File No. 33-14954
File No. 811-5199
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[X]
Amendment No. 17 [X]
STEINROE VARIABLE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
Federal Reserve Plaza, 600 Atlantic Avenue, Boston, MA 02210
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(617) 722-6000
It is proposed that this filing become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on [date] pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule
485
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485
Heidi J. Walter Cameron S. Avery
Vice-President & Secretary Bell, Boyd & Lloyd
SteinRoe Variable Investment Trust Three First National Plaza
One South Wacker Drive 70 W. Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Name and Address of Agents for Service)
The Registrant has registered an indefinite number of shares of
beneficial interest of all existing and subsequently created
Series of the Trust under the Securities Act of 1933 pursuant to
Rule 24f-2.
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST PROSPECTUS
May 1, 1999
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Special Venture Fund, Variable Series
* Stein Roe Mortgage Securities Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This Prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST
THE FUNDS
Investment Goals
Primary Investment Strategies
Primary Investment Risks
Performance Histories
OTHER INVESTMENTS AND RISKS
TRUST MANAGEMENT ORGANIZATIONS
Trustees
Investment Adviser
Portfolio Managers
Year 2000 Compliance
FINANCIAL HIGHLIGHTS
SHAREHOLDER INFORMATION
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This Prospectus contains information about all of the
Funds in the Trust:
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Special Venture Fund, Variable Series
* Stein Roe Mortgage Securities Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
Other Funds may be added or deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS- STEIN ROE BALANCED FUND, VARIABLE SERIES
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Stein Roe Balanced Fund seeks high total investment return.
PRIMARY INVESTMENT STRATEGIES
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The Fund allocates its investments among common stocks and
securities convertible into common stocks, bonds and cash. The
Fund invests primarily in well-established companies that have
large market capitalizations. The portfolio manager may invest in
a company because it has a history of steady to improving sales or
earnings growth that the portfolio managers believe can be
sustained. They also may invest in a company because they believe
its stock is priced attractively compared to the value of its
assets. The Fund may invest up to 25 percent of its assets in
foreign stocks.
The Fund also invests at least 25 percent of its assets in bonds.
The Fund purchases bonds that are "investment grade"-that is,
within the four highest investment grades assigned by a nationally
recognized statistical rating organization. The Fund may invest
in unrated bonds if the portfolio managers believe that the
securities are investment grade quality. To select debt
securities for the Fund, the portfolio managers consider a bond's
expected income together with its potential for price gains or
losses.
The portfolio manager sets the Fund's asset allocation between
stocks, bonds and cash based upon recommendations of Stein Roe's
investment committee. The committee makes its recommendations
based upon economic, market and other factors that affect
investment opportunities.
PRIMARY INVESTMENT RISKS
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The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks and bonds, the price of the
Fund's shares-its net asset value per share (NAV)-fluctuates daily
in response to changes in the market value of the stocks and
bonds. In addition, the risks associated with the Fund's
investment strategy may cause the Fund's total return or yield to
decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
Debt Securities
The Fund's investments in debt securities, generally bonds, expose
the Fund to interest rate risk. Interest rate risk is the risk of
a decline in the price of a bond when interest rates increase. In
general, if interest rates rise, bond prices fall; and if interest
rates fall, bond prices rise. Changes in the values of bonds
usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares.
Interest rate risk is generally greater for bonds having longer
maturities.
Because the Fund may invest in fixed-income securities issued by
private entities, including corporate bonds, the Fund is subject
to issuer risk. Issuer risk is the possibility that changes in
the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions
that affect the issuer's industry may impact the issuer's ability
to make timely payment of interest or principal This could result
in decreases in the price of the security.
PERFORMANCE HISTORY
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The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
30.00
25.00 27.93 25.43
20.00 22.38
15.00 15.63 16.82 12.54
10.00
5.00 7.53 9.29
0.00
- -5.00 -0.69 -3.19
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Balanced Fund
Best quarter: _______
Worst quarter: ______
1 Year 5 Years 10 Years
Stein Roe Balanced Fund,
Variable Series 12.54% 13.05% 12.94%
S&P 500 Index* 28.60 24.05 19.19
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
INVESTMENT GOALS- STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
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Stein Roe Growth Stock Fund, Variable Series seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
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The Fund invests primarily in the common stocks of companies with
large market capitalizations. The Fund emphasizes the technology,
financial services, health care, and global consumer franchise
sectors. The Fund may invest up to 25 percent of its assets in
foreign stocks. To select investments for the Fund, the portfolio
manager considers companies that he believes will generate
earnings growth over the long term regardless of the economic
environment.
PRIMARY INVESTMENT RISKS
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The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
60.00
50.00
40.00 48.03
30.00 31.30 37.73 32.28
20.00 21.28 27.91
10.00
0.00 6.63 4.97
- -10.00 -1.65 -6.35
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Growth Stock Fund
Best quarter: _______
Worst quarter: ______
1 Year 5 years 10 Years
Stein Roe Growth Stock
Fund, Variable Series 27.91% 21.49% 18.94%
S&P 500 Index* 28.60 24.05 19.19
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
INVESTMENT GOALS- STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
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Stein Roe Special Venture Fund, Variable Series seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
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Under normal market conditions, the Fund invests at least 65
percent of its assets in common stocks of companies with small
market capitalizations. The Fund invests in new issuers during
periods when new issues are being brought to market. The Fund
also invests in midcap companies. The Fund invests in companies
that compete within large and growing markets and that appear to
have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio managers seek out
companies that are-or, in the portfolio managers' judgment, have
the potential to be-a market share leader within their respective
industry. They also look for companies with strong management
teams that participate in the ownership of the companies.
PRIMARY INVESTMENT RISKS
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The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the Russell 2000 Index, a broad-
based measure of market performance. The chart and table are
intended to illustrate some of the risks of investing in the Fund
by showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
40.00
30.00 30.84 37.25 35.68
20.00 26.94
10.00 14.48 11.75
0.00 1.19 7.81
- -10.00 -8.91
- -20.00 -17.30
- -30.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Special Venture Fund
Best quarter: _______
Worst quarter: ______
1 Year 5 Years 10 Years
Stein Roe Special Venture
Fund, Variable Series -17.30% 5.06% 12.52%
Russell 2000 Index* -2.55 _.__ _.__
________
*The Russell 2000 Index is an unmanaged group of stocks that
differs from the Fund's composition; it is not available for
direct investment.
INVESTMENT GOALS-STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE
SERIES
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Stein Roe Mortgage Securities Fund, Variable Series, seeks the
highest possible level of current income, consistent with safety
of principal and maintenance of liquidity.
PRIMARY INVESTMENT STRATEGIES
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Stein Roe Mortgage Securities Fund, Variable Series, normally
invests at least 65% of its assets in the following types of
mortgage securities:
* agency pass-throughs,
* agency and whole-loan collateralized mortgage obligations
(CMOs),
* mortgage-related (home equity, home improvement and manufactured
housing) asset-backed securities and
* commercial mortgage-backed securities.
To select investments for the Fund, the portfolio manager looks
for securities within these sectors that balance the potential for
the highest yield and relative value with the prospects for
incremental capital appreciation. The portfolio manager usually
focuses on securities rated AA or higher. However, the portfolio
manager may invest in securities rated investment grade (BBB) or
higher. The portfolio manager may also buy unrated securities if
Stein Roe believes the security is comparable in quality to a
security that is rated at least investment grade.
Types of Mortgage Securities
Mortgage securities represent ownership interest in large,
diversified pools of individual home mortgage loans. Sponsors pool
together mortgages of similar rates and terms and offer them as a
security to investors. The monthly payments of principal and
interest made by homeowners are in turn passed through to the
mortgage investor.
The Fund invests in three major sectors of the mortgage securities
universe. Most mortgage securities are pooled together and
structured as pass-throughs. Monthly payments of principal and
interest from the underlying mortgage loans backing the pool are
collected by a service and "passed through" regularly to the
investor. Pass-throughs can have a fixed or an adjustable rate.
The majority of pass-through securities are issued by three
agencies:
* the Government National Mortgage Association (GNMA), also known
as "Ginnie Mae";
* the Federal National Mortgage Association (FNMA), also known as
"Fannie Mae"; or
* the Federal Home Loan Mortgage Corporation (FHLMC), also known
as "Freddie Mac."
Collateralized mortgage obligations (CMOs) are backed by either
agency or whole loan pass-throughs, which carry either fixed or
adjustable rate interest rates. Tailored to meet investor demand,
CMOs redirect principal and interest flows, thereby shifting
prepayment risk to investors that are most suited to bear such
risk. Typically, principal prepayments are paid sequentially to
separate "tranches," which create mortgage securities of short-,
medium- and long-term maturities. The Fund may buy CMOs of any
maturity tranch, depending upon the portfolio manager's judgment
regarding which tranch at the time offers the best relative value.
Asset-backed securities are securities backed by various types of
loans such as credit card, auto and home-equity loans. The Fund
generally invests in "mortgage-related" asset-backed securities,
which are backed by residential first and second lien home equity,
home improvement and manufactured housing loans.
Commercial mortgage-backed securities are secured by loans to
office buildings, multi-family apartment buildings and shopping
centers. These loans usually contain prepayment penalties which
provide protection from refinancing in a declining interest rate
environment.
PRIMARY INVESTMENT RISKS
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The primary risks of investing in the Fund are described below.
There are many circumstances (that are not described here) which
could cause you to lose money by investing in the Fund or prevent
the Fund from achieving its goals.
Interest rate risk is the risk of a decline in the price of a
mortgage security when interest rates rise. In general, if
interest rates rise, mortgage security prices fall; and if
interest rates fall, mortgage security prices rise. Interest rate
risk is generally greater for securities with longer maturities.
Changes in the values of securities will not affect the amount of
income the Fund receives but will affect the value of the Fund's
shares.
Prepayment risk is the possibility that, as interest rates fall,
homeowners are more likely to refinance their home mortgages. When
mortgages are refinanced, the principal on mortgage-backed
securities is paid earlier than expected. In an environment of
declining interest rates, early return of principal from
prepayments must be reinvested at lower interest rates, reducing
the expected total rate of return for mortgage securities. During
periods of rising interest rates, mortgage securities have a high
risk of declining in price. This is because higher rates lead to
slower prepayments, effectively extending the expected maturity of
the bond at a time when interest rates are rising. Prepayment
risk applies to generally all mortgage securities, regardless of
whether they represent interests in pools of fixed or adjustable
interest rate loans. The potential impact of prepayment on the
price of a mortgage-backed security may be difficult to predict
and result in greater volatility than other types of fixed income
securities.
Because the Fund may invest in securities issued by private
entities, it can at times be exposed to default risk. To protect
against these risks, the securities generally have some type of
credit enhancement, usually a senior/subordinated structure. The
portfolio manager attempts to provide that the amount of credit
enhancement in each holding subject to default is commensurate
with the credit rating assigned from the rating agencies. There
can be no assurance that the amount of credit support will be
sufficient to fully cover losses stemming from defaults of the
underlying loans.
Management risk, which exists in varying amounts in all mutual
funds, refers to the possibility that the portfolio manager may
fail to anticipate these movements or risks, or effectively
execute the Fund's strategy.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the Lehman Mortgage-Backed
Securities Index, a broad-based measure of market performance.
The chart and table are intended to illustrate some of the risks
of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
20.00
15.00 15.74
10.00 12.84 14.48
5.00 9.10 5.95 6.26 9.04 6.80
0.00 4.70
- -5.00 -1.57
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Mortgage Securities Fund
Best quarter:______
Worst quarter: _____
1 Year 5 Years 10 Years
Stein Roe Mortgage Securities
Fund, Variable Series 6.80% 6.79% 8.23%
Lehman Mortgage-Backed
Securities Index* ___ ___ ___
________
*The Lehman Mortgage-Backed Securities Index is an group of stocks
that differs from the Fund's composition; it is not available for
direct investment.
INVESTMENT GOALS-STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
- ----------------------------------------------------------------
Stein Roe Money Market Fund, Variable Series seeks high current
income, consistent with capital preservation and the maintenance
of liquidity.
PRIMARY INVESTMENT STRATEGIES
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The Fund invests in a diversified portfolio of high-quality money
market securities. Money market funds are subject to strict rules
that require them to buy individual securities that have remaining
maturities of 13 months or less, maintain an average dollar
weighted portfolio maturity of 90 days or less, and buy only high-
quality dollar-denominated obligations. The Fund invests in the
following types of money market securities:
* Securities issued or guaranteed by the U.S. Government or by its
agencies.
* Securities issued or guaranteed by the government of any foreign
country that have a long-term rating at time of purchase of A or
better (or equivalent rating) by at least one nationally
recognized bond rating agency.
* Certificates of deposit, bankers' acceptances, time deposits and
other short-term securities issued by domestic or foreign banks
or their subsidiaries or branches.
* Commercial paper of domestic or foreign issuers, including
variable rate demand notes.
* Short-term debt securities having a long-term rating at time of
purchase of A or better (or equivalent rating) by at least one
nationally recognized bond rating agency.
* Repurchase agreements.
* Other high-quality short-term obligations.
Under normal market conditions the Fund invests at least 25
percent of its total assets in securities of issuers in the
financial services industry.
PRIMARY INVESTMENT RISKS
- ----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
The Fund has maintained its NAV at $1.00 per share since inception
and will continue to try to do so. There can be no assurance that
the Fund will succeed.
An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation 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. Additionally, the Fund's yield will vary
as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest
rates.
Market risk includes interest rate risk, which is the risk of a
decline or increase in the price of a money market security when
interest rates increase or decline. In general, if interest rates
rise, prices fall; and if interest rates fall, prices rise.
Interest rate risk is generally greater for securities with longer
maturities. In addition, the Fund is subject to credit risk. If
a security's credit rating is downgraded, the Fund's income level
or share price could be reduced. Foreign securities held by the
Fund are also subject to the risks associated with foreign
investments, such as economic and political developments, seizure
or nationalization of deposits, imposition of taxes, or other
restrictions on the payment of principal and interest.
Because of the Fund's policy of investing at least 25 percent of
its assets in securities of issuers in the financial services
industry, the Fund may be affected more adversely than competing
funds by changes affecting that industry.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
10.00
8.00 9.07
6.00 7.89
4.00 5.79 5.62 5.01 5.18 5.17
2.00 3.48 2.70 3.81
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Money Market Fund
Best quarter: ______
worst quarter: _____
The seven-day current yield for Money Market Fund for the period
ended Dec. 31, 1998 was 4.72%.
OTHER INVESTMENTS AND RISKS
Each Fund's primary investment strategies and risks are described
above in its individual description. This section describes other
investments a Fund may make and the risks associated with them.
In seeking to achieve its goal, each Fund may invest in various
types of securities and engage in various investment techniques
that are not the principal focus of the Fund and, therefore, are
not described in this prospectus. These types of securities and
investment practices are discussed in the Funds' Statement of
Additional Information (SAI), which you may obtain free of charge
(see back cover).
The Funds' portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve a Fund's investment return and further
its investment goal. The portfolio managers may also be required
to sell portfolio investments to fund redemptions.
Portfolio Turnover
The Funds do not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce a Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, a Fund may invest, without limit, in high-quality debt
securities or hold assets in cash and cash equivalents. Stein Roe
is not required to take a temporary defensive position, and market
conditions may prevent such an action. A Fund may not achieve its
investment objective if it takes a defensive position.
Market Capitalization
In this prospectus, for the Funds that invest in stocks, we refer
to market capitalization as a means to distinguish among companies
based on their size. A company's market capitalization is simply
its stock price multiplied by the number of shares of stock it has
issued and outstanding. In the financial markets, companies
generally are sorted into one of three capitalization-based
categories: large capitalization (large cap); medium
capitalization (midcap); or small capitalization (small cap). We
follow this convention in this prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Funds is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Funds. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees, at the following annual rates of the average
daily net assets of the specified Fund:
Stein Roe Balanced Fund, Variable Series 0.60%
Stein Roe Growth Stock Fund, Variable Series 0.65%
Stein Roe Special Venture Fund, Variable Series 0.65%
Stein Roe Mortgage Securities Fund, Variable Series 0.55%
Stein Roe Money Market Fund, Variable Series 0.50%
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Funds.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for a
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Managers
Stein Roe Balanced Fund, Variable Series. Harvey B. Hirschhorn
has been portfolio manager of Balanced Fund since 1996. He joined
Stein Roe in 1973 and is executive vice president and chief
economist and investment strategist. Mr. Hirschhorn was
responsible for managing $615 million in mutual fund net assets at
Sept. 30, 1998.
Stein Roe Growth Stock Fund, Variable Series. Erik P. Gustafson
is portfolio manager of Growth Stock Fund and has managed Stein
Roe Growth Stock Fund and Stein Roe Young Investor Fund since
1994. Mr. Gustafson joined Stein Roe in 1992 as a portfolio
manager for privately managed accounts and is a senior vice
president. Mr. Gustafson was responsible for managing $1.4
billion in mutual fund net assets at Sept. 30, 1998.
Stein Roe Special Venture Fund, Variable Series. The portfolio
managers for Special Venture Fund are William M. Garrison and
Steven M. Salopek, who have managed the Fund since October 1998.
Mr. Garrison is a vice president of Stein Roe, which he joined in
1989. He has been an associate portfolio manager of the Stein Roe
Balanced Fund since 1995 and has been an equity research analyst
with Stein Roe since 1993. Mr. Salopek is also a vice president
of Stein Roe, which he joined in 1996 as an analyst. Prior to
joining Stein Roe, Mr. Salopek was an analyst with Banc One
Investment Advisors from 1990 to 1996.
Stein Roe Mortgage Securities Fund, Variable Series. William M.
Wadden IV has been portfolio manager of the Mortgage Securities
Fund since March, 1998. Mr. Wadden has been a senior vice
president of Stein Roe since 1995. From 1993 to 1995, he was an
Executive Vice President of CSZ Asset Management, Inc.
Stein Roe Money Market Fund, Variable Series. Jane M. Naeseth has
been portfolio manager of Money Market Fund since its inception.
She has managed Stein Roe Cash Reserves Fund since 1980. Ms.
Naeseth is a senior vice president of Stein Roe, which she joined
in 1977.
YEAR 2000 COMPLIANCE
- ----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Funds'
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Funds' service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Funds will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Funds' financial information for the last five
fiscal years. The information has been audited by KPMG Peat
Marwick LLP, whose report appears in the Trust's annual report.
The Funds' total returns presented below do not reflect the cost
of insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
STEIN ROE BALANCED FUND, VARIABLE SERIES
<TABLE>
<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 (000s) $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%
<FN>
(a) Portfolio turnover includes dollar roll transactions.
</TABLE>
STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 (000s) $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%
</TABLE>
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 (000s) $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
to average net assets (0.22)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 103% 93% 100% 132% 144%
<FN>
(a) These ratios were not materially affected by the reimbursement
of certain expenses by Stein Roe.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
</TABLE>
STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 year (000s) $96,826 $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 8% 29% 72% 112% 241%
<FN>
(a) If the Fund had paid all of its expenses and there had been
no reimbursement from Stein Roe, this ratio would have been 0.72%
and 0.71% for the years ended Dec. 31, 1996 and 1994,
respectively.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
(c) Portfolio turnover includes dollar roll transactions.
</TABLE>
STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 period (000s) $101,340 $67,137 $65,461 $64,992 $78,698
Ratio of net expenses to average
net assets 0.62% 0.65% 0.65% 0.65% 0.63%
Ratio of net investment income to
average net assets 4.99% 5.05% 4.90% 5.48% 3.73%
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How a Fund's Share Price is Determined
Each Fund's share price is its NAV next determined. NAV is the
difference between the values of a Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. New York time.
Money Market Fund. The valuation of the Money Market Fund's
securities is based on their amortized cost, which does not take
into account unrealized gains or losses, in an attempt to maintain
its NAV at $1.00 per share. The extent of any deviation between
the Fund's NAV based upon market quotations or equivalents and
$1.00 per share based on amortized cost will be examined by the
Board. If such deviation were to exceed 1/2 of 1%, the Board
would consider what action, if any, should be taken, including
selling portfolio securities, increasing, reducing, or suspending
distributions or redeeming shares in kind. Assets and securities
of the Fund for which this valuation method does not produce a
fair value are valued at a fair value determined in good faith by
the Board.
Other Funds. To calculate the NAV on a given day, we value each
stock listed or traded on a stock exchange at its latest sale
price on that day. If there are no sales that day, we value the
security at the most recently quoted bid price. We value each
over-the-counter security or National Association of Securities
Dealers Automated Quotation (Nasdaq) security as of the last sale
price for that day. We value all other over-the-counter
securities that have reliable quotes at the latest quoted bid
price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Funds with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
A Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
Each Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of each Fund consists of all dividends or
interest received by such Fund, less estimated expenses (including
the investment advisory and administrative fees). Income
dividends will be declared and distributed annually in the case of
each Fund other than Money Market Fund. With respect to Money
Market Fund, the dividends are declared daily and are reinvested
monthly in shares of Money Market Fund at the NAV per share of
$1.00. All net short-term and long-term capital gains of each
Fund, net of carry-forward losses, if any, realized during the
fiscal year, are declared and distributed periodically, no less
frequently than annually. All dividends and distributions are
reinvested in additional shares of the Fund at NAV, as of the
record date for the distributions.
<PAGE>
FOR MORE INFORMATION
- ----------------------------------------------------------------
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Funds' investments in the
Funds' semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance over the last fiscal year.
You may wish to read the Funds' Statement of Additional
Information (SAI) for more information on a Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Funds by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Funds by visiting
the following location, and you can obtain copies upon payment of
a duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST PROSPECTUS
May 1, 1999
* Stein Roe Balanced Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This Prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST
THE FUND
Investment Goals
Primary Investment Strategies
Primary Investment Risks
Performance History
OTHER INVESTMENTS AND RISKS
TRUST MANAGEMENT ORGANIZATIONS
Trustees
Investment Adviser
Portfolio Manager
Year 2000 Compliance
FINANCIAL HIGHLIGHTS
SHAREHOLDER INFORMATION
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This Prospectus contains information about Stein Roe
Balanced Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS- STEIN ROE BALANCED FUND, VARIABLE SERIES
- ----------------------------------------------------------------
Stein Roe Balanced Fund seeks high total investment return.
PRIMARY INVESTMENT STRATEGIES
- ----------------------------------------------------------------
The Fund allocates its investments among common stocks and
securities convertible into common stocks, bonds and cash. The
Fund invests primarily in well-established companies that have
large market capitalizations. The portfolio manager may invest in
a company because it has a history of steady to improving sales or
earnings growth that the portfolio managers believe can be
sustained. They also may invest in a company because they believe
its stock is priced attractively compared to the value of its
assets. The Fund may invest up to 25 percent of its assets in
foreign stocks.
The Fund also invests at least 25 percent of its assets in bonds.
The Fund purchases bonds that are "investment grade"-that is,
within the four highest investment grades assigned by a nationally
recognized statistical rating organization. The Fund may invest
in unrated bonds if the portfolio managers believe that the
securities are investment grade quality. To select debt
securities for the Fund, the portfolio managers consider a bond's
expected income together with its potential for price gains or
losses.
The portfolio manager sets the Fund's asset allocation between
stocks, bonds and cash based upon recommendations of Stein Roe's
investment committee. The committee makes its recommendations
based upon economic, market and other factors that affect
investment opportunities.
PRIMARY INVESTMENT RISKS
- ----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks and bonds, the price of the
Fund's shares-its net asset value per share (NAV)-fluctuates daily
in response to changes in the market value of the stocks and
bonds. In addition, the risks associated with the Fund's
investment strategy may cause the Fund's total return or yield to
decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
Debt Securities
The Fund's investments in debt securities, generally bonds, expose
the Fund to interest rate risk. Interest rate risk is the risk of
a decline in the price of a bond when interest rates increase. In
general, if interest rates rise, bond prices fall; and if interest
rates fall, bond prices rise. Changes in the values of bonds
usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares.
Interest rate risk is generally greater for bonds having longer
maturities.
Because the Fund may invest in fixed-income securities issued by
private entities, including corporate bonds, the Fund is subject
to issuer risk. Issuer risk is the possibility that changes in
the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions
that affect the issuer's industry may impact the issuer's ability
to make timely payment of interest or principal This could result
in decreases in the price of the security.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
30.00
25.00 27.93 25.43
20.00 22.38
15.00 15.63 16.82 12.54
10.00
5.00 7.53 9.29
0.00
- -5.00 -0.69 -3.19
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Balanced Fund
Best quarter: _______
Worst quarter: ______
1 Year 5 Years 10 Years
Stein Roe Balanced Fund,
Variable Series 12.54% 13.05% 12.94%
S&P 500 Index* 28.60 24.05 19.19
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon his judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce the Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
Market Capitalization
In this prospectus we refer to market capitalization as a means to
distinguish among companies based on their size. A company's
market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the
financial markets, companies generally are sorted into one of
three capitalization-based categories: large capitalization
(large cap); medium capitalization (midcap); or small
capitalization (small cap). We follow this convention in this
prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.60 percent of the average daily net assets of
the Fund
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
Harvey B. Hirschhorn has been portfolio manager of the Fund since
1996. He joined Stein Roe in 1973 and is executive vice president
and chief economist and investment strategist. Mr. Hirschhorn was
responsible for managing $615 million in mutual fund net assets at
Sept. 30, 1998.
Year 2000 Compliance
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Fund's financial information for the last five
fiscal years. The information has been audited by KPMG Peat
Marwick LLP, whose report appears in the Trust's annual report.
The Fund's total returns presented below do not reflect the cost
of insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
STEIN ROE BALANCED FUND, VARIABLE SERIES
<TABLE>
<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 (000s) $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%
<FN>
(a) Portfolio turnover includes dollar roll transactions.
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
The Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less estimated expenses (including
the investment advisory and administrative fees). Income
dividends will be declared and distributed annually. All net
short-term and long-term capital gains of the Fund, net of carry-
forward losses, if any, realized during the fiscal year, are
declared and distributed periodically, no less frequently than
annually. All dividends and distributions are reinvested in
additional shares of the Fund at NAV, as of the record date for
the distributions.
<PAGE>
FOR MORE INFORMATION
- ----------------------------------------------------------------
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST PROSPECTUS
May 1, 1999
* Stein Roe Growth Stock Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This Prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST
THE FUND
Investment Goals
Primary Investment Strategies
Primary Investment Risks
Performance History
OTHER INVESTMENTS AND RISKS
TRUST MANAGEMENT ORGANIZATIONS
Trustees
Investment Adviser
Portfolio Manager
Year 2000 Compliance
FINANCIAL HIGHLIGHTS
SHAREHOLDER INFORMATION
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This Prospectus contains information about Stein Roe
Growth Stock Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS- STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
- ----------------------------------------------------------------
Stein Roe Growth Stock Fund, Variable Series seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- ----------------------------------------------------------------
The Fund invests primarily in the common stocks of companies with
large market capitalizations. The Fund emphasizes the technology,
financial services, health care, and global consumer franchise
sectors. The Fund may invest up to 25 percent of its assets in
foreign stocks. To select investments for the Fund, the portfolio
manager considers companies that he believes will generate
earnings growth over the long term regardless of the economic
environment.
PRIMARY INVESTMENT RISKS
- ----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
60.00
50.00
40.00 48.03
30.00 31.30 37.73 32.28
20.00 21.28 27.91
10.00
0.00 6.63 4.97
- -10.00 -1.65 -6.35
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Growth Stock Fund
Best quarter: _______
Worst quarter: ______
1 Year 5 years 10 Years
Stein Roe Growth Stock
Fund, Variable Series 27.91% 21.49% 18.94%
S&P 500 Index* 28.60 24.05 19.19
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon his judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce the Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
Market Capitalization
In this prospectus we refer to market capitalization as a means to
distinguish among companies based on their size. A company's
market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the
financial markets, companies generally are sorted into one of
three capitalization-based categories: large capitalization
(large cap); medium capitalization (midcap); or small
capitalization (small cap). We follow this convention in this
prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.65 percent of the average daily net assets of
the Fund
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
Erik P. Gustafson is portfolio manager of the Fund and has managed
Stein Roe Growth Stock Fund and Stein Roe Young Investor Fund
since 1994. Mr. Gustafson joined Stein Roe in 1992 as a portfolio
manager for privately managed accounts and is a senior vice
president. Mr. Gustafson was responsible for managing $1.4
billion in mutual fund net assets at Sept. 30, 1998.
Year 2000 Compliance
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Fund's financial information for the last five
fiscal years. The information has been audited by KPMG Peat
Marwick LLP, whose report appears in the Trust's annual report.
The Fund's total returns presented below do not reflect the cost
of insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 (000s) $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%
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
The Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less estimated expenses (including
the investment advisory and administrative fees). Income
dividends will be declared and distributed annually. All net
short-term and long-term capital gains of the Fund, net of carry-
forward losses, if any, realized during the fiscal year, are
declared and distributed periodically, no less frequently than
annually. All dividends and distributions are reinvested in
additional shares of the Fund at NAV, as of the record date for
the distributions.
<PAGE>
FOR MORE INFORMATION
- ----------------------------------------------------------------
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST PROSPECTUS
May 1, 1999
* Stein Roe Special Venture Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This Prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST
THE FUND
Investment Goals
Primary Investment Strategies
Primary Investment Risks
Performance History
OTHER INVESTMENTS AND RISKS
TRUST MANAGEMENT ORGANIZATIONS
Trustees
Investment Adviser
Portfolio Managers
Year 2000 Compliance
FINANCIAL HIGHLIGHTS
SHAREHOLDER INFORMATION
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This Prospectus contains information about Stein Roe
Special Venture Fund, Variable Series. Other Funds may be added
or deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS- STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
- ----------------------------------------------------------------
Stein Roe Special Venture Fund, Variable Series seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- ----------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65
percent of its assets in common stocks of companies with small
market capitalizations. The Fund invests in new issuers during
periods when new issues are being brought to market. The Fund
also invests in midcap companies. The Fund invests in companies
that compete within large and growing markets and that appear to
have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio managers seek out
companies that are-or, in the portfolio managers' judgment, have
the potential to be-a market share leader within their respective
industry. They also look for companies with strong management
teams that participate in the ownership of the companies.
PRIMARY INVESTMENT RISKS
- ----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and ten
years. We compare the Fund to the Russell 2000 Index, a broad-
based measure of market performance. The chart and table are
intended to illustrate some of the risks of investing in the Fund
by showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
40.00
30.00 30.84 37.25 35.68
20.00 26.94
10.00 14.48 11.75
0.00 1.19 7.81
- -10.00 -8.91
- -20.00 -17.30
- -30.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Special Venture Fund
Best quarter: _______
Worst quarter: ______
1 Year 5 Years 10 Years
Stein Roe Special Venture
Fund, Variable Series -17.30% 5.06% 12.52%
Russell 2000 Index* -2.55 _.__ _.__
________
*The Russell 2000 Index is an unmanaged group of stocks that
differs from the Fund's composition; it is not available for
direct investment.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve the Fund's investment return and further
its investment goal. The portfolio managers may also be required
to sell portfolio investments to fund redemptions.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce the Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
Market Capitalization
In this prospectus we refer to market capitalization as a means to
distinguish among companies based on their size. A company's
market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the
financial markets, companies generally are sorted into one of
three capitalization-based categories: large capitalization
(large cap); medium capitalization (midcap); or small
capitalization (small cap). We follow this convention in this
prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.65 percent of the average daily net assets of
the Fund
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Managers
The portfolio managers for the Fund are William M. Garrison and
Steven M. Salopek, who have managed the Fund since October 1998.
Mr. Garrison is a vice president of Stein Roe, which he joined in
1989. He has been an associate portfolio manager of the Stein Roe
Balanced Fund since 1995 and has been an equity research analyst
with Stein Roe since 1993. Mr. Salopek is also a vice president
of Stein Roe, which he joined in 1996 as an analyst. Prior to
joining Stein Roe, Mr. Salopek was an analyst with Banc One
Investment Advisors from 1990 to 1996.
Year 2000 Compliance
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Fund's financial information for the last five
fiscal years. The information has been audited by KPMG Peat
Marwick LLP, whose report appears in the Trust's annual report.
The Fund's total returns presented below do not reflect the cost
of insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 (000s) $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
to average net assets (0.22)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 103% 93% 100% 132% 144%
<FN>
(a) These ratios were not materially affected by the reimbursement
of certain expenses by Stein Roe.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price.
We will not price shares on days that the NYSE is closed for
trading and Participating Insurance Companies may not purchase or
redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less estimated expenses (including
the investment advisory and administrative fees). Income
dividends will be declared and distributed annually. All net
short-term and long-term capital gains of the Fund, net of carry-
forward losses, if any, realized during the fiscal year, are
declared and distributed periodically, no less frequently than
annually. All dividends and distributions are reinvested in
additional shares of the Fund at NAV, as of the record date for
the distributions.
<PAGE>
FOR MORE INFORMATION
- ----------------------------------------------------------------
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST PROSPECTUS
May 1, 1999
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This Prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST
THE FUND
Investment Goals
Primary Investment Strategies
Primary Investment Risks
Performance History
OTHER INVESTMENTS AND RISKS
TRUST MANAGEMENT ORGANIZATIONS
Trustees
Investment Adviser
Portfolio Manager
Year 2000 Compliance
FINANCIAL HIGHLIGHTS
SHAREHOLDER INFORMATION
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This Prospectus contains information about Stein Roe
Money Market Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
- ----------------------------------------------------------------
Stein Roe Money Market Fund, Variable Series seeks high current
income, consistent with capital preservation and the maintenance
of liquidity.
PRIMARY INVESTMENT STRATEGIES
- ----------------------------------------------------------------
The Fund invests in a diversified portfolio of high-quality money
market securities. Money market funds are subject to strict rules
that require them to buy individual securities that have remaining
maturities of 13 months or less, maintain an average dollar
weighted portfolio maturity of 90 days or less, and buy only high-
quality dollar-denominated obligations. The Fund invests in the
following types of money market securities:
* Securities issued or guaranteed by the U.S. Government or by its
agencies.
* Securities issued or guaranteed by the government of any foreign
country that have a long-term rating at time of purchase of A or
better (or equivalent rating) by at least one nationally
recognized bond rating agency.
* Certificates of deposit, bankers' acceptances, time deposits and
other short-term securities issued by domestic or foreign banks
or their subsidiaries or branches.
* Commercial paper of domestic or foreign issuers, including
variable rate demand notes.
* Short-term debt securities having a long-term rating at time of
purchase of A or better (or equivalent rating) by at least one
nationally recognized bond rating agency.
* Repurchase agreements.
* Other high-quality short-term obligations.
Under normal market conditions the Fund invests at least 25
percent of its total assets in securities of issuers in the
financial services industry.
PRIMARY INVESTMENT RISKS
- ----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
The Fund has maintained its NAV at $1.00 per share since inception
and will continue to try to do so. There can be no assurance that
the Fund will succeed.
An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation 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. Additionally, the Fund's yield will vary
as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest
rates.
Market risk includes interest rate risk, which is the risk of a
decline or increase in the price of a money market security when
interest rates increase or decline. In general, if interest rates
rise, prices fall; and if interest rates fall, prices rise.
Interest rate risk is generally greater for securities with longer
maturities. In addition, the Fund is subject to credit risk. If
a security's credit rating is downgraded, the Fund's income level
or share price could be reduced. Foreign securities held by the
Fund are also subject to the risks associated with foreign
investments, such as economic and political developments, seizure
or nationalization of deposits, imposition of taxes, or other
restrictions on the payment of principal and interest.
Because of the Fund's policy of investing at least 25 percent of
its assets in securities of issuers in the financial services
industry, the Fund may be affected more adversely than competing
funds by changes affecting that industry.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
10.00
8.00 9.07
6.00 7.89
4.00 5.79 5.62 5.01 5.18 5.17
2.00 3.48 2.70 3.81
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Money Market Fund
Best quarter: ______
worst quarter: _____
The seven-day current yield for Money Market Fund for the period
ended Dec. 31, 1998 was 4.72%.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon her judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.50 percent of the average daily net assets of
the Fund.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Portfolio Manager
Jane M. Naeseth has been portfolio manager of the Fund since its
inception. She has managed Stein Roe Cash Reserves Fund since
1980. Ms. Naeseth is a senior vice president of Stein Roe, which
she joined in 1977.
Year 2000 Compliance
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Fund's financial information for the last five
fiscal years. The information has been audited by KPMG Peat
Marwick LLP, whose report appears in the Trust's annual report.
The Fund's total returns presented below do not reflect the cost
of insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
For years ending 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 period (000s) $101,340 $67,137 $65,461 $64,992 $78,698
Ratio of net expenses to average
net assets 0.62% 0.65% 0.65% 0.65% 0.63%
Ratio of net investment income to
average net assets 4.99% 5.05% 4.90% 5.48% 3.73%
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. New York time.
The valuation of the Fund's securities is based on their amortized
cost, which does not take into account unrealized gains or losses,
in an attempt to maintain its NAV at $1.00 per share. The extent
of any deviation between the Fund's NAV based upon market
quotations or equivalents and $1.00 per share based on amortized
cost will be examined by the Board. If such deviation were to
exceed 1/2 of 1%, the Board would consider what action, if any,
should be taken, including selling portfolio securities,
increasing, reducing, or suspending distributions or redeeming
shares in kind. Assets and securities of the Fund for which this
valuation method does not produce a fair value are valued at a
fair value determined in good faith by the Board.
The Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less estimated expenses (including
the investment advisory and administrative fees). Dividends are
declared daily and are reinvested monthly in shares of the Fund at
the NAV per share of $1.00. All net short-term and long-term
capital gains of the Fund, net of carry-forward losses, if any,
realized during the fiscal year, are declared and distributed
periodically, no less frequently than annually. All dividends and
distributions are reinvested in additional shares of the Fund at
NAV, as of the record date for the distributions.
<PAGE>
FOR MORE INFORMATION
- ----------------------------------------------------------------
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
Federal Reserve Plaza
600 Atlantic Avenue, Boston, Massachusetts 02210
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1999
This Statement of Additional Information (SAI) is not a
prospectus, but provides additional information which should be
read in conjunction with the Trust's Prospectus dated May 1, 1999
and any supplement thereto. Financial statements, which are
contained in the Funds' Annual Report, are incorporated by
reference into this SAI. The Prospectus and Annual Report may be
obtained at no charge by calling Keyport Financial Services Corp.
at (800) 437-4466, or by contacting the applicable Participating
Insurance Company, or the broker-dealers offering certain variable
annuity contracts or variable life insurance policies issued by
the Participating Insurance Company.
TABLE OF CONTENTS
Page
General Information and History.........................2
Mixed and Shared Funding................................3
Investment Restrictions.................................4
Portfolio Turnover......................................7
Purchases And Redemptions...............................8
Trustees and Officers...................................8
Management Arrangements................................12
Trust Charges and Expenses.............................13
Custodian..............................................14
Portfolio Transactions.................................14
Net Asset Value........................................18
Taxes..................................................19
Investment Performance.................................20
Record Shareholders....................................22
Independent Auditors and Financial Statements..........22
Appendix A - Investment Techniques and Securities......24
<PAGE>
GENERAL INFORMATION AND HISTORY
The SteinRoe Variable Investment Trust (the Trust) commenced
operations on Jan. 1, 1989. The Trust is an open-end, diversified
management investment company currently consisting of five Funds
with differing investment objectives, policies and restrictions.
Currently, the Trust consists of Stein Roe Special Venture Fund,
Variable Series (Special Venture Fund), Stein Roe Growth Stock
Fund, Variable Series (Growth Stock Fund), Stein Roe Balanced
Fund, Variable Series (Balanced Fund), Stein Roe Mortgage
Securities Fund, Variable Series (Mortgage Securities Fund) and
Stein Roe Money Market Fund, Variable Series (Money Market Fund)
(individually referred to as a Fund, or by the defined name
indicated, or collectively as the Funds). Prior to Nov. 15, 1997,
Stein Roe Special Venture Fund was named Capital Appreciation
Fund, Growth Stock Fund was named Managed Growth Stock Fund,
Balanced Fund was named Managed Assets Fund, Mortgage Securities
Fund was named Mortgage Securities Income Fund, and Money Market
Fund was named Cash Income Fund.
The Trust issues shares of beneficial interest in each Fund
that represent interests in a separate portfolio of securities and
other assets. The Trust may add or delete Funds from time to
time. The Trust is the funding vehicle for variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) offered by the separate accounts of life insurance
companies (Participating Insurance Companies).
The Trust was organized under an Agreement and Declaration of
Trust (Declaration of Trust) as a Massachusetts business trust on
June 9, 1987. The Declaration of Trust may be amended by a vote
of either the Trust's shareholders or the Board. The Trust is
authorized to issue an unlimited number of shares of beneficial
interest without par value, in one or more series as the Board may
authorize. Each Fund is a separate series of the Trust.
Each share of a Fund is entitled to participate pro rata in
any dividends and other distributions declared by the Board with
respect to that Fund, and all shares of a Fund have equal rights
in the event of liquidation of that Fund.
Shareholders of a Fund are entitled to one vote for each
share of that Fund held on any matter presented to shareholders.
Shares of the Funds will vote separately as individual series when
required by the 1940 Act or other applicable law or when the Board
determines that the matter affects only the interests of one or
more Funds, such as, for example, a proposal to approve an
amendment to that Fund's Advisory Agreement, but shares of all the
Funds vote together, to the extent required by the 1940 Act, in
the election or selection of Trustees and independent accountants.
The shares do not have cumulative voting rights, which means
that the holders of more than 50% of the shares of the Funds
voting for the election of Trustees can elect all of the Trustees,
and, in such event, the holders of the remaining shares will not
be able to elect any Trustees.
The Funds are not required by law to hold regular annual
meetings of their shareholders and do not intend to do so.
However, special meetings may be called for purposes such as
electing or removing Trustees or changing fundamental policies.
The Trust is required to hold a shareholders' meeting to
elect Trustees to fill vacancies in the event that less than a
majority of Trustees were elected by shareholders. Trustees may
also be removed by the vote of two-thirds of the outstanding
shares at a meeting called at the request of shareholders whose
interests represent 10% or more of the outstanding shares.
Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the Trust's Declaration of
Trust disclaims liability of the shareholders, the Trustees, or
officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust (or the
applicable Fund thereof) and requires that notice of such
disclaimer be given in each agreement, obligation, or contract
entered into or executed by the Trust or the Board. The
Declaration of Trust provides for indemnification out of the
Trust's assets (or the applicable Fund) for all losses and
expenses of any shareholder held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote because it is limited to circumstances in
which the disclaimer is inoperative and the Trust itself is unable
to meet its obligations. The risk to any one Fund of sustaining a
loss on account of liabilities incurred by another Fund also is
believed to be remote.
MIXED AND SHARED FUNDING
As described above, the Trust serves as a funding medium for
VA contracts and VLI policies of Participating Insurance
Companies, so-called mixed and shared funding. As of the date of
this SAI, the Participating Insurance Companies are Keyport Life
Insurance Company (Keyport), Independence Life & Annuity Company
(a wholly owned subsidiary of Keyport) (Independence), American
Benefit Life Insurance Company (also a wholly owned subsidiary of
Keyport) (American Benefit), Liberty Life Assurance Company of
Boston (an affiliate of Liberty Mutual Insurance Company) (Liberty
Life), and, with respect to Special Venture Fund, Transamerica
Occidental Life Insurance Company, First Transamerica Life
Insurance Company, Great-West Life & Annuity Insurance Company and
Providian Life and Health Insurance Company. Keyport is an
indirect wholly owned subsidiary of Liberty Financial Companies,
Inc. (LFC). As of March 31, 1999, approximately ___% of the
combined voting power of LFC's outstanding voting stock was held
by Liberty Mutual Insurance Company (Liberty Mutual). One or more
of the Funds may from time to time become funding vehicles for VA
contracts or VLI policies of other Participation Insurance
Companies, including other entities not affiliated with Keyport,
LFC or Liberty Mutual.
The interests of owners of VA contracts and VLI policies
could diverge based on differences in state regulatory
requirements, changes in the tax laws or other unanticipated
developments. The Trust does not foresee any such differences or
disadvantages at this time. However, the Trustees will monitor
for such developments to identify any material irreconcilable
conflicts and to determine what action, if any, should be taken in
response to such conflicts. If such a conflict were to occur, one
or more separate accounts might be required to withdraw its
investments in one or more Funds or shares of another Fund may be
substituted. This might force a Fund to sell securities at
disadvantageous prices.
INVESTMENT RESTRICTIONS
Each Fund operates under the investment restrictions listed
below. Restrictions numbered (i) through (viii) are fundamental
policies which may not be changed for a Fund without approval of a
majority of the outstanding voting shares of a Fund, defined as
the lesser of the vote of (a) 67% of the shares of a Fund at a
meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding
shares of a Fund. Other restrictions are not fundamental policies
and may be changed with respect to a Fund by the Trustees without
shareholder approval.
The following investment restrictions apply to each Fund
except as otherwise indicated. A Fund may not:
(i) with respect to 75% of the value of the total assets of a
Fund, invest more than 5% of the value of its total assets,
taken at market value at the time of a particular purchase,
in the securities of any one issuer, except (a) securities
issued or guaranteed by the U.S. government or its agencies
or instrumentalities, and (b) [with respect to Money Market
Fund only] certificates of deposit, bankers' acceptances and
repurchase agreements;
(ii) purchase securities of any one issuer if more than 10% of
the outstanding voting securities of such issuer would at
the time be held by the Fund;
(iii) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities
Act of 1933 on disposition of securities acquired subject to
legal or contractual restrictions on resale;
(iv) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase)
would be invested in the securities of issuers in any
particular industry, except that this restriction does not
apply to: (i) securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (ii) [with
respect to Money Market Fund only] certificates of deposit
and bankers' acceptances and repurchase agreements or (iii)
[as to Money Market Fund only] securities of issuers in the
financial services industry;
(v) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, and
securities issued by companies which invest in real estate
or interests therein), commodities or commodity contracts
(except that it may enter into (a) futures and options on
futures and (b) forward contracts);
(vi) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions),
make short sales of securities, or participate on a joint or
a joint and several basis in any trading account in
securities (except in connection with transactions in
options, futures, and options on futures);
(vii) make loans, but this restriction shall not prevent a Fund
from (a) buying a part of an issue of bonds, debentures, or
other obligations which are publicly distributed, or from
investing up to an aggregate of 15% of its total assets
(taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of
a type privately placed with financial institutions, (b)
investing in repurchase agreements, or (c) lending portfolio
securities, provided that it may not lend securities if, as
a result, the aggregate value of all securities loaned would
exceed 15% of its total assets (taken at market value at the
time of such loan); or
(viii) borrow, except that it may (a) borrow up to 33 1/3% of its
total assets from banks, taken at market value at the time
of such borrowing, as a temporary measure for extraordinary
or emergency purposes, but not to increase portfolio income
(the total of reverse repurchase agreements and such
borrowings will not exceed 33 1/3% of its total assets, and
the Fund will not purchase additional securities when its
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of its total assets) and (b) enter
into transactions in options, futures, and options on
futures.
Each Fund is also subject to the following restrictions and
policies, which are not fundamental and may be changed by the
Trustees without shareholder approval. A Fund may not:
(a) invest in companies for the purpose of exercising control or
management;
(b) purchase more than 3% of the stock of another investment
company; or purchase stock of other investment companies equal
to more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and
10% of such assets (valued at the time of purchase) in the
case of all other investment companies in the aggregate; any
such purchases are to be made in the open market where no
profit to a sponsor or dealer results from the purchase, other
than the customary broker's commission, except for securities
acquired as part of a merger, consolidation or acquisition of
assets;
(c) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by it,
except as may be necessary in connection with (i) permitted
borrowings and (ii) options, futures and options on futures;
(d) issue senior securities, except to the extent permitted by the
Investment Company Act of 1940 (including permitted
borrowings);
(e) purchase portfolio securities for the Fund from, or sell
portfolio securities to, any of the officers and directors or
Trustees of the Trust or of its investment adviser;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchanges;
(g) write an option on a security unless the option is issued by
the Options Clearing Corporation, an exchange or similar
entity;
(h) buy or sell an option on a security, a futures contract or an
option on a futures contract unless the option, the futures
contract or the option on the futures contract is offered
through the facilities of a recognized securities association
or listed on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums paid
for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-
money), excluding put and call options purchased as closing
transactions; or
(j) invest more than 15% [except as to Money Market Fund, 10%] of
the Fund's net assets (taken at market value at the time of
each purchase) in illiquid securities including repurchase
agreements maturing in more than seven days.
Further, as to Money Market Fund with respect to 100% of its
assets, SEC rules prohibit the Fund from investing more than 5% of
its assets, taken at market value at the time of purchase, in the
securities of any one issuer; provided that (i) the Fund may
invest more than 5% of its assets in securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities and (ii) the Fund may invest more than 5% of its
assets for a period of up to three business days after the
purchase thereof (but not more than 25% of its assets) in the
securities of any one first-tier issuer (as determined by
Securities and Exchange Commission rules); provided, further,
that the Fund may not make more than one investment in accordance
with this exception at any one time.
Under normal market conditions, Money Market Fund will invest
at least 25% of its assets in securities of issuers in the
financial services industry. This policy may cause the Fund to be
more adversely affected by changes in market or economic
conditions and other circumstances affecting the financial
services industry. The financial services industry includes
issuers that, according to the Directory of Companies Required to
File Annual Reports with the Securities and Exchange Commission
(the Commission), are in the following categories: state banks;
national banks; savings and loan holding companies; personal
credit institutions; business credit institutions; mortgage-backed
securities; finance-services; security and commodity brokers,
dealers and services; life, accident and health insurance
carriers; fire, marine, casualty and surety insurance carriers;
insurance agents, brokers and services.
Additional Voluntary Restrictions Pertaining to Special Venture
Fund
Special Venture Fund also is subject to the following
additional restrictions and policies under certain applicable
insurance laws pertaining to variable annuity contract separate
accounts. These policies and restrictions are not fundamental and
may be changed by the Trustees without shareholder approval:
The borrowing limits for the Fund are (1) 10% of net asset
value when borrowing for any general purpose and (2) 25% of net
asset value when borrowing as a temporary measure to facilitate
redemptions. For this purpose, net asset value is the market
value of all investments or assets owned less outstanding
liabilities of the Fund at the time that any new or additional
borrowing is undertaken.
The Fund also will be subject to the following
diversification guidelines pertaining to investments in foreign
securities:
1. The Fund will be invested in a minimum of five different
foreign countries at all times when it holds investments in
foreign securities. However, this minimum is reduced to four when
foreign country investments comprise less than 80% of the Fund's
net asset value; to three when less than 60% of such value; to two
when less than 40%, and to one when less than 20%.
2. Except as set forth in item 3 below, the Fund will have no more
than 20% of its net asset value invested in securities of issuers
located in any one foreign country.
3. The Fund may have an additional 15% of its value invested in
securities of issuers located in any one of the following
countries: Australia, Canada, France, Japan, the United Kingdom or
Germany.
If a percentage limit with respect to any of the foregoing
fundamental and non-fundamental policies is satisfied at the time
of investment or borrowing, a later increase or decrease in a
Fund's assets will not constitute a violation of the limit.
PORTFOLIO TURNOVER
The portfolio turnover of each Fund will vary from year to
year. Although no Fund will trade in securities for short-term
profits, when circumstances warrant securities may be sold without
regard to the length of time held. Portfolio turnover for each
Fund (other than Money Market Fund) is shown under "FINANCIAL
HIGHLIGHTS" in the Prospectus. See "OTHER INVESTMENTS AND RISKS"
in the Prospectus for a discussion of certain factors which may
produce relatively high turnover in certain of the Funds.
A 100% turnover rate would occur if all of the securities in
the portfolio were sold and either repurchased or replaced within
one year. The Funds pay brokerage commissions in connection with
options and futures transactions and effecting closing purchase or
sale transactions, as well as for the purchases and sales of other
portfolio securities other than fixed income securities. If a Fund
writes a substantial number of call or put options (on securities
or indexes) or engages in the use of futures contracts or options
on futures contracts (all referred to as "Collateralized
Transactions), and the market prices of the securities underlying
the Collateralized Transactions move inversely to the
Collateralized Transaction, there may be a very substantial
turnover of the portfolios.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the heading "SHAREHOLDER INFORMATION."
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (NYSE) is open for trading. The NYSE
is regularly closed on Saturdays and Sundays and on New Year's
Day, the third Monday in January, the third Monday in February,
Good Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Trustees, the net asset value of a Fund should
be determined on any such day, in which case the determination
will be made at 4:00 p.m., Eastern time.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Commission, or the NYSE is closed for other than customary weekend
and holiday closing; (b) the Commission has by order permitted
such suspension; or (c) an emergency, as determined by the
Commission, exists, making disposal of portfolio securities or the
valuation of net assets of such Fund not reasonably practicable.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Funds. The following table
sets forth certain information with respect to the Trustees and
officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name with the Trust during past five years
- ------------------ ------------------------ -----------------------------------
<S> <C> <C>
William D. Andrews, 51 Executive Vice-President Executive vice president of Stein Roe & Farnham
Incorporated (Stein Roe)
Gary A. Anetsberger, 43 Senior Vice-President; Chief financial officer and chief administrative
Controller officer of the Mutual Funds division of Stein
Roe; senior vice president of Stein Roe since
April 1996; vice president of Stein Roe prior thereto
John A. Bacon Jr., 71 (3) Trustee Private investor
William W. Boyd, 72 (2)(3) Trustee Chairman and director of Sterling Plumbing
(manufacturer of plumbing products)
Thomas W. Butch, 42 Trustee; President President of the Mutual Funds division of Stein
Roe since March 1998; senior vice president of
Stein Roe from Sept. 1994 to March 1998; first
vice president, corporate communications, of
Mellon Bank Corporation prior thereto
Kevin M. Carome, 43 Vice-President; Senior vice president, legal, COGRA LLC (an affiliate
Assistant Secretary of Stein Roe) since Jan. 1999; general counsel
and secretary of Stein Roe since Jan. 1998;
associate general counsel and vice president
of Liberty Financial Companies, Inc. (the indirect
parent of Stein Roe) through Jan. 1999
J. Kevin Connaughton, 34 Vice-President Vice president of Colonial Management Associates, Inc.
(CMA) , since Feb. 1998; senior tax manager, Coopers &
Lybrand, LLP from April, 1996 to Jan. 1998; vice
president, 440 Financial Group/First Data Investor
Services Group from March1994 to April 1996
Lindsay Cook, 47 (1)(2) Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of Stein Roe)
since March 1997; senior vice president prior thereto
William M. Garrison, 33 Vice-President Vice president of Stein Roe since Feb. 1998; associate
portfolio manager for Stein Roe from August 1994 to
Feb. 1998
Erik P. Gustafson, 35 Vice-President Senior portfolio manager of Stein Roe; senior vice
president of Stein Roe since April 1996; vice
president of Stein Roe from May 1994 to April 1996;
associate of Stein Roe prior thereto
Douglas A. Hacker, 43 (3) Trustee Senior vice president and chief financial officer of
UAL, Inc. (airline) since July 1994; senior vice
president, finance of UAL, Inc. prior thereto
Loren A. Hansen, 51 Executive Vice-President Chief investment officer/equity of CMA since 1997;
executive vice president of Stein Roe since Dec. 1995;
vice president of The Northern Trust (bank) prior
thereto
Harvey B. Hirschhorn, 49 Vice-President Executive vice president, senior portfolio manager,
and chief economist and investment strategist of Stein
Roe; director of research of Stein Roe, 1991 to 1995
Timothy J. Jacoby, 46 Vice-President Fund treasurer for The Colonial Group since Sept.
1996; chief financial officer for Fidelity Investments
since August 1997; senior vice president of Fidelity
Investments from Sept. 1993 to Sept. 1996
Janet Langford Kelly, 41 Trustee Senior vice president, secretary and general counsel
(3) of Sara Lee Corporation (branded, packaged, consumer-
products manufacturer) since 1995; partner of Sidley &
Austin (law firm) prior thereto
Gail D. Knudsen, 36 Vice-President Vice president and assistant controller of CMA
Jane M. Naeseth, 49 Vice-President Senior vice president of Stein Roe
Charles R. Nelson, 56 (3) Trustee Van Voorhis Professor of Political Economy, Department
of Economics of the University of Washington
Nicolette D. Parrish, 49 Vice-President; Senior legal assistant and assistant secretary of
Assistant Secretary Stein Roe
Janet B. Rysz, 43 Assistant Secretary Senior legal assistant and assistant secretary of
Stein Roe
Steven M. Salopek, 35 Vice-President Vice president of Stein Roe since Feb. 1998; analyst
for Stein Roe from June 1996 to Feb. 1998; analyst for
Banc One Investment Advisors from Nov. 1990 to May
1996
Thomas C. Theobald, 61 (3) Trustee Managing director, William Blair Capital Partners
(private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Sharlene Thomas, __ Vice-President Employee of Stein Roe
Scott E. Volk, 27 Treasurer Financial reporting manager for Stein Roe 's Mutual
Funds division since Oct. 1997; senior auditor with
Ernst & Young LLP from Sept. 1993 to April 1996 and
from Oct. 1996 to Sept. 1997; financial analyst with
John Nuveen & Company Inc. from May 1996 to Sept. 1996
William M. Wadden IV, 41 Vice-President Vice president of Stein Roe since 6/95; executive vice
president of CSI Asset Management, Inc. prior thereto
Heidi J. Walter, 31 Vice-President; Secretary Vice president of Stein Roe since March 1998; senior
legal counsel for Stein Roe since Feb. 1998; legal
counsel for Stein Roe March 1995 to Jan. 1998;
associate with Beeler Schad & Diamond, PC (law firm)
prior thereto
<FN>
_________________________
(1) Trustee who is an "interested person" of the Trust and of
Stein Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>
Certain Trustees and officers of the Trust also hold
positions with Stein Roe & Farnham Incorporated, LFC and/or their
affiliates. Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by
Stein Roe. The address of Mr. Bacon is 4N640 Honey Hill Road, Box
296, Wayne, IL 60184; that of Mr. Boyd is 2900 Golf Road, Rolling
Meadows, IL 60008; that of Mr. Cook is 600 Atlantic Avenue,
Boston, MA 02210; that of Mr. Hacker is P.O. Box 66100, Chicago,
IL 60666; that of Ms. Kelly is Three First National Plaza,
Chicago, IL 60602; that of Mr. Nelson is Department of Economics,
University of Washington, Seattle, WA 98195; that of Mr. Theobald
is Suite 3300, 222 West Adams Street, Chicago, IL 60606; that of
Mr. Cantor is 1330 Avenue of the Americas, New York, NY 10019;
that of Ms. Knudsen and Messrs. Connaughton and Jacoby is One
Financial Center, Boston, MA 02111; and that of the other officers
is One South Wacker Drive, Chicago, IL 60606.
Compensation of Trustees
The table set forth below presents certain information
regarding the fees paid to the Trustees for their services in such
capacity and total fees paid to them by all other investment
companies affiliated with the Trust. The Trustees are paid an
annual retainer plus an attendance fee for each meeting of the
Board or standing committee thereof attended. Trustees do not
receive any pension or retirement benefits from the Trust. No
officers of the Trust or other individuals who are affiliated with
the Trust receive any compensation from the Trust for services
provided to it.
Compensation from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Thomas W. Butch (1) -0- -0- -0-
Richard R. Christensen (2) -0- -0- -0-
Lindsay Cook (1) -0- -0- -0-
John A. Bacon Jr.
William W. Boyd (1)
Douglas A. Hacker (1)
Janet Langford Kelly (1)
Salvatore Macera (2)
Charles R. Nelson (1)
Thomas E. Stitzel (2)
Thomas C. Theobald (1)
_______________
(1) Elected a trustee of the Trust on Oct. 30, 1998.
(2) Served as a trustee of the Trust until Oct. 30, 1998.
(3) At Dec. 31, 1998, the Stein Roe Fund Complex consisted of five
series of the Trust, 11 series of Stein Roe Investment Trust,
six series of Stein Roe Advisor Trust, four series of Stein
Roe Income Trust, four series of Stein Roe Municipal Trust,
one series of Stein Roe Trust, 13 portfolios of SR&F Base
Trust, Stein Roe Floating Rate Income Fund, Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe
Floating Rate Limited Liability Company. For Messrs. Bacon,
Macera and Stitzel, this also includes trustee fees paid by
Liberty Variable Investment Trust.
MANAGEMENT ARRANGEMENTS
As described in the Prospectus, the portfolio of each Fund is
managed by Stein Roe & Farnham Incorporated (Stein Roe). Each
Fund has its own Advisory Agreement with Stein Roe. Stein Roe is
a wholly owned direct subsidiary of SteinRoe Services Inc., which
in turn is a wholly owned direct subsidiary of LFC. LFC, in turn,
is a majority owned indirect subsidiary of Liberty Mutual.
The directors of Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., Hans P. Ziegler and Thomas W. Butch. Mr. Leibler is
President and Chief Executive Officer of LFC; Mr. Merritt is
Chief Operating Officer of LFC; Mr. Ziegler is Chief Executive
Officer of Stein Roe; and Mr. Butch is President of Stein Roe's
Mutual Funds division. The business address of Messrs. Leibler
and Merritt is Federal Reserve Plaza, 600 Atlantic Avenue, Boston,
Massachusetts 02210; that of Messrs. Ziegler and Butch is One
South Wacker Drive, Chicago, Illinois 60606.
Stein Roe, at its own expense, provides office space,
facilities and supplies, equipment and personnel for the
performance of its functions under each Fund's Advisory Agreement
and pays all compensation of the Trustees, officers and employees
who are employees of Stein Roe.
Each Fund's Advisory Agreement provides that neither Stein
Roe nor any of its directors, officers, stockholders (or partners
of stockholders), agents, or employees shall have any liability to
the Trust or any shareholder of the Fund for any error or
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
Stein Roe of its duties under the Advisory Agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on the part of Stein Roe in the performance of its
duties or from reckless disregard by Stein Roe of its obligations
and duties under the Advisory Agreement.
Under an Administration Agreement with the Trust, Stein Roe
provides each Fund with administrative services, excluding
investment advisory services. Specifically, Stein Roe is
responsible for preparing financial statements, providing office
space and equipment in connection with the maintenance of the
headquarters of the Trust, preparing and filing required reports
and tax returns, arrangements for meetings, maintenance of the
Trust's corporate books and records, communication with
shareholders, providing internal legal services and oversight of
custodial, accounting and other services provided to the Funds by
others. The Administration Agreement provides that Stein Roe may,
in its discretion, arrange for administrative services to be
provided to the Trust by LFC or any of LFC's majority or greater
owned subsidiaries.
Under separate agreements, Stein Roe also acts as the agent
of the Funds for the transfer of shares, disbursement of dividends
and maintenance of shareholder account records, and provides
certain pricing and other recordkeeping services to the Funds.
The Trust believes that the charges by the Administrator to the
Trust for these services are comparable to those of other
companies performing similar services.
TRUST CHARGES AND EXPENSES
MANAGEMENT FEES:
Each Fund pays Stein Roe an annual advisory fee based on the
following schedule. Fees are computed and accrued daily and paid
monthly. During each year in the three-year period ended Dec. 31,
1998, pursuant to the Advisory Agreements, each Fund paid Stein
Roe management fees as follows:
Annual Fee
Rate (as a
percent of
average net
assets) 1998 1997 1996
----------- ---- ---------- ----------
Special Venture Fund 0.50% $1,001,641 $ 850,612
Growth Stock Fund 0.50 959,376 743,602
Balanced Fund 0.45 1,147,148 1,293,967
Mortgage Securities Fund 0.40 296,763 334,914
Money Market Fund 0.35 273,501 229,758
ADMINISTRATIVE EXPENSES:
Each Fund pays Stein Roe an annual administrative fee. Fees
are computed and accrued daily and paid monthly at an annual rate
of 0.15% of average net assets. During each year in the three-
year period ended Dec. 31, 1998, pursuant to the Administration
Agreement, each Fund paid Stein Roe or an affiliate thereof
administrative fees as follows:
1998 1997 1996
------ -------- ---------
Special Venture Fund $300,492 $255,184
Growth Stock Fund 287,813 223,081
Balanced Fund 472,383 431,322
Mortgage Securities Fund 111,286 125,593
Money Market Fund 101,786 98,468
ACCOUNTING AND BOOKKEEPING EXPENSES:
The Trust pays Stein Roe an additional fee for accounting and
bookkeeping services in the annual amount of $25,000 plus .0025%
of average daily net assets in excess of $50 million. For the
years 1998, 1997 and 1996, the Trust paid Stein Roe fees of $____,
$____ and $_____, respectively, for these services.
In addition, during each such year each Fund paid Stein Roe
or an affiliate thereof $7,500 for transfer agent services.
EXPENSE LIMITATION:
Stein Roe has agreed to reimburse all expenses of the Funds
as follows through April 30, 2000:
Fund Expenses Exceeding
------------------------ ---------------------------
Special Venture Fund 0.80% of average net assets
Growth Stock Fund 0.80% of average net assets
Balanced Fund 0.75% of average net assets
Mortgage Securities Fund 0.70% of average net assets
Money Market Fund 0.65% of average net assets
CUSTODIAN
State Street Bank and Trust Company (the Bank), 225 Franklin
Street, Boston, Massachusetts 02110, is the custodian for the
Trust. It is responsible for holding all securities and cash of
each Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Trust, and performing other administrative duties,
all as directed by authorized persons. The Bank does not exercise
any supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends or payment of expenses
of the Funds. Portfolio securities purchased in the U.S. are
maintained in the custody of the Bank or other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
who are members of the Bank's Global Custody Network and foreign
depositories (foreign sub-custodians).
With respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians or
application of foreign law to a Fund's foreign subcustodial
arrangements. Accordingly, an investor should recognize that the
noninvestment risks involved in holding assets abroad are greater
than those associated with investing in the U.S.
The Funds may invest in obligations of the Bank and may
purchase or sell securities from or to the Bank.
PORTFOLIO TRANSACTIONS
Stein Roe places the orders for the purchase and sale of
portfolio securities and options and futures contracts on behalf
of each Fund. Stein Roe's overriding objective in selecting
brokers and dealers to effect portfolio transactions is to seek
the best combination of net price and execution. The best net
price, giving effect to brokerage commissions, if any, is an
important factor in this decision; however, a number of other
judgmental factors may also enter into the decision. These
factors include Stein Roe's knowledge of negotiated commission
rates currently available and other current transaction costs; the
nature of the security being purchased or sold; the size of the
transaction; the desired timing of the transaction; the activity
existing and expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others
considered; Stein Roe's knowledge of the financial condition of
the broker or dealer selected and such other brokers and dealers;
and Stein Roe's knowledge of actual or apparent operation problems
of any broker or dealer. Recognizing the value of these factors,
Stein Roe may cause a client to pay a brokerage commission in
excess of that which another broker may have charged for effecting
the same transaction.
Stein Roe has established internal policies for the guidance
of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for clients in those cases where Stein Roe has
discretion to select the broker or dealer by which the transaction
is to be executed. Transactions which vary from the guidelines
are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by Stein Roe.
Evaluations of the reasonableness of brokerage commissions, based
on the factors described in the preceding paragraph, are made by
Stein Roe's trading personnel while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.
Where more than one broker or dealer is believed to be
capable of providing a combination of best net price and execution
with respect to a particular portfolio transaction, Stein Roe
often selects a broker or dealer that has furnished it with
investment research products or services such as: economic,
industry or company research reports or investment
recommendations; subscriptions to financial publications or
research data compilations; compilations of securities prices,
earnings, dividends, and similar data; computerized data bases;
quotation equipment and services; research or analytical computer
software and services; or services of economic and other
consultants. Such selections are not made pursuant to any
agreement or understanding with any of the brokers or dealers.
However, Stein Roe does in some instances request a broker to
provide a specific research or brokerage product or service which
may be proprietary to the broker or produced by a third party and
made available by the broker and, in such instances, the broker in
agreeing to provide the research or brokerage product or service
frequently will indicate to Stein Roe a specific or minimum amount
of commissions which it expects to receive by reason of its
provision of the product or service. Stein Roe does not agree
with any broker to direct such specific or minimum amounts of
commissions; however, Stein Roe does maintain an internal
procedure to identify those brokers who provide it with research
products or services and the value of such products or services,
and Stein Roe endeavors to direct sufficient commissions on client
transactions (including commissions on transactions in fixed
income securities effected on an agency basis and, in the case of
transactions for certain types of clients, dealer selling
concessions on new issues of securities) to ensure the continued
receipt of research products or services Stein Roe believes are
useful.
In a few instances, Stein Roe receives from a broker a
product or service which is used by Stein Roe both for investment
research and for administrative, marketing, or other non-research
or brokerage purposes. In such an instance, Stein Roe makes a
good faith effort to determine the relative proportion of its use
of such product or service which is for investment research or
brokerage, and that portion of the cost of obtaining such product
or service may be defrayed through brokerage commissions generated
by client transactions, while the remaining portion of the costs
of obtaining the product or service is paid by Stein Roe in cash.
Stein Roe may also receive research in connection with selling
concessions and designations in fixed income offerings.
The Funds do not believe they pay brokerage commissions
higher than those obtainable from other brokers in return for
research or brokerage products or services provided by brokers.
Research or brokerage products or services provided by brokers may
be used by Stein Roe in servicing any or all of its clients and
such research products or services may not necessarily be used by
Stein Roe in connection with client accounts which paid
commissions to the brokers providing such products or services.
As stated above, Stein Roe's overriding objective in
effecting portfolio transactions for the Funds is to seek to
obtain the best combination of price and execution. However,
consistent with the provisions of the Rules of Conduct of the
National Association of Securities Dealers, Inc., Stein Roe may,
in selecting broker-dealers to effect portfolio transactions for
the Funds, and where more than one broker-dealer is believed
capable of providing the best combination of price and execution
with respect to a particular transaction, select a broker-dealer
in recognition of its sales of VA contracts or VLI policies
offered by Participating Insurance Companies. Except as described
in the next following sentence, neither the Trust nor any Fund nor
Stein Roe has entered into any agreement with, or made any
commitment to, any unaffiliated broker-dealer which would bind
Stein Roe, the Trust or any Fund to compensate any such broker-
dealer, directly or indirectly, for sales of VA contracts or VLI
policies. Stein Roe has entered into arrangements with sponsors
of programs for the sale of VA contracts issued by Participating
Insurance Companies which are not affiliates of Stein Roe pursuant
to which Stein Roe pays the sponsor from Stein Roe's fee for
managing Special Venture Fund an amount in respect of Special
Venture Fund's assets allocable to Special Venture Fund shares
held in separate accounts of such unaffiliated Participating
Insurance Companies in respect of VA contracts issued by such
entities and sold through such arrangements. Stein Roe does not
cause the Trust or any Fund to pay brokerage commissions higher
than those obtainable from other broker-dealers in recognition of
such sales of VA contracts or VLI policies.
In light of the fact that Stein Roe may also provide advisory
services to the Participating Insurance Companies, and to other
advisory accounts that may or may not be registered investment
companies, securities of the same issuer may be included, from
time to time, in the portfolios of the Funds and these other
entities where it is consistent with their respective investment
objectives. If these entities desire to buy or sell the same
portfolio security at about the same time, combined purchases and
sales may be made, and in such event the security purchased or
sold normally will be allocated at the average price and as nearly
as practicable on a pro-rata basis in proportion to the amounts
desired to be purchased or sold by each entity. While it is
possible that in certain instances this procedure could adversely
affect the price or number of shares involved in the Funds'
transactions, it is believed that the procedure generally
contributes to better overall execution of the Funds' portfolio
transactions.
Because Stein Roe's personnel may also provide investment
advisory services to the Participating Insurance Companies and
other advisory clients, it may be difficult to quantify the
relative benefits received by the Trust and these other entities
from research provided by broker-dealers.
The Trust has arranged for the Bank, as its custodian, to act
as a soliciting dealer to accept any fees available to the Bank as
a soliciting dealer in connection with any tender offer for a
Fund's portfolio securities. The Bank will credit any such fees
received against its custodial fees. However, the Board has been
advised by counsel that recapture by a mutual fund currently is
not permitted under the Rules of Conduct of the National
Association of Securities Dealers, Inc.
The Trust's purchases and sales of securities not traded on
securities exchanges generally are placed by Stein Roe with market
makers for these securities on a net basis, without any brokerage
commissions being paid by the Trust. Net trading does involve,
however, transaction costs. Included in prices paid to
underwriters of portfolio securities is the spread between the
price paid by the underwriter to the issuer and the price paid by
the purchasers. Each Fund's purchases and sales of portfolio
securities in the over-the-counter market usually are transacted
with a broker-dealer on a net basis without any brokerage
commission being paid by such Fund, but do reflect the spread
between the bid and asked prices. Stein Roe may also transact
purchases of some portfolio securities directly with the issuers.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
Stein Roe may also consider the part, if any, played by the broker
or dealer in bringing the security involved to Stein Roe's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by Special Venture Fund, Growth Stock Fund and Balanced Fund
during the periods indicated. Mortgage Securities Fund and Money
Market Fund did not pay commissions on any of their transactions.
Special Growth
Venture Stock Balanced
Fund Fund Fund
Total amount of brokerage commis-
sions paid during fiscal year
ended 12/31/98
Amount of commissions paid to brokers
or dealers who supplied research
services to Stein Roe
Total dollar amount involved in
such transactions:
Amount of commissions paid to
brokers or dealers that were
allocated to such brokers or
dealers by the Fund's portfolio
manager because of research
services provided to the Fund
Total dollar amount involved in
such transactions
Total amount of brokerage
commissions paid during fiscal
year ended 12/31/97 421,740 89,691 294,537
Total brokerage fees paid during
fiscal year ended 12/31/96 316,995 81,270 304,087
NET ASSET VALUE
The net asset value of the shares of each of the Funds is
determined by dividing the total assets of each Fund, less all
liabilities (including accrued expenses), by the total number of
shares outstanding.
The valuation of Money Market Fund's securities is based upon
their amortized cost, which does not take into account unrealized
gains or losses. This method involves initially valuing an
instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price
Money Market Fund would receive if it sold the security. During
periods of declining interest rates, the quoted yield on shares of
Money Market Fund may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices
for all of its portfolio securities. Thus, if the use of
amortized cost by the Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in Money Market
Fund would be able to obtain a somewhat higher yield if he
purchased shares of Money Market Fund on that day than would
result from investment in a fund utilizing solely market values,
and existing investors in Money Market Fund would receive less
investment income. The converse would apply in a period of rising
interest rates.
The proceeds received by each Fund for each purchase or sale
of its shares, and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, will be
specifically allocated to such Fund, and constitute the underlying
assets of that Fund. The underlying assets of each Fund will be
segregated on the books of account, and will be charged with the
liabilities in respect to such Fund and with a share of the
general liabilities of the Trust.
TAXES
Each Fund has elected to be treated and to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (Code). As a result of such election, for any
tax year in which a Fund meets the investment limitations and the
distribution, diversification and other requirements referred to
below, that Fund will not be subject to Federal income tax, and
the income of the Fund will be treated as the income of its
shareholders. Under current law, since the shareholders are life
insurance company "segregated asset accounts," they will not be
subject to income tax currently on this income to the extent such
income is applied to increase the values of VA contracts and VLI
policies.
Among the conditions for qualification and avoidance of
taxation at the Trust level, Subchapter M imposes investment
limitations, distribution requirements, and requirements relating
to the diversification of investments. The requirements of
Subchapter M may affect the investments made by each Fund. Any of
the applicable diversification requirements could require a sale
of assets of a Fund that would affect the net asset value of the
Fund.
Pursuant to the requirements of Section 817(h) of the Code,
the only shareholders of the Trust and its Funds will be
Participating Insurance Companies and their separate accounts that
fund VA contracts, VLI policies and other variable insurance
contracts. The prospectus that describes a particular VA contract
or VLI policy discusses the taxation of both separate accounts and
the owner of such contract or policy.
Each Fund intends to comply with the requirements of Section
817(h) and the related regulations issued thereunder by the
Treasury Department. These provisions impose certain
diversification requirements affecting the securities in which the
Funds may invest and other limitations. The diversification
requirements of Section 817(h) of the Code are in addition to the
diversification requirements under Subchapter M and the Investment
Company Act of 1940. The consequences of failure to meet the
requirements of Section 817(h) could result in taxation of the
Participating Insurance Companies offering the VA contracts and
VLI policies and immediate taxation of all owners of the contracts
and policies to the extent of appreciation on investment under the
contracts. The Trust believes it is in compliance with these
requirements.
The Secretary of the Treasury may issue additional rulings or
regulations that will prescribe the circumstances in which an
owner of a variable insurance contract's control of the
investments of a segregated asset account may cause such owner,
rather than the insurance company, to be treated as the owner of
the assets of a segregated asset account. It is expected that such
regulations would have prospective application. However, if a
ruling or regulation were not considered to set forth a new
position, the ruling or regulation could have retroactive effect.
The Trust therefore may find it necessary, and reserves the
right to take action to assure, that a VA contract or VLI policy
continues to qualify as an annuity or insurance contract under
Federal tax laws. The Trust, for example, may be required to alter
the investment objectives of any Fund or substitute the shares of
one Fund for those of another. No such change of investment
objectives or substitution of securities will take place without
notice to the contract and policy owners with interests invested
in the affected Fund and without prior approval of the Securities
and Exchange Commission, or the approval of a majority of such
owners, to the extent legally required.
To the extent a Fund invests in foreign securities,
investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many
foreign countries which entitle a Fund to a reduced rate of tax or
exemption from tax on such income. Gains and losses from foreign
currency dispositions, foreign-currency denominated debt
securities and payables or receivables, and foreign currency
forward contracts are subject to special tax rules that generally
cause them to be recharacterized as ordinary income and losses,
and may affect the timing and amount of the Fund's recognition of
income, gain or loss.
It is impossible to determine the effective rate of foreign
tax in advance since the amount of a Fund's assets, if any, to be
invested within various countries will fluctuate and the extent to
which tax refunds will be recovered is uncertain. The Funds intend
to operate so as to qualify for treaty-reduced tax rates where
applicable.
The preceding is a brief summary of some relevant tax
considerations. This discussion is not intended as a complete
explanation or a substitute for careful tax planning and
consultation with individual tax advisors.
INVESTMENT PERFORMANCE
Money Market Fund may quote a "Current Yield" or "Effective
Yield" from time to time. The Current Yield is an annualized
yield based on the actual total return for a seven-day period.
The Effective Yield is an annualized yield based on a daily
compounding of the Current Yield. These yields are each computed
by first determining the "Net Change in Account Value" for a
hypothetical account having a share balance of one share at the
beginning of a seven-day period (Beginning Account Value),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yield of Money Market Fund for the seven-day
period ended Dec. 31, 1998, were:
$._________ 365
----------- ---
Current Yield = $1.00 x 7 = ____%
[1+$._________]35/7
-------------------
Effective Yield = $1.00 - 1 = ____%
In addition to fluctuations reflecting changes in net income
of Money Market Fund resulting from changes in income earned on
its portfolio securities and in its expenses, Money Market Fund's
yield also would be affected if the Fund were to restrict or
supplement its dividends in order to maintain its net asset value
at $1.00. Portfolio changes resulting from net purchases or net
redemptions of Money Market Fund shares may affect yield.
Accordingly, Money Market Fund's yield may vary from day to day
and the yield stated for a particular past period is not a
representation as to its future yield. Money Market Fund's yield
is not guaranteed and its principal is not insured; however, the
Fund will attempt to maintain its net asset value per share at
$1.00.
Each of the Funds may quote total return figures from time to
time. Total return on a per share basis is the amount of
dividends received per share plus or minus the change in the net
asset value per share for a given period. Total return percentage
may be calculated by dividing the value of a share at the end of a
given period by the value of the share at the beginning of the
period and subtracting one.
Average Annual Total Return is computed as follows:
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Funds, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" for the life of those Funds (from Jan. 1, 1989 to
Dec. 31, 1998) were:
TOTAL RETURN AVERAGE ANNUAL
FUND TOTAL RETURN PERCENTAGE TOTAL RETURN
- ---- ------------ ------------- --------------
Special Venture Fund
Growth Stock Fund
Balanced Fund
Mortgage Securities Fund
Money Market Fund
The figures contained in this "Investment Performance"
section assume reinvestment of all dividends and distributions.
They are not necessarily indicative of future results. The
performance of a Fund is a result of conditions in the securities
markets, portfolio management, and operating expenses. Although
information such as that shown above is useful in reviewing a
Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for
comparison with other investments using different reinvestment
assumptions or time periods. The Funds' total returns do not
reflect the cost of insurance and other insurance company separate
account charges which vary with the VA contracts and VLI policies
offered through the separate accounts of the Participating
Insurance Companies.
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Any comparison of a Fund to an alternative investment
should consider differences in features and expected performance.
RECORD SHAREHOLDERS
All the shares of the Funds are held of record by sub-
accounts of separate accounts of Participating Insurance Companies
on behalf of the owners of VLI policies and VA contracts, or by
the general account of Keyport. At March 31, 1999 the general
account of Keyport owned of record less than 25% of the
outstanding shares of all the Funds.
At all meetings of shareholders of the Funds each
Participating Insurance Company will vote the shares held of
record by sub-accounts of its separate accounts only in accordance
with the instructions received from the VLI policy and VA contract
owners on behalf of whom such shares are held. All such shares as
to which no instructions are received (as well as, in the case of
Keyport, all shares held by its general account) will be voted in
the same proportion as shares as to which instructions are
received (with Keyport's general account shares being voted in the
proportions determined by instructing owners of Keyport VLI
policies and VA contracts). Accordingly, each Participating
Insurance Company disclaims beneficial ownership of the shares of
the Funds held of record by the sub-accounts of its separate
accounts (or, in the case of Keyport, its general account). The
Trust has not been informed that any Participating Insurance
Company knows of any owner of a VA contract or VLI policy which on
March 31, 1999 owned beneficially 5% or more of the outstanding
shares of any Fund.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
KPMG Peat Marwick LLP are the Trust's independent auditors.
The financial statements incorporated by reference in this SAI
have been so incorporated, and the schedule of the financial
highlights has been included in the Prospectus, in reliance upon
the upon the report of KPMG Peat Marwick LLP given on the
authority of said firm as experts in accounting and auditing.
The financial statements of the Trust and Report of
Independent Auditors appearing in the Dec. 31, 1998 Annual Report
of the Trust are incorporated in this SAI by reference.
<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES AND SECURITIES
MONEY MARKET INSTRUMENTS
Each of the Funds may invest in money market instruments to
the extent and of the type and quality described in the
Prospectus.
Certificates of Deposits
Certificates of deposit are receipts issued by a bank in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited plus interest to the bearer of the receipt on the
date specified on the Certificate. The Certificate usually can be
traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-
denominated certificates of banks (U.S. or foreign) having total
assets of at least $1 billion, or the equivalent in other
currencies, as of the date of their most recently published
financial statements and of branches of such banks (U.S. or
foreign).
The Funds will not acquire time deposits or obligations
issued by the International Bank for Reconstruction and
Development, the Asian Development Bank or the Inter-American
Development Bank.
Bankers' Acceptances
Bankers' acceptances typically arise from short term credit
arrangements designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to obtain
a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument
on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Funds must be payable in
U.S. dollars and have been accepted by banks having total assets
at the time of purchase in excess of $1 billion, or the equivalent
in other currencies, and of branches of such banks (U.S. or
foreign).
MORTGAGE-BACKED SECURITIES
Mortgage Pass-Through Certificates
A Mortgage Pass-Through Certificate is a Mortgage Backed
Security representing a participation interest in mortgage loans
or a beneficial undivided interest in a specified pool containing
mortgage loans.
The aggregate dollar balance of the mortgage loans (or
participation interests) in a specified pool is generally
identical to the balance of the Mortgage Pass-Through Certificate
held by the Certificate holder. As the balance in the mortgage
pool is paid down by scheduled payments of principal and interest
and by prepayments or other early or unscheduled recoveries of
principal, the balance of the Mortgage Pass-Through Certificate is
paid down correspondingly as all such payments are "passed
through" to the Certificate holder (in this case, to the Funds).
The average interest rate payable on the mortgage loans, the
"coupon rate," is somewhat higher than the "pass-through rate"
payable under the Mortgage Pass-Through Certificate. The
difference between the coupon rate and the pass-through rate is
generally paid to the servicer of the mortgage loans as servicing
compensation. Servicing includes collecting payments, remitting
payments to the Certificate holders, holding and disbursing escrow
funds for payment of taxes and insurance premiums, periodically
inspecting the properties, and servicing foreclosures in the event
of unremedied defaults.
Under the terms of the Certificate, the due date for passing
through funds to the Certificate holders is some specified period
after the payment date on the mortgage loans. The regular pass-
through installment is paid on the due date by the entity
servicing the mortgage pool, in most cases regardless of whether
or not it has been collected from the borrower.
A particular mortgage pool will consist of mortgage loans of
one of the following types: fixed interest mortgage loans with a
maturity of not more than 30 years; adjustable interest rate
mortgage loans (that is, where the interest rate is not fixed but
varies in accordance with a formula or an index) with a maturity
of not more than 40 years; shared appreciation mortgage loans with
a maturity of not more than 30 years; growing equity mortgage
loans (where the monthly payment of principal increases in amount
and the maturity may be less than 30 years); graduated payment
mortgage loans (where the amount of the scheduled monthly payments
at the beginning of the loan term are insufficient to fully
amortize the loan and the monthly payment amount therefore
increases after a specified period or periods); second mortgages
with fixed or adjustable rates with a maturity of not more than 30
years; graduated payment adjustable rate mortgage loans; and other
alternative mortgage instruments which may combine some of the
characteristics listed above. For example, graduated payment,
graduated equity, and shared appreciation mortgage loans can have
a fixed or variable interest rate. In addition, new types of
mortgage loans may be created in the future, and as Mortgage Pass-
Through Certificates representing interests in pools of new types
of mortgage loans are developed and offered to investors, the Fund
will, consistent with its investment policies and objective,
consider investing in such Certificates.
Certain Mortgage Pass-Through Certificates purchased will
represent interests in mortgage pools containing graduated payment
adjustable rate mortgage loans or "GPARMs." These are adjustable
interest rate mortgage loans with a graduated payment feature.
The scheduled monthly payment amount on this type of loan at the
beginning of the loan term is insufficient to fully amortize the
loan; that is, the scheduled payments are insufficient to pay off
the entire loan during the term. Because the monthly mortgage
payments during the early years of graduated payment mortgage
loans may not even be sufficient to pay the current interest due,
GPARMs may involve negative amortization; that is, the unpaid
principal balance of the mortgage loan may increase because any
unpaid balance of the interest due will be added to the principal
amount of the mortgage loan. GPARMs also involve increases in the
payment amount, because at one or more times during the early
years of the loan term, the monthly mortgage payments (principal
and interest) increase to a level that will fully amortize the
loan. The monthly payment amount may also be increased (or
decreased) to reflect changes in the interest rate. In addition,
the loan term may be lengthened or shortened from time to time,
corresponding to an increase or decrease in the interest rate.
GNMA Certificates
GNMA Certificates represent part ownership of a pool of
mortgage loans. These loans (issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations) are
either insured by the Federal Housing Administration (FHA) or the
Farmers Home Administration (FMHA), or guaranteed by the Veterans
Administration (VA). A "pool" or group of such mortgages is
assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. GNMA is also empowered to borrow without
limitation from the Treasury, if necessary, to make any payments
required under its guarantee. GNMA Certificates differ from bonds
issued without a sinking fund in that principal is paid back
monthly by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA Certificates are called
"modified pass-through" securities because both interest and
principal payments, including prepayments (net of fees paid to the
issuer and GNMA), are passed through to the holder of the
Certificate regardless of whether or not the mortgagor actually
makes the payment.
The average life of GNMA Certificates is likely to be
substantially less than the original maturity of the mortgage
pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the
return of the greatest part of principal invested well before the
maturity of the mortgages in the pool. (Note: Due to the GNMA
guarantee, foreclosures impose little risk to principal
investment.) As prepayment rates of individual mortgage pools
vary widely, it is not possible to accurately predict the average
life of a particular issue of GNMA Certificates.
The coupon rate or interest on GNMA Certificates is lower
than the interest rate paid on the VA-guaranteed or FHA-insured
mortgages underlying the Certificates, but only by the amount of a
relatively modest fee paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the
yield which will be earned on the Certificates for the following
reasons:
1. Certificates may be issued at a premium or discount, rather
than at par;
2. After issuance, Certificates may trade in the secondary market
at a premium or discount;
3. Interest is earned monthly, rather than semiannually as for
traditional bonds, and monthly compounding has the effect of
raising the effective yield earned on GNMA Certificates; and
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the
Certificate; that is, if mortgagors pay off their mortgages early,
the principal returned to Certificate holders may be reinvested at
more or less favorable rates.
Since the inception of the GNMA mortgage-backed securities program
in 1970, the amount of GNMA Certificates outstanding has grown
rapidly. The size of the market and the active participation in
the secondary market by securities dealers and many types of
investors make the GNMA Certificates highly liquid instruments.
Valuations of GNMA Certificates are readily available from
securities dealers and depend on, among other things, the level of
market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
FNMA Certificates
The Federal National Mortgage Association (FNMA) is a
corporation organized and existing under the laws of the U.S. and
issues FNMA Certificates under the authority contained in the
Federal National Mortgage Association Charter Act. FNMA
Certificates are Mortgage Pass-Through Certificates issued and
guaranteed by FNMA. The obligations of FNMA under its guaranty
are obligations solely of FNMA and are not backed by, nor entitled
to, the full faith and credit of the U.S.
Each FNMA Certificate represents a fractional undivided
interest in a pool of conventional, FHA-insured or VA-guaranteed
mortgage loans purchased or formed by FNMA. The mortgage loans
are either provided from FNMA's own portfolio or are purchased
from primary lenders that satisfy certain criteria developed by
FNMA, including depth of mortgage origination experience,
servicing experience and financial capacity.
When the mortgage loans are not provided from FNMA's own
portfolio, FNMA may purchase an entire loan pool from a single
lender and issue Certificates backed by the pool alone.
Alternatively, FNMA may package a pool made up of loans purchased
from a number of lenders. The mortgage loans are held by FNMA in
its capacity as trustee pursuant to the terms of a trust indenture
for the benefit of the Certificate holders.
Each FNMA mortgage pool will consist of mortgage loans
evidenced by promissory notes on one-family or two-to-four family
residential properties. Mortgage loans with varying interest
rates may be included in a single pool. Currently, substantially
all FNMA mortgage pools consist of fixed interest rate and growing
equity mortgage loans, although FNMA mortgage pools may also
consist of adjustable interest rate mortgage loans or other types
of mortgage loans. Loans with varying loan-to-value ratios may be
included in a single pool, but each conventional mortgage loan
with a loan-to-value ratio which exceeds 80% must be insured
against default and the mortgage insurance must insure that
portion of the loan balance which exceeds 75% of the property
value. The maximum loan term is 40 years. Each mortgage loan
must conform to FNMA's published requirements or guidelines with
respect to maximum principal amount, loan-to-value ratio,
underwriting standards and hazard insurance coverage.
Pursuant to the trust indenture, FNMA is responsible for
servicing and administering the mortgage loans in a pool but
contracts with the lender (the seller of the mortgage loans, or
seller/servicer), or another eligible servicing institution, to
perform such functions under the supervision of FNMA. The
servicers are obligated to perform diligently all services and
duties customary to the servicing of mortgages as well as those
specifically prescribed by the FNMA Seller/Servicer Guide. FNMA
has the right to remove servicers for cause.
The pass-through rate on the FNMA Certificates is not greater
than the lowest annual interest rate borne by an underlying
mortgage loan in the pool, less a specified minimum annual
percentage of the outstanding principal balance. The fee to FNMA
representing compensation for servicing and for FNMA's guaranty
(out of which FNMA will compensate seller/servicers) is, for each
underlying mortgage loan, the difference between the interest rate
on the mortgage loan and the pass-through rate.
The minimum size of a FNMA pool is $1 million of mortgage
loans. Registered holders purchase Certificates in amounts not
less than $25,000.
FHLMC Certificates
The Federal Home Loan Mortgage Corporation (FHLMC) is a
corporate instrumentality of the U.S. created pursuant to an act
of Congress on July 24, 1970 primarily for the purpose of
increasing availability of mortgage credit for the financing of
then urgently needed housing. It seeks to provide an enhanced
degree of liquidity for residential mortgage investors primarily
by assisting in the development of secondary markets for
conventional mortgage loans. FHLMC obtains its funds by selling
mortgages and interests therein (such as Mortgage Pass-Through
Certificates), and by issuing debentures and otherwise borrowing
funds.
FHLMC Certificates represent undivided interests in specified
groups of conventional mortgage loans and/or participation
interests therein underwritten and owned by FHLMC. FHLMC
periodically forms groups of whole mortgage loans and/or
participations in connection with its continuing sales program.
Typically, at least 95% of the aggregate principal balance of the
mortgage loans in a group consists of single-family mortgage loans
and not more than 5% consists of multi-family loans. The FHLMC
Certificates are issued in fully registered form only, in original
unpaid principal balances of $25,000, $100,000, $200,000,
$500,000, $1 million and $5 million. The FHLMC Certificates are
not guaranteed by the U.S. or by any Federal Home Loan Bank and do
not constitute a debt or obligation of the U.S. or any Federal
Home Loan Bank.
FHLMC guarantees to each registered holder of a FHLMC
Certificate the timely payment of interest accruing at the
application certificate rate on the unpaid principal balance
outstanding on the mortgage loans to the extent of such holder's
percentage of participation therein. FHLMC also guarantees to
each registered holder of a FHLMC Certificate collection of all
principal on the mortgage loans without any offset or deduction,
to the extent of such holder's pro rata share. Pursuant to these
guaranties, FHLMC indemnifies holders of FHLMC Certificates
against any reduction in principal by reason of charges for
property repairs, maintenance and foreclosure.
To permit a measure of marketability for holders of FHLMC
Certificates, FHLMC has provided since June 20, 1975, and expects
to continue to provide, bid quotations for outstanding FHLMC
Certificates. Informational bid quotations are available daily on
Telerate Financial Information Network or from FHLMC's regional
offices.
Non-Governmental Mortgage Pass-Through Certificates
A Non-Governmental Mortgage Pass-Through Certificate is a
security issued by a mortgage banker, financial institution or
other entity and represents an undivided interest in a mortgage
pool consisting of a number of mortgage loans secured by single-
family residential properties. Non-Governmental Certificates do
not represent an interest in or obligation of the issuing or
servicing entity. The mortgage loans in a pool are held in trust
by a qualified bank. These private (or conventional) mortgages
are not insured by the VA, FHA or any other governmental agency.
In some cases, private commercial insurance or other credit
support may apply.
A typical mortgage pool consists of from 100 to 1000
individual mortgage loans. The aggregate dollar balance of the
mortgage loans in a pool will be generally at least $5 million.
These pools contain mortgage loans originated, serviced and
otherwise administered by an affiliate of the sponsor of the pool.
It is expected that each of the underlying mortgage loans
will have a loan-to-value ratio at origination (based on an
independent appraisal of the mortgage property obtained by the
originator of the loan) of 90% or less. Generally, the amount of
the mortgage loans in excess of 80% of such appraised value will
be insured with a private mortgagor insurer. In some instances,
other mechanisms, such as a bank letter of credit or
senior/subordinated class structures, are used in place of
mortgage guaranty insurance but serve a similar credit support
function.
The entities originating and servicing the underlying
mortgage loans generally advance to Certificate holders any
principal and interest payments not collected from the mortgagors.
However, the obligations, if any, to make those advances are
limited only to those amounts that are reimbursable under the
mortgage guaranty insurance policy.
The property securing each of the mortgage loans in a
mortgage pool will be covered by standard hazard insurance
policies insuring against losses due to various causes, including
fire, lightning and windstorm. The amount of each policy is at
least equal to the lesser of the outstanding principal balance of
the mortgage loan or the maximum insurable value of the
improvements securing the mortgage loan. Since certain other
physical risks (including earthquakes, mudflows and floods) are
not otherwise insured against, the institution originating and
servicing the loans typically purchases a special hazard insurance
policy for each mortgage pool to cover such risks. The special
hazard insurance generally is in the amount of 1% of the aggregate
principal balances of the mortgage loans in each mortgage pool, or
the sum of the balance of the two largest mortgage loans in the
mortgage pool, whichever is greater, at the time of formation of
the mortgage pool.
Any hazard losses not covered by either the standard hazard
policies or the special hazard insurance policy will not be
insured against and, accordingly, will be borne by the Fund and
therefore by the Fund's shareholders.
The pooling and servicing agreement for a Non-Governmental
Certificate generally permits, but does not require, the entity
originating and servicing the mortgage loans to repurchase from
the mortgage pool all remaining mortgage loans. The right to
repurchase typically is subject to the aggregate principal
balances of the mortgage loans at the time of repurchase being
less than 20% of the aggregate principal balances of the mortgage
loans at the time of issuance of the Certificate.
Real Estate Mortgage Investment Conduits (REMICs)
A REMIC is an entity formed either as a partnership,
corporation or trust which holds a fixed pool of mortgages and
issues multiple classes of interests at varying maturities
entitling holders to receive specified principal amounts and
interest payments at fixed rates.
Timely payment of principal and interest from a REMIC will be
dependent upon risks associated with the underlying mortgage loans
held by the REMIC. These risks include the potential for
delinquency and default by mortgagors, fluctuating interest rates,
inflation and reduced market demand for qualified market loans.
EQUIPMENT TRUST CERTIFICATES
Balanced Fund may invest in Equipment Trust Certificates.
Equipment Trust Certificates are a mechanism for financing
the purchase of transportation equipment, such as railroad cars
and locomotives, trucks, airplanes and oil tankers.
Under an Equipment Trust Certificate, the equipment is used
as the security for the debt and title to the equipment is vested
in a trustee. The trustee leases the equipment to the user; i.e.,
the railroad, airline, trucking or oil company. At the same time,
Equipment Trust Certificates in an aggregate amount equal to a
certain percentage of the equipment's purchase price are sold to
lenders. The trustee pays the proceeds from the sale of
Certificates to the manufacturer. In addition, the company using
the equipment makes an initial payment of rent equal to the
balance of the purchase price to the trustee, which the trustee
also pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest
and principal on the Certificates. At maturity, the Certificates
are redeemed and paid, the equipment is sold to the company and
the lease is terminated.
Generally, these Certificates are regarded as obligations of
the company that is leasing the equipment and are shown as
liabilities in its balance sheet as a capitalized lease in
accordance with generally accepted accounting principals.
However, the company does not own the equipment until all the
Certificates are redeemed and paid. In the event the company
defaults under its lease, the trustee terminates the lease. If
another lessee is available, the trustee leases the equipment to
another user and makes payments on the Certificates from new lease
rentals.
OPTIONS, FUTURES AND OTHER DERIVATIVES
Except for Money Market Fund, each Fund may purchase and
write both call options and put options on securities, indexes and
foreign currencies, and enter into interest rate, index and
foreign currency futures contracts and options on such futures
contracts (futures options) in order to achieve its investment
objective, to provide additional revenue, or to hedge against
changes in security prices, interest rates or currency exchange
rates. A Fund also may use other types of options, futures
contracts, futures options, and other types of forward or
investment contracts linked to individual securities, interest
rates, foreign currencies, indices or other benchmarks (derivative
products) currently traded or subsequently developed and traded,
provided the Trustees determine that their use is consistent with
the Fund's investment objective.
Options
A Fund may purchase and write both put and call options on
securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade or similar entities, or quoted on Nasdaq. A Fund also may
purchase agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer that
the Fund might buy as a temporary defensive measure.
An option on a security (or index or foreign currency) is a
contract that gives the purchase (holder) of the option, in return
for a premium, the right to buy from (call) or sell to (put) the
seller (writer) of the option the security underlying the option
(or the cash value of the index or a specified quantity of the
foreign currency) at a specified exercise price at any time during
the term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain other economic indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration upon
conversion or exchange of other securities held in its portfolio
(or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian).
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security, currency or
index, exercise price and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security, currency or index in relation to the exercise
price of the option, the volatility of the underlying security,
currency or index, and the time remaining until expiration.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options
There are several risks associated with transactions in
options. For example, there are significant differences between
the securities and the currency markets and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased, it would have
to exercise the option in order to realize any profit or the
option would expire and become worthless. If a Fund were unable
to close out a covered call option that it had written on a
security or a foreign currency, it would not be able to sell the
underlying security or currency unless the option expired. As the
writer of a covered call option on a security, a Fund foregoes,
during the option's life, the opportunity to profit from increases
in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call. As the
writer of a covered call option on a foreign currency, the Fund
foregoes, during the option's life, the opportunity to profit from
appreciation of the currency covering the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased. Except to the extent that a
call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the
index may result in a loss to the Fund; however, such losses may
be mitigated by changes in the value of the Fund's portfolio
securities during the period the option was outstanding.
Futures Contracts and Options on Futures Contracts
A Fund may use interest rate, index and foreign currency
futures contracts. An interest rate, index or foreign currency
futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial
instrument, the cash value of an index/1/ or a specified quantity
of a foreign currency at a specified price and time. A public
market exists in futures contracts covering a number of indexes
(including, but not limited to, the Standard & Poor's 500 Stock
Index, the Value Line Composite Index and the New York Stock
Exchange Composite Index), certain financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S.
Treasury notes and Eurodollar certificates of deposit) and foreign
currencies. Other index and financial instrument futures
contracts are available and it is expected that additional futures
contracts will be developed and traded.
- ----------------
/1/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the index value
at which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- -----------------
A Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or a short
position (put) in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having
jurisdiction over a Fund, such Fund will limit its use of futures
contracts and futures options to hedging transactions. For
example, a Fund might use futures contracts to hedge against or
gain exposure to fluctuations in the general level of stock prices
or anticipated changes in interest rates or currency exchange
rates which might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to
purchase. Although other techniques could be used to reduce that
Fund's exposure to stock price and interest rate and currency
fluctuations, the Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures contracts
and futures options.
A Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade or similar entity or quoted on an automated quotation
system.
The success of any futures transaction depends on Stein Roe
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, a Fund's return might have
been better had the transaction not been attempted; however, in
the absence of the ability to use futures contracts, Stein Roe
might have taken portfolio actions in anticipation of the same
market movements with similar investment results but, presumably,
at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
(initial margin). The margin required for a futures contract is
set by the exchange on which the contact is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. A Fund expects to earn interest income on its initial
margin deposits. A futures contract held by a Fund is valued
daily at the official settlement price of the exchange on which it
is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking-to-market."
Variation margin paid or received by a Fund does not represent a
borrowing or loan by the Fund but is instead settlement between
the Fund and the broker of the amount one would owe the other if
the futures contract had expired at the close of the previous day.
In computing daily net asset value, a Fund will mark-to-market its
open futures positions.
The Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying property, usually these obligations are
closed out prior to delivery by offsetting purchases or sales of
matching futures contracts (same exchange, underlying property and
delivery month). If an offsetting purchase price is less than the
original sale price, the Fund engaging in the transaction realizes
a capital gain, or if it is more, the Fund realizes a capital
loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund engaging in the transaction
realizes a capital gain, or if it is less, the Fund realizes a
capital loss. The transaction costs must also be included in
these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. There can be no guarantee that there will
be a correlation between price movements in the hedging vehicle
and in the portfolio securities being hedged. In addition, there
are significant differences between the securities and the
currency markets and the futures markets that could result in an
imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities or currencies, including
technical influences in futures and futures options trading and
differences between the Fund's investments being hedged and the
securities or currencies underlying the standard contracts
available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and
the weighting of each issue, may differ from the composition of
the Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may
differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected security price, interest
rate or currency exchange rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant long-
term trading history. As a result, there can be no assurance that
an active secondary market will develop or continue to exist.
Limitations on Options and Futures
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money,"/2/ would exceed 5% of
the Fund's total assets.
- -----------------
/2/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -----------------
When purchasing a futures contract or writing a put option on
a futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
(CFTC) Regulation 4.5 and thereby avoid being deemed a "commodity
pool operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of CFTC Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of CFTC Regulation
1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market
value of the assets of a Fund, after taking into account
unrealized profits and unrealized losses on any such contracts it
has entered into [in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount (as defined in
Section 190.01(x) of the CFTC Regulations) may be excluded in
computing such 5%].
Taxation of Options and Futures
If a Fund exercises a call or put option it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option/3/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
- ----------------
/3/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500 Stock
Index).
- ----------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For Federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on futures, futures
options and non-equity options positions (year-end mark-to-
market). Generally, any gain or loss recognized with respect to
such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by a Fund:
(1) will affect the holding period of the hedged securities; and
(2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for a Fund to continue to qualify for Federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options and futures contracts). In addition, gains
realized on the sale or other disposition of securities held for
less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
Warrants
Each Fund except Money Market Fund may invest in warrants;
however, not more than 5% of a Fund's assets (at the time of
purchase) will be invested in warrants, other than warrants
acquired in units or attached to other securities. Warrants
purchased must be listed on a national stock exchange or the
Nasdaq System. Warrants are speculative in that they have no
voting rights, pay no dividends, and have no right with respect to
the assets of the corporation issuing them. Warrants basically
are options to purchase equity securities at a specific price
valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them.
Warrants differ from call options in that warrants are issued by
the issuer of the security that may be purchased on their
exercise, whereas call options may be written or issued by anyone.
The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.
"WHEN-ISSUED" SECURITIES AND COMMITMENT AGREEMENTS
Each Fund may purchase and sell securities on a when-issued
and delayed-delivery basis.
When-issued or delayed-delivery transactions arise when
securities are purchased or sold by the Funds with payment and
delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Funds at
the time of entering into the transaction. However, yields
available in the market when delivery takes place may be higher
than the yields on securities to be delivered. When the Funds
engage in when-issued and delayed-delivery transactions, the Funds
rely on the buyer or seller, as the case may be, to consummate the
sale. Failure to do so may result in the Funds missing the
opportunity to obtain a price or yield considered to be
advantageous. When-issued and delayed-delivery transactions may
be expected to occur a month or more before delivery is due.
However, no payment or delivery is made by the Funds until they
receive payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the
value of such purchase commitments will be maintained with the
Trust's custodian until payment is made and will not be available
to meet redemption requests. When-issued and delayed-delivery
agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors,
both before and after delivery. The Funds do not accrue any
income on such securities prior to their delivery. To the extent
a Fund engages in when-issued and delayed-delivery transactions,
it will do so for the purpose of acquiring portfolio securities
consistent with its investment objectives and policies and not for
the purpose of investment leverage.
Most Mortgage Pass-Through Certificates (especially FNMA and
Non-Governmental Certificates), whether they represent interests
in pools of fixed or adjustable interest rate mortgage loans, may
be purchased pursuant to the terms of firm commitment or standby
commitment agreements. Under the terms of these agreements, a
Fund will bind itself to accept delivery of a Mortgage Pass-
Through Certificate at some future settlement date (typically
three to six months from the date of the commitment agreement) at
a stated price. The standby commitment agreements create an
additional risk for a Fund because the other party to the standby
agreement generally will not be obligated to deliver the security,
but the Fund will be obligated to accept it if delivered.
Depending on market conditions (particularly on the demand for,
and supply of, Mortgage Pass-Through Certificates), the Fund may
receive a commitment fee for assuming this obligation. If
prevailing market interest rates increase during the period
between the date of the agreement and the settlement date, the
other party can be expected to deliver the security and, in
effect, pass any decline in value to the Fund. If the value of
the security increases after the agreement is made, however, the
other party is unlikely to deliver the security. In other words,
a decrease in the value of the securities to be purchased under
the terms of standby commitment agreements will likely result in
the delivery of the security, and therefore such decrease will be
reflected in the Fund's net asset value. However, any increase in
the value of the securities to be purchased will likely result in
the non-delivery of the security and, therefore, such increase
will not affect the net asset value unless and until the Fund
actually obtains the security.
RESTRICTED SECURITIES
Restricted securities are acquired through private placement
transactions, directly from the issuer or from security holders,
generally at higher yields or on terms more favorable to investors
than comparable publicly traded securities. Privately placed
securities are not readily marketable and ordinarily can be sold
only in privately negotiated transactions to a limited number of
purchasers or in public offerings made pursuant to an effective
registration statement under the Securities Act of 1933. Private
or public sales of such securities by a Fund may involve
significant delays and expense. Private sales require
negotiations with one or more purchasers and generally produce
less favorable prices than the sale of comparable unrestricted
securities. Public sales generally involve the time and expense
of preparing and processing a registration statement under the
Securities Act of 1933 and may involve the payment of underwriting
commissions; accordingly, the proceeds may be less than the
proceeds from the sale of securities of the same class which are
freely marketable.
<PAGE>
<PAGE>
SteinRoe Variable Investment Trust
Stein Roe Special Venture Fund, Variable Series
Stein Roe Growth Stock Fund, Variable Series
Stein Roe Balanced Fund, Variable Series
Stein Roe Mortgage Securities Fund, Variable Series
Stein Roe Money Market Fund, Variable Series
Annual Report
Dec. 31, 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>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust as amended on September 9,
1988 and October 5, 1988 (3)
(b) Amended and Restated By-Laws (3)
(c) None
(d)(1) Fund Advisory Agreement, dated May 1, 1993, between the
Trust on behalf of the Capital Appreciation Fund (now
named Stein Roe Special Venture Fund, Variable Series) and
Stein Roe & Farnham Incorporated (3)
(2) Fund Advisory Agreement, dated May 1, 1993, between the
Trust on behalf of the Managed Growth Stock Fund (now
named Stein Roe Growth Stock Fund, Variable Series) and
Stein Roe & Farnham Incorporated (3)
(3) Fund Advisory Agreement, dated May 1, 1993, between the
Trust on behalf of the Managed Assets Fund (now named
Stein Roe Balanced Fund, Variable Series) and Stein Roe &
Farnham Incorporated (3)
(4) Fund Advisory Agreement, dated May 1, 1993, between the
Trust on behalf of the Mortgage Securities Income Fund
(now named SteinRoe Mortgage Securities Fund, Variable
Series) and Stein Roe & Farnham Incorporated (3)
(5) Fund Advisory Agreement, dated December 9, 1988, between
the Trust on behalf of the Cash Income Fund (now named
Stein Roe Money Market Fund, Variable Series) and Stein
Roe & Farnham Incorporated (3)
(e) Underwriting Agreement dated December 9, 1988 between
Keystone Provident Financial Services Corp. (now Keyport
Financial Services Corp.) and the Trust; and Amendment to
Underwriting Agreement dated as of April 1, 1994 between
Keyport Financial Services Corp. and the Trust (3)
(f) None
(g)(1) Custodian Contract dated December 31, 1988 between State
Street Bank and Trust Company and SteinRoe Variable
Investment Trust (4)
(2) First Amendment to Custodian Contract dated February 23,
1989 (4)
(3) Second Amendment to Custodian Contract dated January 23,
1993 (4)
(h)(1) Administration Agreement dated as of January 3, 1995
between the Trust, on behalf of each of its Funds, and
Stein Roe & Farnham Incorporated (4)
(2) Transfer Agency Agreement dated as of January 3, 1995
between the Trust, on behalf of each of its Funds, and
Stein Roe & Farnham Incorporated (4)
(3) Amended and Restated Participation Agreement dated April
3, 1998 among the Trust, Keyport Life Insurance Company
and Keyport Financial Services Corp. (3)
(4) Participation Agreement dated as of October 1, 1993 among
the Trust, Keyport Financial Services Corp. and
Independence Life Annuity Company (formerly "Crown America
Life Insurance Company") (4)
(5) Participation Agreement dated as of April 15, 1994 among
the Trust, on behalf of the Capital Appreciation Fund,
Transamerica Occidental Life Insurance Company, Stein Roe
& Farnham Incorporated and Charles Schwab & Co., Inc. (4)
(6) Participation Agreement dated as of December 1, 1994 among
the Trust, on behalf of the Capital Appreciation Fund,
First Transamerica Life Insurance Company, Stein Roe &
Farnham Incorporated and Charles Schwab & Co., Inc. (4)
(7) Accounting and Bookkeeping Agreement dated as of January
3, 1995 between the Trust, on behalf of each of its Funds,
and Stein Roe Farnham Incorporated (4)
(8) Participation Agreement among the Trust, on behalf of the
Capital Appreciation Fund, Great-West Life & Annuity
Insurance Company, Stein Roe & Farnham Incorporated and
Charles Schwab & Co., Inc. (2)
(9) Participation Agreement among the Trust, on behalf of the
Capital Appreciation Fund, Providian Life and Health
Insurance Company and Stein Roe & Farnham Incorporated (2)
(10) Participation Agreement dated May 8, 1998 among the Trust,
Keyport Benefit Life Insurance Company, and Keyport
Financial Services Corp. (4)
(i) Opinion and consent of counsel as to the legality of the
securities being registered (3)
(j) None
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Financial Data Schedules:
(1) Special Venture Fund, Variable Series
(2) Growth Stock Fund, Variable Series
(3) Balanced Fund, Variable Series
(4) Mortgage Securities Fund, Variable Series
(5) Money Market Fund, Variable Series
(o) Not applicable
_________________
(1) Incorporated by Reference to Post-Effective Amendment No. 11
to this Registration Statement, filed April, 1996.
(2) Incorporated by References to Post-Effective Amendment No. 12
to this Registration Statement, filed April, 1997.
(3) Incorporated by Reference to Post-Effective Amendment No. 13
to this Registration Statement filed April, 1998.
(4) Incorporated by Reference to Post-Effective Amendment No. 14
to this Registration Statement filed May, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
Shares of the Trust registered pursuant to this Registration
Statement will be offered and sold to Keyport Life Insurance
Company ("Keyport"), a stock life insurance company organized
under the laws of Rhode Island, and to certain of its separate
investment accounts and the respective separate investment
accounts of Liberty Life Assurance Company of Boston ("Liberty
Life"), a stock life insurance company organized as a
Massachusetts corporation, Independence Life & Annuity Company, a
stock life insurance company organized under the laws of Rhode
Island ("Independence") and American Benefit Life Insurance
Company, a stock life insurance company organized under the laws
of New York. As described below, Keyport, Liberty Life,
Independence and American Benefit are under common control. The
purchasers of insurance contracts and policies issued in
connection with such accounts will have the right to instruct
Keyport, Liberty Life, Independence and American Benefit with
respect to the voting of the Registrant's shares held by their
respective separate accounts. Subject to such voting instruction
rights, Keyport, Liberty Life, Independence, American Benefit and
their respective separate accounts directly control the
Registrant. In addition, shares of Stein Roe Special Venture
Fund, Variable Series currently are sold to certain separate
accounts of four insurance companies not affiliated with Keyport,
and shares of any of the Funds may in the future be sold to
separate accounts of other unaffiliated insurance companies.
Keyport Financial Services Corp. ("KFSC"), the Trust's
principal underwriter, Stein Roe & Farnham Incorporated, the
Trust's investment manager (the "Adviser"), Keyport, Independence
are and American Benefit each wholly owned indirect subsidiaries
of Liberty Financial Companies, Inc. ("LFC"), Boston,
Massachusetts. As of March 31, 1998, Liberty Mutual Insurance
Company ("LMIC"), Boston, Massachusetts, owned, indirectly,
approximately 72.3% of the combined voting power of the
outstanding voting stock LFC (with the balance being publicly-
held). Liberty Life is a 90%-owned subsidiary of LMIC.
ITEM 25. INDEMNIFICATION
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit a), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including each person who serves or
has served at Registrant's request as director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940
Act") provides that neither the Agreement and Declaration of
Trust nor the By-Laws of Registrant, nor any other instrument
pursuant to which Registrant is organized or administered, shall
contain any provision which protects or purports to protect any
trustee or officer of Registrant against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office. In accordance with Section 17(h) of the
1940 Act, Article Tenth shall not protect any person against any
liability to Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office.
To the extent required under the 1940 Act,
(i) Article Tenth does not protect any person against
any liability to Registrant or to its shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office;
(ii) in the absence of a final decision on the merits
by a court or other body before whom a proceeding was brought
that a Covered Person was not liable by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office, no
indemnification is permitted under Article Tenth unless a
determination that such person was not so liable is made on
behalf of Registrant by (a) the vote of a majority of the
trustees who are neither "interested persons" of Registrant as
defined in Section 2(a)(19) of the 1940 Act nor parties to the
proceeding ("disinterested, non-party trustees"), or (b) an
independent legal counsel as expressed in a written opinion; and
(iii) Registrant will not advance attorneys' fees or
other expenses incurred by a Covered Person in connection with a
civil or criminal action, suit or proceeding unless Registrant
receives an undertaking by or on behalf of the Covered person to
repay the advance (unless it is ultimately determined that he is
entitled to indemnification) and (a) the Covered Person provides
security for his undertaking, or (b) Registrant is insured
against losses arising by reason of any lawful advance, or (c) a
majority of the disinterested, non-party trustees of Registrant
or an independent legal counsel as expressed in a written
opinion, determine, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason
to believe that the Covered Person ultimately will be found
entitled to indemnification.
Any approval of indemnification pursuant to Article Tenth
does not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with Article
Tenth as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered
Person's action was in, or not opposed to, the best interests of
Registrant or to have been liable to Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Article Tenth also provides that its indemnification
provisions are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is
asserted by such trustee, officer, or controlling person in
connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
Registrant, its trustees and officers, its investment
adviser, the other investment companies advised by the adviser,
and persons affiliated with them are insured against certain
expenses in connection with the defense of actions, suits, or
proceedings, and certain liabilities that might be imposed as a
result of such actions, suits, or proceedings. Registrant will
not pay any portion of the premiums for coverage under such
insurance that would (1) protect any trustee or officer against
any liability to Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office or (2) protect its investment adviser
or principal underwriter, if any, against any liability to
Registrant or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence, in the performance of its duties, or by
reason of its reckless disregard of its duties and obligations
under its contract or agreement with the Registrant; for this
purpose the Registrant will rely on an allocation of premiums
determined by the insurance company.
In addition, the investment adviser maintains investment
advisory professional liability insurance to insure it, for the
benefit of the Trust and its non-interested trustees, against
loss arising out of any error, omission, or breach of any duty
owed to the Trust or the Fund by the investment advisor.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Adviser is a direct wholly owned subsidiary of SteinRoe
Services Inc. ("SSI"), which in turn, is a direct wholly owned
subsidiary of LFC. LFC, as stated in Item 24 above, is an
indirect majority owned subsidiary of LMIC. The Adviser acts as
investment adviser to individuals, trustees, pension and
profit-sharing plans, charitable organizations, and other
investors. In addition to the Registrant, it also acts as
investment adviser to other no-load companies having different
investment policies.
For a two-year business history of officers and directors of
the Adviser, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the Statement of Additional
Information (Part B) entitled "Investment Advisory Services. "
Certain directors and officers of the Adviser also serve and
have during the past two years served in various capacities as
officers, directors or trustees of the Registrant (as reflected
in the Statement of Additional Information (Part B)) or other
investment companies managed by the Adviser.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The Registrant's principal underwriter, Keyport
Financial Services Corp. ("KFSC"), is a wholly owned subsidiary
of Keyport Life Insurance Company, which in turn is a direct
wholly owned indirect subsidiary of SSI, which in turn is a
direct wholly owned subsidiary of LFC. KFSC acts on a "best
efforts" basis and receives no fee or commission for its
underwriting and distribution services. KFSC does not act as
underwriter with respect to shares issued to Participating
Insurance Companies which are not affiliates of Keyport or LMIC.
(b) Set forth below is information concerning the directors
and officers of KFSC:
Positions and
Positions and Offices Offices with
Name with Underwriter Registrant
- ------------------- --------------------------- -------------
John S. Rosensteel Chairman and President None
William L. Dixon Vice President-Compliance None
Francis E. Reinhart Vice President-Administration None
and Director
James J. Klopper Clerk None
Donald A. Truman Assistant Clerk None
The business address of each of the directors and officers of
KFSC is 125 High Street, Boston, Massachusetts 02110.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated
thereunder include Registrant's Secretary, Heidi J. Walter;
Registrant's investment adviser, administrator and transfer and
dividend disbursing agent, Stein Roe & Farnham Incorporated;
Registrant's principal underwriter, Keyport Financial Services
Corp.; and Registrant's custodian, State Street Bank and Trust
Company. The address of the Registrant is 600 Atlantic Avenue,
Boston, MA 02210-2214; the address of the Secretary and Stein Roe
& Farnham Incorporated is One South Wacker Drive, Chicago, IL
60606; the address of Keyport Financial Services, Inc., is 125
High Street, Boston, MA 02110; and the address of State Street
Bank and Trust Company is 225 Franklin Street, Boston, MA 02110.
ITEM 29. MANAGEMENT SERVICES
Pursuant to an Administration Agreement with the Registrant
on behalf of all the Funds dated as of January 3, 1995, the
Adviser provides each of the Funds with administrative services.
These services include the provision of office space and
equipment and facilities in connection with the maintenance of
the Registrant's headquarters, preparation and filing of required
reports, arrangements for meetings, maintenance of the
Registrant's corporate books and records, communication with
shareholders, and oversight of custodial, accounting and other
services provided to the Funds by others. The Adviser pays all
compensation of the Registrant's trustees, officers and employees
who are employees of the Adviser. The Adviser may, in its
discretion, arrange for such services to be provided by LFC or
any of its subsidiaries.
Under separate agreements, the Adviser also acts as the
agent of the Funds for the transfer of shares, disbursement of
dividends and maintenance of shareholder account records and for
pricing and bookkeeping services.
ITEM 30. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston and the Commonwealth of Massachusetts, on the
2nd day of March, 1999.
STEINROE VARIABLE INVESTMENT TRUST
By THOMAS W. BUTCH
Thomas W. Butch
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated:
Signature* Title Date
- ----------------------- --------------------- --------------
THOMAS W. BUTCH Trustee; President March 2, 1999
Thomas W. Butch
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice- March 2, 1999
Gary A. Anetsberger President; Controller
Principal Financial and
Accounting Officer
JOHN A. BACON JR. Trustee March 2, 1999
John A. Bacon Jr.
WILLIAM W. BOYD Trustee March 2, 1999
William W. Boyd
LINDSAY COOK Trustee March 2, 1999
Lindsay Cook
DOUGLAS A. HACKER Trustee March 2, 1999
Douglas A. Hacker
JANET LANGFORD KELLY Trustee March 2, 1999
Janet Langford Kelly
CHARLES R. NELSON Trustee March 2, 1999
Charles R. Nelson
THOMAS C. THEOBALD Trustee March 2, 1999
Thomas C. Theobald
<PAGE>
EXHIBIT LIST
Exhibit Description
(n) Financial Data Schedules:
(1) Special Venture Fund, Variable Series
(2) Growth Stock Fund, Variable Series
(3) Balanced Fund, Variable Series
(4) Mortgage Securities Fund, Variable Series
(5) Money Market Fund, Variable Series
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 118,515
<INVESTMENTS-AT-VALUE> 132,462
<RECEIVABLES> 256
<ASSETS-OTHER> 70
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,788
<PAYABLE-FOR-SECURITIES> 539
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 319
<TOTAL-LIABILITIES> 858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,795
<SHARES-COMMON-STOCK> 9,688
<SHARES-COMMON-PRIOR> 11,145
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,813)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,947
<NET-ASSETS> 131,929
<DIVIDEND-INCOME> 333
<INTEREST-INCOME> 529
<OTHER-INCOME> 0
<EXPENSES-NET> 1,214
<NET-INVESTMENT-INCOME> (353)
<REALIZED-GAINS-CURRENT> (30,757)
<APPREC-INCREASE-CURRENT> 240
<NET-CHANGE-FROM-OPS> (30,870)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51
<DISTRIBUTIONS-OF-GAINS> 16,912
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,645
<NUMBER-OF-SHARES-REDEEMED> 4,101
<SHARES-REINVESTED> 999
<NET-CHANGE-IN-ASSETS> (68,661)
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 16,856
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 811
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,214
<AVERAGE-NET-ASSETS> 162,123
<PER-SHARE-NAV-BEGIN> 18.00
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> (2.77)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.57
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.62
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 123,017
<INVESTMENTS-AT-VALUE> 271,717
<RECEIVABLES> 210
<ASSETS-OTHER> 71
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 271,999
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 415
<TOTAL-LIABILITIES> 415
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,313
<SHARES-COMMON-STOCK> 5,239
<SHARES-COMMON-PRIOR> 5,906
<ACCUMULATED-NII-CURRENT> 488
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,082
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 148,701
<NET-ASSETS> 271,584
<DIVIDEND-INCOME> 1,678
<INTEREST-INCOME> 450
<OTHER-INCOME> 0
<EXPENSES-NET> 1,638
<NET-INVESTMENT-INCOME> 489
<REALIZED-GAINS-CURRENT> 8,083
<APPREC-INCREASE-CURRENT> 50,182
<NET-CHANGE-FROM-OPS> 58,755
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 590
<DISTRIBUTIONS-OF-GAINS> 12,603
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,526
<NUMBER-OF-SHARES-REDEEMED> 1,561
<SHARES-REINVESTED> 367
<NET-CHANGE-IN-ASSETS> 58,184
<ACCUMULATED-NII-PRIOR> 589
<ACCUMULATED-GAINS-PRIOR> 12,602
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,638
<AVERAGE-NET-ASSETS> 235,576
<PER-SHARE-NAV-BEGIN> 36.13
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 9.54
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 2.12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 43.53
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEIN ROE BALANCED FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 290,745
<INVESTMENTS-AT-VALUE> 359,998
<RECEIVABLES> 2,573
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 362,600
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 776
<TOTAL-LIABILITIES> 776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,670
<SHARES-COMMON-STOCK> 21,109
<SHARES-COMMON-PRIOR> 19,334
<ACCUMULATED-NII-CURRENT> 10,078
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,823
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 69,252
<NET-ASSETS> 361,823
<DIVIDEND-INCOME> 2,609
<INTEREST-INCOME> 9,592
<OTHER-INCOME> 0
<EXPENSES-NET> 2,187
<NET-INVESTMENT-INCOME> 10,014
<REALIZED-GAINS-CURRENT> 18,597
<APPREC-INCREASE-CURRENT> 11,667
<NET-CHANGE-FROM-OPS> 40,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,728
<DISTRIBUTIONS-OF-GAINS> 21,533
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,430
<NUMBER-OF-SHARES-REDEEMED> 3,645
<SHARES-REINVESTED> 1,990
<NET-CHANGE-IN-ASSETS> 36,791
<ACCUMULATED-NII-PRIOR> 9,886
<ACCUMULATED-GAINS-PRIOR> 21,411
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,503
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,187
<AVERAGE-NET-ASSETS> 334,092
<PER-SHARE-NAV-BEGIN> 16.81
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0.51
<PER-SHARE-DISTRIBUTIONS> 1.12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.14
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 93,427
<INVESTMENTS-AT-VALUE> 95,584
<RECEIVABLES> 1,274
<ASSETS-OTHER> 45
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 96,903
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210
<TOTAL-LIABILITIES> 210
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,323
<SHARES-COMMON-STOCK> 8,964
<SHARES-COMMON-PRIOR> 7,195
<ACCUMULATED-NII-CURRENT> 5,066
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,848)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,158
<NET-ASSETS> 96,693
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,576
<OTHER-INCOME> 0
<EXPENSES-NET> 591
<NET-INVESTMENT-INCOME> 4,985
<REALIZED-GAINS-CURRENT> 253
<APPREC-INCREASE-CURRENT> 272
<NET-CHANGE-FROM-OPS> 5,510
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,580
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,145
<NUMBER-OF-SHARES-REDEEMED> 1,424
<SHARES-REINVESTED> 448
<NET-CHANGE-IN-ASSETS> 19,510
<ACCUMULATED-NII-PRIOR> 4,579
<ACCUMULATED-GAINS-PRIOR> (3,026)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 338
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 591
<AVERAGE-NET-ASSETS> 84,394
<PER-SHARE-NAV-BEGIN> 10.73
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0.63
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 101,698
<INVESTMENTS-AT-VALUE> 101,698
<RECEIVABLES> 123
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 101,833
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 493
<TOTAL-LIABILITIES> 493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,340
<SHARES-COMMON-STOCK> 101,340
<SHARES-COMMON-PRIOR> 67,137
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 101,340
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,535
<OTHER-INCOME> 0
<EXPENSES-NET> 503
<NET-INVESTMENT-INCOME> 4,032
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,032
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,032
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 89,315
<NUMBER-OF-SHARES-REDEEMED> 59,144
<SHARES-REINVESTED> 4,032
<NET-CHANGE-IN-ASSETS> 34,203
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 282
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 503
<AVERAGE-NET-ASSETS> 80,777
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.620
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
