SteinRoe Variable Investment Trust
Stein Roe Special Venture Fund, Variable Series
Stein Roe Growth Stock Fund, Variable Series
Stein Roe Balanced Fund, Variable Series
Stein Roe Mortgage Securities Fund, Variable Series
Stein Roe Money Market Fund, Variable Series
Annual Report
Dec. 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Portfolio Manager Discussion:
Stein Roe Special Venture Fund, Variable Series................ 1
Stein Roe Growth Stock Fund, Variable Series................... 3
Stein Roe Balanced Fund, Variable Series....................... 5
Stein Roe Mortgage Securities Fund, Variable Series............ 7
Stein Roe Money Market Fund, Variable Series................... 9
Independent Auditors' Report................................... 10
Financial Statements:
Stein Roe Special Venture Fund, Variable Series................ 11
Stein Roe Growth Stock Fund, Variable Series................... 17
Stein Roe Balanced Fund, Variable Series....................... 21
Stein Roe Mortgage Securities Fund, Variable Series............ 27
Stein Roe Money Market Fund, Variable Series................... 32
Notes to Financial Statements..................................... 36
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER DISCUSSION
Stein Roe Special Venture Fund, Variable Series
- --------------------------------------------------------------------------------
Q&A with William M. Garrison and Steven M. Salopek, Portfolio Managers of
Special Venture Fund, Variable Series
Steven M. Salopek and William M. Garrison were named portfolio managers of
Stein Roe Special Venture Fund, Variable Series effective Oct. 8, 1998.
Q: How did the Fund perform?
A: The Fund's total return was -17.30% for the year ended December 31, 1998.
This was substantially less than the average fund in the Lipper variable annuity
small-cap fund peer group, which gained 1.48% in value.
Q: Why did the value of the Fund's holdings decline so much more than
the average of its peers?
A: We held a limited number stocks in the portfolio (about 40 for most of the
period), and many stocks did not perform as we expected. A concentrated strategy
can allow a fund to take greater advantage of market upswings, but it can work
against it when the holdings don't participate in a market rally or drop more
than the market as a whole during a correction. We faced both problems in 1998.
In addition, small-company stocks were generally out-of-favor compared to stocks
of large companies this past year.
To further diversify the Fund, we began to increase the number of holdings
substantially this past autumn. As of year's end, we had increased the number of
holdings to 101. We also invested in slightly larger, more liquid stocks that we
believed had a more attractive risk/reward profile than certain very small
companies whose stocks traded less frequently. By doing this, we believe we have
reduced the risk that price declines--in any one stock--will adversely affect
the Fund's overall performance.
Q: Have there been other major adjustments to the portfolio?
A: We further diversified the Fund by adding technology stocks that appeared to
offer attractive growth potential. As of Dec. 31, 1998, technology-oriented
businesses in several industries represented 27% of the Fund's assets. We had
been stock analysts for several years prior to our assuming leadership of the
Fund and we attempted to make the most of this experience as we restructured the
portfolio. Several purchases were made during the market's weakness last fall.
In late October, we purchased Mercury Interactive (1.3% of net assets), a
developer of software troubleshooting products and Vitesse (1.6% of net assets),
a semiconductor maker. Since we purchased them, both companies' shares have
doubled in value. To help reduce risk, we invest in a combination of companies
that either have strong immediate growth prospects or stable growth
characteristics. An example of a stable growth company, in our view, is ADVO
(0.6% of net assets). This company sends direct mail to 61 million households a
year, is the largest client of the U.S. Postal Service, and has many corporate
and non-profit customers. ADVO has an established business model that we believe
can generate steady earnings growth.
Q: Why did the small-cap market have such a weak year?
A: As international currency and economic problems mounted, investors generally
fled higher-risk stocks in favor of more liquid large-company stocks. We believe
the extent of these declines was not warranted given the fundamental soundness
of many small companies' earnings and balance sheets.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER DISCUSSION
Stein Roe Special Venture Fund, Variable Series (continued)
- --------------------------------------------------------------------------------
Stein Roe Special Venture Fund, Variable Series, and Russell 2000 Index
Average Annual Total Returns
at December 31, 1998
1-Year 5-Year Since Inception
-17.30% 5.06% 12.52%
Line Chart
Growth of a hypothetical $10,000 investment Jan. 1, 1989 to Dec. 31, 1998
Special Russell
Venture 2000
Fund Index
1/1/89 10000 10000
12/31/89 13084 11626
12/31/90 11918 9361
12/31/91 16357 13672
12/31/92 18725 16189
12/31/93 25406 19246
12/31/94 25708 18895
12/31/95 28729 24271
12/31/96 36469 28274
12/31/97 39317 34597
12/31/98 32515 33716
Q: What do you look for from new holdings?
A: We look to invest in small-cap companies that possess strong growth prospects
and are at reasonable values, or are priced attractively for the growth
potential they offer. Companies we consider usually have high profitability and
the opportunity to serve large and growing markets. In addition, we look for
companies with strong management teams that participate in the ownership of the
company, and companies that have proven success in executing their business
plans.
Q: What's your outlook for the small-cap market?
A: Our research shows that many small-cap stocks are selling at the lowest
prices relative to their earnings-per-share growth potential in 20 years.
Investors who have been weary of smaller-cap names may require more stock price
stability before diversifying their portfolios, but eventually we think
investors will see that many small-company stocks offer better-than-average
growth prospects at rock-bottom prices. Because small-company stocks currently
make up less than 20% of the overall U.S. equity market capitalization, if
investors allocate even a small amount of their investment dollars to small-cap
stocks, it could potentially give the group a big boost.
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. Holdings
are disclosed as a percentage of total net assets. Portfolio holdings are as of
Dec. 31, 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 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, Inc., a monitor of mutual fund
performance, the median returns for the Fund's small-cap fund peer group for the
one-, five-year and life of fund periods ended Dec. 31, 1998 was 1.48%, 12.63%
and 14.72%, respectively.
Funds that emphasize investments in smaller companies may experience greater
volatility than investments in large companies.
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 DISCUSSION
Stein Roe Growth Stock Fund, Variable Series
- --------------------------------------------------------------------------------
Q&A with Eric Gustafson, Portfolio Manager of Growth Stock Fund, Variable Series
Q: How did the Fund perform in 1998?
A: Growth Stock Fund, Variable Series, posted a total return of 27.91% for the
12 months ended Dec. 31, 1998. In comparison, the average growth fund in the
variable annuity growth fund peer group rose 24.94%, according to Lipper, Inc.
Q: What kind of market environment did investors see this past year,
and how did that affect the Fund's results?
A: The U.S. economic backdrop of low rates, fears of a slowdown in economic
growth and negligible inflation led to an outstanding environment for
high-quality stocks of large, rapidly growing companies. The unmanaged Standard
& Poor's 500 Index rose 28.6%, for an unprecedented fourth consecutive year of
returns in excess of 20%.
More specifically, it was a narrow market led by large-cap technology, health
care and select retail stocks. Funds, like ours, that held these names, provided
strong results.
Q: What events affected stock selection?
A: Going into this year, the investing environment seemed too good to be true.
The stock market was supported by low inflation, falling interest rates,
increased merger activity and robust business capital spending. Still, overseas
events made many investors skeptical, and some grew worried that recession along
the Pacific Rim would drag down corporate earnings and stock prices. Although
U.S. exports weakened and profit margins on domestic goods declined amid
increased competition from imports, the U.S. economy proved resilient. To
reduce risk, investors focused on companies like Microsoft, Cisco Systems and
MCI Worldcom (4.6%, 5.8% and 4.6% of net assets, respectively), that appeared
to have superior earnings growth potential. Technology companies did especially
well, particularly anything internet-related, as more consumers shopped online.
Pharmaceutical companies were another stock group that provided investors with
exceptional returns. The Fund's positioning in Pfizer and Eli Lilly (3.7% and
3.3% of net assets, respectively) helped lift total return. New product launches
served as the main catalyst for investor enthusiasm.
Q: Another sector you've traditionally favored has been financial services.
How did holdings in this sector fare throughout the year?
A: Financial services stocks did well during the first half of calendar 1998.
However, Russia's default on its debt and the subsequent collapse of a major
hedge fund this past summer generated substantial losses for several
money-center banks and insurance companies. Some financial services stocks
plunged more than 50 percent after forecasts of lower earnings. We focus our
investments in larger more stable companies, and our holdings were generally
unaffected by sour emerging market loans - companies such as American
International Group and Fannie Mae (3.6% and 3.8% of net assets, respectively).
These stocks held up relatively well during 1998's remarkable market volatility.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER DISCUSSION
Stein Roe Growth Stock Fund, Variable Series (continued)
- -------------------------------------------------------------------------------
Stein Roe Growth Stock Fund, Variable Series, and S&P 500 Index
Average Annual Total Returns
at December 31, 1998
1-Year 5-Year Since Inception
27.91% 21.49% 18.94%
Line Chart
Growth of a hypothetical $10,000 investment Jan. 1, 1989 to Dec. 31, 1998
Growth Stock S&P 500
Fund Index
1/1/89 10000 10000
12/31/89 13130 13163
12/31/90 12913 12754
12/31/91 19114 16631
12/31/92 20382 17896
12/31/93 21394 19696
12/31/94 20035 19955
12/31/95 27595 27445
12/31/96 33467 33742
12/31/97 44269 44995
12/31/98 56623 57864
Q: Did you sell any large positions?
A: We sold PeopleSoft, a provider of corporate technology systems, as the
corporate trend toward streamlining technologies were put on hold somewhat until
after year 2000 computer problems have safely passed. We also sold American Home
Products because the company's stock surpassed our price target and, in our
view, became overvalued.
Q: What do you expect going forward?
A: In our view, companies who can meet analysts' earnings growth expectations at
a time when profit margins appear to be contracting should do well in 1999.
Clearly, Asia's continuing recession could have a further impact on many U.S.
companies. Through careful research, we will strive to identify businesses with
above-average prospects and try to avoid those who could offer negative
surprises.
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. Holdings
are disclosed as a percentage of total net assets. Portfolio holdings are as of
Dec. 31, 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 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, Inc., a monitor of mutual fund performance, the
median returns for the Fund's variable annuity growth fund peer group for the
one-, five-year and life of fund periods ended Dec. 31, 1998 was 24.94%, 20.25%
and 17.92%, 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 DISCUSSION
Stein Roe Balanced Fund, Variable Series
- --------------------------------------------------------------------------------
Q&A with Harvey Hirschhorn, Portfolio Manager of Balanced Fund, Variable Series
Q: How did the Fund perform in calendar year 1998?
A: The Fund's balanced mix of domestic and international stocks and domestic
bonds provided a total return of 12.54% for the 12 months ended Dec. 31, 1998.
This was below its peers, as measured by the Lipper flexible portfolio average,
which rose 14.79% for the period.
Q: What affected the markets and the Fund's capital appreciation and income
potential in 1998?
A: Throughout the year, Asia's recession and emerging market debt problems led
to both favorable and unfavorable developments in the United States. On the
positive side, the dollar was strong and energy prices and inflation were low.
On the negative side, the U.S. trade balance deteriorated as exports diminished
while imports remained firm. The combined result was that the U.S. consumer
benefited from solid economic growth, with employment gains and with 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,
(1.6% and 1.6% of net assets, respectively) were among the best-performing
investments.
Q: Did any one sector stand out in terms of performance?
A: Pharmaceutical companies provided strong results for much of the year.
Successful drug launches by several Fund holdings such as Eli Lilly and Pfizer
(1.4% and 1.2% of net assets, respectively) helped lift our results. The
pharmaceutical sector offered strong earnings prospects at a time when equity
markets were turbulent and earnings in cyclical sectors waned. While we believe
the sector offers further capital appreciation potential, we doubt returns will
be as robust in 1999. We trimmed our weighting since June in that sector.
Q: Were there other areas of significance as far as performance? Any major
changes in positioning?
A: Our stock selections in technology, communications and financial services did
well this past year. To further diversify the Fund, we added Cisco Systems in
the technology sector, MCI WorldCom in the telecommunications area, and
Freddie Mac in the financial services area (1.7%, 1.5% and 1.3% of net assets,
respectively).
Q: Were there any disappointments this past year?
A: Our investments in Real Estate Investment Trusts (REITs) did not meet
expectations. Investors reduced their commitment to REITs in 1998 even though
earnings have been solid and dividend yields high. Efforts in Washington to end
tax breaks for certain REITs cast a shadow from January through mid-summer. In
addition, a start to new construction in some markets and greater use of debt
among REITs raised concerns that the industry would suffer in a slowing economy.
We plan to maintain an exposure to REITs, because we believe they are excellent
value investments that possess strong total return potential over the long term.
We think investors will reward REITs with healthy balance sheets that can expand
their earnings.
We also were disappointed by the performance of our holdings in the energy
sector. As oil prices declined throughout the year, so did oil stock prices. We
reduced the portfolio's position in energy stocks early in the year, so the
negative impact was contained.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER DISCUSSION
Stein Roe Balanced Fund, Variable Series (continued)
- --------------------------------------------------------------------------------
Stein Roe Balanced Fund, Variable Series, and Standard & Poor's 500,
Morgan Stanley Capital International
Europe, Australia and Far East (EAFE), and Lehman Brothers
Government/Corporate Bond Indexes
Average Annual Total Returns
at December 31, 1998
1-Year 5-Year Since Inception
12.54% 13.05% 12.94%
Line Chart:
Growth of a hypothetical $10,000 investment Jan. 1, 1989 to Dec. 31, 1998
Balanced Standard & Poor's Lehman Brothers MSCI EAFE
Fund 500 Index Government/Corporate Index
Bond Index
1/1/89 10000 10000 10000 10000
12/31/89 12238 13163 11276 11054
12/31/90 12155 12754 12309 8462
12/31/91 15550 16631 14109 9488
12/31/92 16721 17896 15121 8333
12/31/93 18274 19696 16449 11046
12/31/94 17691 19955 16132 11906
12/31/95 22197 27445 18606 13240
12/31/96 25665 33742 19359 14041
12/31/97 29982 44995 20882 14290
12/31/98 33741 57864 22644 17147
Q: How did the Fund's international equities perform?
A: Performance of international holdings was mixed. We scaled back our exposure
to foreign stocks around August, when we believed the Federal Reserve would
begin lowering interest rates. We aptly expected the U.S. equity market would
perform better than many foreign markets in a lower interest rate environment.
However, investments in countries such as the United Kingdom and Spain remained
firm.
Q: How did the portfolio's fixed income securities perform?
A: Early in the year we focused on high-quality bonds, with a significant
overweight position in Treasury bonds compared to our benchmark. Beginning in
the summer, the income potential of high-quality corporate and mortgage bonds
increased significantly as investors grew concerned about the effects of
emerging market debt defaults, a slowing U.S. economy and homeowner refinancing
activity. We saw this period as an opportunity to add value and yield to the
portfolio. As the non-Treasury bond market recovered this past autumn, our
positioning enhanced the Fund's total return. We've maintained a
longer-than-average duration and maturity.
Q: What's your outlook for 1999?
A: We anticipate a moderate expansion, with real economic growth (as measured by
Gross Domestic Product) of around 2.5.% versus the near 4% we saw in 1998. We
also expect inflation to be contained, and in this environment we are looking
for the Fed to make modest further cuts in U.S. interest rates later in 1999.
This should be favorable for the fixed-income market.
With respect to the stock market, we expect corporate profits to be under
pressure. That may make investors less willing to accept high price/earnings
ratios. Challenges may come from negative affects of strong wage increases on
profit margins. And competition from overseas should continue to be intense, as
Asia and Latin America will look to exports to abate domestic problems. They may
be exporting goods that are cheaper than those offered by U.S. companies, and
that stiff competition could be tough for U.S. companies. A number of the
foreign economies also continue to be in recession and U.S. companies that do a
lot of selling overseas may experience less-favorable sales than they had in the
past.
As a result, investors will have to be very selective in their equity holdings.
We'll continue to focus on companies we believe can maintain or expand profits.
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. Holdings
are disclosed as a percentage of total net assets. Portfolio holdings are as of
Dec. 31, 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, MSCI EAFE, and Lehman Government/Corporate Bond
Indexes are unmanaged groups of stocks that differ from the composition of each
Stein Roe Fund; they are not available for direct investment. According to
Lipper, Inc., a monitor of mutual fund performance, the median returns for the
Fund's balanced fund peer group for the one-, five-year and life of fund periods
ended Dec. 31, 1998 was 14.79%, 13.73% and 12.21%, respectively.
Foreign investments involve market, political and currency risks not associated
with investing the United States.
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 DISCUSSION
Stein Roe Mortgage Securities Fund, Variable Series
- --------------------------------------------------------------------------------
Q&A with William Wadden, Portfolio Manager of Stein Roe Mortgage Securities
Fund, Variable Series
Q: How did the Fund perform in 1998?
A: Stein Roe Mortgage Securities Fund, Variable Series, returned 6.80%
for the 12-month period ended Dec. 31, 1998. In comparison, the average variable
annuity mortgage securities fund had a total return of 7.17% for the year,
according to Lipper, Inc.
Q: What happened in the market over the year?
A: This past year offered two dramatically different investment environments.
During the first six months of 1998, the yield difference, or spread, between
mortgage securities versus Treasuries, slowly increased in response to Asian
economic turmoil and its perceived effects on the U.S. economy. A record amount
of new mortgage bonds were also issued, modestly depressing prices. Still,
interest rates were relatively stable, and this environment helped mortgages
outperform both corporate bonds and Treasuries from January through June.
The second half of the year, and in particular the third quarter, was a tough
period for mortgages and all other sectors of the fixed-income and equity
markets other than Treasuries. This happened as threats of a global economic
slowdown caused investors to seek the safety that Treasury investments provided.
Then in autumn, the Federal Reserve acted decisively to reduce interest rates,
bringing them down by 0.75% in three consecutive quarter-point cuts. During this
period, the difference in yields between mortgage bonds and Treasuries widened
sharply.
Prices of mortgages fell sharply when certain hedge funds were forced to sell a
large amount of bonds to raise cash to pay off creditors. This selling of
mortgage-backed securities created a supply/demand imbalance. Your Fund took
advantage of this development and added high-quality mortgages to the portfolio
at what we considered to be discount prices.
Q: How did purchases throughout 1998 affect the Fund's overall asset mix?
A: At the beginning of 1998, the Fund was underweighted in mortgages and had a
larger than usual portion of its net assets in Treasuries and corporate bonds.
By Dec. 31, 1998, we had increased the portfolio's commitment to mortgage
securities to 89% of the Fund's net assets, from 72% at Dec. 31, 1997. Most of
this increase occurred during the second half of 1998, and was aided by
investing new contributions into mortgages as the Fund grew in size. We have
retained a small portion of our corporate bond investments -- bonds rated A and
BBB that still have good total return prospects.
Q: Where did you focus purchases in the mortgage securities sector?
A: Early in the year, our best investment opportunities were in longer-maturity,
lower-coupon bonds that sold at slight discounts to their face value. During
June, we were able to purchase attractive home equity loans. We like to add such
holdings to the portfolio when opportunities arise because they offer two forms
of prepayment protection. First, mortgage industry research has shown that home
equity loans are less likely to be refinanced than conventional mortgages when
interest rates fall. Second, we buy what are called non-accelerating senior
bonds. These bonds have a structural provision that restricts them from
receiving prepayments for a three-year period. This enables the bonds to
maintain a stable stream of cash flow for a longer period of time, potentially
enhancing the bonds' value.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER DISCUSSION
Stein Roe Mortgage Securities Fund, Variable Series (continued)
- --------------------------------------------------------------------------------
Stein Roe Mortgage Securities Fund, Variable Series, and
Lehman Brothers Mortgage-Backed Securities Index
Average Annual Total Returns
at December 31, 1998
1-Year 5-Year Since Inception
6.80% 6.79% 8.23%
Line chart:
Growth of a hypothetical $10,000 investment Jan. 1, 1989 to Dec. 31, 1998
Mortgage
Securities Lehman Mortgage-Backed
Income Fund Securities Index
1/89 10000 10000
12/89 11284 11535
12/90 12311 12771
12/91 14094 14779
12/92 14933 15808
12/93 15868 16890
12/94 15635 16618
12/95 18077 19410
12/96 18926 20449
12/97 20368 22390
12/98 22040 23149
In October, we found a significant opportunity to make attractive purchases in
high-coupon 30-year mortgages and in the commercial mortgage-backed sector. We
increased the Fund's weighting in premium mortgages by 10 percentage points
during the fourth quarter, from 7% of net assets at Sept. 30, 1998, to 17% of
net assets as of Dec. 31, 1998.
Q: What do you foresee happening in the mortgage securities market in
coming months?
A: Mortgages have historically outperformed other investment-grade fixed-income
securities in a relatively stable interest rate environment. We believe rates
will fluctuate within a more narrow range in 1999, than they did in 1998, and
that should help the Fund do well. To participate in any bond price rally that
may occur in the coming months, we also have a small position in long-term
Treasury bonds.
Q: What kind of bonds do you plan to buy?
A: To enhance risk-adjusted returns, we plan to focus on shorter-duration bonds.
Many of the higher-coupon bonds we purchased in October have shorter durations,
and we think this is the place to be in what we believe may be a stable interest
rate environment. We also expect to increase the Fund's exposure to
credit-sensitive mortgages. These securities are exposed to credit defaults of
the underlying borrowers and are therefore attractively priced in the market.
The risk of principal loss in such bonds rated AA and A is remote and we expect
sustained economic growth to provide a favorable environment for mortgage
defaults.
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. Holdings
are disclosed as a percentage of total net assets. Portfolio holdings are as of
Dec. 31, 1998 and are subject to change. Total return performance includes
changes in share price and reinvestment of income and capital gains
distributions. The Fund is neither insured nor guaranteed by the U.S.
Government. Up to 20% of the Fund's assets may be invested in other types of
securities. The Lehman Mortgage-Backed Securities 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, Inc., a monitor of mutual
fund performance, the median returns for the Fund's variable annuity mortgage
fund peer group for the one-, five- and life of fund periods ended Dec. 31,
1998, were 7.17%, 6.80% and 8.84%, 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 DISCUSSION
Stein Roe Money Market Fund, Variable Series
- --------------------------------------------------------------------------------
Q&A with Jane Naeseth, Portfolio Manager of Stein Roe Money Market Fund,
Variable Series
Q: How did the Fund perform during calendar year 1998?
A: The Fund's total return was 5.17% for the year ended Dec. 31, 1998. Income
potential remained attractive because the supply of securities was plentiful and
prices were low. Institutional investors sought to "clean house" at year's end
by selling their excess inventory of money market securities such as commercial
paper. This provided a buying opportunity for the Fund.
For the period, the average money market fund provided a return of 5.10%,
according to Lipper, Inc. and the unmanaged 90-day Treasury Bill Index, returned
4.88%.
Q: What transpired during the year?
A: Interest rates remained stagnant from January to June. The difference in
income potential between money market securities and long-term bonds was very
narrow, which means investors were not rewarded for taking on additional
interest rate risk. At June 30, 1998, the rate banks charge each other for
overnight loans stood at 5.5% while the average yield of 30-year U.S. bonds was
5.6%.
This changed dramatically beginning in July. Russia's debt default, Asia's
recession and signs of weakness in the domestic economy prompted the Federal
Reserve to reduce short-term interest rates to 4.75%. Long rates, meanwhile,
fell to just over 5% by year's end.
Q: Did the rate reductions detract from the portfolio's return?
A: We structured the portfolio to take advantage of the anticipated interest
rate cuts in the latter part of the year by lengthening average maturity from
over 33 days at June 30, 1998, to 40 days by Dec. 31, 1998, and that supported
performance.
Q: If rates are reduced further, what impact will it have on the Fund in
coming months?
A: While returns were not affected in 1998, if rates are lowered, we anticipate
that will affect the portfolio's income potential in early 1999. Given the fact
that most economists expect inflation to remain under 2% in 1999, we believe the
Fund's income potential is likely to remain attractive. In 1998, consumer prices
rose just 1.5%, the slowest pace in nearly 12 years, and we believe this trend
can continue.
Q: How did you position the Fund within sectors during the period?
A: We have invested more than half the Fund's net assets in regular commercial
paper, which appeared to offer the best risk/reward ratio. We slightly increased
the letter of credit commercial paper positions, taking advantage of some value
purchases in those sectors. When a portion of our Yankee CD holdings matured, we
did not replace them with holdings in this sector. To try to ensure liquidity,
we're steering away from anything with potential international exposure.
During the year, our holdings in federal agency securities were refinanced by
the issuer. We would have liked to maintain the Fund's allocation to agency
securities. However, at the time our holdings were called, similar securities
were too expensive, in our view. We also looked to add floating rate notes
(variable rate corporate securities) to the portfolio during 1998. However, we
could not find any floating rate notes offered at prices we considered
attractive.
Q: What's your strategy for coming months?
A: We expect to maintain a maturity range similar to our current positioning and
invest primarily in U.S. commercial paper.
Past performance is no guarantee of future results. Total return performance
includes reinvestment of income. An investment in the Fund is neither insured
nor guaranteed by the Federal Deposit Insurance Corp. (FDIC) or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund. According to Lipper, Inc., a monitor of mutual fund performance, the
median total returns for the Fund's money market fund peer group for the one-,
five-year, and life of fund periods ended Dec. 31, 1998, were 5.10%, 4.92% and
5.17%, 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>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
of SteinRoe Variable Investment Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Stein Roe Special Venture Fund, Variable Series;
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, all constituent funds of SteinRoe Variable
Investment Trust, as of December 31, 1998, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
SteinRoe Variable Investment Trust as of December 31, 1998, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
February 12, 1999
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Special Venture Fund, Variable Series / December 31, 1998
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Market
Shares Value
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS--(91.1%)
<S> <C> <C>
Aerospace and Defense Equipment--(1.6%)
Alliant Techsystems (a) 13,000 $ 1,071,688
Orbital Sciences (a) 24,700 1,092,975
-----------
2,164,663
-----------
Apparel Manufacturers--(2.4%)
Columbia Sportswear (a) 185,700 3,133,687
-----------
Banks and Savings & Loans--(4.4%)
Centura Banks 18,100 1,346,187
Commerce Bancorp 19,200 1,008,000
Cullen/Frost Bankers 22,900 1,256,637
National Bancorp of Alaska 64,800 2,187,000
-----------
5,797,824
-----------
Beverages--(0.9%)
Canandaigua Brands, class A (a) 20,000 1,156,250
-----------
Broadcasting and Media--(2.6%)
Metro Networks (a) 81,400 3,469,675
-----------
Building--(1.6%)
D.R. Horton 53,500 1,230,500
Champion Enterprises (a) 33,700 922,537
-----------
2,153,037
-----------
Business Services--(5.8%)
HA-LO Industries (a) 37,100 1,395,887
Interim Services (a) 93,000 2,173,875
Metamor Worldwide (a) 136,000 3,400,000
Paychex 12,700 653,256
-----------
7,623,018
-----------
Circuits--(1.6%)
Vitesse Semiconductor (a) 47,600 2,171,750
-----------
Commercial Services--(0.4%)
Iron Mountain (a) 15,300 551,756
-----------
Communications Equipment and Services--(1.5%)
Inter-Tel 47,800 1,117,325
Uniphase (a) 12,500 867,187
-----------
1,984,512
-----------
<PAGE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
Computer Hardware, Software and Services--(11.4%)
BARRA (a) 127,700 $ 3,016,912
BISYS Group (a) 17,500 903,437
HNC Software (a) 12,200 493,337
Hyperion Solutions (a) 27,500 495,000
Jack Henry & Associates 17,000 845,750
Kronos (a) 20,900 926,131
Mercury Interactive (a) 26,500 1,676,125
National Computer Systems 35,000 1,295,000
National Instruments (a) 14,800 505,050
Sapient (a) 8,500 476,000
SPSS (a) 34,900 658,738
Transacton Systems Architects,
class A (a) 18,400 920,000
VERITAS Software (a) 7,400 443,538
Verity (a) 29,000 768,500
Whittman-Hart (a) 56,700 1,566,338
-----------
14,989,856
-----------
Consulting Services--(1.0%)
Comdisco 32,200 543,375
Metzler Group (a) 15,000 730,313
-----------
1,273,688
-----------
Cosmetics--(3.1%)
Nu Skin Enterprises, class A (a) 173,300 4,094,213
-----------
Data Processing and Management--(2.5%)
Acxiom (a) 29,800 923,800
American Management Systems (a) 40,800 1,632,000
SEI Investments 7,700 765,188
-----------
3,320,988
-----------
Diversified Operations--(2.2%)
SPS Technologies (a) 20,000 1,132,500
Triarc Companies (a) 114,000 1,824,000
-----------
2,956,500
-----------
Electronic Components--(3.7%)
Burr-Brown (a) 17,300 405,469
C-Cube Microsystems (a) 38,300 1,038,887
CTS 22,900 996,150
Etec Systems (a) 9,500 380,000
Gentex (a) 53,500 1,070,000
Novellus Systems (a) 19,200 950,400
-----------
4,840,906
-----------
Fertilizers--(0.5%)
Scotts Co., class A (a) 18,800 722,625
-----------
See Notes to Financial Statements.
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS Market
(Continued) Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Finance Services--(1.5%)
Heller Financial 28,100 $ 825,438
Jefferies Group 22,800 1,131,450
-----------
1,956,888
-----------
Food Products--(1.5%)
Smithfield Foods (a) 30,500 1,033,187
Whole Foods Market (a) 18,900 914,288
-----------
1,947,475
-----------
Health Services and Equipment--(5.5%)
Express Scripts, class A (a) 23,200 1,557,300
Orthodontic Centers of America (a) 68,000 1,321,750
Renal Care Group (a) 42,500 1,224,531
UroQuest Medical Corp. (a) 36,200 36,200
Xomed Surgical Products (a) 95,850 3,067,200
-----------
7,206,981
-----------
Home Furnishings--(0.6%)
Ethan Allen Interiors 18,800 770,800
-----------
Insurance--(1.1%)
Mutual Risk Management 36,200 1,416,325
-----------
Internet--(0.3%)
Inktomi (a) 3,000 388,125
-----------
Machinery Tools and Products--(1.0%)
Applied Power, class A 17,200 649,300
MotivePower Industries (a) 21,600 695,250
-----------
1,344,550
-----------
Manufacturing Services--(0.8%)
Sanmina (a) 17,100 1,068,750
-----------
Marketing Services--(2.7%)
ADVO (a) 28,800 759,600
Catalina Marketing (a) 41,100 2,810,213
-----------
3,569,813
-----------
Medical-Biomedical Genetics--(0.4%)
Liposome Company (a) 30,800 475,475
-----------
Metals--(1.2%)
Stillwater Mining Company (a) 37,700 1,545,700
-----------
Miscellaneous Manufacturing--(1.4%)
AptarGroup 35,100 984,994
IDEXX Laboratories (a) 32,300 869,072
-----------
1,854,066
-----------
Networking--(0.6%)
Xircom (a) 23,200 788,800
-----------
<PAGE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
Oil and Gas--(1.8%)
Barrett Resources (a) 42,600 $ 1,022,400
Petroleum Geo-Services ADRs (a) 83,000 1,307,250
-----------
2,329,650
-----------
Pharmaceuticals--(2.3%)
Alpharma, class A 18,700 660,344
Barr Laboratories (a) 22,400 1,075,200
MedImmune (a) 13,600 1,352,350
-----------
3,087,894
-----------
Printing Services--(0.9%)
Consolidated Graphics (a) 18,100 1,222,881
-----------
Retail--(9.9%)
CEC Entertainment (a) 18,200 505,050
CKE Restaurants 27,060 796,579
Cheesecake Factory (a) 29,100 862,997
Fastenal 75,000 3,300,000
Just For Feet (a) 54,400 945,200
K-Swiss, class A 31,900 857,312
Linens 'n Things (a) 38,600 1,529,525
Men's Wearhouse (a) 40,500 1,285,875
O'Reilly Automotive (a) 11,600 548,100
Ruby Tuesday 41,700 886,125
Williams-Sonoma (a) 38,000 1,531,875
-----------
13,048,638
-----------
Research and Development--(0.4%)
PAREXEL International (a) 23,600 590,000
-----------
Schools--(1.2%)
DeVry (a) 53,700 1,644,563
-----------
Scientific Instruments--(0.5%)
Dionex (a) 17,500 640,938
-----------
Supply Services--(0.8%)
G & K Services, class A 20,000 1,065,000
-----------
Textiles--(0.8%)
Mohawk Industries (a) 24,100 1,013,706
-----------
Therapeutics--(0.9%)
Biomatrix (a) 20,900 1,217,425
-----------
Transportation--(1.1%)
COMAIR Holdings 20,900 705,375
Polaris Industries 17,200 674,025
-----------
1,379,400
-----------
See Notes to Financial Statements.
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS Market
(Continued) Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Wholesale Distribution--(4.7%)
Brightpoint (a) 62,500 $ 859,375
Earthgrains 38,100 1,178,719
Henry Schein (a) 24,800 1,109,800
School Specialty (a) 37,000 790,875
U.S.A. Floral Products (a) 200,000 2,300,000
-----------
6,238,769
-----------
Total Common Stocks
(Cost $106,270,683) 120,217,560
-----------
<PAGE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
SHORT-TERM OBLIGATIONS--(9.3%)
Commercial Paper--(9.3%)
Associate Corp. of North America
5.08% 1/4/99 $7,250,000 $ 7,246,931
Enterprise Funding
6.00% 1/4/99 5,000,000 4,997,500
-----------
Total Short-Term Obligations
(Cost $12,244,431) 12,244,431
-----------
Total Investments--(100.4%)
(Cost $118,515,114) (b) 132,461,991
Other Assets, Less Liabilities--(-0.4%) (532,845)
------------
Total Net Assets--(100.0%) $131,929,146
============
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At December 31, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$13,946,877, comprised of gross unrealized appreciation of $18,486,975 and
gross unrealized depreciation of $4,540,098.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Special Venture Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at market value (identified cost $118,515,114) ............................................. $ 132,461,991
Receivable for investments sold ......................................................................... 237,542
Cash .................................................................................................... 55,334
Dividends receivable .................................................................................... 14,898
Receivable for fund shares sold ......................................................................... 2,818
Other assets ............................................................................................ 14,955
-------------
Total assets ....................................................................................... 132,787,538
-------------
Liabilities:
Payable for investments purchased ....................................................................... 539,247
Payable for fund shares repurchased ..................................................................... 164,014
Payable to investment adviser ........................................................................... 61,181
Accrued expenses payable ................................................................................ 93,950
-------------
Total liabilities .................................................................................. 858,392
-------------
Net assets .............................................................................................. $ 131,929,146
=============
Net assets represented by:
Paid-in capital ...................................................................................... $ 148,794,713
Net unrealized appreciation on investments ........................................................... 13,947,124
Accumulated undistributed net investment income ...................................................... --
Accumulated net realized losses on investments ....................................................... (30,812,691)
-------------
Total net assets applicable to outstanding shares of beneficial interest ................................ $ 131,929,146
=============
Shares of beneficial interest outstanding ............................................................... 9,688,006
=============
Net asset value per share ............................................................................... $ 13.62
=============
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Interest income ......................................................................................... $ 528,919
Dividends (net of foreign taxes withheld of $5,979) ..................................................... 332,912
------------
Total investment income ............................................................................ 861,831
------------
Expenses:
Management fee ....................................................................................... 810,605
Administrative fee ................................................................................... 243,182
Audit and legal fees ................................................................................. 30,054
Printing expense ..................................................................................... 29,787
Accounting fee ....................................................................................... 27,878
Trustees' expense .................................................................................... 10,906
Transfer agent fee ................................................................................... 7,500
Miscellaneous expense ................................................................................ 54,335
------------
Total expenses ..................................................................................... 1,214,247
------------
Net investment loss ..................................................................................... (352,416)
Realized and unrealized gains (losses) on investments:
Net realized loss on investments ..................................................................... (30,757,173)
Change in unrealized appreciation or depreciation on investments ..................................... 239,589
------------
Net decrease in net assets resulting from operations .................................................... $(30,870,000)
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Special Venture Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
1998 1997
------------- --------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................................... $ (352,416) $ 84,501
Net realized gains (losses) on investments ............................................ (30,757,173) 16,866,896
Change in unrealized appreciation or depreciation on investments ...................... 239,589 (2,574,259)
------------- -------------
Net increase (decrease) in net assets resulting from operations .......................... (30,870,000) 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 ........................................................ 24,033,730 56,760,177
Cost of fund shares repurchased ....................................................... (61,824,339) (66,766,579)
Distributions reinvested .............................................................. 16,963,000 37,205,000
------------- -------------
Net increase (decrease) in net assets resulting from fund share transactions ............. (20,827,609) 27,198,598
------------- -------------
Total increase (decrease) in net assets .................................................. (68,660,609) 4,370,736
Net assets:
Beginning of year ..................................................................... 200,589,755 196,219,019
------------- -------------
End of year ........................................................................... $ 131,929,146 $ 200,589,755
============= =============
Accumulated undistributed net investment income included in ending net assets ............ $ -- $ 50,834
============= =============
Analysis of changes in shares of beneficial interest:
Shares sold ........................................................................... 1,645,338 3,128,771
Shares repurchased .................................................................... (4,101,552) (3,703,394)
Distributions reinvested .............................................................. 998,996 2,256,218
------------- -------------
Net increase (decrease) .................................................................. (1,457,218) 1,681,595
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Special Venture Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 18.00 $ 20.73 $ 16.33 $ 14.74 $ 16.53
--------- --------- --------- --------- ---------
Net investment income (loss) (0.04) 0.01 0.04 0.04 0.06
Net realized and unrealized gains (losses) on investments (2.77) 1.25 4.36 1.69 0.09
--------- --------- --------- --------- ---------
Total from investment operations (2.81) 1.26 4.40 1.73 0.15
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income -- (0.03) -- (0.04) (0.07)
Distributions from 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 $ 13.62 $ 18.00 $ 20.73 $ 16.33 $ 14.74
========= ======== ========= ========= =========
Total return:
Total investment return (17.30)% 7.81% 26.94% 11.75% 1.19%(b)
Ratios/supplemental data:
Net assets, end of year (000's) $131,929 $200,590 $196,219 $143,248 $134,078
Ratio of expenses to average net assets 0.75% 0.73% 0.75% 0.76% 0.80%(a)
Ratio of net investment income (loss) to average net assets (0.22)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 103% 93% 100% 132% 144%
(a) These ratios were not materially affected by the reimbursement of certain
expenses by the investment adviser. (b) Computed giving effect to the investment
adviser's expense limitation undertaking.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Growth Stock Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Market
Shares Value
<S> <C> <C>
COMMON STOCKS--(95.6%)
Banks--(2.2%)
BankAmerica 100,000 $ 6,012,500
------------
Business Services--(2.8%)
Paychex 150,000 7,715,625
------------
Computers and Computer Software--(15.5%)
Cisco Systems (a) 170,000 15,778,125
EMC (a) 110,000 9,350,000
Intel 60,000 7,113,750
Microsoft (a) 70,000 9,708,125
------------
41,950,000
------------
Consumer Related--(5.4%)
Gillette 135,000 6,522,188
Procter & Gamble 90,000 8,218,125
------------
14,740,313
------------
Drugs--(9.7%)
Eli Lilly & Company 100,000 8,887,500
Merck & Company 50,000 7,384,375
Pfizer 80,000 10,035,000
------------
26,306,875
------------
Electrical Equipment--(3.8%)
General Electric 100,000 10,206,250
------------
Energy--(1.4%)
Schlumberger Limited 80,000 3,690,000
------------
Financial Services--(9.4%)
American Express 75,000 7,668,750
Citigroup 150,000 7,425,000
Fannie Mae 140,000 10,360,000
------------
25,453,750
------------
Food, Beverage and Tobacco--(2.2%)
Coca-Cola 90,000 6,018,750
------------
Health Care--(2.8%)
Cardinal Health 100,000 7,587,500
------------
Insurance--(3.5%)
American International Group 100,000 9,662,500
------------
<PAGE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
Leisure and Entertainment--(6.2%)
Time Warner 200,000 $ 12,412,500
Walt Disney 150,000 4,500,000
------------
16,912,500
------------
Medical Supplies--(3.4%)
Medtronic 125,000 9,281,250
------------
Retail--(9.2%)
Home Depot 200,000 12,237,500
Kohl's (a) 160,000 9,830,000
Walgreen Co. 50,000 2,928,125
------------
24,995,625
------------
Rubber, Plastic and Related--(1.9%)
Illinois Tool Works 90,000 5,220,000
------------
Telecommunications--(16.2%)
LM Ericsson Telecommunications ADRs 210,000 5,026,875
Lucent Technologies 90,000 9,900,000
Motorola 125,000 7,632,812
Tellabs (a) 130,000 8,913,125
MCI WorldCom (a) 175,000 12,556,250
------------
44,029,062
------------
Total Common Stocks
(Cost $111,082,021) 259,782,500
------------
<CAPTION>
Principal
Amount
SHORT-TERM OBLIGATION--(4.4%)
Commercial Paper--(4.4%)
Associates Corp. of North America
5.080% 1/4/99
(Cost $11,934,945) $11,940,000 11,934,945
------------
Total Investments--(100.0%)
(Cost $123,016,966) (b) 271,717,445
Other Assets, less Liabilities--(0.0%) (133,567)
------------
Total Net Assets (100.0%) $271,583,878
============
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At December 31, 1998, the cost of investments for federal income tax
purposes was $123,018,206. Net unrealized appreciation was $148,699,239,
comprised of gross unrealized appreciation of $149,836,222 and gross
unrealized depreciation of $1,136,983.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Growth Stock Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at market value (identified cost $123,016,966) .............................................. $271,717,445
Dividends receivable ..................................................................................... 144,417
Receivable for fund shares sold .......................................................................... 65,824
Cash ..................................................................................................... 58,681
Other assets ............................................................................................. 12,599
------------
Total assets ........................................................................................ 271,998,966
------------
Liabilities:
Payable for fund shares repurchased ...................................................................... 244,520
Payable to investment adviser ............................................................................ 136,629
Accrued expenses payable ................................................................................. 33,939
------------
Total liabilities ................................................................................... 415,088
------------
Net assets ............................................................................................... $271,583,878
============
Net assets represented by:
Paid-in capital ....................................................................................... $114,312,846
Net unrealized appreciation on investments ............................................................ 148,700,739
Accumulated net realized gains on investments ......................................................... 8,081,725
Accumulated undistributed net investment income ....................................................... 488,568
------------
Total net assets applicable to outstanding shares of beneficial interest ................................. $271,583,878
============
Shares of beneficial interest outstanding ................................................................ 6,238,558
============
Net asset value per share ................................................................................ $ 43.53
============
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends .................................................................................................. $ 1,677,970
Interest income ............................................................................................ 449,624
-----------
Total investment income ............................................................................... 2,127,594
-----------
Expenses:
Management fee .......................................................................................... 1,177,442
Administrative fee ...................................................................................... 353,233
Accounting fee .......................................................................................... 29,708
Audit and legal fees .................................................................................... 25,049
Printing expense ........................................................................................ 24,864
Trustees' expense ....................................................................................... 15,401
Transfer agent fee ...................................................................................... 7,500
Miscellaneous expense ................................................................................... 5,177
-----------
Total expenses ........................................................................................ 1,638,374
-----------
Net investment income ...................................................................................... 489,220
Realized and unrealized gains on investments:
Net realized gains on investments ....................................................................... 8,083,201
Change in unrealized appreciation or depreciation on investments ........................................ 50,182,311
-----------
Net increase in net assets resulting from operations ....................................................... $58,754,732
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Growth Stock Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
1998 1997
<S> <C> <C>
Operations:
Net investment income ................................................................. $ 489,220 $ 610,654
Net realized gains on investments ..................................................... 8,083,201 12,625,736
Change in unrealized appreciation or depreciation on investments ...................... 50,182,311 39,257,702
------------- -------------
Net increase in net assets resulting from operations ..................................... 58,754,732 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 ........................................................ 61,216,357 35,528,562
Cost of fund shares repurchased ....................................................... (61,786,672) (36,502,167)
Distributions reinvested .............................................................. 13,193,000 8,210,000
------------- -------------
Net increase in net assets resulting from fund share transactions ........................ 12,622,685 7,236,395
------------- -------------
Total increase in net assets ............................................................. 58,184,418 51,520,487
Net assets:
Beginning of year ..................................................................... 213,399,461 161,878,974
------------- -------------
End of year ........................................................................... $ 271,583,878 $ 213,399,461
============= =============
Accumulated undistributed net investment income included in ending net assets ............ $ 488,568 $ 589,348
============= =============
Analysis of changes in shares of beneficial interest:
Shares sold ........................................................................... 1,526,333 1,104,794
Shares repurchased .................................................................... (1,560,693) (1,131,238)
Distributions reinvested .............................................................. 366,676 274,215
------------- -------------
Net increase ............................................................................. 332,316 247,771
============= =============
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Growth Stock Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 36.13 $ 28.61 $ 23.59 $ 18.11 $ 20.65
--------- --------- --------- --------- ---------
Net investment income 0.08 0.10 0.13 0.15 0.15
Net realized and unrealized gains (losses)
on investments 9.54 8.84 4.89 6.68 (1.46)
--------- --------- --------- --------- ---------
Total from investment operations 9.62 8.94 5.02 6.83 (1.31)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.10) (0.12) -- (0.15) (0.17)
Distributions from 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 $ 43.53 $ 36.13 $ 28.61 $ 23.59 $ 18.11
========= ========= ========= ========= =========
Total return:
Total investment return 27.91% 32.28% 21.28% 37.73% (6.35)%
Ratios/supplemental data:
Net assets, end of year (000's) $271,584 $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 0.21% 0.32% 0.49% 0.72% 0.75%
Portfolio turnover ratio 40% 28% 35% 41% 72%
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Balanced Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Market
Shares Value
<S> <C> <C>
COMMON STOCKS--(57.6%)
Automotive--(1.1%)
Ford Motor Company...................................... 70,000 $ 4,108,125
------------
Banks--(3.9%)
Banc One................................................ 53,000 2,706,312
BankAmerica............................................. 54,000 3,246,786
Bayerische Vereinsbank.................................. 33,000 2,585,672
Royal Bank of Scotland Group............................ 225,000 3,620,012
U.S. Bancorp............................................ 60,000 2,130,000
------------
14,288,782
------------
Building and Construction--(1.3%)
Masco................................................... 80,000 2,300,000
Royal Group Technologies Limited (a).................... 100,000 2,231,250
------------
4,531,250
------------
Chemicals--(1.5%)
E.I. du Pont de Nemours................................. 48,000 2,547,000
Monsanto................................................ 58,100 2,759,750
------------
5,306,750
------------
Commercial Services--(1.1%)
Unilever................................................ 47,000 3,898,062
------------
Computers--(1.3%)
Microsoft (a)........................................... 35,000 4,854,062
------------
Drugs and Health Care--(7.6%)
Abbott Laboratories..................................... 85,000 4,165,000
ALZA (a)................................................ 47,000 2,455,750
American Home Products.................................. 72,000 4,054,500
Bristol-Myers Squibb.................................... 34,000 4,549,625
Elan ADRs (a)........................................... 41,000 2,852,062
Eli Lilly & Company..................................... 55,000 4,888,125
Pfizer.................................................. 36,000 4,515,750
------------
27,480,812
------------
Electrical Equipment--(2.8%)
Emerson Electric........................................ 62,000 3,751,000
General Electric........................................ 50,000 5,103,125
Hubbell, class B........................................ 37,000 1,406,000
------------
10,260,125
------------
Electronics--(2.7%)
AMP..................................................... 52,000 2,707,250
Intel................................................... 35,000 4,149,687
Motorola................................................ 45,000 2,747,813
------------
9,604,750
------------
<PAGE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
Financial Services--(3.7%)
Citigroup............................................... 72,500 $ 3,588,750
Freddie Mac............................................. 73,000 4,703,938
Fannie Mae.............................................. 31,000 2,294,000
Heller Financial........................................ 101,000 2,966,875
------------
13,553,563
------------
Food, Beverage and Tobacco--(2.5%)
PepsiCo................................................. 70,000 2,865,625
Philip Morris Companies................................. 65,000 3,477,500
Sara Lee................................................ 100,000 2,818,750
------------
9,161,875
------------
Funeral Services--(0.7%)
Service Corporation International....................... 70,000 2,664,375
------------
Housewares--(0.3%)
Newell.................................................. 30,000 1,237,500
------------
Index Depositary Receipts--(2.9%)
S&P 400 Depositary Receipts............................. 50,000 3,646,875
S&P 500 Depositary Receipts............................. 28,400 3,493,200
World Equity Benchmark Shares (WEBS)
Japan Index Series................................... 310,000 3,177,500
------------
10,317,575
------------
Insurance--(0.8%)
American International Group............................ 30,000 2,898,750
------------
Medical Technology--(1.7%)
IMS Health.............................................. 41,000 3,092,937
Medtronic............................................... 41,000 3,044,250
------------
6,137,187
------------
Networking Products--(1.7%)
Cisco Systems (a)....................................... 67,000 6,218,438
------------
Oil and Gas--(1.7%)
British Petroleum ADRs (a).............................. 31,000 2,778,375
Conoco (a).............................................. 35,600 743,150
Mobil................................................... 30,000 2,613,750
------------
6,135,275
------------
Radio and Television--(2.0%)
Clear Channel Communications (a)........................ 50,000 2,725,000
Comcast................................................. 55,000 3,227,812
Infinity Broadcasting (a)............................... 43,300 1,185,338
------------
7,138,150
------------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS Market
(Continued) Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Real Estate--(1.2%)
Equity Residential Properties Trust..................... 48,000 $ 1,941,000
Reckson Associates Realty Corporation................... 103,800 2,303,063
------------
4,244,063
------------
Retail--(4.5%)
Home Depot.............................................. 95,000 5,812,813
Kohl's (a).............................................. 52,000 3,194,750
Saks (a)................................................ 54,000 1,704,375
Wal-Mart Stores......................................... 70,000 5,700,625
------------
16,412,563
------------
Telecommunications--(7.5%)
AirTouch Communications (a)............................. 65,000 4,688,125
Ameritech............................................... 86,000 5,450,250
Lucent Technologies..................................... 35,000 3,850,000
MCI WorldCom (a)........................................ 75,000 5,381,250
Telebras ADRs........................................... 25,000 1,817,187
Tele-Communications, Inc. (a)........................... 55,000 3,042,188
Tellabs (a)............................................. 40,000 2,742,500
------------
26,971,500
------------
Utilities--(2.3%)
Endesa ADRs............................................. 100,000 2,700,000
Enron................................................... 42,000 2,396,625
Kinder Morgan Energy Partners, L.P...................... 92,409 3,349,826
------------
8,446,451
------------
Water Treatment Systems--(0.8%)
U.S. Filter (a)......................................... 130,000 2,973,750
------------
Total Common Stocks
(Cost $145,506,064)..................................... 208,843,733
------------
<CAPTION>
Par
Value
<S> <C> <C>
LONG-TERM OBLIGATIONS--(36.8%)
Aerospace and Defense--(0.5%)
Raytheon
6.150% 11/1/08....................................... $1,750,000 1,791,037
------------
Air Transportation--(0.7%)
Federal Express 1994
Pass-Through Certificates
Series A1 7.530% 9/23/06............................. 1,575,000 1,677,343
United Airlines 1991
Pass-Through Certificates
Series A1 9.200% 3/22/08............................. 642,141 741,531
------------
2,418,874
------------
<PAGE>
<CAPTION>
Par Market
Value Value
<S> <C> <C>
Asset-Backed Securities--(0.6%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22.............................. $1,760,646 $ 1,746,156
Greentree Home Improvement
Loan Trust Series 1994-A Class A
7.050% 3/15/14...................................... 471,717 485,048
------------
2,231,204
------------
Banks--(1.9%)
Den Danske Bank
6.550% 9/15/03....................................... 2,250,000 2,327,850
Deutsche Ausgleichsbank
7.000% 9/24/01....................................... 2,250,000 2,345,895
First Chicago NBD
6.125% 2/15/06....................................... 2,250,000 2,288,228
------------
6,961,973
------------
Construction and Housing--(0.7%)
Hanson Overseas 6.750% 9/15/05.......................... 2,500,000 2,617,375
------------
Extractive-Energy--(0.8%)
BOC Group 5.875% 1/29/01................................ 2,750,000 2,795,567
------------
Financial--(3.5%)
Associates Corp. of North America
7.500% 4/15/02....................................... 4,000,000 4,240,280
6.950% 11/1/18....................................... 2,350,000 2,496,593
Lehman Brothers Commercial Conduit
Mortgage Trust Series 1998-C4
Class A1B
6.210% 10/15/08...................................... 1,250,000 1,271,100
Household Finance
5.875% 11/1/02....................................... 2,500,000 2,498,800
Transamerica Finance
6.125% 11/1/01....................................... 2,000,000 2,014,180
------------
12,520,953
------------
Industrial--(1.3%)
Safeway
5.750% 11/15/00...................................... 1,500,000 1,500,090
USX
6.850% 3/1/08........................................ 3,000,000 3,027,660
------------
4,527,750
------------
Insurance--(0.8%)
Prudential Insurance
7.650% 7/1/07........................................ 2,500,000 2,751,675
------------
Telecommunications--(0.7%)
U.S. West Capital Funding
6.250% 7/15/05....................................... 2,500,000 2,589,075
------------
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS Par Market
(Continued) Value Value
<S> <C> <C>
LONG-TERM OBLIGATIONS (Continued)
U.S. Government and Agency Obligations--(24.6%)
FHLMC Gold
6.500% 12/1/10....................................... $ 734,968 $ 745,993
6.500% 5/1/11........................................ 674,857 684,980
6.500% 6/1/11........................................ 4,634,480 4,703,384
12.000% 7/1/20....................................... 892,447 1,018,782
6.500% 3/1/26........................................ 3,141,908 3,164,498
6.500% 6/1/26........................................ 2,095,128 2,110,192
6.500% 2/1/27........................................ 970,927 977,908
6.500% 3/1/27........................................ 2,609,388 2,628,150
6.500% 4/1/27........................................ 913,353 919,920
6.500% 9/15/28....................................... 2,583,484 2,601,258
7.000% 10/15/28...................................... 2,499,658 2,549,652
FNMA Medium-Term Note
5.980% 11/12/02...................................... 3,100,000 3,203,292
GNMA
6.625% 7/20/25....................................... 518,302 523,915
8.000% 3/15/26....................................... 3,376,995 3,509,981
6.000% 12/15/28...................................... 5,047,942 5,002,208
U.S. Treasury Bonds
6.500% 8/15/05....................................... 4,000,000 4,395,360
7.250% 5/15/16....................................... 5,500,000 6,662,810
7.875% 2/15/21....................................... 4,500,000 5,920,065
7.125% 2/15/23....................................... 4,150,000 5,114,585
U.S. Treasury Notes
6.750% 4/30/00....................................... 400,000 410,516
6.375% 5/15/00....................................... 8,200,000 8,384,172
7.875% 8/15/01....................................... 500,000 539,605
6.250% 2/15/03....................................... 5,250,000 5,553,923
5.750% 8/15/03....................................... 8,000,000 8,356,160
6.500% 10/15/06...................................... 8,100,000 8,985,087
------------
88,666,396
------------
Utilities--(0.7%)
National Rural Utilities
5.000% 10/1/02....................................... 2,750,000 2,709,822
------------
Total Long-Term Obligations
(Cost $126,666,796)..................................... 132,581,701
------------
<PAGE>
<CAPTION>
Par Market
Value Value
<S> <C> <C>
SHORT-TERM OBLIGATIONS
Commercial Paper--(5.1%)
Countrywide Home Loans
5.100% 1/4/99
(Cost $18,572,104)................................... $18,580,000 $ 18,572,104
------------
Total Investments--(99.5%)
(Cost $290,744,964) (b)................................. 359,997,538
Other Assets, Less Liabilities--(0.5%)................... 1,825,594
------------
Total Net Assets--(100.0%)............................... $361,823,132
============
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) At December 31, 1998, the cost of investments for federal income tax
purposes was $290,975,842. Net unrealized appreciation was $69,021,696,
comprised of gross unrealized appreciation of $71,786,107 and gross
unrealized depreciation of $2,764,411.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Balanced Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at market value (identified cost $290,744,964) .............................................. $359,997,538
Dividends and interest receivable ........................................................................ 2,347,698
Receivable for fund shares sold .......................................................................... 225,307
Other assets ............................................................................................. 29,043
------------
Total assets ........................................................................................ 362,599,586
------------
Liabilities:
Payable for fund shares repurchased ...................................................................... 509,295
Payable to investment adviser ............................................................................ 160,651
Accrued expenses payable ................................................................................. 106,508
------------
Total liabilities ................................................................................... 776,454
------------
Net assets ............................................................................................... $361,823,132
============
Net assets represented by:
Paid-in capital ....................................................................................... $263,669,853
Net unrealized appreciation on investments and foreign currencies ..................................... 69,251,883
Accumulated net realized gains on investments ......................................................... 18,823,070
Accumulated undistributed net investment income ....................................................... 10,078,326
------------
Total net assets applicable to outstanding shares of beneficial interest ................................. $361,823,132
============
Shares of beneficial interest outstanding ................................................................ 21,108,511
============
Net asset value per share ................................................................................ $ 17.14
============
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Interest income ............................................................................................ $ 9,592,416
Dividend income (net of foreign taxes withheld of $56,253) ................................................. 2,608,562
-----------
Total investment income ............................................................................... 12,200,978
-----------
Expenses:
Management fee .......................................................................................... 1,503,385
Administrative fee ...................................................................................... 495,128
Printing expense ........................................................................................ 33,098
Accounting fee .......................................................................................... 31,664
Audit and legal fees .................................................................................... 22,861
Trustees' expense ....................................................................................... 20,730
Transfer agent fee ...................................................................................... 7,500
Miscellaneous expense ................................................................................... 72,347
-----------
Total expenses ........................................................................................ 2,186,713
-----------
Net investment income ...................................................................................... 10,014,265
Realized and unrealized gains on investments:
Net realized gains on investments ....................................................................... 18,531,725
Net realized gains on foreign currency transactions ..................................................... 65,350
Change in unrealized appreciation or depreciation on investments
and foreign currency translations ..................................................................... 11,666,861
-----------
Net increase in net assets resulting from operations ....................................................... $40,278,201
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Balanced Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
1998 1997
------------- -------------
<S> <C> <C>
Operations:
Net investment income ................................................................. $ 10,014,265 $ 10,232,534
Net realized gains on investments and foreign currency transactions ................... 18,597,075 21,484,426
Change in unrealized appreciation or depreciation on investments
and foreign currency translations ................................................... 11,666,861 17,140,868
------------- -------------
Net increase in net assets resulting from operations ..................................... 40,278,201 48,857,828
------------- -------------
Distributions declared from:
Net investment income ................................................................. (9,760,000) (10,262,000)
Net realized gains on investments ..................................................... (21,501,000) (25,340,000)
------------- -------------
Total distributions ...................................................................... (31,261,000) (35,602,000)
------------- -------------
Fund share transactions:
Proceeds from fund shares sold ........................................................ 56,464,510 30,523,814
Cost of fund shares repurchased ....................................................... (59,952,201) (53,533,240)
Distributions reinvested .............................................................. 31,261,000 35,602,000
------------- -------------
Net increase in net assets resulting from fund share transactions ........................ 27,773,309 12,592,574
------------- -------------
Total increase in net assets ............................................................. 36,790,510 25,848,402
Net assets:
Beginning of year ..................................................................... 325,032,622 299,184,220
------------- -------------
End of year ........................................................................... $ 361,823,132 $ 325,032,622
============= =============
Accumulated undistributed net investment income included in ending net assets ............ $ 10,111,932 $ 9,886,114
============= =============
Analysis of changes in shares of beneficial interest:
Shares sold ........................................................................... 3,429,829 1,916,696
Shares repurchased .................................................................... (3,644,905) (3,350,160)
Distributions reinvested .............................................................. 1,989,880 2,387,734
------------- -------------
Net increase ............................................................................. 1,774,804 954,270
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Balanced Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 16.81 $ 16.28 $ 14.08 $ 12.18 $ 13.11
--------- --------- --------- --------- ---------
Net investment income 0.48 0.53 0.57 0.48 0.51
Net realized and unrealized gains (losses) on investments 1.48 1.96 1.63 2.61 (0.93)
--------- --------- --------- --------- ---------
Total from investment operations 1.96 2.49 2.20 3.09 (0.42)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.51) (0.56) -- (0.48) (0.51)
Distributions from 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 $ 17.14 $ 16.81 $ 16.28 $ 14.08 $ 12.18
========= ========= ========= ========= =========
Total return:
Total investment return 12.54% 16.82% 15.63% 25.43% (3.19)%
Ratios/supplemental data:
Net assets, end of year (000's) $361,823 $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 3.00% 3.18% 3.68% 3.12% 4.01%
Portfolio turnover ratio (a) 61% 44% 76% 66% 71%
(a) Portfolio turnover includes dollar roll transactions.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Mortgage Securities Fund, Variable Series / December 31, 1998
- ---------------------------------------------------------------------------------------------------------
Par Market
Value Value
<S> <C> <C>
ASSET-BACKED SECURITIES--(16.1%)
Amresco Residential Securities Mortgage
Loan Trust Series 1996-3 Class A5
7.550% 2/25/23 $1,135,000 $1,156,974
Asset Securitization Corporation
Series 1997-D5 Class A1C
6.750% 2/14/41 1,375,000 1,426,989
ContiMortgage Home Equity Loan
Trust Series 1997-1 Class M1
7.420% 3/15/28 1,250,000 1,290,463
Delta Funding Home Equity Loan Trust
Series 1998-2 Class A6F
6.370% 7/15/28 1,000,000 993,750
First Boston Home Equity Loan
Pass-Through Certificates Series
1993-H1, Class A-IO
(effective yield 12.820%) 9/28/13 2,692,909 105,185
First Plus Home Loan Trust Series 1996-3
Class A3 7.050% 11/20/08 1,000,000 1,000,860
Green Tree Financial Corporation
Series 1997-6 Class A8
7.070% 1/15/29 1,451,961 1,542,432
Green Tree Home Improvement Loan
Trust Series 1994-A Class A
7.050% 3/15/14 353,788 363,786
IMC Home Equity Loan Trust
Series 1997-3 Class M2
7.550% 8/20/28 1,000,000 1,006,390
Lehman Brothers Commercial
Conduit Mortgage Trust
Series 1998-C4 Class A1B
6.210% 10/15/08 1,800,000 1,830,384
Mego Mortgage Home Loan Trust
Series 1997-3 Class M1
7.500% 8/25/23 1,500,000 1,503,750
Mid-State Trust Series 6 Class A1
7.340% 7/01/35 1,992,715 2,038,369
UCFC Home Equity Loan
Series 1997-C Class A7
6.875% 1/15/29 1,275,000 1,302,923
----------
Total Asset-Backed Securities
(Cost $15,363,678) 15,562,255
----------
MORTGAGE-BACKED SECURITIES--(8.8%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 665,134 659,659
Citicorp Mortgage Securities
Series 1987-10 Class A1
10.000% 7/1/17 98,745 103,317
<PAGE>
<CAPTION>
Par Market
Value Value
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (Continued)
Comfed Savings Bank ARM
Series 1987-1 Class A
7.550% 1/1/18 $ 104,653 $ 91,048
Glendale Federal Bank Series 1978-A
9.125% 1/25/08 17,949 19,126
Imperial Savings Association ARM
Series 1987-4 Class A
8.826% 7/25/17 20,143 21,161
Merrill Lynch Mortgage Investors
Series 1995-C3 Class A3 ARM
7.088% 12/26/25 2,000,000 2,106,740
Series 1987-A ARM
5.890% 11/15/26 66,588 67,821
Merrill Lynch Trust Series 20 Class D
8.000% 12/20/18 829,520 847,554
Nomura Asset Securities Corporation
Series 1996-MD5 Class A1B
7.120% 4/13/36 1,000,000 1,064,470
Residential Funding Mortgage Securities
Series 1998-HI2 Class A3
6.330% 11/25/14 1,000,000 1,008,170
Residential Asset Securities Corporation
Series 1998-KS2 Class AI1
6.775% 7/25/29 762,797 761,958
Sears Mortgage Securities Series 1987-A
6.500% 3/25/17 4,755 4,797
Structured Asset Securities Corporation
Series 1996-CFL Class X1-IO
(effective yield 12.960%) 2/25/28 8,515,721 468,365
Series 1996-CFL Class C
6.525% 2/25/28 1,242,500 1,249,098
----------
Total Mortgage-Backed Securities
(Cost $8,227,551) 8,473,284
----------
CORPORATE SECURITIES--(6.0%)
GMAC Euro 6.750% 7/10/02 1,000,000 1,030,430
National Power 7.125% 7/11/01 1,500,000 1,570,785
Noram Energy 6.500% 2/1/08 1,500,000 1,529,550
Zurich Capital Trust I 8.376% 6/1/37 (a) 1,450,000 1,662,643
----------
Total Corporate Securities
(Cost $5,450,765) 5,793,408
----------
See Notes to Financial Statements.
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS Par Market
(Continued) Value Value
FHLMC CERTIFICATES--(10.2%)
8.500% 5/1/06 Gold $ 81,949 $ 84,587
6.500% 6/1/08 18,503 18,769
6.500% various due dates to
6/1/09 Gold 1,486,243 1,507,616
10.750% 11/1/09 165,059 179,812
12.000% 7/1/13 54,966 62,060
11.250% various due dates to 11/1/15 58,794 65,712
10.500% various due dates to 2/1/19 166,757 183,745
12.000% 7/1/20 Gold 642,562 733,523
7.500% various due dates to
5/1/24 Gold 5,091,070 5,233,956
7.000% 1/1/26 1,783,247 1,819,465
----------
Total FHLMC Certificates
(Cost $9,556,159) 9,889,245
----------
FNMA CERTIFICATES--(35.9%)
10.500% 2/1/01 35,300 35,984
12.250% 9/1/12 FHA/VA Guaranteed 71,032 81,532
10.250% 2/1/16 118,562 130,270
10.000% various due dates to 3/1/16 231,923 250,783
9.000% various due dates to 5/1/20 116,873 124,020
6.000% various due dates to 2/1/25 10,375,642 10,365,954
7.000% various due dates to 8/1/25 3,881,959 3,963,365
6.500% various due dates to 1/1/26 13,528,843 13,617,845
8.500% various due dates to 2/1/28 5,998,222 6,175,085
----------
Total FNMA Certificates
(Cost $34,185,362) 34,744,838
----------
GNMA CERTIFICATES--(16.9%)
8.000% various due dates to 7/15/08 4,744,349 4,925,877
11.500% various due dates to 5/15/13 397,410 451,307
8.500% 2/15/17 169,234 181,292
10.000% various due dates to 11/15/19 453,947 496,931
9.000% various due dates to 1/15/20 1,291,964 1,390,595
9.500% various due dates to 8/15/22 1,257,035 1,359,676
7.000% 4/15/23 438,506 448,645
6.625% 7/20/25 1,036,604 1,047,830
6.500% various due dates to 3/15/28 5,924,731 5,983,225
----------
Total GNMA Certificates
(Cost $16,112,702) 16,285,378
----------
<CAPTION>
Par Market
Value Value
<S> <C> <C>
REAL ESTATE MORTGAGE INVESTMENT
CONDUITS--(0.8%)
FHLMC Series 11 Class C
9.500% 4/15/19 $ 22,099 $ 22,263
FNMA Series 1988-4 Class Z
9.250% 3/25/18 729,747 776,510
----------
Total Real Estate Mortgage
Investment Conduits
(Cost $788,523) 798,773
----------
U.S. GOVERNMENT SECURITIES--(2.2%)
U.S. Treasury Bonds
6.750% 8/15/26 800,000 958,464
6.375% 8/15/27 1,000,000 1,149,600
-----------
Total U.S. Government Securities
(Cost $1,812,914) 2,108,064
----------
SHORT-TERM OBLIGATIONS--(2.0%)
Commercial Paper--(2.0%)
Associates Corp. of North America
5.080% 1/4/99
(Cost $1,929,183) 1,930,000 1,929,183
-----------
Total Investments--(98.9%)
(Cost $93,426,837) (b) 95,584,428
Other Assets, Less Liabilities--(1.1%) 1,108,106
----------
Total Net Assets--(100.0%) $96,692,534
===========
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
(a)Private placement security. These securities generally are issued to
institutional investors, such as the Fund, who agree that they are purchasing
the securities for investment and not for public distribution. Any resale
must be in an exempt transaction, normally to other institutional investors.
At December 31, 1999, the value of the Fund's restricted security was
$1,662,643 (cost of $1,450,000) which represented 1.7% of net assets. This
security is not deemed to be illiquid.
(b)At December 31, 1998, the cost of investments for financial reporting and
federal income tax purposes was identical. Net unrealized appreciation was
$2,157,591, comprised of gross unrealized appreciation of $2,418,644 and
gross unrealized depreciation of $261,053.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Mortgage Securities Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at market value (identified cost $93,426,837) .............................................. $ 95,584,428
Interest receivable ..................................................................................... 671,072
Receivable for fund shares sold ......................................................................... 602,857
Cash .................................................................................................... 36,091
Other assets ............................................................................................ 8,576
------------
Total assets ....................................................................................... 96,903,024
------------
Liabilities:
Payable for fund shares repurchased ..................................................................... 94,610
Payable to investment adviser ........................................................................... 45,426
Accrued expenses payable ................................................................................ 70,454
------------
Total liabilities .................................................................................. 210,490
------------
Net assets .............................................................................................. $ 96,692,534
============
Net assets represented by:
Paid-in capital ...................................................................................... $ 92,323,491
Accumulated undistributed net investment income ...................................................... 5,059,907
Net unrealized appreciation on investments ........................................................... 2,157,591
Accumulated net realized losses on investments ....................................................... (2,848,455)
------------
Total net assets applicable to outstanding shares of beneficial interest ................................ $ 96,692,534
============
Shares of beneficial interest outstanding ............................................................... 8,963,610
============
Net asset value per share ............................................................................... $ 10.79
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Investment income:
Interest income ............................................................................................. $5,576,038
----------
Expenses:
Management fee ........................................................................................... 337,593
Administrative fee ....................................................................................... 126,597
Audit and legal fees ..................................................................................... 28,458
Accounting fee ........................................................................................... 25,924
Printing expense ......................................................................................... 16,593
Trustees' expense ........................................................................................ 9,874
Transfer agent fee ....................................................................................... 7,500
Miscellaneous expense .................................................................................... 38,236
----------
Total expenses ......................................................................................... 590,775
----------
Net investment income ....................................................................................... 4,985,263
Realized and unrealized gains on investments:
Net realized gains on investments ........................................................................ 252,574
Change in unrealized appreciation or depreciation on investments ......................................... 272,011
----------
Net increase in net assets resulting from operations ........................................................ $5,509,848
==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Mortgage Securities Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
1998 1997
------------ ------------
<S> <C> <C>
Operations:
Net investment income ................................................................... $ 4,985,263 $ 4,890,904
Net realized gains on investments ....................................................... 252,574 3,468
Change in unrealized appreciation or depreciation on investments ........................ 272,011 1,494,843
------------ ------------
Net increase in net assets resulting from operations ....................................... 5,509,848 6,389,215
------------ ------------
Distributions declared from:
Net investment income ................................................................... (4,580,000) --
------------ ------------
Fund share transactions:
Proceeds from fund shares sold .......................................................... 29,203,191 9,622,128
Cost of fund shares repurchased ......................................................... (15,193,948) (14,847,051)
Distributions reinvested ................................................................ 4,580,000 --
------------ ------------
Net increase (decrease) in net assets resulting from fund share transactions ............... 18,589,243 (5,224,923)
------------ ------------
Total increase in net assets ............................................................... 19,519,091 1,164,292
Net assets:
Beginning of year ....................................................................... 77,173,443 76,009,151
------------ ------------
End of year ............................................................................. $ 96,692,534 $ 77,173,443
============ ============
Accumulated undistributed net investment income included in ending net assets .............. $ 5,059,907 $ 4,579,680
============ ============
Analysis of changes in shares of beneficial interest:
Shares sold ............................................................................. 2,745,216 929,462
Shares repurchased ...................................................................... (1,424,260) (1,459,037)
Distributions reinvested ................................................................ 448,138 --
------------ ------------
Net increase (decrease) .................................................................... 1,769,094 (529,575)
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Stein Roe Mortgage Securities Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 10.73 $ 9.84 $ 10.16 $ 9.28 $ 10.17
-------- -------- --------- -------- --------
Net investment income 0.55 0.68 0.78 0.57 0.73
Net realized and unrealized gains (losses)
on investments 0.14 0.21 (0.30) 0.89 (0.89)
-------- -------- --------- -------- --------
Total from investment operations 0.69 0.89 0.48 1.46 (0.16)
-------- -------- --------- -------- --------
Less distributions:
Dividends from net investment income (0.63) -- (0.80) (0.58) (0.73)
Distributions from net realized gains on investments -- -- -- -- --
-------- -------- --------- -------- --------
Total distributions (0.63) -- (0.80) (0.58) (0.73)
-------- -------- --------- -------- --------
Net asset value, end of year $ 10.79 $ 10.73 $ 9.84 $ 10.16 $ 9.28
======== ======== ========= ======== ========
Total return:
Total investment return 6.80% 9.04% 4.70% 15.74% (1.57)%(b)
Ratios/supplemental data:
Net assets, end of period (000's) $96,693 $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 5.91% 6.59% 6.71%(b) 6.76% 6.71%(b)
Portfolio turnover ratio (c) 8% 29% 72% 112% 241%
(a) If the Fund had paid all of its expenses and there had been no reimbursement
from the investment 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 investment adviser's expense limitation
undertaking.
(c) Portfolio turnover includes dollar roll transactions.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Stein Roe Money Market Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Par Amortized
Value Cost
<S> <C> <C>
COMMERCIAL PAPER--(92.4%)
Auto Lending--(3.9%)
American Honda Finance
5.334% 1/26/99 $4,000,000 $ 3,985,278
------------
Consulting Services--(3.6%)
CSC Enterprises (gtd. by Computer
Sciences) 5.208% 2/9/99 3,700,000 3,679,357
------------
Diversified Financial Services--(11.8%)
Associates Corp. of North America
5.083% 1/4/99 3,940,000 3,938,332
Finova Capital 5.539% 1/27/99 4,000,000 3,984,256
Merrill Lynch & Co. 5.512% 1/20/99 4,000,000 3,988,452
------------
11,911,040
------------
Diversified Manufacturing Operations--(4.5%)
Eaton Corp. 5.403% 1/28/99 (b) 4,545,000 4,526,695
------------
Electric Integrated Utility--(3.0%)
Northern Indiana Public Service
5.450% 1/21/99 3,000,000 2,990,967
------------
Leasing--(3.6%)
Enterprise Funding 5.863% 1/4/99 (b) 3,618,000 3,616,236
------------
Miscellaneous Financial--(48.3%)
Asset Securitization Corp.
5.426% 2/18/99 (b) 4,000,000 3,971,467
BAT Capital (gtd. by BAT Industries)
5.719% 1/7/99 4,000,000 3,996,200
CSN Overseas (LOC Barclays Bank)
5.580% 1/13/99 4,000,000 3,992,600
Caterpillar Financial 5.165% 1/6/99 3,668,000 3,665,387
Centric Capital 5.509% 1/27/99 (b) 3,542,000 3,528,058
International Securitization
5.577% 1/8/99 (b) 4,000,000 3,995,683
Pooled Accounts Receivable Capital
5.392% 1/29/99 (b) 4,000,000 3,983,356
Preferred Receivables Funding
5.532% 1/22/99 (b) 4,000,000 3,987,167
Receivables Capital
5.404% 1/14/99 (b) 4,000,000 3,992,258
Special Purpose Accounts Recievable
5.282% 1/15/99 (b) 3,500,000 3,492,922
TEB Funding II (LOC Societe Generale)
5.120% 5/28/99 4,000,000 3,918,333
Thames Asset Global Securitization
No. 1 5.822% 1/14/99 (b) 2,000,000 1,995,811
<PAGE>
<CAPTION>
Par Amortized
Value Cost
<S> <C> <C>
Miscellaneous Financial--(continued)
Windmill Funding
5.603% 1/12/99 (b) $4,446,000 $ 4,438,419
------------
48,957,661
------------
Mortgage Banking--(3.9%)
Countrywide Home Loans (gtd. by
Countrywide Credit Industries)
5.509% 1/19/99 4,000,000 3,989,100
------------
Natural Gas--(2.0%)
Trans de Gas Del Sur (LOC Dresdner
Bank) 5.299% 1/21/99 2,000,000 1,994,167
------------
Retail - Convenience Store--(3.9%)
Southland (gtd. By Ito-Yokado)
5.433% 1/11/99 4,000,000 3,994,000
------------
Sovereign Agency--(3.9%)
Province of Quebec 5.050% 3/2/99 4,000,000 3,966,333
------------
Total Commercial Paper 93,610,834
------------
CORPORATE NOTE--(4.0%)
Auto Lending--(4.0%)
GMAC
8.000% 10/1/99 4,000,000 4,086,815
------------
YANKEE CERTIFICATE OF DEPOSIT--(3.9%)
Banks--(3.9%)
Canadian Imperial Bank
5.250% 2/4/99 4,000,000 4,000,000
------------
Total Investments--(100.3%) (a) 101,697,649
Other Assets, less Liabilities--(-0.3%) (357,529)
------------
Total Net Assets--(100.0%) $101,340,120
============
Notes to Portfolio of Investments
(a)At December 31, 1998, the cost of investments for financial reporting and
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 December 31, 1998,
the aggregate amortized cost of the Fund's private placement securities was
$41,528,072 which represented 41.0% of net assets. None of these securities
were deemed illiquid.
The interest rates listed above reflect the effective rate at the date of
purchase except for the corporate note and yankee certificate of deposit, for
which the interest rate represents the instrument's coupon rate.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
Stein Roe Money Market Fund, Variable Series / December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at amortized cost ........................................................................... $101,697,649
Interest receivable ...................................................................................... 114,117
Receivable for fund shares sold .......................................................................... 9,435
Cash ..................................................................................................... 2,903
Other assets ............................................................................................. 9,431
------------
Total assets ........................................................................................ 101,833,535
------------
Liabilities:
Payable for fund shares repurchased ...................................................................... 380,975
Payable to investment adviser ............................................................................ 44,389
Accrued expenses payable ................................................................................. 68,051
------------
Total liabilities ................................................................................... 493,415
------------
Net assets ............................................................................................... $101,340,120
============
Net assets represented by:
Paid-in capital ....................................................................................... $101,340,120
------------
Total net assets applicable to outstanding shares of beneficial interest ................................. $101,340,120
============
Shares of beneficial interest outstanding ................................................................ 101,340,120
============
Net asset value per share ................................................................................ $ 1.00
============
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Interest income ....................................................................................... $4,534,723
----------
Expenses:
Management fee ..................................................................................... 281,246
Administrative fee ................................................................................. 121,428
Accounting fee ..................................................................................... 25,907
Audit and legal fees ............................................................................... 21,954
Trustees' expense .................................................................................. 9,446
Transfer agent fee ................................................................................. 7,500
Printing expense ................................................................................... 16,968
Miscellaneous expense .............................................................................. 18,402
----------
Total expenses ................................................................................... 502,851
----------
Net investment income ................................................................................. 4,031,872
----------
Net increase in net assets resulting from operations .................................................. $4,031,872
==========
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
Stein Roe Money Market Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
1998 1997
------------- -------------
<S> <C> <C>
Operations:
Net investment income ......................................................... $ 4,031,872 $ 3,418,664
------------- -------------
Net increase in net assets resulting from operations ............................... 4,031,872 3,418,664
------------- -------------
Distributions declared from:
Net investment income ........................................................... (4,031,872) (3,418,664)
------------- -------------
Fund share transactions:
Proceeds from fund shares sold .................................................. 89,315,213 67,656,312
Cost of fund shares repurchased ................................................. (59,143,689) (69,399,644)
Distributions reinvested ........................................................ 4,031,872 3,418,664
------------- -------------
Net increase in net assets resulting from fund share transactions .................. 34,203,396 1,675,332
------------- -------------
Total increase in net assets ....................................................... 34,203,396 1,675,332
Net assets:
Beginning of year ............................................................... 67,136,724 65,461,392
------------- -------------
End of year ..................................................................... $ 101,340,120 $ 67,136,724
============= =============
Analysis of changes in shares of beneficial interest:
Shares sold ..................................................................... 89,315,213 67,656,312
Shares repurchased .............................................................. (59,143,689) (69,399,644)
Distributions reinvested ........................................................ 4,031,872 3,418,664
------------- -------------
Net increase ....................................................................... 34,203,396 1,675,332
============= =============
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Stein Roe Money Market Fund, Variable Series
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income 0.050 0.050 0.049 0.055 0.037
-------- -------- -------- -------- --------
Less distributions:
Distributions from net investment income (0.050) (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 5.17% 5.18% 5.01% 5.62% 3.81%
Ratios/supplemental data:
Net assets, end of year (000's) $101,340 $67,137 $65,461 $64,992 $78,698
Ratio of expenses to average net assets 0.62% 0.65% 0.65% 0.63% 0.62%
Ratio of net investment income to average net assets 4.99% 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 management
investment company, was organized as a Massachusetts business trust on June 9,
1987. At December 31, 1998, the Trust consisted of five diversified mutual 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 at least 65% 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% 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 and
non-affiliated insurance companies. Stein Roe & Farnham Incorporated (the
"Adviser") provides investment advisory services to the Funds as well as
management and administrative services. Liberty Funds Services, Inc. (the
"Transfer Agent") provides transfer agent services. Prior to November 1, 1998,
transfer agent services were provided by SteinRoe Services, Inc. ("SSI").
Keyport Financial Services Corp., a subsidiary of Keyport Life Insurance Company
("Keyport"), serves as the underwriter of the Trust. Keyport, the Adviser,
Transfer Agent and SSI are direct subsidiaries of Liberty Financial Companies,
Inc. ("Liberty"). At December 31, 1998, various affiliated insurance companies
of Liberty owned substantially all of the outstanding shares of all Funds,
except for Stein Roe Special Venture Fund, Variable Series, of which Liberty
affiliates owned 93.0%, Great-West Life & Annuity Insurance Company owned 5.4%,
Transamerica Life Companies owned 1.5%, and Aegon Insurance Group owned 0.1%.
The following summarizes the significant accounting policies followed by the
Funds. These policies are in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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.
Investment Transactions and Investment Income
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income, including discount accretion
and premium amortization, is recorded daily on the accrual basis. Realized gains
or losses from investment transactions are reported on an identified cost basis.
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 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.
Foreign Currency Transactions--Certain of the Funds may enter 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 segregate foreign currency gains or losses
on securities held from fluctuations in the market prices of those securities.
Such fluctuations are included with the net realized and unrealized gain or loss
from investments.
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.
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.
The Funds intend to utilize provisions of federal income tax law which allow
them to carry a realized capital loss forward up to eight years following the
year of the loss, and offset such losses against any future realized gains. At
December 31, 1998, Special Venture Fund, Variable Series had a capital loss
carryforward of $30,812,691, which expires in 2006; Mortgage Securities Fund,
Variable Series had a capital loss carryforward of $2,848,455, of which
$2,510,580, $224,288 and $113,587 will expire in 2002, 2003 and 2004,
respectively.
During the year ended December 31, 1998, the following Funds distributed
long-term capital gains:
Long-Term Capital
Fund Gains Distributions
- ----- ------------------
Stein Roe Special Venture Fund, Variable Series $16,912,000
Stein Roe Growth Stock Fund, Variable Series 12,603,000
Stein Roe Balanced Fund, Variable Series 21,501,000
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,
wash sales and other book-tax timing differences.
Reclassifications were made to the Funds' capital accounts in order to properly
reflect income and capital gains available for distribution (or available for
capital loss carryforward) under income tax regulations. Such reclassifications
were primarily related to foreign currency gains or losses, paydown gains or
losses on mortgage-backed securities, net operating losses and/or investments in
partnerships and REITs.
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. Management and Administrative Fees
The Funds have advisory and administrative agreements with the Adviser. The
following investment advisory fee rates were in effect as of December 31, 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%
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1998, for all the Funds, the annual administrative fee was
.15% of average daily net assets. Both the investment advisory fees and the
administrative fees are computed daily and paid monthly.
The Adviser also provides fund accounting services. The fee is $25,000 annually
plus .0025% of assets in excess of $50 million.
Transfer agent services are 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 .70 of 1% of average daily net assets
Fund, Variable Series
Stein Roe Money Market Fund, .65 of 1% of average daily net assets
Variable Series
The expense limitations expire April 30, 1999.
Note 4. Security Transactions
The cost of investments purchased and proceeds from investments sold, excluding
short-term investments, for the year ended December 31, 1998, for the Funds,
excluding Stein Roe Money Market Fund, Variable Series, were as follows:
<TABLE>
<CAPTION>
Special Growth Balanced Mortgage
Venture Fund, Stock Fund, Fund, Securities Fund,
Variable Series Variable Series Variable Series Variable Series
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost of
investments
purchased $158,776,756 $89,683,187 $193,381,522 $40,536,526
Proceeds from
investments
sold 194,326,200 96,854,825 207,966,714 6,146,869
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
(Unaudited)
- --------------------------------------------------------------------------------
A shareholder vote was conducted at a special meeting on October 31, 1998 in
Boston, Massachusetts, for the purpose of electing a Board of Trustees for the
SteinRoe Variable Investment Trust. At the meeting, shareholders approved the
election of the following individuals: John A. Bacon Jr., William W. Boyd,
Thomas W. Butch, Lindsay Cook, Douglas A. Hacker, Janet Langford Kelly, Charles
R. Nelson and Thomas C. Theobald. Mr. Butch and Mr. Cook are considered
interested persons of the Trust, as defined in the Investment Company Act of
1940, based on their relationship with the investment adviser. Mr. Bacon has
previously served as a trustee for the SteinRoe Variable Investment Trust.
<PAGE>
Investment Adviser and Administrator
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Transfer Agent
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105
Custodian
State Street Bank & Trust Company
P.O. Box 366
Boston, MA 02101
Independent Auditors
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601
Legal Counsel
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Chicago, IL 60602
The Trustees
John A. Bacon Jr.
William W. Boyd
Thomas W. Butch
Lindsay Cook
Douglas A. Hacker
Janet Langford Kelly
Charles C. Nelson
Thomas C. Theobald
2/99
<PAGE>
