,803,762
-----------
MARKET
SHARES VALUE
--------- ----------
HEALTH SERVICES AND EQUIPMENT--(8.9%)
BioSource International (a) 262,000 $ 1,457,375
Complete Management (a) 142,000 559,125
Urologix (a) 166,900 1,418,650
Uroquest Medical (a) 309,200 811,650
Xomed Surgical Products (a) 256,900 7,996,013
Young Innovations (a) 174,700 2,686,013
-----------
14,928,826
-----------
INSURANCE--(6.7%)
Meadowbrook Insurance Group 331,800 9,020,812
PAULA Financial 112,200 2,258,025
-----------
11,278,837
-----------
MARKETING SERVICES--(0.3%)
Catalina Marketing (a) 9,000 467,437
-----------
OIL/GAS--(1.7%)
Barrett Resources (a) 15,000 561,562
Meridian Resource (a) 325,800 2,300,962
-----------
2,862,524
-----------
OPTICAL SUPPLIES--(3.7%)
Sola International (a) 191,400 6,256,388
-----------
PHARMACEUTICALS--(1.7%)
Ligand Pharmaceuticals (a) 150,200 1,933,825
Shire Pharmaceuticals
Group ADRs (a) 43,300 925,538
-----------
2,859,363
-----------
PHOTOGRAPHIC EQUIPMENT AND SUPPLIES--(2.3%)
Ballantyne of Omaha (a) 461,750 3,867,156
-----------
PUBLISHING--(2.6%)
CMP Media (a) 248,500 4,348,750
-----------
REAL ESTATE DEVELOPMENT/MANAGEMENT--(8.2%)
CB Commercial Real Estate
Services Group (a) 292,000 9,763,750
LaSalle Partners (a) 89,000 3,960,500
-----------
13,724,250
-----------
RETAIL--(2.9%)
Regis 120,400 3,559,325
Video Update (a) 879,000 1,263,563
-----------
4,822,888
SPECIALTY CHEMICAL--(1.9%)
ChemFirst 127,800 3,226,950
-----------
<PAGE>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
WHOLESALE DISTRIBUTION--(3.3%)
Henry Schein (a) 81,300 $ 3,749,963
School Specialty (a) 111,000 1,817,625
------------
5,567,588
------------
TOTAL COMMON STOCKS
(Cost $159,525,243) . 156,026,331
------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
SHORT-TERM OBLIGATIONS--(7.6%)
COMMERCIAL PAPER--(7.6%)
Associate Corp. of North America
6.250% 7/01/98 $7,770,000 $ 7,770,000
Windmill Funding
6.250% 7/01/98 5,000,000 5,000,000
------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $12,770,000) 12,770,000
------------
TOTAL INVESTMENTS--(100.7%)
(Cost $172,295,243) (b) 168,796,331
OTHER ASSETS, LESS LIABILITIES--(-0.7%) (1,224,745)
------------
TOTAL NET ASSETS--(100.0%) $167,571,586
============
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b)At June 30, 1998, the cost of investments for federal income tax purposes
was $172,300,497. Net unrealized depreciation was $3,504,166, comprising of
gross unrealized appreciation of $18,860,999 and gross unrealized
depreciation of $22,365,165.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Special Venture Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at market value (identified cost $172,295,243) $168,796,331
Cash 53,444
Receivable for investments sold 2,462,157
Dividends receivable 59,756
Other assets 18,248
------------
TOTAL ASSETS 171,389,936
------------
LIABILITIES:
Payable for investments purchased 3,319,705
Payable for fund shares repurchased 335,313
Payable to investment adviser and transfer agent 91,229
Accrued expenses payable 72,103
------------
TOTAL LIABILITIES 3,818,350
------------
NET ASSETS $167,571,586
============
NET ASSETS REPRESENTED BY:
Paid-in capital $164,682,376
Accumulated net investment loss (143,089)
Accumulated net realized gains on investments 6,532,029
Net unrealized depreciation on investments (3,499,730)
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $167,571,586
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 10,852,908
============
NET ASSET VALUE PER SHARE $ 15.44
============
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Interest income $ 314,006
Dividends 242,599
-------------
Total investment income 556,605
-------------
EXPENSES:
Management fee 476,837
Administrative fee 143,051
Accounting fee 14,281
Printing expense 11,160
Audit and legal fees 9,300
Trustees' expense 3,906
Transfer agent fee 3,750
Miscellaneous expense 37,243
-------------
Total expenses 699,528
-------------
Net investment loss (142,923) REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains on investments 6,588,529
Change in unrealized appreciation or depreciation on investments (17,207,265)
-------------
Net decrease in net assets resulting from operations $(10,761,659)
============
See Notes to Financial Statements.
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Special Venture Fund, Variable Series / June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------ -------------
OPERATIONS:
<S> <C> <C>
Net investment income (loss) $ (142,923) $ 84,501
Net realized gains on investments 6,588,529 16,866,896
Change in unrealized appreciation or depreciation on investments (17,207,265) (2,574,259)
------------ ------------
Net increase (decrease) in net assets resulting from operations (10,761,659) 14,377,138
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (51,000) (265,000)
Net realized gains on investments (16,912,000) (36,940,000)
------------ ------------
Total distributions (16,963,000) (37,205,000)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 11,542,902 56,760,177
Cost of fund shares repurchased (33,799,412) (66,766,579)
Distributions reinvested 16,963,000 37,205,000
------------ ------------
Net increase (decrease) in net assets resulting from fund share transactions (5,293,510) 27,198,598
------------ ------------
Total increase (decrease) in net assets (33,018,169) 4,370,736
NET ASSETS:
Beginning of year 200,589,755 196,219,019
------------ ------------
End of year $167,571,586 $200,589,755
============ ============
Accumulated undistributed net investment income (loss) included in ending net assets $ (143,089) $ 50,834
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 666,516 3,128,771
Shares repurchased (1,957,828) (3,703,394)
Distributions reinvested 998,996 2,256,218
------------ ------------
Net increase (decrease) (292,316) 1,681,595
============ ============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Special Venture Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 ---------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994
------------- --------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 18.00 $ 20.73 $ 16.33 $ 14.74 $ 16.53
--------- --------- --------- --------- ---------
Net investment income (loss) (0.01) 0.01 0.04 0.04 0.06
Net realized and unrealized gains (losses) on investments (0.98) 1.25 4.36 1.69 0.09
--------- --------- --------- --------- ---------
Total from investment operations (0.99) 1.26 4.40 1.73 0.15
--------- --------- --------- --------- ---------
Less distributions:
Dividends from and in excess of net investment income -- (0.03) -- (0.04) (0.07)
Distributions from and in excess of net realized gains
on investments (1.57) (3.96) -- (0.10) (1.87)
--------- --------- --------- --------- ---------
Total distributions (1.57) (3.99) -- (0.14) (1.94)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 15.44 $ 18.00 $ 20.73 $ 16.33 $ 14.74
========= ======== ======== ======== ========
TOTAL RETURN:
Total investment return (6.25)% 7.81% 26.94% 11.75% 1.19%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $167,572 $200,590 $196,219 $143,248 $134,078
Ratio of expenses to average net assets 0.73% 0.73% 0.75% 0.76% 0.80%(a)
Ratio of net investment income (loss) to average net assets (0.15)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 32% 93% 100% 132% 144%
Average commissions (per share) $ 0.0353 $ 0.0453 $ 0.0251 -- --
(a) These ratios were not materially affected by the reimbursement of certain
expenses by the Adviser.
(b) Computed giving effect to the Adviser's expense limitation undertaking.
See Notes to Financial Statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Growth Stock Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
--------- -----------
COMMON STOCKS--(97.2%)
BANKS--(1.8%)
NationsBank 60,000 $ 4,590,000
------------
BUSINESS SERVICES--(2.7%)
Paychex 165,000 6,713,438
------------
COMPUTERS AND COMPUTER SOFTWARE--(11.3%)
Cisco Systems (a) 120,000 11,047,500
Intel 80,000 5,930,000
Microsoft (a) 70,000 7,586,250
Peoplesoft (a) 85,000 3,995,000
------------
28,558,750
------------
CONSUMER RELATED--(10.5%)
Cendant (a) 275,000 5,740,625
Gillette 140,000 7,936,250
Procter & Gamble 90,000 8,195,625
Unilever 60,000 4,736,250
------------
26,608,750
------------
DRUGS--(8.7%)
Eli Lilly & Company 100,000 6,606,250
Merck & Company 50,000 6,687,500
Pfizer 80,000 8,695,000
------------
21,988,750
------------
ELECTRICAL EQUIPMENT--(4.9%)
General Electric 100,000 9,100,000
Philips Electronics 40,000 3,400,000
------------
12,500,000
------------
ENERGY--(2.2%)
Schlumberger Limited 80,000 5,465,000
------------
FINANCIAL SERVICES--(9.7%)
American Express 75,000 8,550,000
Fannie Mae 140,000 8,505,000
Household International 150,000 7,462,500
------------
24,517,500
------------
FOOD/BEVERAGE/TOBACCO--(3.0%)
Coca-Cola 90,000 7,695,000
------------
MARKET
SHARES VALUE
--------- -----------
HEALTH CARE--(2.3%)
Johnson & Johnson 80,000 $ 5,900,000
------------
INSURANCE--(6.8%)
American International Group 56,250 8,212,500
Travelers Group 150,000 9,093,750
------------
17,306,250
------------
LEISURE & ENTERTAINMENT--(5.4%)
Walt Disney 50,000 5,253,125
Time Warner 100,000 8,543,750
------------
13,796,875
------------
MEDICAL SUPPLIES--(3.2%)
Medtronic 125,000 7,968,750
------------
OIL AND GAS--(0.9%)
R&B Falcon (a) 100,000 2,262,500
------------
RETAIL--(6.6%)
Home Depot 100,000 8,306,250
Kohl's (a) 160,000 8,300,000
------------
16,606,250
------------
RUBBER, PLASTIC & RELATED--(2.6%)
Illinois Tool Works 100,000 6,668,750
------------
TELECOMMUNICATIONS--(14.6%)
Alcatel Alsthom ADRs 100,000 4,068,750
LM Ericcson Telecommunications
ADRs, class B 280,000 8,015,000
Lucent Technologies 120,000 9,982,500
Tellabs (a) 100,000 7,162,500
WorldCom (a) 160,000 7,750,000
------------
36,978,750
------------
TOTAL COMMON STOCKS
(Cost $114,512,773) 246,125,313
------------
<PAGE>
SCHEDULE OF INVESTMENTS PRINCIPAL MARKET
(CONTINUED) AMOUNT VALUE
---------- -----------
SHORT-TERM OBLIGATION--(2.6%)
COMMERCIAL PAPER--(2.6%)
Associates Corp. of North America
6.250% 7/01/98
(Cost $6,725,000) $6,725,000 $ 6,725,000
------------
TOTAL INVESTMENTS--(99.8%)
(Cost $121,237,773) (b) 252,850,313
OTHER ASSETS, LESS LIABILITIES--(0.2%) 400,715
------------
TOTAL NET ASSETS (100.0%) $253,251,028
============
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b)At June 30, 1998, the cost of investments for federal income tax purposes
was $121,239,014. Net unrealized appreciation was $131,611,299, comprising of
gross unrealized appreciation of $132,196,561 and gross unrealized
depreciation of $585,262.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Growth Stock Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at market value (identified cost $121,237,773) $252,850,313
Cash 50,251
Receivable for fund shares sold 354,263
Dividends receivable 152,587
Other assets 11,536
-------------
TOTAL ASSETS 253,418,950
-------------
LIABILITIES:
Payable to investment adviser and transfer agent 131,895
Accrued expenses payable 35,355
Payable for fund shares repurchased 672
-------------
TOTAL LIABILITIES 167,922
-------------
NET ASSETS $253,251,028
============
NET ASSETS REPRESENTED BY:
Paid-in capital $114,840,012
Accumulated undistributed net investment income 203,594
Accumulated net realized gains on investments 6,594,613
Net unrealized appreciation on investments 131,612,809
-------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $253,251,028
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 6,270,143
============
NET ASSET VALUE PER SHARE $ 40.39
============
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Dividends $ 838,457
Interest income 166,418
-------------
Total investment income 1,004,875
-------------
EXPENSES:
Management fee 574,099
Administrative fee 172,230
Accounting fee 14,767
Audit and legal fees 8,100
Trustees' expense 7,921
Printing expense 5,340
Transfer agent fee 3,750
Miscellaneous expense 14,422
-------------
Total expenses 800,629
-------------
Net investment income 204,246
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 6,596,089
Change in unrealized appreciation or depreciation on investments 33,094,381
-------------
Net increase in net assets resulting from operations $ 39,894,716
============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Growth Stock Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------ -------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 204,246 $ 610,654
Net realized gains on investments 6,596,089 12,625,736
Change in unrealized appreciation or depreciation on investments 33,094,381 39,257,702
------------ ------------
Net increase in net assets resulting from operations 39,894,716 52,494,092
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (590,000) (710,000)
Net realized gains on investments (12,603,000) (7,500,000)
------------ ------------
Total distributions (13,193,000) (8,210,000)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 18,004,675 35,528,562
Cost of fund shares repurchased (18,047,824) (36,502,167)
Distributions reinvested 13,193,000 8,210,000
------------ ------------
Net increase in net assets resulting from fund share transactions 13,149,851 7,236,395
------------ ------------
Total increase in net assets 39,851,567 51,520,487
NET ASSETS:
Beginning of year 213,399,461 161,878,974
------------ ------------
End of year $253,251,028 $213,399,461
============ ============
Accumulated undistributed net investment income included in ending net assets $ 203,594 $ 589,348
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 477,159 1,104,794
Shares repurchased (479,934) (1,131,238)
Distributions reinvested 366,676 274,215
------------ ------------
Net increase 363,901 247,771
============ ============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Growth Stock Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994
------------- --------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 36.13 $ 28.61 $ 23.59 $ 18.11 $ 20.65
--------- --------- --------- --------- ---------
Net investment income 0.03 0.10 0.13 0.15 0.15
Net realized and unrealized gains (losses)
on investments 6.45 8.84 4.89 6.68 (1.46)
--------- --------- --------- --------- ---------
Total from investment operations 6.48 8.94 5.02 6.83 (1.31)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from and in excess of net investment income (0.10) (0.12) -- (0.15) (0.17)
Distributions from and in excess of net realized gains
on investments (2.12) (1.30) -- (1.20) (1.06)
--------- --------- --------- --------- ---------
Total distributions (2.22) (1.42) -- (1.35) (1.23)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 40.39 $ 36.13 $ 28.61 $ 23.59 $ 18.11
======== ======== ======== ======== ========
TOTAL RETURN:
Total investment return 18.68% 32.28% 21.28% 37.73% (6.35)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $253,251 $213,399 $161,879 $136,834 $98,733
Ratio of expenses to average net assets 0.70% 0.71% 0.73% 0.74% 0.77%
Ratio of net investment income to average net assets 0.18% 0.32% 0.49% 0.72% 0.75%
Portfolio turnover ratio 22% 28% 35% 41% 72%
Average commissions (per share) $ 0.0564 $ 0.0583 $ 0.0534 -- --
See Notes to Financial Statements.
<PAGE>
</TABLE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Balanced Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
--------- -----------
COMMON STOCKS--(56.9%)
AUTOMOTIVE--(0.7%)
Honda Motor Company ADRs 32,000 $ 2,286,000
-------------
BANKS--(5.8%)
Banc One 64,125 3,578,949
BankAmerica 56,000 4,840,500
Bayerische Vereinsbank 33,000 2,806,371
Citicorp 26,000 3,880,500
Royal Bank of Scotland Group 150,000 2,603,037
Westpac Banking 345,000 2,104,440
-------------
19,813,797
-------------
BUILDING AND CONSTRUCTION--(1.4%)
Masco 40,000 2,420,000
Royal Group Technologies Limited (a) 80,000 2,320,000
------------
4,740,000
-------------
CHEMICALS--(1.8%)
E.I. Du Pont de Nemours 43,000 3,208,875
Praxair 60,000 2,808,750
------------
6,017,625
-------------
COMMERCIAL SERVICES--(1.8%)
Cendant (a) 138,186 2,884,633
Unilever 40,000 3,157,500
------------
6,042,133
-------------
COMPUTERS--(0.8%)
International Business Machines 24,000 2,755,500
-------------
DRUGS/HEALTH CARE--(6.7%)
American Home Products 90,000 4,657,500
Bristol-Myers Squibb 34,000 3,907,875
Elan ADRs (a) 57,000 3,665,812
Eli Lilly & Company 58,000 3,831,625
Pfizer 34,000 3,695,375
SmithKline Beecham ADRs 50,000 3,025,000
------------
22,783,187
-------------
ELECTRICAL EQUIPMENT--(3.4%)
Emerson Electric 62,000 3,743,250
General Electric 50,000 4,550,000
Hubbell, class B 75,000 3,121,875
------------
11,415,125
-------------
ELECTRONICS--(2.3%)
Analog Devices (a) 95,000 2,333,437
Intel 37,000 2,742,625
Sony ADRs 30,000 2,581,875
------------
7,657,937
-------------
MARKET
SHARES VALUE
--------- -----------
ENTERTAINMENT--(0.5%)
CBS 53,000 $ 1,682,750
-------------
FINANCIAL SERVICES--(2.8%)
Freddie Mac 84,000 3,953,250
Heller Financial (a) 60,000 1,800,000
Travelers Group 60,000 3,637,500
-------------
9,390,750
-------------
FOOD/BEVERAGE/TOBACCO--(2.8%)
PepsiCo 70,000 2,883,125
Philip Morris Companies 80,000 3,150,000
Sara Lee 60,000 3,356,250
-------------
9,389,375
-------------
FUNERAL SERVICES--(0.9%)
Service Corporation International 70,000 3,001,250
-------------
HOUSEWARES--(1.0%)
Newell 67,000 3,337,437
-------------
NETWORKING PRODUCTS--(0.8%)
Cisco Systems (a) 28,000 2,577,750
-------------
OIL/GAS--(2.2%)
British Petroleum ADRs 27,000 2,382,750
Chevron 17,000 1,412,062
Cooper Cameron (a) 42,000 2,142,000
Ocean Energy (a) 84,500 1,653,031
-------------
7,589,843
-------------
PAPER & FOREST PRODUCTS--(0.6%)
Plum Creek Timber Company, L.P. 74,000 2,224,625
-------------
REAL ESTATE--(2.8%)
Crescent Real Estate Equities 60,000 2,017,500
Reckson Associates 103,800 2,452,275
Reckson Service Industries (a) 26,520 87,847
Security Capital Group, class B (a) 100,000 2,662,500
Security Capital Group, class B
warrants (a) 4,654 1,600
Starwood Hotels & Resorts 48,000 2,319,000
------------
9,540,722
-------------
RETAIL--(3.9%)
Home Depot 60,500 5,025,281
Kohl's (a) 62,000 3,216,250
Wal-Mart Stores 83,000 5,042,250
------------
13,283,781
-------------
<PAGE>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) SHARES VALUE
-------- ------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--(8.5%)
AirTouch Communications (a) 80,000 $ 4,675,000
Alcatel Alsthom ADRs 70,000 2,848,125
GTE 57,000 3,170,625
LM Ericsson Telecommunications ADRs,
class B 140,000 4,007,500
Lucent Technologies 28,000 2,329,250
Telebras ADRs 27,500 3,002,656
Tele-Communications (a) 55,000 2,114,063
Tellabs (a) 31,000 2,220,375
WorldCom (a) 90,000 4,359,375
-------------
28,726,969
-------------
TRANSPORTATION--(1.4%)
Canadian National Railway 41,000 2,178,125
FDX (a) 39,000 2,447,250
-------------
4,625,375
-------------
UTILITIES--(3.2%)
El Paso Natural Gas 76,000 2,907,000
Endesa ADRs 110,000 2,378,750
Enron Corporation 40,000 2,162,500
Kinder Morgan Energy Partners, L.P. 92,409 3,338,286
-------------
10,786,536
-------------
WATER TREATMENT SYSTEMS--(0.8%)
U.S. Filter (a) 100,000 2,806,250
-------------
TOTAL COMMON STOCKS
(Cost $136,012,976) 192,474,717
-------------
PAR
VALUE
--------
LONG-TERM OBLIGATIONS--(37.0%)
AIR TRANSPORTATION--(0.7%)
Federal Express 1994
Pass-Through Certificates
Series A310-A1 7.530% 9/23/06 $1,575,000 1,657,483
United Airlines 1991
Pass-Through Certificates
Series A-1 9.200% 3/22/08 646,417 739,669
----------
2,397,152
----------
ASSET-BACKED SECURITIES--(1.4%)
ALPS Series 1994-1 Class C2
9.350% 9/15/04 1,989,855 2,124,170
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 2,091,860 2,074,644
Greentree Home Improvement
Loan Trust Series 1994-A Class A
7.050% 3/15/14 583,938 594,233
----------
4,793,047
----------
PAR MARKET
VALUE VALUE
-------- ------------
BANKS--(2.0%)
Den Danske Bank 6.550% 9/15/03 $2,250,000 $ 2,281,927
Deutsche Ausgleichsbank
7.000% 9/24/01 2,250,000 2,332,057
First Chicago NBD 6.125% 2/15/06 2,250,000 2,232,675
------------
6,846,659
-------------
CONSTRUCTION & HOUSING--(0.8%)
Hanson Overseas 6.750% 9/15/05 2,500,000 2,570,600
-------------
DRUGS/HEALTHCARE--(0.7%)
Glaxo Wellcome 6.125% 1/25/06 2,500,000 2,534,525
-------------
EXTRACTIVE-ENERGY--(0.8%)
BOC Group 5.875% 1/29/01 2,750,000 2,742,575
-------------
FOREIGN GOVERNMENT REGIONAL BOND--(0.9%)
Corporacion Andina de Fomento
6.625% 10/14/98 2,900,000 2,901,827
-------------
FINANCIAL--(1.2%)
Associates Corp. of North America
7.500% 4/15/02 4,000,000 4,176,920
-------------
INDUSTRIAL--(0.9%)
USX 6.850% 3/1/08 3,000,000 3,026,580
-------------
INSURANCE--(0.8%)
Prudential Insurance 7.650% 7/1/07 2,500,000 2,703,725
-------------
MORTGAGE-BACKED SECURITIES--(0.1%)
MDC Mortgage Funding Series Q
Class 5 8.850% 3/20/18 159,244 165,666
-------------
SCHEDULE OF INVESTMENTS PAR MARKET
(CONTINUED) VALUE VALUE
-------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--(26.7%)
FHLMC Gold
6.500% 12/1/10 $ 906,589 $ 912,255
6.500% 5/1/11 777,518 782,378
6.500% 6/1/11 5,048,136 5,078,777
12.000% 7/1/20 1,044,924 1,199,050
6.500% 3/1/26 3,481,668 3,472,964
6.500% 6/1/26 2,279,116 2,273,419
6.500% 2/1/27 976,835 973,475
6.500% 3/1/27 2,767,531 2,758,012
6.500% 4/1/27 920,982 917,814
GNMA
7.125% 7/20/25 695,552 709,011
8.000% 3/15/26 3,823,215 3,961,806
U.S. Treasury Bonds
7.250% 5/15/16 5,500,000 6,444,405
7.875% 2/15/21 4,500,000 5,711,850
7.125% 2/15/23 4,150,000 4,910,114
U.S. Treasury Notes
6.375% 1/15/99 4,000,000 4,021,000
6.875% 8/31/99 5,500,000 5,582,610
6.750% 4/30/00 3,500,000 3,573,955
6.375% 5/15/00 9,700,000 9,849,768
7.875% 8/15/01 3,250,000 3,461,608
6.250% 2/15/03 6,500,000 6,686,550
5.750% 8/15/03 8,000,000 8,085,360
6.500% 5/15/05 4,500,000 4,751,010
6.500% 8/15/05 4,000,000 4,221,920
------------
90,339,111
------------
TOTAL LONG-TERM OBLIGATIONS
(Cost $120,695,126) 125,198,387
------------
<PAGE>
PAR MARKET
VALUE VALUE
-------- ------------
SHORT-TERM OBLIGATIONS
COMMERCIAL PAPER--(5.5%)
Associates Corp. of North America
6.250% 7/01/98 $13,615,000 $13,615,000
Windmill Funding
6.250% 7/1/98 5,000,000 5,000,000
------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $18,615,000) 18,615,000
------------
TOTAL INVESTMENTS--(99.4%)
(Cost $275,323,102) (b) 336,288,104
OTHER ASSETS, LESS LIABILITIES--(0.6%) 2,152,601
------------
TOTAL NET ASSETS--(100.0%) $338,440,705
============
NOTES TO PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------
(a) Non-income producing security.
(b)At June 30, 1998, the cost of investments for federal income tax purposes
was $275,361,018. Net unrealized appreciation was $60,927,086 comprising of
gross unrealized appreciation of $64,794,264 and gross unrealized
depreciation of $3,867,178.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Balanced Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at market value (identified cost $275,323,102) $336,288,104
Cash 53,272
Dividends and interest receivable 2,431,989
Receivable for investments sold 1,524,646
Receivable for fund shares sold 21,394
Other assets 34,096
------------
TOTAL ASSETS 340,353,501
------------
LIABILITIES:
Payable for investments purchased 1,467,303
Payable for fund shares repurchased 171,317
Payable to investment adviser and transfer agent 164,231
Accrued expenses payable 109,945
------------
TOTAL LIABILITIES 1,912,796
------------
NET ASSETS $338,440,705
============
NET ASSETS REPRESENTED BY:
Paid-in capital $259,361,884
Accumulated undistributed net investment income 5,233,961
Accumulated net realized gains on investments 12,876,947
Net unrealized appreciation on investments 60,967,913
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $338,440,705
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 20,852,950
============
NET ASSET VALUE PER SHARE $ 16.23
============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Interest income $ 5,019,957
Dividend income (net of foreign taxes withheld of $40,704) 1,136,643
-----------
Total investment income 6,156,600
-----------
EXPENSES:
Management fee 747,961
Administrative fee 249,320
Accounting fee 16,064
Audit and legal fees 14,260
Trustees' expense 11,050
Printing expense 7,350
Transfer agent fee 3,750
Miscellaneous expense 38,027
-----------
Total expenses 1,087,782
-----------
Net investment income 5,068,818
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 12,998,956
Net realized gains on foreign currency transactions 7,029
Change in unrealized appreciation or depreciation on investments
and foreign currency translations 3,124,948
-----------
Net increase in net assets resulting from operations $21,199,751
===========
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Balanced Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------ -------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 5,068,818 $ 10,029,494
Net realized gains on investments and foreign currency transactions 13,005,985 21,520,997
Change in unrealized appreciation or depreciation on investments
and foreign currency translations 3,124,948 17,307,337
------------ ------------
Net increase in net assets resulting from operations 21,199,751 48,857,828
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (9,728,000) (10,262,000)
Net realized gains on investments (21,533,000) (25,340,000)
------------ ------------
Total distributions (31,261,000) (35,602,000)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 8,411,748 30,523,814
Cost of fund shares repurchased (16,203,416) (53,533,240)
Distributions reinvested 31,261,000 35,602,000
------------ ------------
Net increase in net assets resulting from fund share transactions 23,469,332 12,592,574
------------ ------------
Total increase in net assets 13,408,083 25,848,402
NET ASSETS:
Beginning of year 325,032,622 299,184,220
------------ ------------
End of year $338,440,705 $325,032,622
============ ============
Accumulated undistributed net investment income included in ending net assets $ 5,321,012 $ 9,886,774
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 522,289 1,916,696
Shares repurchased (992,926) (3,350,160)
Distributions reinvested 1,989,880 2,387,734
------------ ------------
Net increase 1,519,243 954,270
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Balanced Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 --------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994
------------- --------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 16.81 $ 16.28 $ 14.08 $ 12.18 $ 13.11
--------- --------- --------- --------- ---------
Net investment income 0.25 0.53 0.57 0.48 0.51
Net realized and unrealized gains (losses) on investments
and foreign currency transactions 0.80 1.96 1.63 2.61 (0.93)
--------- --------- --------- --------- ----------
Total from investment operations 1.05 2.49 2.20 3.09 (0.42)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from and in excess of net investment income (0.51) (0.56) -- (0.48) (0.51)
Distributions from and in excess of net realized gains
on investments (1.12) (1.40) -- (0.71) --
--------- --------- --------- --------- ---------
Total distributions (1.63) (1.96) -- (1.19) (0.51)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 16.23 $ 16.81 $ 16.28 $ 14.08 $ 12.18
======== ======== ======== ======== ========
TOTAL RETURN:
Total investment return 6.56% 16.82% 15.63% 25.43% (3.19)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $338,441 $325,033 $299,184 $277,014 $196,278
Ratio of expenses to average net assets 0.65% 0.66% 0.67% 0.66% 0.68%
Ratio of net investment income to average net assets 3.05% 3.18% 3.68% 3.12% 4.01%
Portfolio turnover ratio (a) 24% 44% 76% 66% 71%
Average commissions (per share) $ 0.0595 $ 0.0539 $ 0.0547 -- --
(a) The portfolio turnover ratio includes dollar roll transactions, if any.
See Notes to Financial Statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Mortgage Securities Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
PAR MARKET
VALUE VALUE
--------- -----------
ASSET-BACKED SECURITIES--(8.4%)
ALPS Pass-Through Trust Series 1994-1
Class C2 9.350% 9/15/04 $994,927 $1,062,084
ContiMortgage Home Equity Loan
Trust Series 1997-1 Class M1
7.420% 2/15/15 1,250,000 1,271,900
First Boston Home Equity Loan Pass-
Through Certificates Series 1993-H1,
Class A-IO (effective yield 12.820%)
9/28/13 3,982,349 155,550
Green Tree Home Improvement Loan
Trust Series 1994-A Class A
7.050% 3/15/14 437,954 445,674
Green Tree Financial Corporation
Series 1997-6 Class A8
7.070% 1/15/29 1,472,369 1,533,281
IMC Home Equity Loan Trust
Series 1997-3 Class M2
7.550% 8/20/28 1,000,000 1,023,210
Mego Mortgage Title I Loan Trust
Series 1997-3 Class M1
7.500% 8/25/23 1,500,000 1,531,890
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $6,804,234) 7,023,589
----------
MORTGAGE-BACKED SECURITIES--(18.7%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 790,258 783,754
Amresco Residential Securities
Mortgage Loan Series 1996-3 Class A5
7.550% 2/25/23 1,135,000 1,157,904
Asset Securitization Corporation
Series 1997-D5 Class A1C
6.750% 2/14/41 1,375,000 1,427,250
Citicorp Mortgage Securities
Series 1987-10 10.000% 7/1/17 110,773 114,918
Comfed Savings Bank Adjustable Rate
Mortgage Series 1987-1A
7.550% 1/1/18 119,480 101,558
Delta Funding Home Equity Loan Trust
Series 1998-2 Class A6F
6.370% 7/15/28 1,000,000 999,060
Glendale Federal Savings & Loan
Series 1978-A 9.125% 1/25/08 20,788 22,152
First Plus Home Loan Trust Series 1996-3
Class A3 7.050% 11/20/08 1,000,000 1,004,330
Imperial Savings & Loan Adjustable Rate
Mortgage Series 1987-4A
8.826% 7/25/17 21,389 22,261
Merrill Lynch Mortgage Investments
8.000% 12/20/18 Series 20-D 1,015,880 1,036,187
7.088% 12/26/25 Series 1995-C3
Class A3 ARM 2,000,000 2,125,020
5.890% 11/15/26 Series 1987-A ARM 78,973 80,436
PAR MARKET
VALUE VALUE
--------- -----------
MORTGAGE-BACKED SECURITIES (CONTINUED)
Nomura Asset Securities Corporation
MBS Series 1996-MD5 Class A1B
7.120% 4/13/36 $1,000,000 $ 1,076,400
Residential Funding Mortgage Securities
I Series 1998-HI2 Class AI1
6.330% 11/25/14 1,000,000 1,000,000
Residential Asset Securities Corporation
Series 1998-KS2 Class AI1
6.775% 7/25/29 1,500,000 1,500,000
Sears Mortgage Securities Corporation
Series 1987-A 6.500% 3/25/17 6,456 6,428
Structured Asset Securities Corporation
Series 1996-CFL Class X1-IO
(effective yield 12.960%) 2/25/28 9,608,210 508,947
Series 1996-CFL Class C
6.525% 2/25/28 1,242,500 1,242,549
UCFC Home Equity Loan
Series 1997-C Class A7
6.875% 1/15/29 1,275,000 1,295,119
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $14,254,157) 15,504,273
-----------
CORPORATE SECURITIES--(8.1%)
GMAC Euro 6.750% 7/10/02 1,000,000 1,017,450
National Power 7.125% 7/11/01 1,500,000 1,544,055
National Rural Utilities
6.375% 10/15/04 1,000,000 1,014,120
Noram Energy 6.500% 2/1/98 1,500,000 1,509,240
Zurich Capital Trust I 8.376% 6/1/37 1,450,000 1,607,209
-----------
TOTAL CORPORATE SECURITIES
(Cost $6,448,565) 6,692,074
-----------
FHLMC CERTIFICATES--(13.5%)
8.500% 5/1/06 Gold 97,964 101,393
6.500% 6/1/08 21,682 21,811
6.500% various due dates to 6/1/09
Gold 1,627,787 1,637,454
10.750% 11/1/09 177,969 194,709
12.000% 7/1/13 60,881 69,043
11.250% various due dates to 11/1/15 63,118 70,861
10.500% various due dates to 2/1/19 375,325 415,789
12.000% 7/1/20 Gold 752,345 863,315
7.500% various due dates to 5/1/24
Gold 5,856,569 6,012,654
7.000% 1/1/26 1,821,775 1,847,972
-----------
TOTAL FHLMC CERTIFICATES
(Cost $10,930,851) 11,235,001
-----------
<PAGE>
SCHEDULE OF INVESTMENTS PAR MARKET
(CONTINUED) VALUE VALUE
--------- -----------
FNMA CERTIFICATES--(24.7%)
10.500% 2/1/01 $ 43,689 $ 44,877
12.250% 9/1/12 FHA/VA Guaranteed 76,675 88,657
10.250% 2/1/16 156,605 173,173
10.000% various due dates to 3/1/16 274,909 299,209
8.500% 3/1/17 123,317 129,792
9.000% various due dates to 5/1/20 153,023 162,408
6.000% various due dates to 2/1/25 11,333,203 11,171,803
7.000% various due dates to 8/1/25 4,468,766 4,546,491
6.500% various due dates to 1/1/26 3,936,954 3,917,755
-----------
TOTAL FNMA CERTIFICATES
(Cost $20,935,897) 20,534,165
-----------
GNMA CERTIFICATES--(17.3%)
8.000% various due dates to 7/15/08 1,502,400 1,559,208
11.500% various due dates to 5/15/13 451,250 515,131
8.500% 2/15/17 171,304 182,117
10.000% various due dates to 11/15/19 538,201 593,702
9.000% various due dates to 1/15/20 1,559,163 1,680,876
9.500% various due dates to 8/15/22 1,596,281 1,743,050
7.000% 4/15/23 480,330 488,136
6.500% various due dates to 3/15/28 6,185,690 6,163,962
7.125% 7/20/25 ARM 1,391,103 1,418,022
-----------
TOTAL GNMA CERTIFICATES
(Cost $14,118,146) 14,344,204
-----------
REAL ESTATE MORTGAGE INVESTMENT
CONDUITS--(1.2%)
FHLMC Corporation Series 11-C
9.500% 4/15/19 44,810 45,729
FNMA Trust Series 1988-4Z
9.250% 3/25/18 924,966 983,054
FNMA Trust Series 1991-91SA-IO
(effective yield 14.400%) 7/25/98 328,024 4,166
-----------
TOTAL REAL ESTATE MORTGAGE
INVESTMENT CONDUITS
(Cost $1,050,510) 1,032,949
-----------
PAR MARKET
VALUE VALUE
--------- -----------
U.S. GOVERNMENT SECURITIES--(5.3%)
U.S. Treasury Bonds
6.750% 8/15/26 $ 800,000 $ 915,744
6.375% 8/15/27 1,000,000 1,098,600
U.S. Treasury Notes
5.750% 11/1/00 1,000,000 1,004,940
5.750% 10/31/02 1,350,000 1,360,975
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $4,180,955) 4,380,259
-----------
SHORT-TERM OBLIGATIONS--(10.1%)
COMMERCIAL PAPER--(10.1%)
Associates Corp. of North America
6.250% 7/1/98 4,425,000 4,425,000
Windmill Funding
6.250% 7/1/98 4,000,000 4,000,000
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $8,425,000) 8,425,000
-----------
TOTAL INVESTMENTS--(107.3%)
(Cost $87,148,315) 89,171,514
OTHER ASSETS, LESS LIABILITIES--(-7.3%) (6,051,781)
-----------
TOTAL NET ASSETS--(100.0%) $83,119,733
===========
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) At June 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$2,023,199, comprising of gross unrealized appreciation of $2,141,829 and gross
unrealized depreciation of $118,630.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Mortgage Securities Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at market value (identified cost $87,148,315) $89,171,514
Cash 36,220
Interest receivable 670,173
Receivable for fund shares sold 292,409
Other assets 21,552
-----------
TOTAL ASSETS 90,191,868
-----------
LIABILITIES:
Payable for investments purchased 6,954,034
Accrued expenses payable 50,332
Payable to investment adviser and transfer agent 40,877
Payable for fund shares repurchased 26,892
-----------
TOTAL LIABILITIES 7,072,135
-----------
NET ASSETS $83,119,733
===========
NET ASSETS REPRESENTED BY:
Paid-in capital $81,558,818
Accumulated undistributed net investment income 2,361,282
Accumulated net realized losses on investments (2,823,566)
Net unrealized appreciation on investments 2,023,199
-----------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $83,119,733
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 7,955,039
===========
NET ASSET VALUE PER SHARE $ 10.45
===========
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME $ 2,637,620
------------
EXPENSES:
Management fee 157,725
Administrative fee 59,147
Audit and legal fees 13,500
Accounting fee 12,869
Trustees' expense 4,258
Transfer agent fee 3,750
Printing expense 3,600
Miscellaneous expense 21,169
------------
Total expenses 276,018
------------
Net investment income 2,361,602
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 202,499
Change in unrealized appreciation or depreciation on investments 137,619
------------
Net increase in net assets resulting from operations $ 2,701,720
============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------ -------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 2,361,602 $ 4,890,904
Net realized gains on investments 202,499 3,468
Change in unrealized appreciation or depreciation on investments 137,619 1,494,843
----------- ------------
Net increase in net assets resulting from operations 2,701,720 6,389,215
----------- ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (4,580,000) --
----------- ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 6,612,697 9,622,128
Cost of fund shares repurchased (3,368,127) (14,847,051)
Distributions reinvested 4,580,000 --
----------- ------------
Net increase (decrease) in net assets resulting from fund share transactions 7,824,570 (5,224,923)
----------- ------------
Total increase in net assets 5,946,290 1,164,292
NET ASSETS:
Beginning of year 77,173,443 76,009,151
----------- ------------
End of year $83,119,733 $ 77,173,443
=========== ============
Accumulated undistributed net investment income included in ending net assets $ 2,361,282 $ 4,579,680
=========== ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 634,255 929,462
Shares repurchased (321,869) (1,459,037)
Distributions reinvested 448,137 --
----------- ------------
Net increase (decrease) 760,523 (529,575)
=========== ============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994
------------- --------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.73 $ 9.84 $ 10.16 $ 9.28 $ 10.17
-------- -------- --------- -------- --------
Net investment income 0.29 0.68 0.78 0.57 0.73
Net realized and unrealized gains (losses)
on investments 0.06 0.21 (0.30) 0.89 (0.89)
-------- -------- --------- -------- --------
Total from investment operations 0.35 0.89 0.48 1.46 (0.16)
-------- -------- --------- -------- --------
Less distributions:
Dividends from and in excess of net investment income (0.63) -- (0.80) (0.58) (0.73)
Distributions from and in excess of net realized gains
on investments -- -- -- -- --
-------- -------- --------- -------- --------
Total distributions (0.63) -- (0.80) (0.58) (0.73)
-------- -------- --------- -------- --------
Net asset value, end of year $ 10.45 $ 10.73 $ 9.84 $ 10.16 $ 9.28
======= ======= ======== ======= =======
TOTAL RETURN:
Total investment return 3.43% 9.04% 4.70% 15.74% (1.57)%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $83,120 $77,173 $76,009 $101,778 $72,420
Ratio of expenses to average net assets 0.70% 0.70% 0.70%(a) 0.69% 0.70%(a)
Ratio of net investment income to average net assets 5.99% 6.59% 6.71%(b) 6.76% 6.71%(b)
Portfolio turnover ratio (c) 6% 29% 72% 112% 241%
(a) If the Fund had paid all of its expenses and there had been no reimbursement
from the Adviser, this ratio would have been 0.72% and 0.71% for the years
ended December 31, 1996 and 1994, respectively.
(b) Computed giving effect to the Adviser's expense limitation undertaking.
(c) The portfolio turnover ratio includes dollar roll transactions, if any.
See Notes to Financial Statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Money Market Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
PAR AMORTIZED
VALUE COST
--------- -----------
COMMERCIAL PAPER--(96.1%)
BEVERAGES--(4.0%)
Coca-Cola 5.805% 10/19/98 (b) $ 3,000,000 $ 2,949,308
------------
BUSINESS CREDIT INSTITUTION--(4.0%)
Finova Capital 5.685% 7/22/98 3,000,000 2,990,288
------------
CHEMICALS-PLASTICS--(4.0%)
Formosa Plastic (LOC ABN AMRO)
5.740% 8/25/98 3,000,000 2,974,562
------------
CONSULTING SERVICES--(4.0%)
CSC Enterprises (gtd. by Computer
Sciences) 5.701% 7/9/98 3,000,000 2,996,293
------------
ELECTRONICS--(4.0%)
General Signal 5.666% 7/7/98 (b) 3,000,000 2,997,230
------------
ELECTRIC INTERGRATED--(8.1%)
New England Power 5.662% 7/6/98 3,000,000 2,997,696
Northern Indiana Public Service
5.777% 7/22/98 3,000,000 2,990,113
------------
5,987,809
------------
MEDICAL PRODUCTS--(4.0%)
Baxter International 5.676% 7/7/98 3,000,000 2,997,225
------------
MISCELLANEOUS FINANCIAL--(48.0%)
Associates Corp. of North America
6.339% 7/1/98 1,770,000 1,770,000
BAT Capital (gtd. by BAT Industries)
5.781% 7/14/98 3,000,000 2,993,912
CXC 5.701% 7/24/98 (b) 2,000,000 1,992,908
Enterprise Funding
5.643% 7/2/98 (b) 3,000,000 2,999,539
GTE Funding 5.722% 7/21/98 3,000,000 2,990,667
Harley-Davidson Funding
(gtd. By Eaglemark Financial Services)
5.795% 9/14/98 (b) 3,000,000 2,965,187
Merrill Lynch & Co 5.733% 7/10/98 2,000,000 1,997,186
Old Line Funding
5.674% 7/2/98 (b) 3,000,000 2,999,538
Pooled Accounts Receivable Capital
5.659% 7/8/98 3,000,000 2,996,774
Preferred Receivables Funding
5.679% 7/1/98 (b) 3,000,000 3,000,000
PAR AMORTIZED
VALUE COST
--------- -----------
MISCELLANEOUS FINANCIAL--(CONTINUED)
Receivables Capital
5.732% 7/28/98 (b) $3,000,000 $ 2,987,422
Thames Asset Global Securitization No. 1
5.760% 8/31/98 (b) 3,000,000 2,971,838
Windmill Funding
5.711% 7/23/98 (b) 3,000,000 2,989,788
------------
35,654,759
------------
MORTGAGE BANKING--(4.0%)
Countrywide Home Loans (gtd. by
Countrywide Credit Industries)
5.740% 7/27/98 3,000,000 2,987,867
------------
RETAILS--(8.0%)
Cosmair (gtd. by L'Oreal)
5.718% 7/28/98 (b) 3,000,000 2,987,445
Southland 5.756% 9/9/98 3,000,000 2,967,742
------------
5,955,187
------------
SOVEREIGN AGENCY--(4.0%)
Venantius AB 5.764% 7/20/98 (b) 3,000,000 2,991,054
------------
TOTAL COMMERCIAL PAPER 71,481,582
------------
YANKEE CERTIFICATE OF DEPOSIT--(4.0%)
BANKS--(4.0%)
Canadian Imperial Bank
5.650% 2/4/99 3,000,000 3,000,000
------------
TOTAL INVESTMENTS--(100.1%) (A) 74,481,582
OTHER ASSETS, LESS LIABILITIES--(-0.1%) (44,760)
------------
TOTAL NET ASSETS--(100.0%) $74,436,822
============
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) At June 30, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical.
(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 for public distribution. Any resale by the Fund must be in an exempt
transaction, normally to other institutional investors. At June 30, 1998, the
aggregate value of the Fund's private placement securities was $34,831,257
which represented 46.8 percent of net assets. None of these securities were
deemed illiquid.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Money Market Fund, Variable Series / June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at amortized cost $74,481,582
Cash 53,854
Receivable for fund shares sold 508,338
Interest receivable 69,212
Other assets 9,431
-----------
TOTAL ASSETS 75,122,417
-----------
LIABILITIES:
Payable for fund shares repurchased 599,124
Payable to investment adviser and transfer agent 33,036
Accrued expenses payable 53,435
-----------
TOTAL LIABILITIES 685,595
-----------
NET ASSETS $74,436,822
============
NET ASSETS REPRESENTED BY:
Paid-in capital $74,436,822
-----------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST $74,436,822
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 74,436,822
============
NET ASSET VALUE PER SHARE $ 1.00
============
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME $1,994,008
----------
EXPENSES:
Management fee 122,069
Administrative fee 52,315
Accounting fee 12,685
Audit and legal fees 8,900
Trustees' expense 3,948
Transfer agent fee 3,750
Printing expense 2,670
Miscellaneous expense 16,896
----------
Total expenses 223,233
----------
Net investment income 1,770,775
----------
Net increase in net assets resulting from operations $1,770,775
==========
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Money Market Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------ -------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 1,770,775 $ 3,418,664
------------- -------------
Net increase in net assets resulting from operations 1,770,775 3,418,664
------------- -------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (1,770,775) (3,418,664)
------------- -------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold 30,367,397 67,656,312
Cost of fund shares repurchased (24,838,074) (69,399,644)
Distributions reinvested 1,770,775 3,418,664
------------- -------------
Net increase in net assets resulting from fund share transactions 7,300,098 1,675,332
------------- -------------
Total increase in net assets 7,300,098 1,675,332
NET ASSETS:
Beginning of year 67,136,724 65,461,392
------------- -------------
End of year $ 74,436,822 $ 67,136,724
=========== ===========
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold 30,367,397 67,656,312
Shares repurchased (24,838,074) (69,399,644)
Distributions reinvested 1,770,775 3,418,664
------------- -------------
Net increase 7,300,098 1,675,332
=========== ===========
See Notes to Financial Statements.
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Money Market Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994
------------- --------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income 0.025 0.050 0.049 0.055 0.037
-------- -------- -------- -------- --------
Less distributions:
Distributions from net investment income (0.025) (0.050) (0.049) (0.055) (0.037)
-------- -------- -------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
TOTAL RETURN:
Total investment return 2.55% 5.18% 5.01% 5.62% 3.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $74,437 $67,137 $65,461 $64,992 $78,698
Ratio of expenses to average net assets 0.64% 0.65% 0.65% 0.63% 0.62%
Ratio of net investment income to average net assets 5.08% 5.05% 4.90% 5.48% 3.73%
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
SteinRoe Variable Investment Trust (the "Trust"), an open-end man age ment
investment company, was organized as a Massachusetts business trust on June 9,
1987. At June 30, 1998 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, Incorporated
(the "Adviser") provides investment advisory services to the Funds as well as
management and administrative services. SteinRoe Services, Inc. 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 June 30, 1998, 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 93.0
percent, Great-West Life & Annuity Insurance Company owned 5.3 percent,
Transamerica Life Companies owned 1.6 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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 2005, if not utilized. The
cost of investments purchased and proceeds from investments sold, excluding
short-term investments, for the six months ended June 30, 1998, for the Funds,
excluding Stein Roe Money Market Fund, Variable Series, were as follows:
SPECIAL GROWTH BALANCED MORTGAGE
VENTURE FUND, STOCK FUND, FUND, SECURITIES FUND,
VARIABLE SERIES VARIABLE SERIES VARIABLE SERIES VARIABLE SERIES
--------------- --------------- --------------- ---------------
Cost of
investments
Purchased $58,720,479 $50,142,410 $74,865,702 $13,797,389
Proceeds from
investments
Sold 78,514,379 52,399,172 80,200,762 4,695,985
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 gain 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 gains or losses and book-tax timing differences.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 June 30, 1998:
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 June 30, 1998, 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 accounting services. The fee is
$25,000 annually plus .0025 of 1 percent of assets in excess of $50 million. For
the six months ended June 30, 1998, 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 $14,281, $14,767,
$16,064, $12,869 and $12,685, 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 on an annual basis 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 Securities Fund, .70 of 1% of average daily net assets
Variable Series
Stein Roe Money Market Fund, .65 of 1% of average daily net assets
Variable Series
The expense limitations expire April 30, 1999.
<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.
6/98 NIM 30m
<PAGE>
